Increasing my position in Alrosa

I have a medium position in Alrosa. The shares traded down recently so I am increasing my exposure. Morgan Stanley have the same view (report issued today)


Research Tactical Idea

We believe the share price will rise in absolute terms over the next 30 days.

This is because the stock has traded off recently, making short term valuation much more compelling. We see a few encouraging trends that could help reverse ALROSA’s recent underperformance: 1) the last diamond sales by De Beers and ALROSA have shown that rough diamond prices seem to have bottomed; 2) ALROSA’s new CEO’s first statements to the press suggest that the company will continue focusing on the high margin upstream operations; 3) ALROSA reports 2Q15 operational results on Jul 21, where we hope to see further diamond mix improvement; 4) wage inflation should slow following the spike in 1Q15; 5) we assume ALROSA will support diamond prices by potentially reducing the amount of inventory it aims to sell in 2015. Valuation remains attractive on 20% FCF yield and 4.6x P/E for 2015.

We estimate that there is about a 70% to 80% (or “very likely”) probability for the scenario.

Source: Morgan Stanley

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