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OGK-4 released its FY 2007 results audited to IFRS. The positive results, however, should have an insignificant impact on the company's stock valuations.
On May 15, 2008, OGK-4 (RTS: OGKD) released its FY 2007 results audited to IFRS.
OGK-4: Key Income Statement Indicators, USD mn
| Indicator | 2006 | 2007 | 2007/2006 |
|---|
| Revenue | 961 | 1,230 | +28% | | Operating expenses | 936 | 1,176 | 26% | | EBIT | 28 | 59 | +108% | | Amortization | 52 | 65 | 25% | | EBITDA | 80 | 124 | +54% | | Net profit | 196 | 62 | -68% |
Source: company data, Finam estimates
The 28% rise in the company's FY 2007 revenue was caused both by a quick upturn in energy sales and by favorable pricing conditions. In 2007, the competitive energy market was launched, which had a positive impact on the selling prices for the company's products.
OGK-4 expenses, USD mn
| Indicator | 2006 | 2007 | 2007/2006 |
|---|
| Fuel expenses | 543 | 677 | 25% | | Maintenance costs | 104 | 81 | -22% | | Personnel costs | 89 | 135 | 52% | | Amortization | 52 | 65 | 25% | | Purchased electric and thermal energy | 29 | 88 | 202% | | Taxes, except for income tax | 15 | 18 | 22% | | Other expenses | 105 | 112 | 7% | | Operating expenses | 936 | 1176 | +26% |
Source: company data, Finam estimates
The company's expenses grew slower that the revenue.
Fuel expenses are the largest expenditure, which stands for 58% in the genco's total costs. In the reporting period, fuel expenses grew by 25% due to fuel appreciation. The company's fuel balance implies usage of 23% of coal and 77% of gas
A 22% downturn in maintenance costs, which stand for 7% in the total expenses, was caused by optimization of the company's activities as regards performance of planned repairs at the genco's power plants
Labor costs, which stand for 11% in the total expenses, advanced by 52% due to arrival of a new company owner in 2007, which led to changes in the company's management and payment of severance wages
The Purchased Electric and Thermal Energy item, which stands for 7% in the total expenses, skyrocketed by 202% in the reporting period, primarily due to the necessity to secure obligations in the regulated market segment.
However, in our opinion, the marked increase in most expenditure items is non-recurrent, and expenses will rise much slower in FY 2008.
OGK-4 margins
| | 2006 | 2007 | ∆ |
|---|
| EBIT margin | 2.95% | 4.79% | +1.85 p.p. | | EBITDA margin | 8.34% | 10.05% | +1.70 p.p. | | Net profit margin | 20.41% | 5.03% | -15.38 p.p. |
Source: Finam estimates
The EBIT and EBITDA margins rose due to the changes described above. However, net profit margin dropped 15.38% due to reflection of recovery of the earlier confirmed loss from capital asset depreciation, which totaled USD 263 mn, in FY 2006 financial report. This has nothing to do with the company's operating activities.
Therefore, we are moderately upbeat on the genco's financial results and believe that the company's value will further depend on the management's ability to control operating expenses. We do not expect the published financial report to have any significant impact on the genco's stock valuations due to a selloff of the stock basket received by the former UES shareholders.
The fair value of OGK-4 (RTS: OGKD) shares is USD 0.067 per share, which corresponds to a HOLD recommendation.
Konstantin Reily
Other comments of the day
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OGK-4
Capitalization: $630 487 061,45
Common shares:
Price: $0,012
Delta week: 61,2%
Delta month: -21,9%
Delta year: -90,8%
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0.569
0.073
