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Net sales, RUB mn 76,522 73,950 80,771 96,021 EBITDA, RUB mn 47,466 26,126 31,944 46,259 Net income, RUB mn 33,605 14,593 18,343 29,168
Net sales, chg -2% -3% 9% 19% EBITDA, chg 68% -45% 22% 45% Net income, chg 550% -57% 26% 59%

vk.com/id446425943

Russia

Electric Utilities

13 November 2018

Unipro, ord. (UPRO RX, RUB)

Buy (28 Feb 2018, 05:02 UTC)

Previous: Hold (17 Mar 2017, 11:03 UTC)

Target price, 12mo: 3.16

Last price: 2.78 (12 Nov 2018, close)

Expected total return: 22%

Upside, 12mo: 14%

DY, next 12mo: 8.0%

Share price performance, 12-mo

3

 

 

 

 

10%

2.9

 

 

 

 

5%

2.8

 

 

 

 

0%

2.7

 

 

 

 

-5%

2.6

 

 

 

 

-10%

2.5

 

 

 

 

-15%

2.4

 

 

 

 

-20%

2.3

 

 

 

 

-25%

Nov

Jan

Mar

May

Jul

Sep

UPRO RX, RUB, lhs

Relative to MOEX Index, %, rhs

Equities

 

1M

3M

12M

3Y

Price

-4%

4%

-10%

-12%

 

 

 

 

Price relative

-3%

-1%

-18%

-36%

 

 

ADTV (USD mn)

0.79

0.65

0.93

1.12

 

 

Key financial highlights

 

 

 

 

 

Fiscal year end

12/17

12/18F

12/19F

12/20F

 

 

P/E, x

4.8x

12.0x

9.6x

6.0x

 

EV/EBITDA, x

3.3x

6.7x

5.6x

3.7x

 

P/B, x

1.4x

1.5x

1.5x

1.4x

 

FCF yield, %

12.5%

3.9%

6.8%

15.4%

 

 

DY (ords), %

8.6%

8.0%

8.0%

15.5%

 

Change of Target Price

Unipro

3Q18 IFRS; one more year, please

Unipro has released its 9mo18 results. As we had expected they were optically weak. Despite the Berezovskaya project being on track, 2019 looks trigger-less, with the same dividend and broadly flat profits before the spike we expect in 2020. We roll our model into 2019F, adjust forecasts for reported numbers and operational data and derive a new 12-mo TP of RUB 3.16, implying an ETR of 22%; Buy reiterated.

9mo18 IFRS – as expected. Unipro’s 9mo18 results printed slightly below our estimates. Along with a revenue reduction of 2% YoY, to RUB 54,824mn, with the support of the delta DPM, adjusted EBITDA fell 52% YoY (6% below our expectations) or by 1.5%, excluding the effect of insurance. Net income stood at RUB 11,187mn, a 62% YoY reduction (7% below our estimates). The company reported net cash of RUB 8.6bn.

Conference call messages. The key takeaway from management was guidance for yet another year of RUB 14bn of dividend payment, a 12% cumulative dividend yield for UPRO shareholders in the next 13 months (December 2018, July 2019 and December 2019 payments), supporting our positive outlook. Elsewhere, the company was the first of the generators to note that the modernisation auction is unlikely to take place before YE18; its expectations are for 1Q19. Unipro plans to announce its updated dividend policy once this is finalised, as it intends to participate in several projects, with its bid for the first auction to be “published in the near future”. In the meantime, Unipro highlighted the risk of Unit 3 Berezovskaya GRES reopening in 4Q19 rather than 3Q19 due to fire-coating requirements; capex expectations for the plant were, however, maintained.

