Donbasenergo Reports Preliminary 2007 Results

Electricity generation company Donbasenergo (DOEN: BUY) reported USD 290.9 mln net revenue for 2007 (+7% yoy). The company’s 2007 EBITDA was USD 32.7 mln (+13% yoy, EBITDA margin is 11.3%) and net income was USD 5.2 mln (compared a net loss of USD 0.8 mln in 2006). Alexander Paraschiy: The company’s results are below our forecasts: 3% less sales, and 29% lower EBITDA. The key factor that affected negatively the company’s EBITDA was the increase in coal prices in 3Q07, which was not fully compensated by electricity tariff growth in October and November. As a result, the company showed a gross profit of USD 0.8 and negative USD 8.2 EBITDA for 4Q07. As tariffs grew significantly in December 2007, the company is likely to report positive profits from 1Q08. We do not change our forecasts for the company and stick to our BUY recommendation.