Naftogaz profit rises 27% yoy in 9M19, producing dividends

Ukraine’s leading natural gas company Naftogaz (NAFTO)
boosted its bottom line 27% yoy to UAH 21.3 bln in 9M19, according to the
company’s report issued this week. The company has already paid part of this
profit, or UAH 8.5 bln, as dividends to the government on Dec. 26, the
company’s CEO reported the same day. He added that the company has paid UAH
103.8 bln to the state year-to-date, including taxes and dividends.

The company’s revenue decreased 3.7% yoy to UAH 165.3
bln and its operating profit advanced 13.4% yoy to UAH 31.2 bln in 9M19. Its
EBITDA fell 16.6% yoy to UAH 55.5 bln, based on Concorde Capital calculations.
Its net debt slid 14% YTD to UAH 35.8 bln, and net debt to LTM EBITDA ratio was
0.44x, based on Concorde Capital calculations.

Naftogaz generated UAH 44.8 bln in cash from operating
activity and spent UAH 24.7 bln for CapEx and UAH 12.3 bln for dividends in
9M19.

Alexander Paraschiy: Naftogaz
has proven its image as a quasi-sovereign company, with the state contributing
heavily into its equity when the company has faced financial troubles (about
UAH 140 bln since 2014). At the same time, Naftogaz has paid most of profits in
dividends during its better times (UAH 64 bln paid to the state in 2017-2019),
and even paying extra dividends these days to improve performance of the state budget.

For fixed income investors, the most important
information is the implications of Naftogaz’s unbundling (spinning off its gas
transit business) on its future cash generation potential and profits. Based on
the 9M19 results, the contribution of its transit business to EBITDA was UAH
27.1 bln, we calculate, or 49% of total EBITDA (41% in 9M18).

That means, next year (after the unbundling)
Naftogaz will likely be left with half its EBITDA, thus raising its financial
leverage. At the same time, the company’s leverage will likely remain safe:
over the last 12M, the company’s net debt-to-EBITDA excluding its transit
segment was 0.81x, we calculate.