Ukrainian Railways EBITDA increases 17% in 2021

Ukrainian Railways (RAILUA) increased its net revenue
15.0% yoy to UAH 86.60 bln in 2021, the company reported on Jan. 12 referring
to its preliminary calculations of annual P&L. Its EBITDA increased 42.8%
to UAH 14.46 bln and net profit reached UAH 0.46 bln in 2021 (vs. UAH 11.90 bln
net losses in 2020), the company reported.

It also highlighted that, for the first time ever, it
had its financial plan for the next year approved before the year started. Its
financial plan for 2022 assumes generating UAH 98.09 bln of revenue (up 13.3%
compared to the announced 2021 results), EBITDA of UAH 20.23 bln (up 39.9% yoy)
and bottom line of UAH 1.68 bln (up 3.7x yoy). A key contributor to the revenue
increase in 2022 will be the increase of freight rates that has taken place
over August 2021 and January 2022. This year, the company is going to increase
cargo turnover by 3.7% yoy and passenger turnover by 14.3% yoy.

The company’s financial plan for 2022 assumes its debt
will increase by UAH 13.86 bln (about USD 0.5 bln), with key growing factors to
be a USD 0.1 bln loan from EBRD, USD 0.1 bln in financial leasing and USD 0.5
bln in “other loans” (possibly Eurobonds). Interestingly, the company has
scheduled a decrease of its debt to Prominvestbank from UAH 6.63 bln as of
end-2021 to zero by end-2022. Recall, this debt was purchased in 2019 by VR
Global Partners, while the latter has recently lost court battle
with Ukrainian Railways over this debt.

Alexander Paraschiy: The
company’s latest revenue and net income estimate for 2021 is 2.9% and 82% more
than the December guidance presented in
its financial plan for the next year. Meanwhile, its latest EBITDA estimate for
2021 is 3.7% below the previous guidance. Ukrainian Railways’ P&L plan for
2022 looks realistic, while its plan to attract Eurobond financing might be
challenging to achieve unless appetite for Ukrainian bonds recovers.

It is good that, for the first time since 2018, the
company has explicitly scheduled to decrease its debt to Prominvestbank/VR, but
the way it is going to decrease such debt is not clear. In particular, the
company wrote in an explanatory letter that “an overdue debt” could be “repaid
or settled.”

All in all, we remain neutral on RAILUA bonds.