Page 90 - RusRPTNov19

8.3.2 Dividends dynamics
● Oil & gas
Lukoil moved to a new dividend policy of 100% free cash flow (FCF) payout in October. Lukoil's BoD approved new principles of its dividend policy. The new policy stipulates distributing a minimum of 100% of FCF (after buybacks, interest and lease payments) as dividends. The changes represent a major shift in the cash flow distribution approach from buybacks to dividends. We see this development as a major positive for the stock and expect a further rerating. The company now plans to distribute 100% of FCF to shareholders compared to around 65-70% previously (about 35% through dividends and 30-35% through buybacks). Bankers expect the total normalized payout yield to increase to around 16% by 2021 versus 11% under the previous approach (50% of FCF after dividends used for buybacks, with the ruble DPS growing circa 10% y/y).
Lukoil’s charter capital will be reduced through the acquisition of 25mn T-shares at RUB5,300 with a later cancelation. The new policy implies 8% DY for 2019, given buy back costs of $3.6bn. The company has already canceled 5% of its equity this year and intends to cancel 3.5% more.
Russian oil major Lukoil is eyeing investments in two projects worth RUB300bn ($4.7bn). The two projects may be added to Lukoil’s investment program for 2020-25. Lukoil's invest committee will consider creating a petrochemical complex on the basis of the Perm Oil Refinery, the cost of which, according to preliminary estimates, may exceed Rb200bn, says Interfax, citing co-shareholder and president Alekperov. The project is scheduled to be completed from 2020 to 2025. Details of the second project, with CapEx of RUB100bn, were not disclosed. Lukoil previously announced its new dividend policy, according to which, payments to shareholders are calculated from free cash flow – the increase in the capital investment program may lead to a reduction in possible payments to shareholders. The additional RUB300bn CapEx in 2020-25 undercuts potential M2M FCF by only c10%, while the market has yet to price in 100% DPS CAGR in 2019-20.
Novatek plans to make a decision on increasing its dividend payout ratio in 2Q20 , Interfax reports, citing Novatek CEO Leonid Mikhelson. According to Mikhelson, Novatek might pay dividends based on a new dividend policy as early as for 2019. The current dividend policy of Novatek envisages distributing at least 30% of IFRS adjusted net income in dividends. Under a 34% payout ratio, we forecast that Novatek might pay RUB 25.4/share in dividends for 2019 (including the RUB 14.2/sh. for 1H19), in line with last year, which would translate into a 1.9% DY. Were the company to increase its payout ratio to 50% of adjusted IFRS net income as early as for 2019, the DPS and DY would grow to RUB 37.3/sh and 2.7%, respectively. This, however, would still be materially lower than the dividend yields of Russian oils.
● Banks
Moscow Exchange un veils its strategy through to 2024. MOEX presented a strategy update that covers the five-year period through 2024, with recently appointed CEO Yuri Denisov among the speakers. The company also adopted a new dividend policy, under, which it will seek to pay out its entire free cash flow in the form of dividends. The management indicated that, if the policy had been applied to 2017-18, the payouts would have been the same as what actually was paid. Elsewhere, MOEX guides for 10% fee income CAGR in 2020-24 and fee income rising to 70% of revenues. Overall, the new strategy
90 RUSSIA Country Report November 2019 www.intellinews.o