RusHydro raised to BUY, TP RUB 1 - Positive news flow turns around the investment
We upgrade RusHydros ordinaries to BUY from REDUCE on the drastic investment case turnaround driven by positive news, including (i) a lower than expected impairment guidance, positive for 2020e dividends, and (ii) a 25% lower than planned 2020e capex, half attributed to savings (positive for our FCF estimates), let alone the recent promotion of the ex-CEO to Minister of Energy. Moreover, we note a stellar operating performance this year (hydropower output up >10% yoy by our estimates) and the stock price increase since May ironically only underpinning the BUY call via the reduced forward contract payment to VTB in 25e (by >RUB 7 bn). As a result of that and backed by lower capex, more efficient fuel consumption in the Far East (due to new thermal power plants) and new small HPP additions, we raise our DCF target price to RUB 1/share from RUB 0.62/share, with trading multiples also looking attractive (EV/EBITDA 21e of 4.7x vs MSCI Russias 5.4x).PJSC RusHydro is a hydro-generating company based in Russia. Co. is engaged in the generation and sale of electricity and capacity on the Russian wholesale and retail markets, as well as generation and sale of heat energy. The main activity of Co. is production of power from renewable energy sources, developing power generation using water flows, tidal, wind and geothermal energy. It has an installed electricity generation capacity of 38.5 GW; and heat capacity of 16.2 GCal/h.
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