Deutsche Bank Markets Research Rating Company Date Buy Alrosa 10 August 2012 Coverage Change Emerging Europe Russian Federation Price at 9 Aug 2012 (RUB) 25.15 Metals & Mining Price Target (RUB) 40.00 Reuters Bloomberg Exchange Ticker 52-week range (RUB) 76.44 - 22.40 ALRS.MM ALRS RX MSE ALRS A diamond in the rough; initiating Erik Danemar Research Analyst with a Buy (+7) 495 933 92 19
[email protected] Pureplay leverage to diamond market; initiating with a Buy We initiate coverage on Alrosa with a Buy recommendation and a George Buzhenitsa RUR40/share target price, offering almost 60% upside potential. We see Alrosa Research Analyst trading at 0.63x our DCF estimate or 4.4x and 5.5x our 2012F EV/EBITDA and (+7) 495 933-9221 P/E, implying a 17%/40%/35% discount to diversified miners/gold/diamond
[email protected] companies. Alrosa boasted 47% EBITDA margin in 2011 with an improved financial position and paid a 28% dividend on its IFRS results. With an optimistic outlook on diamond prices, we believe Alrosa can deliver further Price/price relative improvements. While the stock may retain a meaningful liquidity discount until IPO plans are clarified, we believe there is upside for the patient investor. 90 75 Carat: the world’s biggest producer (by vol) with the world’s biggest reserves 60 With 34.5mnct or about 25% of global output in 2011, Alrosa is the world’s 45 largest diamond miner (by vol). Over 2011-21F, Alrosa plans to further expand 30 production by 18% to 40mctpa.