Kyivenergo AGM: USD 150 mln IFRS loss in 2011, optimistic 2012 outlook

Kyivenergo (KIEN UK) announced its 2011 financials under both local accounting standards and IFRS at an AGM yesterday. Net revenue grew 31% yoy to UAH 11.0 bln (UAH 10.9 bln under IFRS), while both EBITDA and net income were negative, on a UAH 1.9 bln loss generated by the company’s heating segment. LBITDA amounted to UAH 623 mln (UAH 567 mln under IFRS), and net loss was UAH 1.4 bln (UAH 1.2 bln under IFRS) – no dividends will be paid. The company’s board members expressed a positive outlook on compensation for heating losses in 2012 and plan a capex program of more than UAH 1 bln. Shareholders also gave preliminary approval for a “significant deals” that could be made by the company over the next 12 months, while representatives of 0.16% of shares (5% of free float) voted against the item. The pre-approved possible deals imply a high degree of financial flexibility for DTEK and Kyivenergo: the company is allowed to provide up to USD 1.9 bln in short-term lending to and receive up to USD 125 mln in borrowings (both interest-free) from parent DTEK. Also notable, unlike other recent DTEK acquisitions (Zakhidenergo and Dniproenergo), the company was not renamed “DTEK-Kyivenergo” – for political reasons, we guess.

Alexander Paraschiy: We believe Kyivenergo will be able to show a positive bottom line in 2012, given there is a high chance that the company will receive a major part of UAH the 4.6 bln set aside from the budget for subsidies to compensate for heating losses this year (see our news from April 11). At the same time, we warn that the company’s bottom line remains extremely sensitive to heating tariffs (which are very unlikely to grow this year) and/or budget compensation for heating losses. Given the multitude of uncertainties regarding Kyivenergo’s fundamental value, escalated by  concerns over tiny liquidity, we see selling shares to the issuer the best opportunity for investors. Those that voted against “significant deals” at the AGM have 30 days to offer their shares to Kyivenergo; the strike price could be close to UAH 19/share, by our estimates (2.6x above the market price).