Galnaftogaz Reports 1H Results.

Galnaftogaz (GLNG: BUY) reported 41.7% yoy higher net revenue ($222.0m), 21.8% yoy EBITDA growth (to $7.4m), and slightly lower net income ($3.5m) for 1H. On a quarterly basis, the company’s 2Q06 net revenue and EBITDA grew 18.6% and 42.6% respectively. GLNG’s margins decreased slightly compared to 1H05, but have improved since the first quarter. The company’s 1H06 EBITDA margin was 3.3%, about 0.6 p.p lower than in 1H05 (3.9%), its net margin dropped by 0.7 p.p., from 2.3% in 1H05 to 1.6% in 1H this year. The company’s shareholders’ equity increased by 19.6% YTD, to $70.4m, while net debt grew by 47.6% to $92.3m. Vladimir Nesterenko: Clearly, the company is going to outperform our forecast in terms of sales, but its profitability is likely to be much lower than we expected. For example, 1H06 EBITDA margin of 3.3% is 4.8 p.p. lower than our forecast (8.1%). At first glance, the company’s lower profitability is due to increasing competition on the domestic market and the larger share of imported fuel in its retail sales. The more intensive construction projects GLNG has undertaken this year could impact the company’s income statement as well.  We will release a detailed analysis of Galnaftogaz’s past performance shortly and update our forecasts.