Dniproenergo pays tiny dividends, reveals optimistic 2012 outlook

Dniproenergo (DNEN UK) shareholders, at an AGM yesterday, voted to pay 30% of the company’s 2011 net income as dividends (DPS is UAH 14.4, dividend yield 2.2%). Shareholders approved the 2011 financial report: net revenue of UAH 8.6 bln (+38% yoy), EBITDA of UAH 918 mln (+42% yoy) and net income of UAH 286 mln (+48% yoy). Management announced an ambitious 2012 financial plan, with an EBITDA target of UAH 2.5 bln (2.7x growth yoy) and net income target of UAH 1.3 bln. Shareholders also supported a “significant deals” item initiated by management – shareholders representing 0.38% of shares (4.6% of free float) voted against item, thus effectively obtaining a 30-day put option (see our note dated March 21). 

Alexander Paraschiy: Dniproenergo’s financial plan for 2012 looks overly optimistic, taking into account that the company’s operations were loss-making in 1Q12 (its net loss amounted to UAH 140 mln in January alone). Nevertheless, now controlled by DTEK, Dniproenergo might improve its profitability by effectively decreasing coal purchasing costs (as these costs are fully under the control of its new parent). If its bottom line target is achieved, the company might increase dividends next year to yield 10% (at the current price). Separately, we note the risk that free float might decline by up to 4.6% within a month, if all shareholders that voted against the “significant deals” item realize their put options.