Александр Фарбо прислал
ВТБ-Капитал рекомендует к покупке акции ФСК ЕЭС
FSK — Reassessed as a Buy
Based on an assumption of below inflation tariff growth and connected capacity declining 2% by 2018, we calculate sustainable cash-based DYs of 7.5% for the medium term (at a 50% payout). Being believers in the 4% inflation target and the bond-like nature of the Federal Grid (FSK), we think that the stock is undervalued. Having reassessed the company's investment case, we set a new 12-month TP of RUB 0.30 (ETR of 32%) and assign a Buy recommendation to the stock.
Electricity transmission. Russia's regulation for grids looks more like long-term indexation rather than RAB-based returns. FSK's approved tariff growth (5.5% for 2017 and 3% in 2018-19) implies little downside and possibly some upside given the 4% CPI expected beyond 2016. Sales volumes are to drop 2% to 86GW by 2018F on the ack of last mile elimination and then stabilise thereafter. Their growth potential is subject to the expansion of UES of East and South. The currently discussed differentiation of FSK's tariffs is not going to affect the headline revenue, but rather change its sub-structure.
Technological connections. The mechanism partly accounts for the cost of network extension. FSK is to book RUB 85bn of techcon revenues in P&L in 2016-18F, with cash flows to come in equal instalments over ten years at a 6% (fixed) interest rate, charged on the outstanding amount of techcon receivables. The 6% rate looks quite conservative given DPMs' 14% return.
Cost control. In the last three years, FSK reported a real decline in SG&A and personnel costs. FSK intends to continue keeping costs under control. Inflation-linked bonds represent almost half of Federal Grid's borrowings. Should inflation reach 4% this year, the average cost of debt would decline from 10.7% at present to less than 8.5% already this year.
Dividends. The government push for dividend payments by SOEs has already yielded visible results. Speaking about 2016 dividends, First Deputy Prime Minister Igor Shuvalov suggested a minimum 25% and maximum 50% payout of net income, depending on a company's financial health. We consider two scenarios for FSK: i) a 50% payout from cash-based IFRS net income, resulting in RUB 0.012 DPS (5% DY) and RUB 0.018 DPS (7.5% DY) going forward; ii) 25% from IFRS net income implying RUB 0.023 DPS (10% DY) and RUB 0.012 DPS (5% DY) in future. We see an equal probability between these scenarios for the 2016 dividend while inclining towards a higher probability for cash-based payouts in the medium term.
Valuation. Our DCF-based model (WACC 12%, 3% TGR) returns a 12-month fair value of RUB 0.30/share. In addition, we expect a 7.5% cash-based DY in the medium term. Given the 4% inflation target and the bond-like nature of the stock, we have reassessed the gridco's investment case and are now setting our 12-month TP at RUB 0.30. That implies an ETR of 32% (27% upside and 5% NTM DY) and a Buy recommendation.
Risks. Downside risks include a reduced dividend payout or lower dividend base, government pressure on tariffs, a more aggressive decline in connected capacity and the lack of cost control by the management team.
FSK (FEES RX, RUB)
Target price: 0.30
// Last price: 0.24 // Upside: 27% // DY: 5% // ETR, 12mo: 32%