Investment case intact. The main value driver of Unipro is well known (Unipro – Berezovskaya site visit & case study of 1 October), and while its benefits (a 55%+ EBITDA uplift and double-digit DY in 2020) are clear, there is still the question of when the market will price this in. We see this moment

EPS(ords), RUB

DPS (ord.), RUB

BPS(ords), RUB

as the only trigger for the stock on a 12-month horizon (Russian Utilities – Roadshow feedback; investors are not happy of 26 October). We have updated our model for the released operating and financial data, incorporating our new macro assumptions, and rolled the model forward into 2019F. We conclude that Unipro is unlikely to excite investors in the next 12

0.53

0.23

0.29

0.46

months. Its dividend yield (in line with the market average), muted profitability

0.22

0.22

0.22

0.43

growth prospects, and the Berezovskaya profits will only feed into results in

1.80

1.81

1.88

2.02

 

EBITDA margin, %

62.0%

35.3%

39.5%

48.2%

ROE, %

30%

13%

15%

23%

Net Debt, RUB mn

(6,759)

137

2,363

(3,813)

ND/EBITDA, x

(0.1x)

0.0x

0.1x

(0.1x)

Net int. cover, x

245.9x

37.2x

27.2x

33.3x

Multiples and yields are calculated based on period-average prices where available.

Source: Bloomberg, Company data, VTB Capital Research

2020. We derive a new 12-month Target Price of RUB 3.16, implying an ETR of 22%. Unipro is not the highest upside we have in our coverage, but is in our view the most predictable safe haven in terms of weathering the new investment cycle. Nor does it suffer the corporate governance risks, lack of growth and poor dividend policies that affect the investment cases of other gencos, we argue. Meantime, the 13 months, 12% dividend yield outlook adds to the conviction of our Buy recommendation. The key risks to our investment case are rouble weakness, a lower production outlook with the depressed trend in the last few years, and additional delays in the Berezovskaya commissioning.

Vladimir Sklyar, Equities Analyst

+7 495 589 21 62 // vladimir.sklyar@vtbcapital.com

Anastasia Tikhonova, Equities Analyst

+7 495 660 42 18 // anastasia.tikhonova@vtbcapital.com

Prices cited in the body of this report are as of the last close before, or the close on, 12 Nov 2018 (except where indicated otherwise). VTB Capital analysts update their recommendations periodically as required.

Please refer to the Disclosures section of this report for other important disclosures, including the analyst certification and information as required by EU-MAR. Additional disclosures regarding the subject company(ies) discussed in this report can be found at http://research.vtbcapital.com/ServicePages/Disclosures.aspx.

vk.com/id446425943

Russia

Electric Utilities

VTB Capital Facts & Forecasts

Russia

Electric Utilities

Unipro

Prices as of: 12 November 2018

Ticker

CCY

Current

12mo TP

Rating

UPRO RX

RUB

2.78

3.16

Buy

Share price performance, 12-mo

3

10%

2.8

0%

2.6

-10%

2.4

-20%

2.2

-30%

Nov Jan Mar May Jul Sep

UPRO RX, RUB, lhs

Relative to MOEX Index, %, rhs

Company description

Unipro is a fossil-fuel electricity generator. It is an 83.7% subsidiary of German Uniper which acquired it during the privatization in 2007. The genco controls 10.3 GW of installed capacity, spread across five power plants in various parts of Russia. . Its key assets are the 5.6GW, gasfired Surgutskaya GRES, in the oil and gas-rich Tyumen region, and the 1.6GW, coal-fired Berozovskaya GRES, in Siberia. Both flagship power plants enjoy proximity to fuel sources as well as exposure to industrialised regions. In general, the genco's assets are well positioned in the capacity and spot electricity merit order due to their high fuel efficiency.

