Lenenergo's profit for 2021 allows us to count on a double-digit dividend yield

Dividends Lenenergo-p (Rosseti Lenenergo)

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Buy Rosseti Lenenergo shares today

Buy shares of Rosseti Lenenergo

It has become quite simple today to create an investment portfolio and take on the role of an investor. One of the main tasks in this matter is to wisely select securities for purchase. Many newcomers, just starting their acquaintance with the stock market, first of all pay attention to the world giants - Apple, Google, McDonald's, etc. But the peculiarity of this market is that here and besides them there are a huge number of options that can help in achieving your goals and obtaining benefits. There are no universal recipes for achieving success. All people are different from each other and strive for their own goals, preferring to go towards them in different ways. While some are willing to take risks to get instant results, others have more conservative views and prefer to choose an option that will bring a modest but predictable level of income. Taking this into account, someone decides to bet on a young company with unlimited potential, capable of growing several times in a short period of time, while others invest money in large corporations that have long been well-known and have demonstrated excellent financial results for many years.

Today, everyone has access to detailed information about public companies, whereas in the past this was exclusively available to brokers and financiers. If you want to buy shares of Rosseti Lenenergo, collect as much information as possible about the organization. Read the analytics, study expert opinion. Check out current stock quotes to dive into the topic as deeply as possible. What makes professional investors different? They strive to analyze all the information they have. Beginners tend to ignore such opportunities. They often make decisions based on their emotions rather than logic. But only careful attention to detail allows you to consistently achieve your goals.

Instructions

Before you start trading, it is worth understanding where the shareholder's income comes from and what steps he must follow to purchase securities. Profit appears in two cases:

1. If the price of acquired assets increases.

2. If their owner is entitled to dividends. To do this, they must be specified in the dividend policy of the joint-stock company. Payments are made annually or twice a year. The company allocates part of the profit received for this.

How to buy

To proceed to purchases, you need to complete the following steps:

• Decide on an organization that provides brokerage services. When deciding this issue, be sure to take into account one nuance. If you plan to invest not only in domestic enterprises, but also in securities of foreign companies, select a broker who has special permission to work on international exchanges. Also, don’t forget to research estimated service rates.
• Conclude an agreement and open a personal account, without which it is impossible to conduct purchase and sale transactions. It should be topped up before you start trading. The entire procedure will take no more than 20–25 minutes.
• Purchase and sale is carried out in the following ways: through personal instructions to a broker or through a special program that makes it possible to monitor stock quotes and perform all necessary operations. In both cases, you can buy shares of Rosseti Lenenergo without leaving your home.

The first method allows you to save time and effort, which will inevitably be required to master the software capabilities. Here you simply decide on an investment object and make the appropriate order to a specialist. To use the program, you must first learn the features of working with it. However, upon completion of the familiarization stage, it will become a convenient tool with many functions that allow you to build charts and analyze financial indicators.

Analysts and experts of the Investments section:

• Alexey Novikov, Head of Investments at Banki.ru, has been in the investment field for more than 15 years.
• Vladislav Kovalenko, editor-in-chief of the Banki.ru portal, in business and financial journalism since 2000
• Elena Smirnova, head of investment content, has been working in business and financial journalism since 2006.
• Daria Petrova, insurance and investment analyst, has been leading the content of the Investments section since 2021, email: [email protected] ,

Investment idea

Lenenergo is a distribution network company operating in St. Petersburg and the Leningrad region with revenue of 83 billion rubles. in 2021. The main business is electricity transmission, the rest comes from technical connections and other activities.

We recommend Lenenergo JSC “Hold” with a target price of RUB 6.2. for 12 months

Recommendation for Lenenergo up is “Hold” with a target price of RUB 164.

* Lenenergo maintained its profit level in 1Q 2021, despite the “headwind” of a warm winter and anti-virus measures. Shareholder profit amounted to RUB 4.95 billion. (+0.7%).

* Profit according to RAS 2020E, according to the financial plan, is expected to be 12.6 billion rubles. (-0.7% y/y). Profit under IFRS, according to our estimates, will be about 13 billion rubles. (+10% y/y).

* For preferred shares, investors will receive a dividend for 2019 in the amount of 13.6 rubles. with a current yield of 8.1%. The register closes on June 11.

* In the future, if the parent increases the payment rate, we can hope for an increase in dividends from the profitable Lenenergo with a small payout ratio, which at the end of last year amounted to only 17% of profit under IFRS.

