JKX increases revenue 13%, profit 6.5x in 1H21

JKX Oil & Gas (JKX LN) reported a 13% yoy increase
in net revenue to USD 39.5 mln in 1H21, according to its interim results
released on Aug. 9. The company raised its revenue in Ukraine 18% yoy to USD
31.5 mln, which is a result of a 69% yoy increase of the average price of
hydrocarbons. In Russia, the company’s revenue decreased 4% yoy due to the same
decrease of natural gas prices.

The company’s operating profit increased 5.7x yoy to
USD 13.2 mln, including a 3.4x growth in Ukraine to USD 13.1 mln. The increase
was a result of higher revenue, some positive effect of exceptional items
(which added USD 1.8 mln to the profit in 1H21, vs. negative effect of USD 1.1
mln a year ago) and significant decrease of D&A expenses. The company’s
EBITDA (before exceptional items) increased 18% yoy to USD 17.3 mln, while the
EBITDA margin improved 1.9 pp to 43.9% in 1H21. Its bottom line increased 6.5x
yoy to USD 9.9 mln.

JKX generated USD 14.8 mln in cash from operating
activity (up 64% yoy) and decreased cash outflow from investment activity (to
USD 3.4 mln or 63% yoy) and financing activity (to USD 0.2 mln, or 96% yoy) in
1H21. In this way, it increased its cash balance by USD 11.1 mln to USD 36.2
mln in 1H21.

In 2H21, the company is planning to drill one new well
in Ukraine at its Rudenkivske field (to start in September), where no drilling
has occurred since 2010, according to the company. No other new wells are
planned by the company.

Alexander Paraschiy: The
beneficial price situation on Ukraine’s natural gas market allowed the company
to improve its profits despite a 23% yoy decline in hydrocarbons output in
1H21. High prices are likely to be sustained over the remainder of 2021, too,
which will allow the company to further generate large cash flows.

The company’s decision to invest into drilling in
the Rudenkivske field looks brave but risky, taking into account that earlier
attempts by the company to develop this field (in 2017) were not successful. However, if the drilling is successful, it would
significantly add to the company’s value.