Donbasenergo EBITDA falls 61% in 1H18

Net revenue of power GenCo Donbasnergo (DOEN UK)
advanced 94% yoy to UAH 2,800 mln 1H18, according to its July 27 regulatory
filing. The surge in its top line occurred due to a 4.8x yoy jump in power
supply on the wholesale market, which was partially offset by a 60% yoy plunge
in the average electricity price. Lower rates at higher output, combined with
higher fuel costs, resulted in a 61% yoy decrease of the company’s EBITDA to
UAH 292 mln in 1H18. At the same time, the company’s bottom line improved to
UAH 198 mln in 1H18 from UAH 314 mln in losses in 1H17, caused by one-off costs
of UAH 892 mln, most likely related to the loss of its biggest power station in
occupied Donbas.

Alexander Paraschiy: Donbasenergo generated most of 1H17 EBITDA in 2Q, when it almost stood idle due to a lack of coal
(producing just 0.006 TWh of electricity, or 84x less than in 2Q18) but
nevertheless generated significant revenue from unusually high power rates. Now
that rates are not so inflated and the company is incurring variable costs, its
EBITDA is more stable. Taking into account that Donbasenergo now has to import
all the coal it burns (such coal is not produced in Ukraine outside the
occupied territory), Donbasenergo’s fuel costs are likely to grow further and
its profitability will further decrease. All in all, we see no value potential
in DOEN stock.