Globaltrans - Open Long Trade Idea

Globaltrans has officially announced that Moscow Exchange has approved the listing of its GDRs and that trading is due to start on October 28. We see this as a positive factor for stock liquidity and expect it to broaden the investor base. We therefore open a long trade idea in Globaltrans. Apart from the technical effect of the local listing, we see the continued gradual recovery in cargo volume dynamics as supportive for the case, while spot gondola lease rates seem to have more or less stabilized at R750-800/railcar/day.> Trading on MOEX to start on October 28. We believe that given the influx of retail investors to the equity market, Globaltrans, with its robust dividend track record, could attract the attention of local investors. We therefore think it makes sense to open a short-term trade idea. > Green shoots of market stabilization and recovery. Russian Railways has been quite optimistic recently. There have been comments that transportation volumes in tonnes increased y-o-y in mid-October, and the CEO remarked that recovery and normalization will take place before the end of this year, while next year will be a year of substantial growth. Moreover, spot lease rates in the last four months have been R750-800/railcar/day, showing no major decrease, which could be an indication that this could be the new market equilibrium until the excess capacity problem is resolved.> Free cash flow and dividends should attract local investors, we believe. Even though we assume a further decrease in spot gondola lease rates to roughly R670/railcar/day in 2021 and a return to of R830/railcar/day by 2023, which is quite conservative in our opinion, we still see Globaltrans generating a LFCF yield of around 10% in 2021-23. We currently expect Globaltrans to pay a dividend of R56 per GDR in 2021, which would yield 12%. We expect the dividends to be paid in 2022-23 to total close to R45 per GDR, which would produce a 10% yield.> Performance and what's in the price. Since we closed our previous trade idea on Globaltrans, for which we provided a possible local listing as one of the key rationales, the stock has fallen 10%, while the RTS Total Return index has dropped just 1%.> Risks. We see the resurgence of Covid-19 as a major risk for cyclical names. The potential negative impact on the recovery of the economy could be detrimental for the transportation sector and Globaltrans in particular.