Donbasenergo doubles EBITDA, profit in 9M13

Power generator Donbasenergo (DOEN UK) reported a 18% yoy increase in revenue to UAH 4.0 bln in 9M13, followed by a 7% yoy increase in power production to 7.1 TWh. The company’s EBITDA improved 95% yoy to UAH 799 mln and net profit increased 111% yoy to UAH 645 mln.

Alexander Paraschiy: Donbasenergo’s P/E for 9M13 (not annualized) is 1.23x, which looks very attractive taking into account the company has to pay at least 30% of its annual income in dividends. On the other hand, we see a clear incentive for the company (and its new owner) to report a very low bottom line for the 2013 financial year. The company has to pay 25.7% of 2013 profit as dividends to the state, according to privatization conditions that the new investor took this year. (The total dividend payout should be 30% of 2013 profit, and the new owner has to pay 86% of this sum (or the government’s pre-privatization stake) to the state next year, based on the conditions.)

As last year’s experience suggests, Donbasenergo can easily report weak financials in the fourth quarter: in 2012, it reported 4Q losses of UAH 274 mln to finish the year with a net income of just UAH 150 mln. While we expect the company will use a similar approach in 2013, we still believe its full-year profit will remain significant and it will pay hefty dividends next year.