Page 101 - RusRPTMar20

yield is enough to justify the current share price, it might not be enough to move the needle for the stock to tick higher, just yet. VTBC reduced its 12-month Target Price to RUB 1.20. That implies an ETR of 26% after a share price slump on February 21, and reiterated its Buy recommendation.
The government is discussing transferring the functions of the​ ​Federal Grid Company​ (FSK) single executive body to​ ​Rosseti​ (Russian Grid) a​ nd the creation of a common treasury based on the parent structure, BCS GM reported on February 25. The move may be first step to consolidate Rosseti’s subsidiaries, the analysts said. The transfer of operational control may indicate a move toward the potential consolidation of all Rosseti’s subsidiaries including FSK – the idea has been under discussion for a long time and is the target model for Rosseti.
President Putin approves FSK-Rosseti merger​. Kommersant reports that President Vladimir Putin has approved the consolidation of Rosseti and Federal Grid Company (FSK). According to the plan, within the next three months FSK is to pass its executive management and treasury management functions over to the CEO of Rosseti. The consolidation of the shares is still a work in progress, with both the scenario of a mandatory FSK share conversion and an additional share issue of RSTI, with the possibility of payment using FSK shares, being discussed. Since its creation in 2007, Rosseti has been tasked with privatising individual interregional distribution companies (MRSKs) and subsequently dissolving them. Since then, Rosseti (a holding business by nature) has lacked any meaningful operational cash flows, has spent most of the received dividends from subsidiaries on financing less financially sound MRSKs, and generally has traded with a significant discount to the sum of its parts. Consolidation, if realised in full with the move to a single share, would change this situation. Rosseti would become a company with substantial operational and free cash flow under control, and the capacity to enact a notable increase in RSTI dividends (in absolute size), and to narrow the discount to its sum of the parts valuation significantly, as FSK accounts for 25% of the holding group’s revenues, 48% of EBITDA, 50% of FCF and 40% of capex. However, the attractiveness of this scenario for FSK shareholders clearly depends on which consolidation scheme is chosen and the swap ratios offered.
Russian ​InterRAO​ utility major reported 4Q19 IFRS results, posting a 1.4% year-on-year increase in revenues​, 5% gain in Ebitda, and 9% increase in net income. The company managed to beat the expectations on earnings by 13% despite modest operational results in the reporting quarter. As reported by ​bne IntelliNews,​ ​Russian utility majors are in focus​ as the sector is set to continue to rally in 2020. This week VTB Capital argued there is more place for upside for certain names​ coming from expected profitability gains. InterRAO, in particular, is ​among the top picks in the sector​ as it combines inexpensive multiples, healthy free cash flow and potential upside in terms of dividend payments. The company’s results in 4Q19 “came strong on Ebitda level despite bleak 4Q19 operating results (electricity output -9% y/y) and lower electricity prices (the 6% and 16% y/y drop in electricity prices in European and Siberian zones),” BCS Global Markets commented on February 28. However, net income came 5% below consensus expectations however on higher finance costs (interest expenses on lease liabilities jumped 46% y/y) and FX loss of RUB4.1bn. Still, InterRAO showed 8% q/q gain net cash to RUB197bn.
101​ RUSSIA Country Report​ March 2020 ​ ​www.intellinews.com