Norilsk Nickel: A Putin Play

02/06/2017 10:00 am EST


Vivian Lewis

Editor and Publisher, Global Investing

MMC Norilsk Nickel PJSC (NILSY) is our first stock pick based on the Trump administration; it is a metal company run mostly by Russians in Londongrad, notes international investing expert Vivian Lewis, editor of Global Investing.

NILSY was cobbled together by a bunch of oligarchs who share the spoils through their shareholdings: 30.3% by Vladimir Potanin Roman, CEO via Interros; 27.l8% by Oleg Deripaska and Alexander Abramov; and 6.5% by Abramovich through a Cypriot holding company, Crispian Investment.

The company's independent chairman is Briton Gareth Penny of De Beers. It has been exempt from anti-Putin sanctions but obviously will gain if Russia gets back into the mainstream.

In 2015, Norilsk was able to issue a $1 billion yankee bond yielding 6.625% despite sanctions against the Putin kleptocrats because its own kleptocrats are different ones.

My initial idea was to buy the bond, under its ISN XS31298447019. The bond is now yielding about 4% thanks to a better outlook for the company which cut its dividend after the issue.

Because the bond sells in lots of 200, I cannot afford to buy it but any reader with lots of cash might want to pick it up. It matures in Oct. 2022.

NILSY's products are nickel (35% of sales), a play on increased Chinese steel production; platinum group metals palladium (21% of sales) and platinum (7% of sales), and copper (22% of sales).

NILSY runs a bunch of relatively independent operating subsidiaries mostly in Russia. It is global leader in palladium and nickel production, gaining from the slow-down in Asian output of nickel and rising Chinese demand.

Other nickel producers cannot make a profit at current price levels, but thanks to modernization and shut-ins of older facilities, Norilsk can.

Nickel and palladium are in structural deficit globally and should see rising prices starting this year if not already booked in H2 of last year.

Norilsk has just about recuperated from the huge drop in its share price during the global financial crisis, and currently trades at $16 and a few pennies.

NILSY dropped its old dividend policy and now pays out based on its cash-flow to debt, which still produces a yield of over 4.3%.

Its trailing p/e ratio is 17x and it trades at 80% of the PEG ratio. It should gain from higher raw material prices, a rising dividend, its low price vs other metal firms and, of course, from the eventual embrace between Putin and Trump. I bought the shares at $16.03.

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