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MMK is more complex, as its dividends prospects in the medium term should be negatively affected by several factors: free cash flow pressure from global iron ore prices gaining 22% since end-1Q20 on the back of supply side shocks (the company is not self-sufficient in iron ore).
"Furthermore, soft domestic steel demand in Russia – MMK’s main sales market – will hit revenue in 2020, adding further pressure to the name’s FCF (the basis of the company’s dividends)," potentially putting further pressure on the current DY of 8.3%, BCS GM argues.
● TMT
Russian state-controlled integrated telecom company Rostelecom recommended paying RUB5 per share in its 2019 dividend. BCS Global Markets estimated the total payout for last year at RUB17.5bn, making 77% of adjusted free cash flow (excluding Tele2 mobile subsidiary), in line with the company's dividend policy. The dividend yield is at 6% for both preferred and common shares, and given that the dividend is in line with expectations, BCS GM sees the news as neutral and maintains a neutral stance on the name with Hold recommendation. Previously when reviewing the equities of the Russian telecom sector, BCS GM already estimated that Rostelecom trades with a 6% yield – "not bad versus 4-6% deposit rates in Russia, but not appealing either."
8.3.3 ECM news
Globaltrans GDR Buyback program launched. Globaltrans announced the launch of a buyback on Friday in its press release. The share purchase will be carried out in compliance with the relevant conditions for trading, details will be released via the Regulatory News Service of the London Stock Exchange. In line with relevant legislation, GDRs repurchased by the company may be held in the treasury for up to two years. Buyback of up to 5% of shares is supportive for price performance. Indeed, with estimated ND/EBTIDA of 1.1x by YE20, we believe the share buyback is affordable. Still, as earlier indicated by management, dividends remain the top priority.
Norilsk Nickel is not considering the possibility of an IPO of the Bystrinsky ore mining and processing enterprise in 2020, according to Kommersant. When a decision might be taken about an IPO remains unclear. Back in November 2019, Norilsk Nickel said that a decision on the Bystrinsky IPO would be made in 3Q20. This IPO was not our base case for 2020, so the news is in line with our expectations.
The government has directed the appropriate ministries to prepare for an additional share placement by Aeroflot. The main stipulation is that the government's stake must not drop below the current 51.17%. Our view: The main parameters that investors will be looking at - the price of the deal and the actual size of the placement - remain unknown. Aeroflot's 2Q20 RAS results due on August 3 should provide an indication of the actual cash burn during what appears to have been the worst quarter. The additional share issue brings dilution risk for minorities, though the picture has altered somewhat since the share issue was first mooted in June: Aeroflot has approved a much more aggressive strategy aimed at capturing a much higher share of the market via its low-cost subsidiary, Pobeda.
TMK announced the initial results of its share buyback. The company purchased 22.3% of ordinary shares. Earlier, TMK announced a voluntary tender offer to acquire 34.7% of the company’s ordinary shares at a cash price
72 RUSSIA Country Report August 2020 www.intellinews.com
