Russian Utilities - Grid Sector Is All About Dividends
With this report we are reinitiating coverage of Rosseti and its main subsidiary, Federal Grid Company (FGC). The investment case of Russian grid companies depends almost entirely on dividend payments, so we believe it makes sense for investors to position themselves closer to the actual source of cash, i.e. at the subsidiary rather than the holding level. We believe that FGC could continue to increase dividend payments, though the upside is limited and we rate the stock a HOLD with a R0.17 per share target price. As for Rosseti, based on its dividend policy, we believe the size of its payouts will depend primarily on the amount of financial support it provides to subsidiaries. As we do not expect a substantial decrease in the level of support, we see the dividend outlook for Rosseti as unattractive and assign a SELL rating to both the common and preferred shares, with target prices of R0.58 per common and R1.30 per pref.
Federal Grid Company Of Unified Energy System PJSC operates and manages the electricity transmission grid infrastructure of the Russian Unified National Electric Grid (the UNEG). Co.'s principal operating activities consist of providing electricity transmission services, providing connection to the electricity grid, maintaining the electricity grid system, technical supervision of grid facilities and investment activities in the development of the UNEG.
PJSC Rosseti is a holding company based in Russia. Co. is engaged in the management of companies that operate in the energy sector. Co.'s core business is the management of electric grid subsidiaries for the purpose of pursuing a common policy in the field of electric grid services, specifically in the area of innovations, energy conservation and energy efficiency, development and implementation of a common strategy for developing the distribution electric grid sector of the Russian Federation. Co.'s other services comprise property management, consulting, securities operations, scientific research and construction and transport and expedition.
Sberbank CIB Investment Research is a research firm offering equity, fixed income, economics, and strategy research. It covers analysis on all aspects of Russia’s capital markets, issues and industries. The firm analyzes trends in Russia and combines local knowledge with a global perspective. It processes macroeconomic data, market and company-specific news, stock quotes and other information for providing research reports. The firm provides details and latest prices on the most traded names and most traded paper on all segments Russian market. In strategy research, it provides thematic research, tips and descriptions of the methodology used to evaluate companies.
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