Page 135 - RusRPTDec20

Enel Russia​ missed the consensus expectations by 33-37% in its 3Q20 numbers, driven by higher costs and additional FX expenses on its foreign payables​.
The company runs at 100% debt-financing of capex. From bad to worse, it announced a delay of 'several months' to its critical wind project. We see FY21F net profit at less than RUB1bn and think that investors need to get ready to test management’s commitment to a RUB3bn annual dividend in FY20 and FY21. We reduce our 12-month TP 18% to RUB1.01 on the COVID impact and wind delay, although at a 22% ETR the stock remains a Buy.
9mo20 results - nasty surprise on costs. Enel Russia’s 9mo20 results came as a surprise to us and the market on the 3Q20 costs side. The optical profitability reduction suggests the business almost halving, but the underlying performance of the business, excluding the sale of the plant, is doing worse than in the 1H20 results, with COVID-19 pressures on demand and RSV prices. Revenues were down 39% y/y to RUB32,002mn, in line with our forecasts driven by the sale, a 5% y/y production reduction (excluding the sale) and the 7.1% RSV prices slide in 9mo20 in Pricing Zone I. Adjusted EBITDA came in at RUB7,306mn, 44% lower y/y and 10-12% below our and the consensus forecasts due to the higher fixed costs (3Q20 showed a lower y/y reduction than 2Q20), as well as one-offs. Net income was RUB3,160mn (24-25% below expectations on the back of the higher operating costs as well as a higher negative FX one-off in finance expense), the underlying net income was down by 47% y/y. Net debt increased due to the wind projects capex, ND/EBITDA is at 1.1x. During the conference call, management confirmed the challenges and noted the expectation that its Azov wind project would be delayed, but reiterated dividends (see page 2).
Company is at a stretch. The delay to the Azov wind farm takes away some RUB1.5bn of FY21F EBITDA, or 19% of our previous forecast, leaving the company with only RUB11bn of operating cash flow, post-working capital, versus the RUB13bn capex plan. The company is to intake RUB10bn of debt in 2021-22F, we forecast, to meet both capex and its RUB3bn dividend commitment. This might seem to be a stretch, putting dividends at risk, as net debt/EBITDA soars to the 3.3x level next year on our forecasts. This is a stress, although one that is well-manageable if both the Azov and Murmansk wind parks are good to produce in FY21. However, if the company faces further delays to its renewable DPM launch, that would put its financials into a position where the RUB3bn dividend commitment was not feasible and, objectively, not sufficient to offset project management difficulties. Accounting for the COVID-led review of electricity prices and the operational outlook and adjusting for the new timeframe for ramping up the wind farms, we reduce our 12-month Target Price 18% to RUB1.01. Although that now implies an ETR of 22% and hence, a reiterated Buy recommendation, we think investors need to
135 ​RUSSIA Country Report​ December 2020 www.intellinews.com