Analysts at Barclays Capital raised the target price for ALROSA’s stock saying to buy

Analysts at Barclays Capital raised the target price for ALROSA shares to 58 rubles a piece from 43 rubles, up 35%, upgrading their recommendation from ‘equal weight’ to ‘overweight,’ Rbc.ru reports citing the review released by the investment bank. ALROSA’s shares with a P/E ratio reaching 4.8x and EV/EBITDA of 3.8x are undoubtedly the most undervalued stock in the mining sector, the bank says. ALROSA is being supported by the depreciation of the ruble, as all the miner’s sales are in US dollars, while a large part of its production costs is denominated in rubles. Currently, ALROSA shares are about 15% below their IPO price (in USD), but the ruble exchange rate went down by about 60% since the IPO.
Last week, the management of ALROSA confirmed that it was mulling a possibility of dividend payments tied to the operating profit (excluding profit fluctuations due to changes in the exchange rate). This is a very positive development, given that earlier this factor represented one of the main reasons for concern, because ruble fluctuations made it difficult to estimate the size of dividend payments set at 35% of the company’s net profit.
The miner does not expect its production growth to be high, but the change in forex rates was so great that the company’s production cost situation improved dramatically, which is expected to bring about strong growth in its free cash flow. During the conference call on the results for the third quarter of 2014, the management of ALROSA said they did not see any decrease in sales prices remaining near the mid-summer peak level. This means there are very enticing opportunities lying ahead, analysts concluded.