Company website

http://www.unipro.energy/en/

Shareholder structure

Free-float

16%

Uniper

84%

Source: Company data, VTB Capital Research

Research team

Vladimir Sklyar / +7 495 589 21 62

Anastasia Tikhonova / +7 495 660 42 18

Unipro

Last model update on: 13 November 2018

 

IFRS

2016

2017

2018F

2019F

2020F

 

2021F

 

Company data

 

 

 

 

 

 

 

 

 

Weighted avg # shares, mn

 

63,049

63,049

63,049

63,049

63,049

 

63,049

 

 

Avg market cap, RUB mn

173,058

162,145

175,402

175,402

175,402

175,402

 

 

EV, RUB mn

172,861

155,385

175,538

177,764

171,588

171,678

 

 

Ratios & analysis

 

 

 

 

 

 

 

 

 

P/E, x

 

33.5x

4.8x

12.0x

9.6x

6.0x

 

6.3x

 

 

EV/EBITDA, x

6.1x

3.3x

6.7x

5.6x

3.7x

 

3.8x

 

P/B, x

 

1.8x

1.4x

1.5x

1.5x

1.4x

 

1.4x

 

 

FCF yield, %

3.8%

12.5%

3.9%

6.8%

15.4%

15.5%

 

 

Dividend yield (ords), %

8.3%

8.6%

8.0%

8.0%

15.5%

15.5%

 

 

Dividend yield (prefs), %

 

 

 

 

 

 

 

 

 

EPS(ords), RUB

0.082

0.53

0.23

0.29

0.46

0.44

 

 

CFPS, RUB

0.37

0.53

0.36

0.43

0.60

0.60

 

 

Free CFPS, RUB

0.11

0.32

0.11

0.19

0.43

0.43

 

 

DPS (ords), RUB

0.23

0.22

0.22

0.22

0.43

0.43

 

 

Payout ratio (ords), %

276.8%

41.7%

95.9%

76.3%

93.0%

97.5%

 

 

BPS(ords), RUB

1.50

1.80

1.81

1.88

2.02

2.03

 

 

Revenues growth, %

 

2%

-2%

-3%

9%

19%

 

0%

 

 

EBITDA, chg

 

14%

68%

-45%

22%

45%

 

-4%

 

 

EPS growth, %

 

-63%

550%

-57%

26%

59%

 

-4%

 

 

EBIT margin, %

28%

54%

25%

29%

38%

37%

 

 

EBITDA margin, %

36.3%

62.0%

35.3%

39.5%

48.2%

46.6%

 

 

Net margin, %

6.6%

43.9%

19.7%

22.7%

30.4%

29.2%

 

 

ROE, %

5.5%

29.6%

12.8%

15.5%

22.9%

21.9%

 

 

ROIC, %

4.4%

28.4%

11.4%

13.9%

21.7%

20.5%

 

 

Capex/Revenues, %

18%

19%

22%

19%

11%

11%

 

 

Capex/Depreciation, x

2.1x

2.5x

2.0x

1.7x

1.2x

 

1.1x

 

Net debt/Equity, %

0%

-6%

0%

2%

-3%

-3%

 

 

Net debt/EBITDA, x

0.0x

(0.1x)

0.0x

0.1x

(0.1x)

 

(0.1x)

 

Net interest cover, x

44.6x

245.9x

37.2x

27.2x

33.3x

 

31.7x

 

Income statement summary, RUB mn

 

 

 

 

 

 

 

 

 

Revenues

78,032

76,522

73,950

80,771

96,021

95,701

 

 

Cost of sales

(70,852)

(50,767)

(48,257)

(49,843)

(50,811)

(52,154)

 

 

SG&A and other opexp.

6,184

21,386

349

1,016

1,049

1,087

 

 

EBITDA

28,301

47,466

26,126

31,944

46,259

44,634

 

 

Depreciation & amortization

 

(6,646)

(5,954)

(8,005)

(8,797)

(9,417)

 

(9,562)

 

 

Operating profit

6,718

41,187

18,037

23,148

36,842

35,073

 

 

EBIT

 

21,655

41,512

18,120

23,148

36,842

 

35,073

 

 

Net interest income/(exp.)

