Rye, Man & Gor Securities Analysts Updated ALROSA Shares Valuation

“We have updated our estimate of ALROSA’s shares subject to the latest financial statement of the diamond mining company. Weak figures posted for the third quarter and resulting from drop of diamond sales will be offset in the fourth quarter. Coupled with inclusion of shares to the base for calculation of local indices and preparation to IPO in 2013, this will support demand for ALROSA’s shares. We reaffirm our “Buy” recommendation,” - Rye, Man & Gor Securities analysts noted, cited by RosBusinessConsulting.
“The company’s revenue for the first nine months of  2012 declined by 3% year-on-year basis, while EBITDA and net profit dropped by 17% and 30% accordingly. Negative dynamics was associated with sharp decline of sales in the third quarter as well as forecasted growth of production costs. In the third quarter ALROSA saw sales drop by 33.8%, quarter-on-quarter, to 5.1 million carats. Due to deterioration of demand amid economic uncertainty the company decided to expand rough stocks and support global prices at a high level. Volatile economic expectations have a negative impact on liquidity and demand from diamantaires however temporary weakness will be surpassed by positive sentiments as demand from the end consumers remain s firm and generally polished diamond market is stable. The company remains confident in prospects for implementation of reforecasted sales plans for 2012 at 33.2 million carats, which implies very strong results to be achieved in the fourth quarter.
Concerning the forecasts for 2013, the management of ALROSA expects gaining similar sales volumes at stable prices compared to 2012. We expect average prices for rough diamonds to show 2-3% growth which will enable ALROSA to post strong results and see EBITDA growth by 3-6% and net profit growth by 4-5%.
In spite of accretion of capital costs we expect free cash flow of the company to amount to $0.9 billion. Expansion of capital costs will be resulting from development of gas assets which were repurchased from VTB this year. ALROSA negotiates disposal of these assets but invests substantial funds for the launch of gas mining. Sale of gas assets will be welcomed by the market as the company has to accrete its debts for acquisition of the above assets. Shares of ALROSA will be included to RTS and MICEX indices calculation from 18 December 2012 which is to raise interest from index funds. Following IPO we expect ALROSA’s shares to be included to MCSI indices. ALROSA remains the most profitable diamond miner and is traded with discount to analogues, which shall guarantee investors’ interest during IPO, amid broader resource base of the company. Our estimate of ALROSA’s fair value is $1.6 per share, with “Buy” recommendation, stable financial results and inclusion to base for indices calculation to be the main drivers of share quotes growth in 2013,” – the experts resolved.