A 71% increase in the price of shares in Rusal, the world’s second-largest aluminum producer, since the beginning of the year is not the end of the upward trend for the company, analysts told the South China Morning Post.
The Rusal share began climbing after the United States signaled its intention seven weeks ago to lift sanctions against the company, and later followed through after a deal with the U.S. Treasury saw the company restructure its leadership and reduce a stake by billionaire oligarch owner Oleg Deripaska.
Some analysts consider the stock to be undervalued. The Hong Kong-listed company has been beaten down by a geopolitical spat between the U.S. and Russia, which last April led to U.S. sanctions against 23 Russian heavyweights and the firms they control, including Rusal.
“Rusal trades on very depressed multiples – 3.4 times this year’s estimated earnings and 2.8 times the enterprise value multiple over earnings before interest, taxes, depreciation and amortization post-sanctions. A deep discount on both global and even Russian peers,” Bank of America Merrill Lynch analysts said in a note last week.
Rusal shares closed 3.5 percent higher at HK$3.84, a ten-month high, on Monday. The analysts suggested a target price of HK$5.5, which they said represents a 30 percent discount on its global peers and reflects its “complicated shareholder history and structure.” They said Rusal was a high-risk stock because of its higher geopolitical risk exposure compared with peers.
Meanwhile, analysts at brokerages Citi, BCS and Renaissance Capital and independent research provider AlphaValue have given target prices that range from HK$4.18 to HK$4.6 for Rusal, which closed at HK$4.64 a day before it was hit by the U.S. sanctions in April 2018.
On January 27, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) lifted the sanctions on Rusal and its parent, En+ Group. It also forced a reduction in shareholding in En+ by former controlling shareholder Oleg Deripaska to 44.95 percent from 70 percent. Personal sanctions against the oligarch will remain in force.
Deripaska is also obliged to hand over any voting rights above 35 percent of En+ shares to a trust that must vote in the same way as most shares held by shareholders other than him. En+ has a 57 percent stake in Rusal.