355

937

164

(219)

(382)

(155)

 

 

Profit before tax

7,220

40,966

18,242

22,929

36,460

34,918

 

 

Income tax

(2,054)

(7,360)

(3,648)

(4,586)

(7,292)

(6,984)

 

 

Net income

5,167

33,605

14,593

18,343

29,168

27,934

 

 

Cash flow statement summary, RUB mn

 

 

 

 

 

 

 

 

 

Cash flow from operations

 

23,537

33,531

22,940

26,993

37,980

 

38,110

 

 

Working capital changes

(3,058)

(3,112)

215

(592)

(1,256)

191

 

 

Capex

(13,669)

(14,708)

(16,000)

(15,000)

(10,863)

(10,863)

 

 

Other investing activities

621

(2,211)

651

631

723

950

 

 

Free cash flow

6,646

20,269

6,774

11,949

27,040

27,216

 

 

Dividends paid

(19,738)

(14,000)

(14,000)

(14,000)

(20,558)

(27,182)

 

 

Net change in borrowings

2,300

(2,300)

7,000

6,000

-

-

 

 

Other financing cash flow

(119)

(73)

(487)

(850)

(1,105)

(1,105)

 

 

Movement in cash

(7,638)

1,333

104

3,774

6,176

(90)

 

 

Balance sheet summary, RUB mn

 

 

 

 

 

 

 

 

 

Cash and equivalents

1,725

3,058

3,162

6,937

13,113

13,023

 

 

PP&E

96,701

106,214

114,125

120,328

121,775

123,076

 

 

Goodwill

334

338

338

338

338

338

 

 

Investments

780

3,701

3,701

3,701

3,701

3,701

 

 

Other assets

9,599

12,709

12,231

12,724

14,064

13,762

 

 

Total assets

109,139

126,020

133,556

144,027

152,990

153,900

 

 

Interest bearing debt

 

2,308

-

7,000

13,000

13,000

 

13,000

 

 

Other liabilities

 

12,319

12,472

12,415

12,544

12,897

 

13,054

 

 

Total liabilities

 

14,626

12,472

19,415

25,544

25,897

 

26,054

 

 

Total shareholder's equity

94,311

113,547

114,141

118,484

127,093

127,846

 

 

Minority interest

201

-

-

-

-

-

 

 

Net working capital

2,297

2,893

2,471

2,836

3,823

3,364

 

 

Net Debt

(197)

(6,759)

137

2,363

(3,813)

(3,724)

 

 

Capital

96,619

113,547

121,141

131,484

140,093

140,846

 

 

 

 

 

 

 

 

 

 

 

 

13 November 2018

2

vk.com/id446425943

Unipro

Russia

Electric Utilities

 

Figure 1: General company information

Ticker

UPRO RX

12-month Target Price, RUB/share

3.16

Rating

BUY

Installed capacity in 2018F, MW

10,405

Current price, RUB/share

2.78

Market cap, RUB mn

175,275

EV, RUB mn

175,412

EV/Installed capacity, USD/kW

247

Multiples 2018F

 

EV/EBITDA, x

6.7

PE, x

12.0

EBITDA margin, %

35%

Net debt/EBITDA, x

0.0

Source: Company data, Bloomberg, VTB Capital Research

Figure 2: Unipro FCFF profile

 

30,000

 

25,000

RUBmn

20,000

15,000

 

 

10,000

 

5,000

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

2013

2014

2015

2016

2017

2018F

2019F

2020F

2021F

2022F

2023F

2024F

2025F

2026F

2027F

2028F

Source: Company data, VTB Capital Research

Figure 3: Unipro dividend yield profile

18%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16%

 

 

 

 

 

 

 

15%16%

 

15%15%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15%

 

 

 

 

 

 

 

14%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12%

11%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11%12%

10%

 

 

 

8%

9%

 

 

 

 

 

 

 

 

 

 

10%10%

 

8%

 

 

