Page 96 - RusRPTAug20

Enel Russia has reported y/y lower profitability for 1H20; however, it remains one of the highest dividend payers in the industry. ​Coupled with a strong ESG footprint and limited COVID-19 impact (which we investigate in this report), this makes the company one of the most promising stocks in the utilities space, in our view. We reiterate our Buy based on our updated 12-month Target Price of RUB1.23 (ETR: 41%). 1H20 IFRS: net finance expense impresses on the upside. Enel Russia’s 1H20 IFRS results were optically weak on the back of the Reftinskaya GRES sale (still part of the group in 1H19, and no LFL financials disclosed). RSV prices, which slid 7-12% y/y, and production, which dropped 9.2% y/y (excluding the sale) were of no support. EBITDA contracted 37% y/y and net ordinary income dropped 35% y/y. However, the results were decent on an underlying basis, and significantly exceeded our and consensus expectations, with the strong net finance expenses vs. expectations supportive of the FY20 bottom line. Leverage was 1.0x, receivables even decreased vs. YE19, while debt was slightly up due to project financing, given the active wind project investment. Management reiterated dividend policy of RUB3bn/a in 2020-22, that there are no delays to the wind projects, manageable collection rates and full transfer of Reftinskaya GRES to SUEK.
Mosenergo’s ​1H20 operating results show electricity production down 13.6% YoY vs. the 9.6% YoY slide in 1Q20. Total heat sendout slid 6.6% YoY. This was driven by the warm weather conditions, demand trends and the allocation between efficient/inefficient producing units.
Enel Russia disclosed its 2Q20 IFRS results and held a conference call with the management. ​Absolute revenues and EBITDA largely reflected the trends observed in 1Q20, while the growth figures were skewed by the sale of the Reftinskaya plant. Higher volumes of scheduled maintenance in 2Q20 drove a 19% y/y decrease in electricity production in the quarter versus the nearly flat y/y net power output in 1Q20 (excluding the effect of the Reftinskaya disposal). As 2Q20 also saw lower electricity prices, the shift in some maintenance to 2Q20 will probably end up being positive for Enel Russia's financial performance. The company has received the entire fixed portion of the payment for Reftinskaya (the final installment was R4bn) and has also received R2bn for several categories of stockpiles (presumably coal and spare parts). Enel Russia terminated a contract with a contractor for one of its wind farms. The management indicated that no major delay at any of the wind projects is expected at the moment, so this should not create significant risks of a later commissioning that could lead to fines and a shorter duration of the CSA contract. Enel Russia's 440 MW CCGT power train could potentially be used in a modernization project. The government is currently drafting a special decree to allow the use of foreign equipment that was purchased before 2015 and has never been used before for modernization projects with a commissioning date in 2026. The draft currently envisages that the installed capacity of a project must not exceed 250 MW, so Enel Russia's 440 MW power train does not fit into the current parameters. However, the company plans to discuss the matter with the Energy Ministry. Should Enel Russia succeed in getting a modernization contract for the equipment, it could finally be able to monetize the mothballed power train and unlock its value (a R1.8bn carrying value).
96​ RUSSIA Country Report​ August 2020 ​ ​www.intellinews.com