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RusHydro: Searching for a trade-off

Searching for a trade-off

RusHydro investment case has been evolving quite fast lately. There is a number of things to account for: CAPEX, impairments, subsidies, additional share issues, dividend policy and forward agreement. We see most of these changes as value-accretive but still not enough to assign a Buy recommendation. Today CAPEX is at all-time-high levels, dividends – modest, legacy projects – daunting. We believe that in 2 years HYDR has all the odds to become a Buy, but for now it is just a Hold.

RusHydro shares have shown increased volatility recently. After an alleged  restructuring and possibly higher dividends news was published, HYDR gained 29% in just a month. After the start of corona crisis shares lost 37% just to gain 77% by mid-year.  We see that increased volatility is triggered by extensive flow of news. RusHydro investment case is a controversial one with many arguments For, some arguments Against and numerous risks that are hard to evaluate. In this report we investigate RusHydro investment case comparing pros and cons.

Valuation and outlook. We updated our DCF model with new operating, financial data, forecasts, new subsidy outlook and market risk rate.  We raise our 12-month target price to RUB 0.8, but decrease our recommendation from Buy to Hold.

New management will have to prove their ability to create shareholder value. This is the case when speed of changes and ability to create shareholder value will drive valuation.


Author: Alexey Adonin


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