vk.com/id446425943
Russia
Equities
Gazprom – management to suggest to BoD an increase in dividends for FY18 to a double-digit number –stock added 6% yesterday – positive, of 29 November, by Ekaterina Rodina et al
Week Endnotes
On Russian companies
Our fundamental ratings and 12-month Target Prices for the stocks are contained in Figure 7.
Earnings and operating results this week
A list of the 3Q18 operating and earnings reports published by our teams can be found in Figure 4. For the compendium of the VTB Capital 3Q18 earnings season preview, see our Earnings Watch – 3Q18 earnings preview.
3Q18 earnings season – final chords. TCS Group's earnings totalled RUB 7.3bn, +11% above consensus. The outperformance vs. the consensus came from lower than expected opex and LLP. The Bank increased its guidance for FY18 earnings to over RUB 26bn, from over RUB 24bn before; the consensus forecast is RUB 25.8bn (BBG, 26 November). Bank St Petersburg published 3Q18 attributable earnings of RUB 2.0bn, which implied 11.3% ROE. The bottom line was +2% above consensus forecasts on a higher than expected operating result. Aeroflot again beat the consensus (Interfax of 29 November) on EBITDA and net income, despite they decreased YoY. Lukoil's revenues grew +6% QoQ (+5% above consensus). EBITDA in 3Q18 increased +3% QoQ, or +2% above consensus. Below the operating level, Lukoil showed a better than expected income from associates. Therefore, net income grew +4% QoQ, as expected by the Street. The FCF of USD 2.4bn was strong. During the conference call on its results, the company announced that it planned to accelerate the pace of the buyback and might complete it in 2019. Lukoil sees its hydrocarbon production growing 3.5% this year and 1% next year, subject to the OPEC+ decision in December. The company plans to keep liquids production in Russia flat YoY in 2019. Transneft’s 3Q18 IFRS results came in line with our forecast on revenues and EBITDA, but net income was reported more than +60% higher than we had expected, primarily due to the RUB 25.4bn revaluation gain. Nevertheless, we do not expect this to have any significant effect on future dividends, which are based on normalised net income adjusted for non-cash one offs. We calculate that Transneft might pay a dividend of RUB 9,587/share under a 50% payout ratio. Rosseti's total revenues increased +10% YoY to RUB 719.6bn, with the key driver being electricity distribution revenues while grid connection revenues slid due to the decline at FSK in 9mo18. Total costs increased +13% YoY. Thus, EBITDA (on the company's calculation) up +4% YoY. Net income reached RUB 88.7bn, implying a +9% YoY increase. Acron numbers came broadly in line with our forecasts. EBITDA up 41% YoY, with key driving factors were nitrogen prices and rouble depreciation. Over this week, Gazprom, Tatneft and Sistema also reported their 3Q18 IFRS numbers.
In focus
Gazprom’s management is going to make a suggestion to the company’s BoD to increase DPS for FY18 potentially to a double-digit number in roubles, according to Interfax, citing the Deputy Chairman of its Executive Board, Andrey Kruglov. Higher dividends might be included in the company's budget for next year. The BoD meeting on this is to take place in mid-December, according to the newswire. For FY17, the company paid out flat YoY dividends of RUB 8.04/share and plans to freeze them for FY18 as well. Our base case is RUB 8.04 per share for FY18, in line with the Bloomberg consensus (as of 28 November). We estimate that double-digit dividends per share in roubles would imply a payout of not less than 19% of IFRS net income, compared with the 20% and 27% payouts for 2016 and 2017, respectively. A 25% payout for FY18 would imply RUB 13.30 per share, or a 8% DY.
