Donbasenergo reports zero profit in 9M15

Power GenCo Donbasenergo (DOEN UK) reported an 1% yoy increase in its top line to UAH 3,686 mln in 9M15, according to its financials filed on Oct. 23. Its power output dropped 17% yoy in the same period. The company’s EBITDA fell 80% yoy to UAH 173 mln, and net profit was UAH 0.3 mln in 9M15, down from UAH 725 mln in the same year-ago period. The company’s payables increased 2.9x yoy and 19% qoq to UAH 1,678 mln as of end-September 2015. Its receivables also skyrocketed to UAH 855 mln, up 16% yoy.

Recall, the bigger of two thermal power plants of Donbasenergo, Starobesheve, is located on the occupied territory of Donbas. Since May 2015, this power plant is prohibited from selling electricity to the official Ukrainian wholesale power market and has to find clients for its power on the occupied territory by itself. This power plant accounted for 87% of the company’s power generation in 4M15.

In 3Q15, Donbasenergo’s revenue rose 21% yoy to UAH 1,409 mln on a 12% yoy increase in power generation (including Starobesheve TPP). Its EBITDA was just UAH 4 mln (a 98% yoy plunge) and its net loss amounted to UAH 58 mln (compared to a UAH 104 mln profit a year before).

Alexander Paraschiy: Given the poor results of Donbasenrgo’s peers, namely the power GenCos of DTEK, its results could be considered to be fantastic. It seems like its success story is rooted in its ability to find common ground with the suppliers of coal on the occupied territory. Notably, a radical increase in the company’s payables (by UAH 1,093 mln YTD, or 50% of its material costs for 9M15) suggests it pays little for its consumed coal. Nonetheless, given the lack of clarity in the company’s operations and its vague future, we believe its shares are highly risky investments right now.