Moscow Exchange - Not Sending a Good Signal

The supervisory board of Moscow Exchange (MOEX) has surprised the market by deciding against paying an interim dividend in 2018. The stated rationale behind the unanimous decision is that, given the geopolitical situation, potentially heightened market volatility could put pressure on the National Clearing Center's (NCC) capital position; thus, 1H18 earnings should be retained. According to the board, the company still intends to pay out "the majority" of 2018 net income as dividends and the dividend policy is a "key component" of the investment case. Though the merits of erring on the side of caution can be debated, the way this process has been communicated to investors has been poor, with the management having consistently emphasized that it appreciates the importance of dividends for shareholders. After last year's low interim payout (55% versus 125% for 2H17), the interim dividend concept lacks credibility and should be scrapped, in our view. The decision follows recurring "one-offs" in 1H18 and inevitably raises the question of whether more negative financial surprises might follow.