OGK-2 initiated at BUY, TP RUB 1 - Final years of CSA payments to boost FCF and dividends
The company is to generate RUB 100 bn in the next four years or above market cap driven by final years of CSA payments (with annual FCF yields of up to 30%)Based on the targeted payout of 50% of NI, up to 40% of FCF could be paid in dividends with DY of >10% for 2021e up to 13% for 2024e
Including net interest income, FCF yield after 2024e should still be >8% after CSA-1 expiration, thus the dividend payout could be raised to prop up DY up to the level of FCF yield
Despite the Cherepovetskaya accident, it does not hinder the investment case: even excluding a whole year of EBITDA of the unit, FCF yield should still be up to 25% for 2021e
The company is trading at a discount of 35% to peers and 50% on MSCI RU on EV/EBITDA 21e
CSA-1 payments expiration should be long-priced in
Shares rated BUY, with DCF TP of RUB 1/share
OGK-2 JSC is primarily engaged in the generation and sale of electric and heat power. Co. consists of the following power stations (plants): Troitskaya GRES, Stavropolskaya GRES, Pskovskaya GRES, Serovskaya GRES, Surgutskaya GRES-1, Kirishkaya GRES, Ryazanskaya GRES, Novochercasskaya GRES, Krasnoyarskaya GRES-2, and Cherepovetskaya GRES.
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