Page 99 - RusRPTAug21

8.3.2 Dividends dynamics
● Metal & Mining
Leading steel companies to pay high dividends in 2021. The combination of steel prices being at an all-time high and strong demand in 2Q21 should result in strong results for the quarter, in some cases breaking records. We expect MMK, NLMK and SVST to take a prudent approach, allocating 100-133% of FCF to paying out 2Q21 dividends, which would be in line with their 1Q21 allocations. Despite the peak in steel and iron ore prices, the market has a more cautious outlook, expecting a range of 4-6% for 2Q21 dividend yields, we estimate. Strong steel prices should translate into 2Q21 dividend yields of 4-6%. Russia’s top three producers of flat steel are set to report their 2Q21 results starting this week. We expect very strong revenue, in some cases breaking records. Before the new export tax takes effect in August (New export tax to affect RUSAL, Evraz, NLMK the most, 25 June), the Russian steel sector should take advantage of prices being at an all-time high (HRC, RUS, $1,400/t) and the steady demand from recovering markets. Although all three companies could pay out at least 200% of their 2Q21 FCF in dividends, we assume a prudent conversion of 100-133% of FCF to dividends, which would be in line with their 1Q21 allocations. It seems that the market’s uncertainty in response to the sector’s elevated risks means an attractive premium, leading to 2Q21 dividend yields of 6% for MMK, 6% for NLMK and 4% for SVST (COB 14 July).
● TMT
The Mobile TeleSystems (MTS) board has recommended a RUB10.55/share interim dividend for 1H21, which is equivalent to a 3.3% interim yield and the takes the annual yield to 11.7%. We think the high payout is likely a testament to the strong company performance relative to its peers, and confidence in future cash generation – especially as 2021F is likely to be the capex peak. Having said that, we also believe that such a high yield is more backward-looking and that it is therefore not to be extrapolated. We have MTS as a Buy given 34% ETR to our 12-month TP of RUB390. High interim dividend. The MTS board has recommended a RUB10.55/share interim dividend for 1H21, which is equivalent to a 3.3% yield based on the current share price. To recap, the company’s dividend policy is to pay at least RUB28/share per calendar year for 2019-21. The interim takes the total DPS paid this year just above RUB37/share, equivalent to a 11.7% annual dividend yield.
99 RUSSIA Country Report August 2021 www.intellinews.com