Federal Grid Co. dropped to the lowest level in more than four years after Goldman Sachs Group Inc. cut Russia’s state-run power transmission company to sell from neutral, saying a tariff-freeze plan will crimp earnings.
The stock sank 2.1 percent to 9.535 kopeks, the weakest level since February 2009 by the close in Moscow. About 3 billion shares changed hands, 97 percent of the three-month daily average.
Government plans to freeze tariff growth next year and match increases to consumer prices from 2015 will lead to a “significant earnings cut” for Moscow-based Federal Grid, Goldman Sachs said in an e-mailed note dated yesterday. With economic growth at the slowest since a 2009 recession, Russia is seeking ways to tame inflation so the central bank can cut interest rates and stimulate growth.
“It’s a bad time for the power sector, tariff growth is being halted while investment programs remain hefty,” Mikhail Rasstrigin, an analyst at VTB Capital, said by phone from Moscow. “Investors are pricing in the worst possible outcome for these stocks and are selling shares.”
OAO Russian Grids, the nation’s largest electricity distributor, sank 4 percent to 88.4 kopeks, the lowest level since March 2009. The power companies were among the biggest decliners on the benchmark Micex stock index, which sank 0.3 percent.
Goldman reduced its estimates for Federal Grid’s earnings before interest, taxes, depreciation and amortization by 5 percent for 2014 and 14 percent for 2015. The reduced profit outlook and “stretched” balance sheet won’t allow the company to pay “attractive” dividends, analysts including Moscow-based Artyom Golodnov said in the note.
Russian Grids’ investment program will be cut by a range of 200 billion rubles ($6.2 billion) to 300 billion rubles over the next five years due to the tariff freeze, Energy Minister Alexander Novak told reporters today.
“Companies are amending their investment programs but not sufficiently to sustain their attractiveness for investors,” Rasstrigin said.