Centrenergo profit nearly triples despite 46% output decline in 1H17
28 July 2017
Net revenue at state power generation company
Centrenergo (CEEN UK) rose 18% yoy to UAH 6.03 bln in 1H17, according to its
regulatory filing on July 28. A 46% yoy decline in the company’s electricity
output (to 2.63 TWh) was more than offset by a 117% yoy rise in achieved
electricity price (to UAH 2.28/kWh). The price surge caused a huge increase in
Centrenergo’s profit as EBITDA and net profit both surged 2.9x yoy to UAH 2.68
bln and UAH 2.02 bln, respectively.
Alexander Paraschiy: Centrenergo
seems to be the main winner of a new pricing methodology for coal-fired power
plants imposed by Ukraine’s power sector regulator last year, as well as an
emergency regime imposed on the energy sector in late February 2017. Two of
Centrenergo’s three power plants are designed to burn anthracite coal, supplies
of which were halted from the occupied territory of Ukraine in mid-February,
causing all the anthracite-fired plants to work at minimum mode or even stop
altogether. But the regulator awarded high prices for electricity produced by
such power plants, enabling Centrenergo to generate enormous profit in 2Q17.
In the second half of 2017, as soon as power plants
replenish their stockpiles with imported anthracite and boost their production,
we expect the price of Centrenergo’s electricity will decrease and its profit
will decline radically too, with its bottom line being close to zero in 2H.
With such a high interim bottom line, Centrenergo
should become an attractive dividend play. In just 1H17, the company generated
UAH 5.46 in EPS compared to the current market price per share of UAH 10.8.
That allows us to expect a high dividend yield in 2018, or about 25% of the
current price, even if the company will generate zero profit in 2H17 (assuming
the dividend payout ratio will be 50%).
As a company with a state stake, it is obliged to
pay high dividends, based on government resolutions. This year, the compulsory
dividend payout ratio was 50%, (and next year, it’s likely to be the same or
higher). There is no chance that Centrenergo will be privatized before it pays
its next dividends (in April 2018). Yesterday, a State Property Fund official
confirmed the company may be privatized “only in the middle of next year.”
