DTEK Energy says EBITDA surges 4x yoy in 1H16

1H16 net revenue at Ukraine’s leading coal and utility holding DTEK Energy increased 25% yoy to UAH 56.99 bln, according to its IFRS-based results released on Sept. 29, which fully coincides DTEK’s preliminary 1Q and 2Q results.

The holding reported its 1H16 EBITDA amounted to UAH 3.17 bln, which DTEK proposes comparing to UAH 0.78 bln generated in 1H15. Interestingly, a year ago DTEK reported 1H15 EBITDA at UAH 2.95 bln. Its final EBITDA for 1H16 appeared to be 7% smaller than the sum of the preliminarily estimated EBITDA numbers for 1Q and 2Q of UAH 3.41 bln. The holding’s operating cash flow before working capital changes – UAH 4.15 bln for 1H16 (up 4.4% yoy) – appeared to be higher than the reported EBITDA number.

Its net profit remained negative at UAH 8.14 bln in 1H16, still less than the UAH 20.8 bln loss recorded the year before, due to still-high foreign currency translation losses (UAH 2.47 bln) and net financial costs (UAH 3.22 bln). The holding’s CapEx for the period was reported at UAH 2.18 bln (+16% yoy).

DTEK Energy’s gross debt increased 5% YTD in hryvnia terms to UAH 66.69 bln as of end-1H16, mostly due to devaluation of the local currency. In USD terms, its debt grew 1.6% YTD to USD 2,684 mln. DTEK Energy confirmed its plans to transfer USD 436 mln of its debt to a separate company together with its Russian mining assets. The holding’s amount of loans granted to related parties increased 4% YTD to USD 424 mln as of end-1H16.

During a conference call the same day, DTEK Energy’s representative Dmytro Fedotov expressed his expectation that the company will complete a long-term Eurobond restructuring by the end of the standstill period (Oct. 28).

Alexander Paraschiy: We expect the second half of the year will be much more successful for DTEK Energy, which is going to benefit from increased demand for its electricity, higher electricity prices and (hopefully) more stability on the occupied territories of Ukraine, where some of its mines are located. At the same time, the holding’s 2H16 results may reflect some reduced operations that will result from the expected spinoff of its Russian mines. Thus far, we believe our forecast for DTEK’s 2016 EBITDA of about USD 475 mln is still achievable for the holding.

What worries us is that the holding is not hurrying to recall its loan granted to related parties – a soon repayment of this loan would add much to DTEK’s financial stability. Meanwhile, we do not have enough information to share Fedotov’s optimism on soon restructuring agreement with Eurobond holders. We stick to our view that the deal would be reached no earlier than by the end of this year. All in all, remain neutral on DTEKUA Eurobonds.