DTEK Renewables doubles revenue, EBITDA in 1H20

Ukraine’s leading producer of green electricity DTEK Renewables
(DTEREN) reported a 98% yoy increase in revenue to UAH 4.10 bln in 1H20,
according to its Oct. 28 filing. Its EBITDA reached UAH 3.54 bln, or 113% more
yoy, according to Concorde Capital calculations. At the same time, its 1H20
bottom line plunged 70% yoy to UAH 0.44 bln, which was largely the result of
UAH 1.73 bln in exchange losses and UAH 0.35 bln in receivables impairment.

In EUR terms, DTEK Renewables’ revenue improved 111%
yoy (to EUR 143.5 mln) and EBITDA advanced 127% yoy (to EUR 123.8 mln) in 1H20,
according to our estimates.

The company’s operating cash flow before working
capital changes rose 108% yoy to UAH 3.59 bln, while accumulation of
receivables amounted to UAH 2.07 bln in 1H20 (or 50% of its 1H20 revenue). This
was the result of poor payment discipline of the state-run buyer of
electricity. With such a working capital build up, DTEK Renewables generated
just UAH 0.98 bln in net cash from operations in 1H20 (down 33% yoy).

The company’s total debt and net debt increased 5% YTD
as of end-June 2020, to UAH 22.7 bln and UAH 18.2 bln, respectively. Its gross
lending to related parties stood nearly flat YTD at UAH 6.4 bln.

Alexander Paraschiy: The
company’s key problem currently is poor payment discipline of Guaranteed Buyer,
a state company that is the sole buyer of its electricity. Interestingly, the
size of the problem for DTEK seems to be not as deep as for Ukraine’s green
energy sector overall. In particular, from DTEK Renewables’ accounts, we can
conclude that the state company has paid DTEK Renewables for 50% of the
electricity purchased in 1H20, while for the sector the average payment rate
was just 28% in the same period (or 37%, taking into account also payments for
electricity produced in 2019), based on our calculations (UAH 6.5 bln paid as
of end-June for electricity purchased in 1H20 and UAH 2.1 bln paid to liquidate
arrears of 2019, with a total of UAH 23.7 bln in electricity purchased from
Ukraine’s renewable sources in 1H20).

Notably, since then, the payment discipline in the
sector has slightly improved, as Guaranteed Buyer has paid UAH 9.5 bln from
July 1 to Oct. 23 (including UAH 1.1 bln repayment of arrears for March) whereas having purchased UAH 18.5 bln of electricity for the same
period. That level is far from being perfect and far from what has been agreed upon with green energy producers in June
2020, which was 100% of payments for current electricity
purchases and gradual liquidation of arrears. But it indicates the problem of
extremely poor payment discipline on the market is slightly improving, which is
beneficial for DTEK Renewables.

All in all, we believe DTEREN bonds, yielding over
13% to maturity, to be a solid investment opportunity.