In the medium term, speculative interest to ALROSA’s shares will remain
On Tuesday, October 29, interest towards the stock, which the day before was offered for sale by ALROSA within its IPO, heightened, Andrey Shenk writes on the Investcafe portal. As a result, the diamond miner’s shares went up 4.5% in price, almost reaching the top level of the price range when listed. In the analyst’s opinion, excessive demand can be explained by the fact that investment funds, which did not participate in the IPO and did not buy the number of shares they would like to during the placement, decided to purchase additional stakes from the market. In addition, price quotations for the miner’s stock could have been maintained due to the interest on the part of market speculators anticipating the equities to be included in the MSCI Russia Index.
Such a development could be expected for several reasons. First, against the background of increased liquidity the shares of ALROSA attracted market speculators and this triggered interest towards this stock, thus reducing certain liquidity risks. Second, while evaluating this equity instrument, speculators are taking into account the possibility that ALROSA’s shares may be included into the MCSI Russia Index at the start of next year, after which tracker funds will start buying this stock regardless of current prices.
Another reason for the increased demand for ALROSA’s shares may be that they were placed at their market value, in spite of the fact that they were traded at a discount to their fair price. After the successful placement, some investors who were hesitant to take part in the IPO, could buy equities from the market for medium and long terms with an eye to expected high dividend yield (about 4-5% in the next two years) and upside potential.
In addition, ALROSA published its financial statement as defined by the Russian Accounting Standards (RAS) for the first nine months. It recorded a revenue growth of 10.44% YoY to 100.2 billion rubles. At the same time, the company’s operating profit increased by only 4.93% due to higher costs, resulting in an operating margin declined by 2.1 percentage points to 40.02%. ALROSA's net profit rose by 2.1% YoY. However, in the 3d quarter the diamond miner’s revenue fell 7% QoQ, indicating deteriorated diamond market conditions and lower selling prices. Be that as it may, the results posted under RAS will not have any material impact on the stock price of ALROSA.
In the medium term, ALROSA’s shares will continue to attract speculative interest, which will support their quotes, but in the short term, a correction is possible after a decline in purchasing activity on the part of the funds. The target price for ALROSA’s general stock is 39.22 rubles per share with an upside of 5.4% and a “hold” recommendation flagged up.
