Inter RAO (MCX: IRAO) — Russian energy holding, which produces electricity and heat energy, deals with energy sales, international energy trading, engineering, as well as management of power distribution networks outside of Russia.
The company has a monopoly right to import-export electricity in Russia. Inter RAO supplies electricity to Belarus, to Ukraine, to Finland, Lithuania, Azerbaijan, Georgia, South Ossetia, China, Kazakhstan and Mongolia.
25 November, the company released financial statements for 9 months of 2021. As expected, against the backdrop of the energy crisis and record volumes of electricity exports, the business showed a steady growth in key indicators. So, revenue increased by 19%, and net profit is 37%, while net debt remains negative.
I propose to consider the dynamics of key business indicators over the past 5 years and try to understand, what the future holds for the company.
Disclaimer: if we write, that something has risen or fallen by X% or X times, then by default we mean a comparison with the report data for the same period last year, unless otherwise stated.
Position in the industry and operating results
In 2021, the world will face a major energy crisis for the first time in years.. Against the backdrop of adverse weather conditions, crisis of 2020, as well as supply disruptions, energy prices in Europe and Asia began to skyrocket. 14 December 2021, natural gas futures prices in Europe exceeded 1500 $ per 1000 cubic meters. Following the chain, electricity prices began to rise, including in large countries - consumers of Russian electricity, supplied by Inter RAO.
As a result of an increase in the demand of Inter RAO for 9 months of 2021 exported record volumes of electricity. Supply growth amounted to 85% and reached 15.6 TVt · h. Export growth to Finland increased by 3,2 Times, to the Baltic States - to 1,5 Times, in China — on 3%, in Kazakhstan - on 36%.
Total electricity generation increased by 12% - up to 86.5 TWh - against the background of a low base last year, but never reached pre-Covid levels. At the same time, the supply of heat energy from the collectors increased by 13% - up to 28 million gigacalories - and almost caught up with the 2018 record.
The structure of export electricity supplies by Inter RAO for 9 months of 2021
| Finland | 37% |
| Baltic countries | 24% |
| China | 16% |
| Kazakhstan | 7% |
| Other | 16% |
37%
Operating indicators of Inter RAO for 9 Months, terawatt hours
| Working out | Export | |
|---|---|---|
| 2017 | 97,0 | 12,7 |
| 2018 | 96,0 | 11,9 |
| 2019 | 97,0 | 13,8 |
| 2020 | 77,3 | 8,4 |
| 2021 | 86,5 | 15,6 |
Financial indicators
Inter RAO's revenue increased by 19% - up to a record 851.3 billion rubles, of which about 93% accounted for the sale of electricity and capacity. In the sales segment, the company's revenues increased by 12% - up to 566.4 billion rubles - against the backdrop of an increase in supply volumes and sales markups. In the segment «Trading in the Russian Federation and Europe ", revenue increased by 2,4 times - up to 85.9 billion rubles - due to the growth of export supplies to the Baltic countries and Finland and high prices due to the energy crisis in Europe.
But the rise in prices also contributed to an increase in the company's operating income by 15% - up to 762 billion rubles - due to an increase in supply volumes.
As a result, the operating profit of Inter RAO increased by 62% - up to 94.3 billion rubles, what was the historical maximum for this period.
The holding's net financial income declined by more than 5 times - up to 2.4 billion rubles. The fall was caused by the revaluation of exchange rates against the backdrop of a high base last year, when, due to the devaluation of the ruble, the company reported almost 8 billion in non-cash profit from the revaluation of exchange rates.
As a result of all of the above, the company's total net profit increased by 37% and reached a record 78.8 billion rubles.
Financial performance of Inter RAO for 9 Months, billion rubles
| Revenue | Operating profit | Net profit | |
|---|---|---|---|
| 2017 | 621,1 | 41,4 | 41,5 |
| 2018 | 688,2 | 63,8 | 55,7 |
| 2019 | 753,8 | 77,1 | 64,7 |
| 2020 | 713,0 | 58,1 | 57,4 |
| 2021 | 851,3 | 94,3 | 78,8 |
Debts and dividends
Since the beginning of the year, Inter RAO has increased the size of loans and borrowings by more than 5 times - up to 16.2 billion rubles. At the same time, the business has a huge financial cushion of money and bank deposits., which is on 30 September 2021 is about 317 billion rubles. As a result, the company's net debt remains in the negative zone and amounts to -203.7 billion rubles..
Dynamics of net debt at the end of the period, billion rubles
| 2017 | −147,9 |
| 2018 | −166,7 |
| 2019 | −196,5 |
| 2020 | −233,6 |
| 9м2021 | −203,7 |
−147,9
Despite a gigantic financial cushion and indirect state control, the company is in no hurry to switch to the rate of dividend payments, established by the state.
Inter RAO's dividend policy envisages allocating at least 25% from net profit, according to the new company strategy until 2025. At the same time, in the structure of the share capital of the holding, about 30% owned by a subsidiary. This quasi-treasury package allows the company to formally not consider itself state-owned and ignore government requirements.
Despite the relatively low level of payments, we should expect record dividends from Inter RAO in 2021 on the back of strong financial performance. Only for the first 9 months of 2021, the company earned about 0,2638 R dividends per share.
History of dividend payments
| 2016 | 0,1468 R |
| 2017 | 0,1304 R |
| 2018 | 0,1716 R |
| 2019 | 0,1962 R |
| 2020 | 0,1807 R |
0,1468 R
What's the bottom line?
Competitive moat "Inter RAO", which allows it to sell electricity not only in Russia, but also beyond at much higher prices, distinguishes the business from competitors, working in the power industry.
The company took advantage of high demand for electricity due to the energy crisis, in order to increase the volume of deliveries abroad to a record level. Rising prices and supply volumes drove revenue and profits to new all-time highs. As a result, business, very likely, pay out record dividends to shareholders, even if the rate of dividend payments remains at least 25% from IFRS net profit.
At the same time, the holding has a negative net debt and a huge financial cushion, which may eventually be used to purchase a major energy asset, which will further strengthen the company's position in the industry. Given that, what in 4 the quarter, demand and electricity prices will continue to rise, we can confidently predict record business results for the whole of 2021.
