Gazprom Energoholding - Scenarios for Subsidiary Dividends Based on GEH 2019 RAS Forecasts

Gazprom Energoholding (GEH) has presented its estimates of the RAS results of its subsidiaries for 2019. Last year, the estimates were bang in line with the actual figures later released. We think there is likely to be an impairment/write-off below the EBITDA line of OGK-2 that resulted in the full-year bottom line being below 9m19 net income. In this note, we provide a sensitivity analysis of the dividends to be paid this year based on the 2019 results, assuming payouts still linked to RAS net income. Even under a 50% payout assumption, Mosenergo's DPS would decrease by as much as 4% y-o-y; however, in December GEH's CEO said that dividends would increase both in payout and in absolute terms, which creates some upside.> Last year, GEH estimates were bang in line with actual figures later released. The difference between the estimates and actual results was negligible and can be entirely attributed to rounding.> We expect some extraordinary items to be reflected in OGK-2's 4Q19 RAS results. The forecasts for OGK-2 are an outlier in terms of 4Q19 performance across the subsidiaries, especially at the bottom line, as full-year RAS net income is expected to be below the 9m19 actual results.> Dividend scenarios based on RAS figures. Should the subsidiaries' dividends for 2019 still be based on the RAS results, the DPS of OGK-2 could increase by 3-47% y-o-y depending on the payout ratio applied (a payout of 35-50% of RAS net income), and for TGK-1 the DPS could rise 34-91%. Mosenergo's DPS, if based on 2019 RAS net income, would actually decrease 4%, even under an optimistic 50% payout assumption. But given comments made by the GEH CEO in December that the target is to increase both the payout ratio of net income and DPS in absolute terms, we believe there could be upside for Mosenergo if the parent follows through on that.