IRAO_9M18_review-141118(1)_watermark
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InterRAO
Results review
BUY (maintained)
TP: RUB7.85 (maintained)
Utilities
Russia
Strong 3Q18 defies negative sector trend
InterRAO today (14 November) reported a strong set of 3Q18 (9M18) figures, beating both consensus and our estimates, and defying the negative trend shown by other Russian gencos so far in 3Q18. Despite no change in InterRAO’s dividend policy, we believe the company is unlikely to be involved in valuedestructive M&A, while the use of its cash could be clarified in 2019 after the results of the modernisation auctions are revealed, and the company’s updated strategy materialises. We reiterate our BUY rating and RUB7.85/share TP.
Strong 3Q18 defies negative trends shown by other gencos
InteRAO’s 3Q18 revenue increased by 9.8% YoY, adjusted EBITDA increased by almost 41%, while net income rose 63% YoY. Both EBITDA and net income significantly beat consensus (Bloomberg) forecast for 3Q18. Given such a strong performance in the quarter, InterRAO’s 9M18 revenue rose 10.8% YoY to RUB688.2bn, adjusted EBITDA increased 28.6% YoY, while net profit increased 34.4% to RUB55.7bn. This result was due to a strong performance in the generation segment, where EBITDA grew by 11.6% (mostly due to new DPM units and higher DPM tariffs, as well as load optimisation) in electric power generation and by 25.8% in thermal power generation (due to growth in heat tariffs and output), and a very strong performance in the supply (EBITDA growth of 27.6% YoY due to higher tariffs and efficiency improvement) and trading segments (EBITDA increase of 103.6% YoY due to rouble devaluation and stronger electricity prices in the Nord Pool market).
Positive market reaction and consensus upgrade likely
Current Bloomberg consensus stands at RUB105bn for FY18 EBITDA and RUB64.5bn for FY net income. InterRAO expects FY18 EBITDA in the range of RUB110-115bn. We believe that given strong 9M18 figures for EBITDA and higher management expectations, a consensus upgrade is possible in terms of EBITDA expectations. InterRAO’s management expects the strong profitability in the supply and trading segments to continue, which we think could result in positive market sentiment. Management also confirmed its cautious attitude towards possible M&A opportunities, expressing no interest in the acquisition of Lukoil’s genco assets, and a possible participation in the Erkovetskaya GRES project at a significantly lower scale and only if there is a guaranteed investment return similar to its current DPM projects. Management also sees value in the possible expansion of its turbine manufacturing JV with GE.
We reiterate our BUY rating and RUB7.85 TP
InterRAO’s shares have outperformed the MOEX Index rising by 19% YtD vs 13% for the index. We maintain our BUY rating and RUB7.85 TP, despite management once again reiterating its expectation for a likely 25% dividend pay-out ratio for FY18, and a RUB146bn net cash position at end-3Q18. We believe that InterRAO is unlikely to be involved in value-destructive M&A, while the use of cash is likely to be clarified next year when the results of the modernisation auctions are revealed and the company’s updated strategy materialises. We see significant fundamental value in the stock and believe that the market attributes too little value to the company’s net cash position (which is close to 35% of InterRAO’s market cap) and quasi-treasury stock.
Sergey Beiden
+7 (495) 258-7770 x4205 SBeiden@rencap.com
Report date: |
14 November 2018 |
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Current price, RUB |
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4.03 |
Upside/downside, % |
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94.8 |
MktCap, RUBmn |
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420,732.0 |
Average daily volume, RUBmn |
341.7 |
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Free float, RUBmn |
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141,780.8 |
Bloomberg |
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IRAO RM |
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Summary valuation and financials, RUBmn (unless otherwise stated)
IFRS |
2017 |
2018E |
2019E |
2020E |
Revenue |
917,049 |
932,528 |
950,583 |
992,428 |
EBITDA |
95,471 |
108,984 |
109,585 |
114,603 |
Net income |
54,448 |
71,733 |
77,783 |
82,114 |
Net debt |
-125,634.0 -176,242.2 -242,267.2 -303,873.3 |
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EPS, RUB |
0.640 |
0.970 |
1.060 |
1.110 |
DPS, RUB |
0.120 |
0.130 |
0.240 |
0.260 |
EV/Sales, x |
0.2 |
0.2 |
0.2 |
0.1 |
EV/EBITDA, x |
2.1 |
1.9 |
1.6 |
1.1 |
P/E, x |
6.0 |
5.4 |
5.3 |
5.2 |
ND/EBITDA, x |
-1.3 |
-1.6 |
-2.2 |
-2.7 |
Div yield, % |
3.1 |
3.5 |
6.0 |
6.4 |
FCF yield, % |
17.8 |
23.9 |
18.2 |
17.6 |
RoIC, % |
9.4 |
12.3 |
12.1 |
11.9 |
Source: Company data, Renaissance Capital estimates
Figure 1: Price performance – 52 weeks, RUB
IRAO RM
5.0 |
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4.5 |
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4.0 |
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3.5 |
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3.0 |
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Jan-18 |
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Mar-18 |
Apr-18 |
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Jun-18 |
Jul-18 |
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Oct-18 |
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Nov-17 |
Dec-17 |
Feb-18 |
May-18 |
Aug-18 |
Sep-18 |
Nov-18 |
Source: Bloomberg
© 2018 Renaissance Securities (Cyprus) Limited. All rights reserved. Regulated by the Cyprus Securities and Exchange Commission (Licence No: KEPEY 053/04). Hyperlinks to important information accessible at www.rencap.com: Disclosures and Privacy Policy, Terms & Conditions, Disclaimer.
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InterRAO 3Q18 and 9M18 financials
Renaissance Capital
14 November 2018
InterRAO
Figure 2: 9M18 financials, RUBbn
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9M18 |
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9M17 |
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Change |
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RC |
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Consensus |
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diff % |
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diff % |
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estimates |
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estimates |
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RC |
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consensus |
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Revenue |
688.2 |
621.1 |
10.8% |
687.4 |
686.1 |
0% |
0% |
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EBITDA |
87.4 |
68.0 |
28.6% |
84.3 |
83.7 |
4% |
4% |
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Net Profit |
55.7 |
41.5 |
34.4% |
53.7 |
53.3 |
4% |
5% |
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Source: Bloomberg, Company data, Renaissance Capital estimates |
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Figure 3: 3Q18 financials, RUBbn |
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3Q18 |
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3Q17 |
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Change |
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RC |
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Consensus |
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diff % |
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diff % |
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estimates |
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estimates |
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RC |
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consensus |
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Revenue |
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227.5 |
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207.2 |
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9.8% |
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226.7 |
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225.4 |
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0% |
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1% |
EBITDA |
28.0 |
19.9 |
40.9% |
25.0 |
24.3 |
12% |
15% |
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Net Profit |
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17.4 |
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10.7 |
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62.9% |
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15.4 |
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15.0 |
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13% |
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16% |
Source: Bloomberg, Company data, Renaissance Capital estimates
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