Велес Капитал ИК

investment company

Enel Russia

Dividends vs investments battle

June 24, 2019

Management has finally confirmed the sale of Reftinskaya TPP. Instead of it ENRU will build 3 WPPs. We believe that such a tremendous switch in strategy is aggressive towards minority investors. Dividend p/o ratio is likely to be cut from 65% to 50%, risks of further CAPEX lift rise. As a result, we downgrade our target price from RUB 1.21 to 1.06 and recommendation – from BUY to HOLD

Largest asset is finally sold

In June the company has finally signed an agreement with Kuzbassenergo – a subsidiary of a Siberian Generating Company.

Dividend outlook

Our base case is that no special dividends will be distributed after Refta sale.

Valuation and outlook

We believe DCF model to be the best approach to value a company with a heavy investment program. With a WACC of 11.6% our 12-m target price is RUB 1.06 with implies a HOLD recommendation.

Overall we see the changes in corporate structure of ENRU as aggressive towards minority investors. Our target prices before the disposal provided for a 7.5% upside (see our report of Dec-17) and 39% upside (see our report of Aug-18) compared with a downside post-deal. Minority ENRU investors have already paid dearly for the possibility to own a part of a coal-free generation. The focus on renewables in ENRU story is obvious and we might see expansion of ENRU renewable capacities portfolio although no support mechanism post-2024 exists in Russia yet.

Given analytic materials of Veles Capital can only be used in information purposes. The company does not guarantee completeness of given information and its reliability, as well as it is not responsible for any straight or consequential loss resulting from a non-purpose use. Given document cannot be considered as the reason for buying or selling either, one or another shares.

All rights on this bill belong to Veles Capital. Reproduction and/or spreading of the analytic materials Veles Capital cannot take place without a company’s authorization. © Veles Capital 2019

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