7%

8% 8%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

2015

2016

2017

2018F

2019F

 

2020F

2021F

2022F

 

2023F

2024F

 

2025F

2026F

 

2027F

2028F

 

 

 

 

 

Source: Company data, VTB Capital Research

Figure 4: Unipro capex outlook

 

18,000

 

 

 

 

 

 

 

 

 

 

 

 

 

16,000

4,908

5,000

5,000

 

 

 

 

 

 

 

 

 

 

14,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,000

 

 

 

 

 

 

 

 

 

 

 

 

RUBmn

10,000

9,800

11,000

10,000

5,0005,863

5,0005,863

5,0005,863

5,0005,863

5,0005,863

5,0005,863

5,0005,863

10,171

10,171

8,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,000

 

 

 

 

 

 

 

 

 

 

 

 

 

4,000

 

 

 

 

 

 

 

 

 

 

 

 

 

2,000

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2017

2018F

2019F

2020F

2021F

2022F

2023F

2024F

2025F

2026F

2027F

2028F

 

 

Maintenance capex

Modernisation capex

Unit 3 Berezovskaya GRES reconstruction

Source: Company data, VTB Capital Research

Figure 5: Unipro adj. EBITDA profile

 

80,000

 

62%

 

 

 

 

70%

 

70,000

 

 

 

 

 

 

 

 

 

 

 

 

 

60%

 

60,000

 

48%

45%

 

 

50%

 

 

 

47%

 

 

 

50,000

 

45%

44%

36%

 

 

36% 35%40%

 

 

 

RUBmn

 

34%

 

 

 

35%

37% 40%

40,000

 

 

 

34%

30%%

 

32%

 

 

 

 

 

 

 

 

 

 

30,000

 

 

 

 

 

 

 

20,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10%

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

2015

2016

2017

2018F

2019F

2020F

2021F

2022F

2023F

2024F

2025F

2026F

2027F

2028F

 

 

Adj. EBITDA, lhs

 

Adj. EBITDA margin, rhs

 

 

 

 

 

 

Source: Company data, VTB Capital Research

Figure 6: Unipro EV/installed capacity

 

900

 

800

 

700

 

600

USD/kW

500

400

 

300

200

100 -

(100)

Dec-17

May-17

Oct-16

Mar-16

Aug-15

Jan-15

Jun-14

Nov-13

Apr-13

Sep-12

Feb-12

Jul-11

Dec-10

May-10

Oct-09

Mar-09

Aug-08

Jan-08

Source: Bloomberg, Company data, VTB Capital Research

Figure 7: Russian gencos multiples

 

EV/EBITDA, x

 

P/E, x

 

EV/kW,

 

 

Net Debt/

 

 

 

EBITDA

 

 

 

Net

 

 

 

Dividend

 

FCFF

 

 

 

 

 

 

 

 

USD/kW

 

 

EBITDA, x

 

margin, %

 

margin, %

 

 

yield, %

 

 

yield, %

 

 

2018F 2019F 2020F

2018F

2019F

2020F

2018F

 

2018F 2019F 2020F

 

2018F 2019F 2020F

 

2018F

2019F 2020F

 

2018F 2019F

2020F

2018F 2019F 2020F

Unipro

6.7

5.6

3.7

12.0

9.6

6.0

247

 

0.0

0.1

(0.1)

 

35%

40%

48%

 

20%

23%

30%

 

8.0%

8.0%

15.5%

4%

7%

15%

Russian average

2.9

3.0

2.7

5.3

6.1

5.6

109

 

0.3

0.4

0.5

 

23%

23%

24%

 

11%

10%

11%

 

7.6%

6.8%

8.5%

18%

8%

9%

DM average

7.6

7.2

6.6

16.5

13.9

11.8

1,067

 

2.6

2.5

2.3

 

18%

19%

20%

 

6%

7%

8%

 

5.3%

5.3%

5.3%

-6%

-6%

-6%

Source: VTB Capital Research (for Unipro and the Russian average), Bloomberg as of 12 November 2018 (for the DM average)

13 November 2018

3

vk.com/id446425943

Russia

Electric Utilities

Unipro

9mo18 conference call messages

During the conference call, management provided the following updates.