30 November 2018 |
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vk.com/id446425943 |
Week Endnotes |
Russia |
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Equities |
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Detsky Mir – Sistema’s majority shareholder comments on sale of stake, of 29 November, by Maria Kolbina et al
Index Watch – MSCI Russia 10/40 Rebalancing – no changes to top four
– SBER remained underweight – POLY at 2.80% – HYDR excluded, of 27 November, by Ilya Piterskiy et al
Norilsk Nickel – High Court of London allows Interros and Crispian to appeal court’s June ban of Norilsk Nickel shares sale, of 28 November, by Dmitry Glushakov et al
Polymetal – obtains permission for consolidation of the Nezhda project from the Federal Anti-Monopoly Service – neutral, of 29 November, by Dmitry Glushakov et al
Alrosa – CEO’s comments from RUSSIA CALLING! Investment Forum, of 29 November, by Dmitry Glushakov et al
Alrosa – Federal Service for the Supervision of Natural Resource Usage is not going to pursue recovery of damages for Irelyakh river incident from Alrosa, of 29 November, by Dmitry Glushakov et al
NLMK – might build 300 MW waste- to-energy cogeneration plant – preliminary capex of RUB 35bn –, of 28 November, by Dmitry Glushakov et al
Interfax has quoted Sistema’s majority shareholder, Vladimir Evtushenkov, talking about a principal agreement to sell a stake in Detsky Mir by the end of this year or in early 2019. Sistema controls 52% in Detsky Mir while 14% belongs to RCIF and 34% is free float. The intention to sell the stake in Detsky Mir has been mentioned before, but the details are as yet unknown. Were the sale to materialise, we see the key focus being on the deal price, potential tender offer, strategy of the new controlling shareholder and top management reshuffles. Detsky’s shares are flat YTD and now demand 2019F EV/EBITDA multiple 6x. We see the company as offering one of the most rapid growth profiles in our retail coverage (revenues up 13% YoY in 2019F) and an impressive dividend outlook.
Also in the news
The MSCI announced the results of its Russia 10/40 rebalancing, with all changes effective from 3 December, together with the global index review. The top four (GAZP, LKOH, TATN, SBER RX) remained unchanged. The most important story is SBER RX (+0.2pp to 6.85%) remaining underweight due to the MSCI’s treatment of sectoral sanctions. Other heavyweights were slightly up: GAZP (+0.6pp to 9.28%), LKOH (+0.4pp to 9.28%) and TATN (+1.1pp to 9.28%). Among smaller stocks, we highlight POLY’s inclusion with a weight of 2.80%. The primary source of weight reallocation came from six stocks: FIVE ( 0.6pp to 4.38%), PLZL ( 0.8pp to 2.85%), MOEX ( 0.8pp to 2.75%), IRAO ( 0.8pp to 2.74%), PHOR ( 0.6pp to 2.30%) and MAGN ( 0.6pp to 2.29%), as well as HYDR’s exclusion with a final weight of 1.61%.
According to Interfax, the High Court of London has allowed Interros and Crispian to appeal the court’s June ruling to ban the sale of Norilsk Nickel shares from Crispian to Interros. The appeal must be presented to the court within 21 days from the receipt of the judicial decree (expected within a couple of days). To recap, in March 2018 Interros bought 2.1% of Norilsk Nickel shares from Crispian, but the deal was cancelled in June, following Rusal’s court filing. The trial is at an early stage and the outcome is unclear.
According to Interfax, the Federal Anti-Monopoly Service has issued a permit for the consolidation of the Nezhda project. In April, Polymetal served an exercise notice for the call option to buy out the 75.3% stake in the Nezhda gold property and extend its share in the property to 100%. The company has been expecting to close the purchase deal by the end of 2018, and to do so it was waiting for FAS approval. Polymetal can now proceed with the consolidation process according to the plan.
Alrosa CEO Sergey Ivanov has said that the company will produce a little over 37mnct in 2018, Interfax reports. He has also added that November sales in India were better than in October, as the Diwali holiday had ended. Answering questions about the Mir mine, Ivanov said he believed that it was just a matter of time before the mine was reconstructed. The Mir mine reconstruction project could be presented in March 2019, he added.
According to SahkaPress, the Federal Service for the Supervision of Natural Resource Usage has stated that it will not claim the recovery of damages from Alrosa for the dam accident on the Irelyakh river. Previously, the Service had evaluated the damage to the river at RUB 22bn, but later stated that the evaluation was incorrect, given that the accident had been caused by a natural disaster. Other regulatory agencies have maintained their claims.
NLMK is considering building a 300MW waste-to-energy cogeneration plant at a cost of RUB 35bn, according to preliminary estimates, Kommersant reports. NLMK hopes to lower overall costs by building this facility. The project could be included into the ‘Belousov list’ and obtain tax benefits. No final decision has been made yet. Still, if the company decides to build the facility, that would increase its electrical power integration from 53% to 83%, according to our estimates. The project could add up to 35% to capex and decrease FCFE by up to 20% in 2019-20, on our numbers.
30 November 2018 |
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