DTEK Renewables decreases EBITDA 20%, improves profit 5x in 1H21

Ukraine’s leading green power producer DTEK Renewables
(DTEREN) generated EUR 114.7 mln in net revenue in 1H21, which is 19% less yoy.
Revenue from electricity sales decreased 24% yoy to EUR 106.3 mln, which was a
result of a 19% yoy decrease of power generation by the company (to 0.99 TWh,
which the company attributes to weather conditions), a decrease of the average
power price and application of penalties for imbalances (EUR 1.6 mln).
Meanwhile, the company generated EUR 8.4 mln of additional revenue from “output
curtailment services” in 1H21. 

Its EBITDA decreased 20% yoy to EUR 100.6 mln, mostly
due to revenue reduction. Meanwhile, its gains from foreign currency exchange
in the amount of EUR 29.6 mln (vs. loss of EUR 59.8 mln in 1H20) allowed the
company to increase the bottom line 4.9x yoy to EUR 74.8 mln.

DTEK Renewables’ operating cash flow before working
capital changes decreased 19% yoy to EUR 100.0 mln, while net cash generated
from operating activity increased 3.2x yoy to EUR 109.3 mln. This was a result
of the improved payment discipline of a state operator, Guaranteed Buyer, which
decreased its payables to DTEK Energy by about EUR 48 mln during the period.
Guaranteed Buyer owes DTEK Renewables EUR 98 mln as of end-June.

As the company started construction of Tiligulska Wind
Power Plant in March, its CapEx increased 12x yoy to EUR 151.1 mln in 1H21. The
company stated that the total CapEx of the project, which will consist of 83
wind turbines of total capacity 500 MW, would be EUR 587 mln. Out of this
amount, DTEK Renewables has already spent EUR 152 mln, of which EUR 132 mln
came from green bond proceeds. The company is planning to commission the new
plant in 4Q22.

DTEK Renewable’s total debt decreased 2% YTD to EUR
700.1 mln, while its total debt to LTM EBITDA ratio (in EUR equivalent)
worsened to 3.4x as of end-June 2021 (from 3.1x as of end-December 2020). Its
cash balance increased 36% YTD to EUR 53.6 mln and loans provided to related
parties increased 14% YTD to EUR 234.2 mln.

Alexander Paraschiy: The
company’s 1H21 P&L looks worse than we earlier expected, mainly due to a
decline of power output. With such results, we revise our 2021 EBITDA estimate
for the company to EUR 200 mln (from EUR 216 mln).
The good news is that Guaranteed Buyer has improved its payment discipline, and
there is a chance that the state company’s debt to DTEK Renewables will further
decrease by end-2021 (providing that another state company and Guaranteed
Buyer’s debtor, Ukrenergo, secures new debt financing). The key question now
is  – what will be sources of money for the further construction of
Tiligulska WPP, besides payments from Guaranteed Buyer. In other words, will
the company be able to recover its lending to related parties, or will it have
to raise new debt to finance the project. However, even with such
uncertainties, we believe DTEREN bonds, which trade at 7.7% YTC, have an upside
potential.