Unipro narrowed its EBITDA guidance to RUB 26-27bn, with production results and electricity prices in 4Q18 to define the outcome.

Unipro management said that it expected modernisation auctions to be postponed until March 2019; the previous guidance was December 2018. This was corroborated by Christopher Delbruck, the CFO of Uniper, the Unipro controlling shareholder, during the Uniper conference call. The CFO said that the auctions would likely take place in 1Q19. He added that, “we selected projects Unipro will be bidding with and will be ready to update our bids should details of the programme will change [sic]”.

Commenting on the relaunch of Unit 3 Berezovskaya GRES, the company noted the possibility of the delays in the commissioning from the previously noted 3Q19 to 4Q19 due to fire-coating procedures; project-related capex guidance was reiterated.

Due to the prospective modernisation auction postponement, Unipro will be rolling out the updated dividend policy in March 2019, rather by YE18. However, management provided RUB 14bn guidance for FY19.

Figure 8: Unipro 9mo18 financial highlights

 

9mo18

9mo18F, VTBC

Diff to VTBCF

9mo17

Chng, YoY

 

 

 

 

 

 

Revenues

54,824

56,298

-3%

56,040

-2%

Adj EBITDA

19,176

20,372

-6%

39,923

-52%

Adj EBITDA margin

35%

36%

 

71%

 

Net income

11,187

12,072

-7%

29,092

-62%

Net income margin

20%

21%

 

52%

 

Source: Company data, Bloomberg, VTB Capital Research

13 November 2018

4

vk.com/id446425943

Unipro

Russia

Electric Utilities

 

Medium-term outlook

The medium-term outlook for Unipro is not as muted as it is for most Russian utilities, in our view. The company’s growth is buttressed by the relaunch of Unit 3 Berezovskaya GRES, planned for 3Q19, and thus suggesting FY contribution starting from 2020F (see our Unipro – Berezovskaya site visit & case study, of 1 October). As early as in its 2019F financials, Unipro could deliver adjusted EBITDA growth of 22% YoY, with DPM revenues feeding directly into EBITDA, leading to it print at RUB 31,944mn, on our numbers. In terms of net income, this would translate into a 26% upturn, with flat YoY dividends in absolute terms with an 8% dividend yield. Partially, this growth can be explained by the elevated 4Q18 numbers on back of the Berezovskaya re-launch, but other factors also contribute to the 26% growth story.

Figure 9: Unipro 2019F Adjusted EBITDA outlook

Figure 10: Unipro 2019F net income outlook

RUBmn

35,000

 

 

 

 

25,000

 

 

 

 

33,000

6,821

2,378

1,375

 

 

5,818

383

937

749

31,000

 

20,000

 

 

 

 

 

 

 

 

29,000

 

 

 

 

 

 

 

 

 

27,000

 

 

 

RUBmn

15,000

 

 

 

 

25,000

26,126

 

31,944

 

14,593

 

 

18,343

23,000

 

10,000

 

 

 

 

 

 

 

 

 

 

21,000

 

 

 

 

 

 

 

 

 

19,000

 

 

 

 

5,000

 

 

 

 

17,000

 

 

 

 

 

 

 

 

 

15,000

 

 

 

 

-

 

 

 

 

Adj

Revenue Costs

Other

Adj

Net

Adj

Net fin

Tax

Other

Net

EBITDA

 

 

EBITDA

income EBITDA

exp

 

 

income

2018F

 

 

2019F

2018F

 

 

 

 

2019F

Source: Company data, VTB Capital Research

 

