Unipro - Another Berezovskaya Delay, 2020 Dividend Downgraded

Unipro has announced another delay in the launch of Berezovskaya TPP Unit 3, pushing it back from 3Q20 to closer to the year-end. As a result, the company revised its EBITDA guidance from R30 bln to R26-28 bln, the contribution of Berezovskaya being eliminated. In addition, the company softened its dividend guidance for 2020 (but left the 2021-22 guidance unchanged) - before, it had committed to pay out R20 bln in 2020, but now it plans on R7 bln in June-July and says the December payment will depend on the impact of Covid-19 on the industry. Should the damage be limited, Unipro says it could pay out another R7 bln tranche in December. We have updated our model for Unipro and lowered our target price from R3.07 to R2.69 per share, keeping our HOLD recommendation.> Another delay at Berezovskaya. The launch of Berezovskaya TPP Unit 3 has been postponed from 3Q20 to the end of 2020, while the budget for reconstruction was raised by R1 bln. Should the unit be launched after December 1 (our base case now), it will not be eligible to receive capacity payments in 2020.> Impact of delay on cash flows. We estimate Unit 3 should add roughly R1 bln of EBITDA per month, so the delay erases roughly R3-4 bln. Moreover, the additional R1 bln of capex for reconstruction increases the negative effect on free cash flow to R4-5 bln. A further drop in electricity demand and a worsening of payment discipline could add to the pressure.> Revision of 2020 dividend commitment. The dividend policy called for R20 bln to be paid out in dividends in each year over 2020-22. However, there was a clause that tied these payments to the relaunch of Berezovskaya Unit 3. Given the latest delay - likely meaning no contribution from Berezovskaya capacity payments in 2020 - the company has withdrawn its dividend guidance for 2020. The updated guidance calls for R7 bln to be paid out in June-July and R7 bln in December, the latter only if the Covid-19 impact is limited. Our read is that the severe impact of Covid-19 could result in the total dividend payment being even lower than last year's level, though we currently incorporate the same amount as was paid last year (R14 bln) of dividends for 2020 into our model.> 2021-22 dividend guidance intact. The R20 bln per year dividend guidance for 2021-22 was left unchanged. We estimate that Unipro will be able to generate roughly R41 bln of leveraged free cash flow total over that period, meaning that the free cash flow should be enough to cover the planned payments.> TP downgraded, HOLD reiterated. We have updated our valuation model. The effect of the lower dividend and slightly higher cost of equity (we now use a 12% cost of equity in our DDM model) has led us to lower our 12m target price from R3.07 to R2.69 per share. We keep our HOLD recommendation.