Khartsyzsk Pipe approves dividend of UAH 0.28/share

Khartsyzsk Pipe (HRTR UK) shareholders, at an AGM yesterday, voted to pay 92% of 2011 net income as dividends (DPS amounts to UAH 0.28/share, dividend yield is 23% at yesterday’s price). The ex-dividend date is June 15 and dividends will be paid by October 10, 2012. At the AGM, the company released its full 2011 financial statements: revenue increased by 134% yoy to USD 779 mln, and EBITDA surged by 207% yoy to USD 145 mln, with EBITDA margin growing 5 pp yoy to 19%. Revenue and EBITDA growth was consistent with a previously disclosed 4.6x jump in net income, and was driven by strong operating performance last year (630 kt of pipes, up 2.2x yoy). Shareholders also voted in favor of a “significant deals” item put forward by management, with owners of 0.3% of shares (13% of free float) voting against the item and obtaining the right to sell their shares back to the company within the next 30 days (see our note dated March 1).

Roman Topolyuk: Khartsyzsk Pipe set its dividend record date after the date of expiration of the put option, as expected. Shareholders who voted against “significant deals” thus have to choose between holding the dividend generating stock (which we view as quasi-preferred, though totally illiquid) or exit at a price of UAH 1.19 per share (3% below the current market). As for operating performance, 2012 looks like another year of growth – the company ramped up large diameter pipe production 32% yoy to 212 kt in 1Q12. Though plans for April envisage a 21% mom decline in output, Khartsyzsk is enjoying robust demand from Kazakhstan and Turkmenistan and might return to the Russian market as soon as new pipeline projects restart following the presidential elections there. We believe the company has the good chances in 2012 to again post strong profits and maintain its traditionally high dividend yield.