Dividends

In 2021, the company changed the scheme for calculating dividends on ordinary shares, switching to the typical Rosseti dividend formula. The procedure for determining payments on preferred shares remains the same - 10% of profit according to RAS. We expect that the company's dividend profile will remain the same: in terms of profitability and dynamics, the main interest is in “prefs”, and Lenenergo JSC will offer a small yield.

The dividend for 2021 on preferred shares will be 13.6 rubles. per share, offering investors a yield of 8.1%. A dividend of RUB 0.095 was accrued on ordinary shares. per share, which is 169% higher than DPS 2021, but translates into a low yield of 1.5%. In total, the company will allocate 2.1 billion rubles for dividends, which corresponds to a payout ratio of 17% of profits under IFRS, compared to 13% at the end of 2021 and 25–31% at the end of 2016–2017. The registry closing date is June 11.

In the future, if the parent company increases its payout rate, we can hope for an increase in dividends from its subsidiaries, especially from the profitable Lenenergo, which has had a low payout ratio in recent years.

Source: data

Grade

We recommend “Hold” ordinary shares of Lenenergo with a target price of RUB 6.2. Taking into account the current valuation of multiples and the expected dividend yield, we believe that the shares of Lenenergo JSC are quite fairly valued by the market at the current rate. A positive revaluation can be caused by a significant increase in payment rates, as well as the approval of fees for free reserves and the abolition of preferential technical connections.

Below are the basic data on multipliers:

Source: Bloomberg, Thomson Reuters, calculations by FINAM Group of Companies

Lenenergo's preferred shares based on a target dividend yield of 8.3% and expected dividend payments. Dividend 2020E 13.5 rub. and target DY 8.3% broadcast target 164 rubles. at the register closing date (presumably June 2021). This roughly corresponds to the current quote of RUB 169, and we recommend LSNGP as a Hold.

The current strong demand for the stock can be attributed to low interest rates and a shrinking pool of dividend stocks in the market after many companies cut or postponed dividends. However, if at the end of the year the company is not able to significantly improve the result in terms of profit according to RAS and, accordingly, in terms of dividends for 2020, then there is a risk that the current rate for preferred shares, about 170 rubles, will turn out to be a peak in the medium term.

We see a risk for the LSNGP recommendation as a change in the procedure for calculating dividends on preferred shares, since dividends are the main component of the Lenenergo up investment case, as well as a slower return of smoothing.

Brief description of the issuer

Lenenergo is a distribution network company operating in St. Petersburg and the Leningrad region with revenue of 83 billion rubles. in 2021. The main business is electricity transmission, the rest comes from technical connections and other income.

Capital structure . The controlling stake, 68.22%, belongs to Rosseti, KIO St. Petersburg owns 29.11% of the shares. Free float of ordinary shares - 3.72%, preferred shares - 100%.

Financial indicators

* Lenenergo maintained its profit level in 1Q 2021, despite the “headwind” of weather conditions unfavorable for business and anti-virus measures. Shareholder profit amounted to RUB 4.95 billion, which is 0.7% higher than the 1Q 2021 result, against the backdrop of tariff indexation, reduced losses, low growth in operating costs and reduced financial expenses.

* The 1Q 2021 production report reflected a reduction in supply to the network by 3.7% y/y and from the network by 3.4% y/y against the backdrop of a warm winter and lower energy consumption, but at the same time the network company reduced losses by 5.6% y/y /G.

* Revenue from electricity transmission increased by 3.1% against the backdrop of fairly high tariff indexation, but from this year we expect a slowdown in tariff growth. The Tariff Committee of St. Petersburg intends to maintain tariffs for 2021 without increasing, which is in line with the general trend towards limiting tariff growth.

* Revenue from technical connections decreased by 22%, to RUB 0.58 billion. The company's financial plan indicates annual revenue from connections of about RUB 6.0 billion, which is slightly lower than the 2021 level.

Main financial indicators

Source: data

* Net debt decreased by 8% since the beginning of the year, to RUB 20.5 billion, or 0.71x EBITDA.

* Profit according to RAS 2020E, according to the financial plan, is expected to be 12.6 billion rubles. (-0.7% y/y). Profit under IFRS, according to our estimates, will be about 13 billion rubles. (+10% y/y).

* Despite maintaining strong operating margins, peak capex does not leave room for significant debt reduction, although we allow for the possibility of carrying forward some of the CAPEX to next year.

Forecast for key financial indicators

Source: data