Lenenergo Prefs – 10-15% yield & EOS Russia – Adventures in Russian Grids – Deep Worth Investments Weblog


I purchased Lenenergo Prefs final week at a median of 168. It is a 3% weight, I’m additionally re-entering EOS Russia – a fund holding Russian grid corporations, additionally at a 3% weight.

This got here to me from taking a look at EOS Russia – a Swedish listed funding in Russian electrical energy distribution grids (kindly really useful by considered one of my beloved readers). These are principally owned by Rosetti – the Foremost Russian electrical energy operator however have minority shareholders and (considerably illiquid) listed stakes. They’re very low-cost and appear to have turned a nook when it comes to profitability / dividends. EOS are buying and selling at a c20% low cost to NAV, have fairly low bills and have holding in what look like very undervalued property turning the nook.

EOS put it effectively right here:

If the businesses proceed operationally on the present trajectory and dividend payouts stay at round 40% of IFRS internet earnings, the dividends which will fairly be anticipated on 2021 earnings would indicate the next dividend yields at present share costs: MRSK Heart-Volga 13-15%, MRSK Urals 17-22%, MRSK North-West 4-10% and Lenenergo pref 12.8% (this primarily based on Lenenergo’s most well-liked dividend method). MRSK Volga’s dividends will probably be nonetheless zero or very modest as the corporate reported a loss within the first half, though it nonetheless has a good probability to interrupt even for the total yr. MRSK Volga’s outcomes ought to enhance a minimum of considerably on the again of rising industrial exercise within the area.

(P2 https://www.eos-russia.com/wp-content/uploads/MRSKnewsletter_Aug21.pdf)

I truly assume Lenenego pref’s dividends will likely be increased than 12.8%. My greatest guess primarily based on the half yr might be a choice dividend of 19-25 Rub per share. so a yield of c11-15%. I truly assume nearer to fifteen%, however we’ll see. Rosetti prefs commerce at a c3-10% yield (it varies loads) so if this low cost narrows it implies a good rise in value, although RSTI is way bigger, and extra liquid. Russian base charges are at 6.75% (having simply risen). Distribution ought to be a long-term steady enterprise, notably sooner or later.

Russian choice shares are considerably uncommon they often provide a proportion of internet revenue – distributed amongst all choice share holders. Rights can solely be altered with the consent of choice holders. Normally if the corporate goes to do away with Prefs a suggestion is made to purchase them out following an unbiased appraisal. Clearly that is Russia, so do you actually belief every part will likely be carried out in an above board means? Aside from day-to- day inefficiency and corruption I’m not conscious of a lot minority oppression within the electrical energy trade. Virtually all Lenenergo is owned by Rosetti or the Saint Petersburg metropolis authorities, the minorities are solely 2.5% of the shares in issue- so (hopefully) barely price stealing from. The prefs are an inexpensive proportion of this (22%), sadly, I don’t have a breakdown of who owns the prefs.

There are many inefficiencies and oddities within the Russian electrical energy market – totally different tariffs to do the identical factor for various corporations, decrease prices in several areas, a few of that is coverage to help sure causes, some is simply the best way the system developed and doesn’t make a lot sense. They’re cleansing all of it up and shifting (for distribution) to a regulated asset base / fee of return regulation from value plus. This could give Lenenergo and the opposite grids scope to chop prices (which have been primarily based on value+ regulation). I consider this has been began in Leningrad / St Petersburg already, although exhausting data on this has proved unimaginable to search out, one of many downsides in investing abroad.

There may be no need to fret about excessive power costs. Russia makes use of decrease inside fuel costs so I’d not count on there to be authorities motion associated to this, not like in Europe the place it is a actual chance.

There may be some dialogue of a Rosseti buyout of Lenergo. I feel the ord’s are the place you need to be if you wish to play this as they are going to take a look at P/B low cost and St Petersburg govt has a far increased value value. I desire the prefs as a result of a pleasant excessive (hopefully extra steady) yield/

Don’t neglect as effectively that the Rouble is undervalued on a PPP stage and phrases of commerce look like enhancing with a better oil/fuel/pure useful resource value.


So that you get a 10-15% yield, scope for share value rises sooner or later and (probably) appreciation in change for acceptance of a small stage of corp governance danger / opacity. Relying on H2 outcomes I’d hope for fast appreciation in Lenenergo over the subsequent yr. EOS Russia will take a number of years to play out however has a a number of of the upside.

As ever ideas / feedback appreciated.


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