Source: Company data, VTB Capital Research

Our model brings even more positivity for 2020F, with another 45% YoY upturn in EBITDA due to the new unit operating for a full year and the delta DPM beginning at the end of 2020F. With this EBITDA growth, we see net income climbing as much as 59% and FCFF expanding along with the end of the reconstruction capex. This all frees funds for extra dividends, which, in our view, could almost double. We assume that the company moves to the dividend policy of its parent company, OCF excluding capex. Thus, the dividend yield could print at 15.5%, and it is for this reason the market is waiting for the relaunch. However, we do not expect the relaunch to be fully reflected in the price long before the actual event, and so September 2019 might be the next trigger.

All this means that Unipro is about enter a period where it clearly has the fastest profitability growth in the sector, in our view.

13 November 2018

5

vk.com/id446425943

Unipro

 

Russia

 

Electric Utilities

 

 

Figure 11: Unipro 2020F Adjusted EBITDA outlook

Figure 12: Unipro 2020F net income outlook

RUBmn

50,000

15,250

1,588

 

 

 

35,000

14,315

164

2,706

 

45,000

654

 

 

30,000

620

 

 

 

 

 

 

 

 

 

40,000

 

 

 

 

 

25,000

 

 

 

 

35,000

31,944

 

 

46,259

RUBmn

20,000

18,343

 

 

29,168

30,000

 

 

15,000

 

 

 

 

 

 

 

 

 

 

 

25,000

 

 

 

 

 

10,000

 

 

 

 

20,000

 

 

 

 

 

5,000

 

 

 

 

15,000

 

 

 

 

 

-

 

 

 

 

Adj

Revenue Costs

Other

Adj

Net

Adj

Net fin

Tax

Other

Net

EBITDA

 

 

EBITDA

income EBITDA

exp

 

 

income

2019F

 

 

2020F

2019F

 

 

 

 

2020F

Source: Company data, VTB Capital Research

 

Source: Company data, VTB Capital Research

Long-term drivers

Unipro enters a plateau of elevated profits in 2020-24F, which will be enough to both maintain its ambitious dividend policy and undertake the required DPM-2 investments. The profitability cliff, which other gencos start facing in the coming 6-18 months, will become a risk for Unipro only in 2025, in our view, affording plenty of time for shareholders to find recompense in front-loaded dividends and for management to identify and make investments that might offset the profit declines.

Figure 13: Unipro adj EBITDA outlook

RUBmn

50,000

 

 

 

 

 

 

 

 

 

 

 

 

 

40,000

 

 

 

 

 

 

1,086

2,171

3,257

 

 

 

 

 

 

 

 

16,188

 

 

 

 

 

 

 

20,449

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,850

 

 

 

 

 

 

 

30,000

 

 

 

4,417

 

21,912

21,987

18,838

 

5,428

6,514

6,514

 

 

 

 

 

4,342

2,964

 

5,651

 

 

 

 

 

 

 

 

2,757

2,858

 

 

 

 

15,166

 

 

 

 

2,659

3,092

3,213

 

 

 

 

 

 

 

 

 

2,976

 

20,000

 

13,859

 

15,386

6,418

 

2,653

2,757

2,864

 

 

10,342

15,402

 

2,554

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,000

12,308

13,159

 

12,141

14,905

16,367

17,003

17,729

18,744

19,807

20,921

22,088

23,312

 

10,724

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2016

2017

2018F

2019F

2020F

2021F

2022F

2023F

2024F

2025F

2026F

2027F

2028F

 

 

 

Adj EBITDA without DPM, modernisation and Berezovskaya U3

 

DPM revenues without Berezovskaya U3

 

 

 

 

 

Berezovskaya U3 adj EBITDA

 

Modernisation

 

 

 

 

 

 

 

 

 

 

 

Source: Company data, VTB Capital Research

 

 

Along the way, we expect Unipro to deliver a best-in-class 15-16% dividend yield in 2020-24F, and 9-12% onward, due to the phasing out of DPM. However, taking into account our assumption that the company will pay 100% of OCF excluding capex, we expect Unipro to remain either zero or net cash positive.

