Russian diamond giant Alrosa grapples with plunging profits and sanctions
13 August 2024 20:03
The world's second-largest diamond company, Russia's Alrosa, reported a 34 percent drop in profit from diamond sales, resulting in a decline in its stock value. Western sanctions and changing global customer preferences are the main reasons for this.
Alrosa, a company controlled by the Kremlin and listed on the Moscow Stock Exchange, published its financial results for the year's first half. Before the report was published, the company's shares experienced a moderate increase. However, after the results were released, their value fell by over 2 percent.
Diamond prices are falling
The financial results did not satisfy investors. Net profit for the first half of 2024 fell by 34.1 percent compared to the previous year, reaching 36.63 billion rubles (around CAD 499 million). According to the report, revenues decreased by 4.6 percent to 179.47 billion rubles (CAD 2.45 billion).
Russian analysts from T-Investments believe that the revenue drop in the second quarter was due to lower diamond prices, low sales, and increased operating costs, which are related to sanctions and changes in market preferences.
Despite this, Alrosa's dividend policy is to pay out 70-100 percent of free cash flow, which could result in a dividend of 3.6-5.2 rubles per share, yielding a 6-8.6 percent return. This is below the inflation rate in Russia, which exceeds 9.3 percent. Because of this, T-Investments rates Alrosa's shares neutrally, considering the difficulties in the diamond market.
On August 12, 7:00 PM Eastern Time, BCS World of Investments analysts lowered Alrosa's target share price by 19 percent, predicting a further negative outlook. They noted that diamond and polished diamond prices are falling weekly, and there's no certainty about reversing this trend. The report states that the market is burdened by weak demand in China and high stock levels among processors.
BCS highlighted that raw diamond prices have dropped by around 11 percent since the beginning of the year and polished diamonds by 35 percent. Experts predict a slow price recovery but note that against the backdrop of the growing popularity of synthetic stones, diamond prices may stagnate despite a production decline of 1-1.5 percent annually.
