Despite the threat of inflation, massive capital outflows from gold ETFs have continued for the third consecutive month. Over the past month, the price of gold has risen by 6%, at the same time, Polyus shares have risen in price by 16%. The closest analogue of Polyus, shares of the world’s largest gold producer Barrick Gold, lost 5% over the year, while Polyus shares increased 30% over the same period.
Are Polyus shares overpriced and how profitable will a short position on them be? Nikolay Dudchenko, an independent financial analyst, answered a question from Fortrader magazine.
– To begin with, let’s recall our last review of the Russian “gold” companies PJSC Polyus and PJSC Polymetal dated 03.12.2020. In it, we gave a positive assessment of the growth potential of companies, and I still believe that this potential has not been fully realized.
As expected, Polyus’ financials for 2020 came out decently. The company’s revenue grew by a record 41% to RUB 364.2 billion. (257.7 billion a year earlier), however, net profit decreased by 4%, amounting to 119.1 billion rubles, against 124.1 billion in 2019.It is important to pay attention to 2 factors here:
- Decrease in operating profit due to the loss received by the company from the revaluation of derivative financial instruments (the loss amounted to about 37.9 billion rubles) and the loss on exchange rate differences (the loss amounted to 17 billion rubles). This is due to the company’s policy of hedging gold prices by purchasing derivatives, and the fact that the functional currency of the Group is the Russian ruble. Considering the fall in the ruble exchange rate for 2020 against the dollar by 20%, the company incurred losses. According to the company’s scenario analysis presented in the financial statements, if the ruble fell by 25% in 2020, the company’s loss would have already amounted to about 44.5 billion rubles.
- Significant growth of the company’s OPEX to 140 billion rubles.
At the same time, the company continues to steadily pay dividends in the amount of RUB 306.6. per share. The dividend yield is currently around 1.95%.
Taking into account the Central Bank’s monetary policy stance, it can be assumed that the item of expenses related to the revaluation of the exchange rate will be leveled this year (taking into account the currency position of Polyus). At the same time, the stability of prices and gold and further growth prospects (see the review dated 04/07/2021) may have a positive effect on the growth rate of the Group’s revenue.
From a technical point of view, the share price continues to be in an upward price channel with support in the region of 13,000 – 13,500 rubles. and resistance at around 22,000 rubles. According to Elliott Wave Analysis, one of the scenarios is finding the price at the beginning of the third impulse wave. Confirmation of a buy signal, in this case, becomes a breakdown of the historic high at around RUB 18,770.