Alrosa, Lukoil and US inflation – stock market on March 10


The market switched to risk on mode amid a pullback in US Treasury yields from recent highs. The S&P 500 rose 1.42%, the Nasdaq jumped 3.69% immediately after several days of decline in a row. Tesla shares soared 19.64%.

Oil corrected for the second day in a row, futures for WTI and Brent closed down 1.60% and 1% respectively.

The RTS Index added 2.38%, while the Moscow Exchange Index added 1.89%. The ruble appreciated 0.8% and is now trading just below 74 per US dollar. Sberbank increased in price by 3.4%, Gazprom increased in price by 3.1%, LUKOIL added another 1.8% after impressive gains a day earlier. Rosneft increased by 2.8%, NOVATEK jumped another 5%. Tatneft soared by 7.9%.

Norilsk Nickel strengthened 3.3% after the company announced that it is continuing to work to stop the flow of groundwater to the Oktyabrsky and Taimyrsky mines and will be able to assess whether the situation has stabilized by mid-March. Metal producers looked noticeably weaker – Severstal, MMK and NLMK lost 1.9%, 1.5% and 0.95% respectively. Yandex closed 5.27% in New York amid skyrocketing growth in tech companies.

Key events of the day

  • LUKOIL, Aeroflot, Bank Saint Petersburg will present financial results for 2020
  • ALROSA will report operating results for February
  • USA: Inflation For February (Consensus: + 0.4% MoM)

NORNICKEL: INFORMATION ON THE INCIDENT OF GROUNDWATER INTO MINES (MNOD LI; OVER MARKET; GOAL – $ 38.0)

According to Norilsk Nickel, one of the mine workings is filled with a hardening filling mixture, which is expected to gain strength within a week. After that, the valves will be closed, and the flow of groundwater into the mine should stop. Following the completion of ongoing activities by March 16, the company plans to review the timing of recovery from both mines. At the moment, the Norilsk dressing plant has been completely shut down and is undergoing necessary repairs. As previously reported, Norilsk Nickel plans to restore the disseminated ore processing chain at the concentrator by March 16.

Our opinion. There are no answers yet to the two most important questions – when exactly will production at the mines be resumed and how much the incident will affect the production forecast. Nevertheless, in our opinion, the news still carries a weak positive from the point of view of perception. It seems that the recovery work is proceeding without much difficulty, and the news background for this incident is likely to be positive. Longer term, we remain optimistic about Norilsk Nickel given the unique metals rate and undervalued spot prices for metals (the company trades at an EV / EBITDA multiple of 5.5x versus its own 5-year average of 6.8x.

TCS GROUP: FORECAST 4Q20 IFRS RESULTS (TCS LI; OVER MARKET; TARGET – RUB 2,700)

Our opinion. TCS Group plans to publish 3Q20 IFRS results tomorrow, March 11. We expect to see strong numbers given the current recovery in business activity in Russia. According to the consensus spread by the bank, net interest income should rise by 5.5% YoY to RUB 25.5 bn, and net interest margin should be 15.2%. Provisions for possible loan losses are expected at RUB 6.7 bn. (-12 YoY), and the cost of risk – 7.1%; costs are estimated to increase by 21.4% YoY to RUB 13.9 bn. Net profit is projected at RUB 12.3 bn. (+ 12% YoY), while the annualized RoE is at about 40.7%.

AEROFLOT: 4Q20 IFRS RESULTS FORECAST (AFLT RX; REVISION)

Our opinion. Aeroflot is to publish 4Q20 financials today and we expect to see weak numbers as the airline industry is far from recovering from Covid-19 and also due to the low season. According to the consensus of Interfax, the company’s revenue will decline by 59% YoY to RUB 63 billion, EBITDA will be around RUB 0-6 billion, and a net loss in the region of RUB 30-35 billion.

ROSTELECOM PRESENTED 4Q20 FINANCIAL RESULTS (RTKM RX; OVER MARKET; TARGET – RUB 128)

The company’s revenue for the reporting period amounted to RUB 163 billion. (+ 23% YoY), which is 5.3% higher than the consensus forecast. The main drivers of growth were the mobile business (+ 15%) and the digital services segment (+ 53%), as well as other income (+ 142%), mainly from the population census project, which is being implemented by Rosstat. OIBDA reached 44.5 billion rubles. (+ 10% YoY), which is 2.4% below the consensus forecast, while the OIBDA margin declined to 27.3% versus 30.6% in 4Q19 and 39.8% in 3Q20. The indicator was restrained by the population census project and such items of operating expenses as personnel costs (+ 16% YoY), D&A and impairment (+ 18%), as well as expenses for payment of services of telecom operators (+ 17%) … Free cash flow (FCF) for 12M20 amounted to RUB 22.7 bn. against 30.3 billion rubles. (-25% y / y). In 2021, Rostelecom forecasts an increase in revenue and OIBDA by at least 5% to RUB 574.2 billion. and 203.8 billion rubles. respectively, against Bloomberg estimates at 563 billion rubles. and 207.3 billion rubles. respectively. Capital expenditures excluding participation in state programs are planned at the level of approximately 110-115 billion rubles. (from + 2.7% to + 7.4% y / y).

Our opinion. We view the results as neutral. The company’s revenue exceeded the forecast, while the OIBDA was below expectations. The company’s management intends to recommend the payment of dividends for 2020 at the rate of 5 rubles. per share (with a yield of 4.7%). In the updated strategy, expected to be released in April, we will focus on the details of digital business development.

Libertex [CPS] WW

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