OREANDA-NEWS. July 21, 2010. Holding MRSK intends to establish dividend policies for its 11 subsidiaries. The basic principles were adopted in June, with the policy suggesting a payout ratio of 20-25% of annual net income. Dividend payments may start as soon as 2011. According to Holding MRSK CEO Nikolay Shvets, his company does not plan its payout ratio to exceed 5% in future years due to the USD100bn investment needs of the entire distribution sector, reported the press-centre of OTKRITIE Financial Corporation.

View: We see this news as a fundamentally positive sign for the distribution sector. Holding MRSK’s dividend policy looks modest compared to the expected payout ratios of the MRSKs, consequently we think investor attention may shift from Holding MRSK to its subsidiaries, especially most liquid ones such as MRSK of Center (one of our top sector picks). The sum of MRSK Holding’s stakes in its subsidiaries is USD4.73bn versus a market cap of USD4.8bn for MRKH. According to the new dividend policy we expect these figures to remain more or less equal as the previous premium for MRKH’s liquidity will be offset by a low (5%) payout ratio. We view late autumn, the time when info on tariffs will be known, as the main short-term catalyst.

Valuation: The EV/RAB multiple for Russian the distribution sector is 0.44X, compared to the international peer average of 1.34x.

Action: We view this news positive for the distribution sector.