JKX revenue rises 24%, EBITDA 44% in 2018

JKX Oil & Gas (JKX LN) reported a 24% yoy increase
in net revenue to 92.9 mln in 2018, according to its preliminary results
published on March 29. The increase is mostly attributed to higher prices of
hydrocarbons as its output increased only 3% yoy. Its operating profit before
exceptional items swelled 178% yoy to USD 20.7 mln, implying EBITDA growth of
44% yoy to USD 35.9 mln. Due to a smaller amount of exceptional costs, the
company’s 2018 operating profit and net profit turned positive at USD 15.7 mln
and USD 15.3 mln, respectively (after negative USD 10.04 mln and USD 17.66 mln
in 2017).

Improved P&L also was reflected in the company’s
better cash flow generation: operating cash flow surged 184% yoy to USD 31.3
mln. The company’s CapEx declined 39% yoy to USD 11.8 mln, resulting in a
significant improvement of JKX’s liquidity position. In particular, its
end-2018 cash improved 158% yoy to USD 19.2 mln, while its end-2018 net debt
turned to negative USD 8.2 mln, after positive USD 9.2 mln a year before.

Traditionally, the biggest contributor to JKX’s
P&L was its Ukrainian subsidiary, which generated USD 74.9 mln in revenue
in 2018 (81% of the total) even though it accounted for 41% of the company’s
total hydrocarbon output. Ukrainian assets’ EBITDA amounted to USD 35.3 mln (up
47% yoy), while EBITDA of Russian assets increased 133% yoy to 5.8 mln. Most of
JKX’s CapEx also came to Ukraine in 2018: USD 11.0 mln, or 94% of total.

The company updated on its litigation with Ukrainian
tax authorities, expecting that a Supreme Court ruling on their claim against
JKX for USD 12.4 mln in taxes will be made in 1H19 (the company won the cases
in first- and second-tier courts). It also expects that litigation on a tax
claim of USD 30.1 mln won’t end in 2019. The company also expects to receive
USD 12.1 mln in compensation from the government, as was ruled by a U.K. court,
but provided no information on when it could occur.

Alexander Paraschiy: The
company’s results look strong, which is a product of more careful investments
into Ukrainian assets, as well as the start of operations of its leased state
wells. We expect the company’s P&L will continue to improve in Ukraine this
year, mainly due to boosted production.

More importantly, the company’s improved cash position
makes it less sensitive to a possible loss in litigation with Ukraine’s tax
authorities, where JKX is under risk to be obliged to pay USD 12.4 mln in 2019.
All in all, we expect a positive reaction of the stock market to JKX’s
reporting.