Page 203 - RusRPTApr23

9.2.13 Mines and Minerals - fertilisers 9.2.14 Mines and Minerals - other
BCS increases its TP for global base metals producer Norilsk Nickel by 10% to RUB22,000/sh and upgrade the rating to BUY. Note, new dividend policy with 100% payout in our base scenario should ensure 9-11% DY and be the great catalyst for the name.
Steady demand for base metals worldwide to release the working capital.
Due to the gradual increase in sales of electric vehicles as part of the global green agenda, combined with supply disruptions in Latin America, it is anticipated that there will be a rise in demand for Norilsk's metals. Consequently, we expect that the company's working capital will be reduced by at least half this year, which should result in higher dividends.
DY should be in double digits, despite negative FCFE last year. Recently, BCS analyzed eight scenarios for Nornickel's dividends and determined that it could provide approximately a 9-11% yield in the next couple of years. We anticipate that dividends for the previous year will be adjusted for working capital (if the payout is finally based on free cash flow), and the company may need to borrow funds to meet dividend obligations.
Restrictions on the business, global economic slowdown. BCS has doubts about the likelihood of the first thesis because Norilsk is one of the primary global suppliers of palladium (38% of global supply, according to 2021 figures) and nickel (6%). Severe restrictions on production could cause significant disruptions in several industries. Additionally, the ongoing geopolitical tensions and the potential contraction of the world economy may pose a risk to metal consumption.
Working capital should be released on strong demand for metals. BCS believes last year’s sufficient increase of the company’s working capital is to be released in 2023 and should result in positive FCF. In addition, BCS decreased the CapEx program estimate after the pick levels in 2023-25.
Valuation and recommendation TP raised mainly on CapEx reduction. Our DCF-based TP for GMKN jumped 10%, from RUB20,000/sh to RUB22,000/sh. BCS also raised our recommendation to BUY expecting higher L-T FCF driven by lower CapEx (which is to be back to normal levels).
BCS marginally decreased our TP for the key world aluminium producer UC Rusal by 3% to RUB61/sh and kept the name at BUY position. BCS
203 RUSSIA Country Report Russia April 2023 www.intellinews.com