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PJSC Rosseti - is there a chance to grow up before the dividend cutoff?

May 16, 2020, 06:15 PM • ☕️ 4 min read

Tags:RSTIRSTIpGridsDividendsMOEX

Translations: EnglishРусский

In the first half of May 2020, the Boards of Directors of PJSC ROSSETI and PJSC FGC YEES approved the final (annual) dividends for 2019.

For both companies, the amount of dividends pleasantly surprised minority investors, and the shares of the companies took it positively, since there was a risk of non-payment of the resulting dividends or their significant reduction. These risks are related to the fact that both companies are state-owned (state ownership is more than 50%), therefore, in case of obtaining preferences and tax benefits in connection with the distribution of coronovirus, state-owned companies are advised to refuse dividends.

The total recommended amount of dividends for PJSC ROSSETI is 17.99 billion rubles, and the total dividends including payments for the 1st quarter of 2019 - 23 billion rubles. Thus, the amount of dividends for 2019 the year in total exceeds the amount of dividends in the entire history of the company since 2013. This fact is undoubtedly positive for the dynamics of the shares of PJSC Rosseti and the general attractiveness of the Company. Dividend recommendation information available at link.

Thus, the dividend per 1 ordinary share will amount to - 0.0885155625 rubles, per preferred share - 0.189304 rubles. Given the weighted average price of ordinary shares for the previous 6 months - 1.33 rubles and preferred - 1.57 rubles, the dividend yield of the final dividends is 6.7% and 12.0%, which is a high indicator not only for companies in the electric power industry, but also for large public Russian companies. If we also take into account the dividends for the 1st quarter of 2019 in the calculation, then one of the highest figures on the Russian stock market for dividend yield in 2019 is released - 11.3% and 17.1%, respectively.

It is worth noting that from April 1 to May 14, 2020 ordinary shares of PJSC ROSSETI grew by only 8%, i.e. not higher and even lower than blue chips and the Moscow Stock Exchange Index, which may indicate that investors are still not interested in this stock, or about the potential growth before the dividend cutoff, which will be in mid-June. However, the opposite dynamics of preferred shares - they grew in 1.5 months by 38%! At the same time, after the announcement of the news, stocks grew by less than 12%, that is, 26% of the growth can be either insider information about high payouts of 12.0% or high expectations of investors, which is less believed, as investors have become quite careful with the choice of shares and investing after the fall of financial markets in March 2020. On the other hand, we analyzed the volume of trading in stocks, and in April 2020 did not find days where there would be extraordinary volumes of turnover compared to December-February. Such high volumes began to be observed only on May 4-5 (1-2 days before the recommendation was announced) - these days the volume of transactions was 2-3 times higher than the average volumes of the previous 15 trading days.

Unlike the previous year, this year the registry closing date for dividends is 06/15/2020, i.e. after 1 month. Is it possible to earn now on the shares of PJSC Rosseti in anticipation of growth under dividends? The issue is debatable, therefore, we analyze the historical dynamics. Last year, the final dividends for 2018 were not paid, since there was a net loss under RAS, but there were payments for the 1st quarter of 2019. The Board of Directors recommended these payments on May 27, 2019.

On these dates, the price of ordinary shares was in the region of 1.25 rubles / share and preferred - 1.525 rubles / share, which is presented in the graphs below. The registry was closed on July 8, 2019.

PJSC Rosseti (dynamics of ordinary shares since 2019

PJSC Rosseti (dynamics of preference shares since 2019

At the closing date of the registry, prices were 1,442 rubles/share and 1,77 rubles/share, respectively. Thus, ordinary shares grew by 15.5%, preferred shares - by 16.0%, which is a significant return for 1 month. Since current dividends are higher, as well as profitability itself, there is a chance that stocks can win back 20-30% up. Moreover, ordinary shares have not yet won back the fall in mid-March 2020, so a 30% increase will return the shares to the levels of the end of February - 1.65-1.70 rubles per share. Preferred stocks also retain upside potential, but are more limited as stocks have already grown 38% over the past 30 trading days.

It should be noted that the underestimation of the shares of PJSC ROSSETI by the market also remains due to the opaque and complex current dividend of the policy, the payments for which depend on many factors, some of which are “paper” and unpredictable. At present, PJSC Rosseti pay dividends in the amount of at least 50% of Net Profit under RAS or IFRS, as required by law for state-owned companies. However, according to Kommersant, the company is considering the adoption of a new dividend policy, which can be considered already in the 1st half of 2020 and the payout ratio is increased from 50% to 75%. At the same time, the payment base has not yet been approved. We assume that if a more transparent dividend policy than now is adopted, and an increase in the payout ratio of up to 70-75%, this may become an additional trigger for the growth of shares by another 15-20% for at least a few months in the future. This potential can be maintained or increased with overall stability or stock market growth.

Additionally, the company has already stated that it can adopt the Top Management Motivation Program in 2020 and has a long-term goal of increasing the company’s capitalization to ** 1 trillion. rubles ** (as of May 14, capitalization was about 260 billion rubles), which is described in detail in article.

The article is not an individual investment recommendation: everyone makes a decision based on their own risk level and forecasts regarding the future potential of the company.