Donbasenergo reports flat yoy EBITDA in 9M16

Power generator Donbasenergo (DOEN UK) reported a 7% yoy increase in net revenue to UAH 3.94 bln in 9M16, according to its Oct. 24 regulatory filing. The growth was solely due to higher electricity sales of 5.22 TWh (+21% yoy). The company’s EBITDA was UAH 170 mln in 9M16 (slightly less that UAH 173 mln reported a year ago) and its EBITDA margin was unusually low at 4.3% (4.7% in 9M15). The key factor in the low EBITDA was UAH 949 mln in net other operational losses (19% yoy increase), which are likely to consist mostly of write-offs of bad receivables. Donbasenergo’s bottom line was negative at UAH 26.2 mln in 9M16 (from positive UAH 0.3 mln a year ago).

Alexander Paraschiy: The key problem of Donbasenergo is that the biggest of its two thermal power plants (which produced 62% of the company’s total electricity in 8M16) is located on the occupied territory of the Donetsk region, where payment collections are weak and electricity pricing is uncertain. In particular, the average price of electricity supplied by Donbasenergo to Ukraine’s energy system increased 39% yoy in 9M16, we estimate. Even if the price of electricity supplied to the occupied territory would be flat yoy, Donbasenergo should have generated revenue that would be 38% higher yoy.

The company’s debt situation remains tough as its payables increased 53% YTD to UAH 3.50 bln as of end-9M16. At the same time, the company’s net debt decreased 71% YTD to UAH 126 mln. As another good development, we see that Donbasenergo’s overall collection rate for electricity has improved compared to the last year: the ratio of cash collections from customers to its total revenue was 53% in 9M16, rising from 42% in 9M15.

All in all, we see the company is able to muddle through all its hardships. However, that does not make it an attractive investment, taking into account the ongoing warfare.