Action of the week: Lenzoloto soared in anticipation of dividends (October 29, 2022)

The Moscow Exchange Index jumped this week by 6.07%. The vast majority of stocks on the Russian market rose. However, even against such a background, the papers of Lenzoloto stood out. Its common stock soared 44.36% in a week.

The main reason for interest in them is the upcoming dividends for the first 9 months of 2022. They have yet to be approved by the extraordinary meeting of shareholders, scheduled for November 16th. But the payout recommended by Lenzoloto’s board of directors on October 13 has already impressed too many.

It is proposed to pay 3,508 rubles per share, which at the time of the announcement was worth about 8,800 rubles. In other words, the dividend yield was about 40%.
The shares of Lenzoloto immediately soared to the region of 12,000 rubles, and then a correction began. But at the beginning of this week, growth resumed and at the maximum (on Wednesday), their quotes reached 17,860 rubles. Even at this level, the yield still looked tempting at 19.6%.

As you know, if something is too good to be true, then most likely it is not. On the exchange, this rule works even more reliably than in other areas of business.
Lenzoloto intends to allocate 4,000,172,400 rubles for dividends based on the results of 9 months, but all the assets of this company, according to the balance sheet published by it as of October 1 this year, amounted to 5615987000 rubles. In other words, after paying about 4 billion rubles, it remains with assets of about 1.6 billion rubles. And at the same time – without any business.

Once upon a time, Lenzolota had it and even corresponded to its name. But production assets were withdrawn from the company back in 2020, and most of the balance sheet is made up of funds received from this transaction. She pays them out in the form of dividends.

Last year, its ordinary shares accounted for 15,219.5 rubles, while preferred shares accounted for 3,699.27 rubles. Now the payments are already much smaller, and after them there will be very little money left on the balance sheet. This paints a bleak outlook for those who buy these shares for the sake of receiving payments on them.

BCS Express expert Igor Galaktionov described the future of Lenzoloto after the payment of the last dividends as follows: ‚ÄúTaking into account the company’s balance sheet, the fair value of the shares may be about 3,880 rubles for JSC and 830 rubles for AP. This is well below market valuations, so the stock should decline from current levels.

Here one can object, referring to 2021-2022, when the company’s shares remained expensive and traded in complete isolation from the fundamental value. This is a speculative effect, and indeed it can persist for quite some time.

But only until the liquidation procedure begins, which looks like the only alternative for the future of PJSC Lenzoloto. In this case, the shares will go out of circulation and the holders will receive no more than the liquidation value of the enterprise.

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