Donbasenergo posts hight EBITDA in 2Q17 amid near zero output

Power GenCo Donbasenergo (DOEN UK) reported a 14% yoy
decrease in net revenue to UAH 1.44 bln in 1H17, according to its regulatory
filing on July 28. Its electricity output dropped nearly 78% yoy to 300 GWh,
while its average electricity price skyrocketed. The company’s EBITDA improved
to positive UAH 0.73 bln (from negative UAH 0.42 bln in 1H16) and net loss
decreased 39% yoy to UAH 0.33 bln.

In 2Q17 alone, the company nearly stopped producing
electricity (output plunged 52 times qoq to just 5.7 GWh), yet revenue fell by
just 19% qoq (to UAH 644 mln) while EBITDA surged 351% qoq to UAH 600 mln.

Alexander Paraschiy: The
company’s latest results are not indicative as Donbasenergo nearly stood idle
all the second quarter and generated only revenue from special “investment”
payments. The company is nearly dead right now as it lost control in March over
one of its two power plants, which was confiscated by pro-Russian forces in the
occupied part of the Donetsk region (the plant accounted for two-thirds of
Donbasenergo’s power production last year). Its other plant suffered from a
deficit of coal, which it now has to import. There is little chance that the
company will be able to convert its remaining power plant from burning
anthracite (unavailable in Ukraine) to other types of coal.

Donbasenergo’s remaining power plant has a single
power unit of huge capacity (800 MW of installed capacity), for which
conversion to any other fuel could cost too much. For instance, another top
power company, DTEK, said it would be challenging to convert its even smaller
units, of 300 MW installed capacity, to burn other coal. Therefore, we see no
value in DOEN stock so far.