Alrosa's profit plummets amid sanctions and shifting market trends
13 August 2024 19:27
The world's second-largest diamond company, Russia's Alrosa, has reported a 34 percent drop in profits from diamond sales, leading to a decline in its share value. The reasons for this are the sanctions imposed by the West and the changing preferences of global customers.
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 released, the company's shares increased significantly. However, after the results were published, 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 roubles (approximately €359 million). According to the report, revenue decreased by 4.6 percent to 179.47 billion roubles (approximately €1.75 billion).
Russian analysts from T-Investments believe that the revenue decline in the second quarter was due to lower diamond prices, low sales, and increased operating costs, which are associated with sanctions and changes in market preferences.
Despite this, Alrosa's dividend policy assumes a payout of 70–100 percent of free cash flows, which could result in a dividend of 3.6–5.2 roubles per share, yielding a return of 6–8.6 percent. This is below inflation, which in Russia exceeds 9.3 percent. For this reason, T-Investments has a neutral assessment of Alrosa's shares, considering the difficulties in the diamond market.
On 12 August, analysts from BCS World of Investments lowered the target price for Alrosa's shares by 19 percent, predicting a further negative outlook. They noted that prices of diamonds and brilliants are falling every week, and there is no certainty about reversing this trend. Weak demand in China and high inventories with processors additionally burden the market, according to the report.
BCS emphasized that since the beginning of the year, rough diamonds have fallen by about 11 percent, and brilliants by 35 percent. Experts predict a slow price recovery but note that against the backdrop of the rising popularity of artificial stones, diamond prices may stagnate, despite a drop in their production by 1–1.5 percent annually.
