FSK-Rosseti PAO

Why I Chose to Invest in FSK-Rosseti PAO (FEES.MOEX)

For me it’s always a rare occurrence to discover a company that enjoys a practical monopoly within its operational market. While analyzing listed Russian firms at the end of 2021, I was drawn to one such entity bearing the name Rosseti, which exercises a monopoly over Russia’s Unified National Electric Grid (UNEG). Intrigued by its monopolistic position, I delved into the financials to uncover a robust balance sheet, profitable operations, and a stable dividend policy.

The company’s primary role is to manage and develop the UNEG while facilitating power transmission and connection services to players in the wholesale power and capacity market.

On the Moscow Stock Exchange (MOEX), there are several companies bearing the Rosseti name, most of which are regional power companies. Collectively, these Rosseti entities dominate the transmission and distribution of electricity within Russia.

In my analysis, I found that the primary Rosseti company holds roughly 80% of FEES. Additionally, the Russian government possesses a majority stake in Rosseti. This information was enough for me to include the company in my watchlist, ensuring I am reminded to seize any potential buying opportunities for my portfolio when the stock showed signs of weakness.

Disclaimer: This is not financial advice. Always conduct thorough due diligence before making any investment decisions.

Financial Data Analysis

The following financial data were relevant when I made my initial investment in Rosseti’s shares (further details about my trading activity is provided below). The calculated “Key Metricsprovide a window into my approach to valuation. For a deeper understanding of this approach, as well as comprehensive explanations on what these revealing ratios truly signify, I encourage you to read the following article.

For my due diligence, I primarily focus on the most recent annual Cash Flow and Income Statements to gauge the company’s performance relative to the previous years. However, when reviewing the Balance Sheet, I always refer to the most recent quarterly statements. This allows me to accurately understand the present state of the company’s assets and liabilities, essentially giving me a snapshot of what I’m investing in at that moment.

Selected Quarterly Balance Sheet Data as of September 30, 2021Key Metrics
Total Inventory19,001.00Current Ratio139,034.00 / 72,196.00 = 1.93
Total Current Assets139,034.00Quick Ratio(139,034.00 – 19,001.00) / 72,196.00 = 1.66
Total GoodwillN/ABook Value per Share980,754.00 / 1,260,938.16 = 0.78
Total Intangibles7,325.00Tangible Book Value per Share(980,754.00 – 7,325.00) / 1,260,938.16 = 0.77
Total Assets1,378,054.00Price to Book Value0.09665 / 0.78 = 0.12
Total Current Liabilities72,196.00Price to Tangible Book Value0.09665 / 0.77 = 0.13
Total Equity980,754.00Total Equity / Total Assets980,754.00 / 1,260,938.16 = 0.78
Total Common Shares Outstanding1,260,938.16Total Tangible Equity / Total Tangible Assets(980,754.00 – 7,325.00) / (1,260,938.16 – 7,325.00) = 0.78
Selected Annual Income Statement Data as of December 31, 2020Key Metrics
Diluted Net Income59,379.00Diluted Normalized EPS59,379.00 / 1,260,938.00 = 0.047
Diluted Weighted Average Shares1,260,938.00Price to Earnings Ratio0.09665 / 0.047 = 2.06
Selected Annual Cash Flow Data as of December 31, 2020Key Metrics
Total Cash Dividends Paid23,042.00Dividend per Share23,042.00 / 1,260,938.00 = 0.018
Dividend Yield0.018 / 0.09665 * 100% = 18.62%

Catalysts for Future Revaluation

In July, 2022 Russia’s Federal Grid Company UES (FEES.MM) announced it will take over parent company PJSC Rosseti. At that time, Rosseti owned 80.13% of FEES. Rosseti, in turn, was 88.04% owned by the state and 1.28% by Gazprom Finance B.V.

At the end of 2022, the company made the decision to withhold dividend distribution for 2021. This decision was likely driven by the impending merger with Rosseti, considering that the funds could be more judiciously allocated towards the integration of the companies under a new, unified structure.

The state’s stake in the merged entity is projected to be not less than 75%, plus one share. This will be achieved partly through the cancellation of some of the FEES shares held by Rosseti. As the largest shareholder, I anticipate that dividend payments will resume at the earliest suitable opportunity, potentially as soon as the fiscal year 2022. Consequently, I expect a subsequent rebound in the share price to its previous levels.

It’s worth mentioning, however, that discussing catalysts is arguably futile as long as the current sanctions persist. Consequently, I plan to update this section in the future, once the prevailing circumstances have normalized.

Company Information

FSK YeES PAO (Federal’naya Setevaya Kompaniya Edinoy Energeticheskoy Sistemy PAO) is a Russia-based company, which is engaged in the transmission, control and distribution of electric energy. The Company’s scope of activities includes managing all-Russia power grid, rendering services to the entities of wholesale market of electric energy transmission, investment activity in the field of power grid development, necessary maintenance of power network, as well as technical supervision of power grid facilities. The Company operates through numerous branches, subsidiaries and affiliated companies, located on the territory of the Russian Federation. The Company’s major shareholder is Rossiyskiye Seti PAO.

Company Website: http://www.fsk-ees.ru/eng/

Company Website (Rosseti Centre): https://www.mrsk-1.ru/en/

Trading Activity – When I Bought These Shares

  • February 22, 2022 – RUB 0.11
  • February 24, 2022 – RUB 0.06
  • February 25, 2022 – RUB 0.09
  • (Average price – RUB 0.09665)

Due to imposed sanctions in relation to the Ukraine “conflict”, I am not allowed to buy or sell these Russian holdings for as long as the imposed sanctions last.

Dividend Activity – When I Received Any Dividends

  • Not Applicable Yet

Due to imposed sanctions in relation to the Ukraine “conflict”, I am not allowed to collect any dividends on these Russian holdings for as long as the imposed sanctions last.

Trading Activity – When I Sold These Shares

  • Not Applicable Yet

Recommended Resources to Start Conducting Your Own Research

Due to sanctions related to the Ukraine “conflict”, accessing information about Russian companies through western media resources is limited. This limitation also applies to the Reuters link mentioned above. Alternatively, you can use the Russian search engine Yandex.com to find better search results concerning Russian companies, including Rosseti.

Note: Although I have provided the following price chart for Rosseti from Stockdio.com, prices haven’t been recently updated. This discrepancy, I believe, may be attributable to the ongoing sanctions. Meanwhile, you can stay informed about the ongoing stock price by utilizing the Reuters link provided above.

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