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Enel Russia: Dividends vs investments battle

Enel Russia: Dividends vs investments battle

Management has finally confirmed the sale of Reftinskaya TPP.  Instead of it ENRU will build 3 WPPs. We believe that such a tremendous switch in strategy is aggressive towards minority investors. Dividend p/o ratio is likely to be cut from 65% to 50%, risks of further CAPEX lift rise.  As a result, we downgrade our target price from RUB 1.21 to 1.06 and recommendation – from BUY to HOLD


*        Largest asset is finally sold

In June the company has finally signed an agreement with Kuzbassenergo – a subsidiary of a Siberian Generating Company.

*        Dividend outlook

Our base case is that no special dividends will be distributed after Refta sale.

*        Valuation and outlook

We believe DCF model to be the best approach to value a company with a heavy investment program. With a WACC of 11.6% our 12-m target price is RUB 1.06 with implies a HOLD recommendation.

Overall we see the changes in corporate structure of ENRU as aggressive towards minority investors. Our target prices before the disposal provided for a 7.5% upside (see our report of Dec-17) and 39% upside (see our report of Aug-18) compared with a downside post-deal. Minority ENRU investors have already paid dearly for the possibility to own a part of a coal-free generation. The focus on renewables in ENRU story is obvious and we might see expansion of ENRU renewable capacities portfolio although no support mechanism post-2024 exists in Russia yet.

Author: Alexey Adonin


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