WOOD Flash – Lukoil: targeting 100% distribution of FCF
Today (16 October), Lukoil announced a new dividend policy, which aims to distribute 100% of its FCF in dividends. The buyback plans remain in place, but will be implemented more opportunistically and, in our view, over an extended period of time compared to the past. Importantly, the company plans to fund any new M&A through debt. Lukoil also updated its capex plans for FY19E, which are now below RUB 470bn – below the lower end of the previous guidance. While the form of the FCF distribution does not affect the overall amount of FCF the company generates (and hence, theoretically, the value of the company should not change), we see the new policy as more favourable, as it provides more clarity on future shareholder returns, increases the overall amount of potential distributions to investors, and would prevent the company from buying its shares above the fair value, which could have happened under the previous buyback policy, which was more automatic. On our estimates, on the current macro parameters, Lukoil should generate c.USD 9bn in FCF, implying a potential threefold increase in the dividend and a dividend yield of 15%.
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