13 November 2018

6

vk.com/id446425943

Unipro

Russia

Electric Utilities

 

Figure 14: Unipro dividend yield vs. leverage

 

 

 

 

 

 

 

 

 

 

20.00%

 

 

 

 

(0.0)

0.0

0.1

 

 

 

 

0.1

0.1

0.0

0.0

0.2

18.00%

 

 

 

 

 

 

(0.1)

 

 

 

 

 

 

 

(0.1)

(0.1)

(0.1)

(0.1)

 

 

 

-

 

 

 

 

 

(0.1)

 

 

 

 

16.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.2)

14.00%

 

 

 

(0.4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.4)

12.00%

 

 

(0.5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

%10.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.6)x

8.00%

 

(0.9)

 

 

 

 

 

 

 

 

 

 

 

 

 

(0.8)

6.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.0)

4.00%

(1.1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1.2)

2.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11.30%14.81%11.26%6.87% 8.3%

8.6% 8.0%

8.0% 15.5% 15.5% 14.6% 15.3% 15.1% 9.5%

9.7% 11.2% 11.9%

 

0.00%

(1.4)

 

2012

2013

2014

2015

2016

2017 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F 2026F 2027F 2028F

 

 

 

 

 

 

 

Dividend yield, %

Net debt/EBITDA, x

 

 

 

 

 

Source: Company data, VTB Capital Research

 

 

 

 

 

 

 

 

 

 

 

 

 

Forecast changes

As aforementioned, Unipro’s investment case remains straightforward: the company delivers a high dividend yield of 8% before 2020F and 15-16+% onwards, having the residual profitability growth on the back of the unit 3 Berezovskaya GRES relaunch, which enables it to blip brightly on investor radars. Most concern likely comes from the rouble nature of the story (Russian Utilities – Roadshow feedback; investors are not happy, of 26 October), and actually tackling this concern using the forward rates, we still find Unipro offers a potential dividend yield of 13-14+%.

We update our model for the released operating and financial data; we also incorporate updated economic forecasts, roll forward our model into 2019F. We derive a new 12-month Target Price of RUB 3.16, implying ETR of 22%.

Figure 15: Unipro forecast changes

RUB mn

2017

2018F

2019F

2020F

2021F

2022F

2023F

2024F

2025F

2026F

2027F

2028F

New forecast

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

76,522

73,950

80,771

96,021

95,701

95,002

98,485

99,084

86,716

90,774

94,944

98,144

Adj. EBITDA

47,466

26,126

31,944

46,259

44,634

42,555

44,541

43,596

29,673

32,082

34,552

36,002

Net income

33,605

14,593

18,343

29,168

27,934

26,187

27,670

26,833

15,486

17,212

19,160

20,389

Previous forecast

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

76,522

76,404

81,824

96,644

96,772

95,467

98,162

97,656

84,119

87,858

91,711

 

Adj. EBITDA

47,466

28,207

32,525

46,815

46,024

43,801

45,566

44,126

29,680

31,797

33,976

 

Net income

33,605

16,303

18,930

30,038

29,585

27,765

29,144

27,976

16,271

17,822

19,632

 

Change, %

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

0.0%

-3.2%

-1.3%

-0.6%

-1.1%

-0.5%

0.3%

1.5%

3.1%

3.3%

3.5%

 

Adj. EBITDA

0.0%

-7.4%

-1.8%

-1.2%

-3.0%

-2.8%

-2.3%

-1.2%

0.0%

0.9%

1.7%

 

Net income

0.0%

-10.5%

-3.1%

-2.9%

-5.6%

-5.7%

-5.1%

-4.1%

-4.8%

-3.4%

-2.4%

 

Source: Company data, VTB Capital Research

13 November 2018

7