Figure 111: Alrosa, RUBmn (unless otherwise noted

Alrosa

ALRS.MM

Target price, RUB:

109.0

Market capitalisation, RUBmn:

699,044

Share price, RUB:

94.3

Enterprise value, RUBmn:

776,659

Potential 12-month return:

29.9%

Dec-YE

2017

2018

2019E

2020E

2021E

Dec-YE

2017

2018

2019E

2020E

2021E

Income statement

Balance sheet ratios

Revenue

275,381

299,645

271,705

303,683

308,625

Gearing (net debt/(net debt+equity)

24.4%

21.4%

18.5%

21.6%

21.4%

Adjusted EBITDA

126,890

155,972

141,404

159,858

161,424

Net debt/(EBITDA+dividends from associat

0.7x

0.4x

0.4x

0.4x

0.4x

Adjusted EBIT

103,098

134,330

119,415

137,258

138,456

RoCE

27.4%

37.8%

36.6%

42.6%

42.0%

EBIT

99,083

127,095

119,415

137,258

138,456

RoIC (after tax)

17.6%

28.6%

28.6%

33.3%

32.8%

Net interest

-1,320

-15,901

-8,819

-8,894

-8,967

RoE

30.0%

35.1%

36.3%

42.7%

42.9%

Taxation

-22,174

-24,208

-24,331 -28,240 -28,487

Cash flow statement

Equity accounted income

3,027

3,418

2,572

2,692

2,706

Net profit for the year

78,616

90,404

88,836

102,816

103,707

Operating cash flow

100,464

120,122

142,033

127,332

132,610

Minority interest in profit

-1,541

-1,187

-444

-514

-519

Capex

-26,944

-27,816

-29,000

-26,000

-28,000

Attributable net profit

77,075

89,217

88,392

102,302

103,189

FCF

73,520

92,306

113,033 101,332

104,610

Equity shareholders' cash

63,014

113,423

106,769

94,110

97,328

Dividends and share buy backs

-65,706

-94,816

-94,143 -105,015

-98,239

EPS, RUB

10.47

12.29

12.26

14.19

14.31

Surplus (deficit) cash

-2,692

18,607

12,626

-10,905

-911

Thomson Reuters consensus EPS, RUB

13.55

15.09

15.59

DPS declared, RUB

8.93

11.17

13.06

14.57

13.63

Cash flow ratios

145

125

105

100

100

Adjusted EBIT

0.17383

Working capital days

Cash conversion

0.8x

1.3x

1.2x

0.9x

0.9x

Diamonds

132,879

166,201

149,410

170,348

172,080

FCF yield

10.1%

12.2%

15.4%

13.6%

14.0%

Transportation

1,298

875

718

796

813

Equity shareholders' yield

9.8%

16.5%

15.7%

13.8%

14.3%

Social infrastructure

-3,537

-3,726

-4,135

-4,625

-4,698

Capex/Adjusted EBITDA

21.2%

17.8%

20.5%

16.3%

17.3%

Other (SG&A, other expenses)

-27,542

-29,020

-26,579 -29,261

-29,738

Income statement ratios

Valuation

EBITDA margin

46%

52%

52%

53%

52%

SoTP DCF valuation and calculation of target price

RUBmn

RUB/sh

EBIT margin

36%

42%

44%

45%

45%

Diamonds

1,017,538

141.2

EPS growth

-41%

17%

0%

16%

1%

Transportation

8,903

1.2

Payout ratio

85%

91%

107%

103%

95%

Other

-160,219

-22.2

Input assumptions

Total enterprise value

866,222

120.2

Net debt as at 31 December 2018

-67,440

-9.4

Rough diamond index, $/c

198

202

198

208

215

Cash used in share buy-backs

0

0.0

Alrosa average gem realisations, $/ct

135.4

160.5

142.6

151.3

156.9

Other investments

838

0.1

Gem realisations vs. index prices

68%

80%

72%

73%

73%

Minority interest

-10,175

-1.5

Alrosa average industrial realisations, $/ct

7.6

8.2

5.5

5.8

6.0

Equity value as at 27/3/2019

789,444

109.4

Alrosa average realisations, $/ct

101.0

114.0

101.5

107.6

111.6

Rounded to

109.0

RUB/$

58

63

67

69

68

Share price on 26/3/2019

94.3

All in cash costs, net of by-products

Expected share price return

15.6%

Plus: expected dividend yield

14.2%

Estimated required breakeven price, $/c

148

133

145

148

157

Total implied one-year return

29.9%

Production volumes, kct

Share price range, RUB:

Diamonds

12-month high on 1/10/2018

107.9

12-month low on 10/4/2018

80.5

Aikhal division

13,010

11,850

9,622

8,430

7,887

Price move since high

-12.6%

Price move since low

17.0%

Mirny division

7,231

4,196

3,908

3,655

3,569

Udachny division

3,821

3,932

6,438

8445

8395

Calculation of discount rate

Nyurba division

7,713

7,721

9,060

9,737

7,804

Severalmaz

2,642

3,590

3,851

4,198

4,773

WACC

13.0%

Cost of debt

5.0%

Almazy Anabara & Nizhne-Lenskoye

5,197

5,420

5,091

5,071

5,010

Risk-free rate

7.0%

Tax rate

20%

Other production

0

-6

0

-900

0

Equity risk premium

5.4%

After-tax cost of debt

4.0%

Total

39,614

36,703

37,970

38,636

37,438

Beta

1.30

Debt weighting

10%

Sales volumes , kct

Cost of equity

14.0%

Terminal growth rate

4.0%

Valuation ratios

Gem-quality

30,100

26,400

25,900

26,600

26,445

Industrial

11,100

11,600

11,100

11,400

11,333

Dec-YE

2017

2018

2019E

2020E

2021E

Total

41,200

38,000

37,000

38,000

37,778

P/E multiple

8.3x

7.6x

7.7x

6.6x

6.6x

Balance sheet

Dividend yield

10.3%

11.9%

13.9%

15.5%

14.5%

EV/(EBITDA+Equity income)

5.6x

4.7x

5.1x

4.6x

4.5x

Net operating assets

352,534

315,017

296,685

304,928

310,840

P/B

2.4x

2.8x

2.8x

2.8x

2.8x

Equity

266,825

247,616

241,865

239,152

244,102

NAV per share, USc

62.1

54.0

50.3

48.4

50.2

Minority interest

-338

-39

5

57

109

NAV per share, RUB

36.2

33.9

33.6

33.2

33.9

Net debt

86,047

67,440

54,814

65,719

66,630