Page 179 - RusRPTApr21

negotiated in 2021, and if there is progress, that might be an additional source of production growth for Alrosa, in addition to the recovery in Russian production to a steady-state 37-38mnct/a.
Alrosa has reported positive 4Q20 numbers thanks to a robust 56% beat of FCFE, which more than offset the one offs-driven miss on EBITDA.
As the production guidance for 2021 was improved, it supports our bullish assumptions for 2021F earnings on the back of diamond market recovery. Our unchanged 12-month Target Price of RUB120 implies an ETR of 38% and a Buy recommendation.
EBITDA misses on higher G&A costs, MET catch-up. EBITDA of RUB31.8bn was 13-16% below us and the consensus, despite revenues being in-line, mostly due to higher G&A labour costs (up 22% y/y). The cash cost of production was 7% above us, due to a one- off catch-up of MET after the reduced accrual in 2Q-3Q20. Nevertheless, operating labour costs and consumables were on average 12% below our estimates, pointing to cost cutting progress.
Stronger FCFE on lower capex, higher WC release and Catoca deal conclusion. The main positive surprise came from FCFE, at RUB73.2bn, which exceeded our expectations by 56%. This was driven mostly by a deeper receivables decrease and longer payables turnover, resulting in a higher working capital release. Unexpectedly, the company finally received the RUB5.1bn for the earlier-planned 8.2% Catoca stake transfer to Angola and also received the 2019 dividends from Catoca (RUB4.5bn). 4Q20 capex was also below our expectations, at RUB4.4bn, meaning that the FY20 figure of RUB17bn was below the previously reduced guidance of RUB20bn (from RUB21-22bn due to the COVID-19 pandemic).
Attractive dividend for FY20 remains. Despite the company generating RUB65.2bn (35% above our estimates) of FCFF, which is the base for the dividend payment, we reiterate our expectations on FY20 dividends, which would still be robust: RUB9.5/share, a 9.5% yield.
2021 production increased on better market conditions. Alrosa has increased its 2021 production guidance to 31.5mnct from 28-30mnct, which we think reflects improved diamond market conditions. As the company effectively pushed back its capex in 2020 due to pandemic, and its overall guidance was revised upward to RUB25bn in 2021 and RUB21-26bn in 2022-2024, which is in line with our estimates, accounting for the lower spending in 2020. At the same time, we remain more upbeat on 2021 production, expecting improving market conditions to help to raise production to 33mnct, up 10% y/y.
Polymetal reported an expectedly strong set of 2020 results, with
179 RUSSIA Country Report April 2021 www.intellinews.com