Sadovaya downgrades 2012 guidance

Sadovaya Group (SGR PW) published its preliminary operating and financial results for 2011 and guidance for 2012 last week. The company’s 2011 revenue amounted to USD 87 mln (+3% above management guidance), while EBITDA amounted to USD 15.6 mln (42% below guidance). Management’s 2012 guidance for coal sales is a decline of 7% yoy to 1.18 mmt, but remain flat in monetary terms in 2012. The company plans to increase coal mining 12% yoy to 532 kt, and double coal production from waste to 125 kt in 2012. Sadovaya expects a 5% yoy increase in EBITDA to USD 16.5 mln and 12% yoy decline in net income to USD 11.6 mln this year. Sadovaya expects to launch two new longwalls in 2Q12 and 4Q12 at the Rassvet-1 Mine, which will raise monthly coal production to 36 kt in 2013 (+80% compared to February 2012). The company confirmed its plan to commission two waste recovery facilities in 2Q12 in 4Q12. 

Sadovaya key financial indicators guidance

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                 Sales       EBITDA Net income
                 2011   2012  2011  2012  2011  2012
———————————————–
Nov. 2010   98.0  155.8  31.1  63.3  22.5  47.0
Jun. 2011   84.2  158.5  26.8  66.2  17.9  50.1
Mar. 2012   86.7   87.0  15.6  16.5  13.2  11.6
———————————————–      
Source: Company data

Sadovaya key operating indicators guidance

———————————
          Mining,kt    Sales, kt              
          2011 2012   2011   2012
———————————
Nov. 2010  843  952  1,475  2,122      
Jun. 2011  501  940  1,212  2,157      
Mar. 2012  475  532  1,264  1,177
———————————      
Source: Company data

Roman Topolyuk: Sadovaya reduced its 2012 EBITDA estimate by fourfold from previous guidance, and has consequently been punished by the market: shares fell 23% last Friday. The stock is now trading at 7.9x 2012 EV/EBITDA, which is still 21% higher than its global peer median. The key reason behind lower EBITDA projections is the postponement of the launch of its enrichment factories, which should have been commissioned by the end of 2011, according to Sadovaya’s pre-IPO plan. The planned 7% yoy decline in coal sales suggests Sadovaya is going to increase its monthly coal trading volumes later this year, after a 36% yoy slump in 2M12. Corrections to 2012 net income seem to be driven by an increase in its effective tax rate and expected 2.4x increase in outstanding debt (due to a facility attracted from the EBRD). Financing costs should be USD 0.6 mln higher yoy subsequently, even though the cost of debt will be cut from 12% to 7-8%. The company’s outlook implies growth in operating profitability – EBITDA margin is set to grow 3 pp to 19% in 2012, which we believe could come from doubling operations in its low-cost waste recovery segment.