DTEK Energy EBITDA falls 17% in 1H19

Ukraine’s leading coal and power holding DTEK Energy
(DTEKUA) generated UAH 53.43 bln of net revenue in 1H19, according to its reporting
of abridged financials released on Aug. 30. The result is 36% less than it
reported a year ago, but the change is not indicative as the company spun off
its power distribution segment in late 2018. The company’s reported its 1H19
operating profit was UAH 4.42 bln, which is 27% less yoy. We estimate that the
company’s 1H19 EBITDA was UAH 10.81 bln, or 17% less yoy. Its bottom line was
UAH 3.34 bln in 1H19, or 38% weaker yoy.

DTEK Energy generated UAH 11.09 bln of cash flow from
operations before working capital changes (16% less yoy) in 1H19, while its net
cash flow from operations was just UAH 2.47 bln (70% less yoy) primarily due to
a surge of receivables (by UAH 4.01 bln in 1H19). The holding reduced
investments into PP&E by 27% yoy to UAH 2.83 bln and repaid net UAH 1.53
bln of debt. Its net debt stood at UAH 50.69 bln as of end-1H19, or 3% less
YTD.

The company’s net debt to LTM EBITDA ratio was 2.1x as
of end-1H19, or slightly weaker than half a year ago (2.0x).

Alexander Paraschiy: The company’s weakened EBITDA is what we expected as a result of a
decline in average achieved electricity prices in 2Q19 and taking into account
the weak financial results of power
generation company Centrenergo (CEEN UK). However, even with such a decline, the company’s leverage multipliers
remain solid. In 2H19, we expect some improvement in DTEK Energy’s EBITDA due
to better electricity rates, whose positive effect will be only partially
offset by the additional costs of burning expensive natural gas at its Luhanska
power plant (to cost about UAH 0.14 bln per month of burning gas). We maintain
our bullish view on DTEKUA Eurobonds.