RANA GRUBER – Riding the raw-material rally

DNB RESEARCH PUBLISHED TODAY. We are long Rana since the IPO.

Riding the raw-material rally

We expect solid EBITDA of NOK323m in Rana
Gruber’s first quarterly report. As the entire iron ore
futures curve has shifted up by cUSD17–18/t since
early March when we initiated, we have raised our
2021–2023e EPS by 5–54% and our target price to
NOK95 (85), to reflect the improved cash position and
better earnings prospects. We expect a first quarterly
DPS of NOK2.7, equivalent to a 70% payout ratio. We
reiterate our BUY and highlight Rana Gruber as one of
the most attractive stocks in our coverage exposed to a
potential continued raw-material rally.

Q1e EPS of NOK3.8. We estimate the average iron ore price was USD166/t in Q1, which would have yielded EPS of NOK6.0 with no effect from hedging; but, as c180,000 tonnes was hedged at cUSD99/t, we expect a hedging loss of NOK102m, leading to reported EPS of NOK3.8. Thanks to the strong price outlook, we believe
this is sufficient to allow the company to pay its first quarterly DPS, of NOK2.7, representing a 70% payout ratio. The results are due at 07:00 CET on 12 May.

Iron ore prices hitting new highs. Iron ore spot prices have risen from USD165/t when we initiated coverage in March to USD183/t. More importantly for the valuation of Rana Gruber, the futures curve has increased by a similar amount. As a result, we have lifted our 2021e EPS by 5% and 2023e by as much as 54%.

BUY reiterated and target price raised to NOK95 (85). Despite a very strong backdrop of rising iron ore prices, we continue to highlight the significant risk that they could swiftly fall to around Rana Gruber’s cash breakeven level. While we have lifted our 2022–2023e] EPS by 32–54%, we have increased our target price by only 12%, as we still see the company more as a call option on iron ore prices. We also believe
the stock should be trading at a considerable discount to the implicit valuation from the high prices in the market currently, as a pessimistic price scenario would likely lead to a greater loss (due to Rana Gruber’s relatively high breakeven price) than for most other listed raw-material producers. We highlight Rana Gruber as one of the most attractive stocks in our coverage exposed to a potential continued raw-material rally


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