On July 21, 2008, TGK-1 (RTS: TGKA) posted its FY 2007 financial results audited to IFRS.
The genco's FY 2007 results were largely affected by its acquisition of 84% in Murmansk HPP, earlier controlled by UES, in May 2007. Additionally, in autumn 2007, TGK-1 floated an additional share issue for a total of RUB 32.4 billion in order to finance an investment program.
TGK-1: Income statement key indicators, USD mn
| | 2006 | 2007 | 2007/2006 |
|---|
| Revenue | 854 | 1105 | 29% |
| Operating expenses | 774 | 956 | 24% |
| EBIT | 80 | 149 | 87% |
| EBITDA | 132 | 229 | 74% |
| Net profit | 42 | 94 | 122% |
Source: company data, Finam estimates
A 29% upturn in revenue was caused by a rise in thermal and electric energy sales, growth of tariffs and expansion of the free market.
Revenue from electric energy sales grew by 35% y-o-y in 2007. This was caused by a 19.9% (4.68 bn kWh) increase in energy sales in natural terms and a 9.8% (RUB 0.045 per kWh) upturn in prices due to an increase in the approved rate and a surge in the free market share to 7.5% due to liberalization.
Revenue from thermal energy sales rose by 25% y-o-y due to a 5.94% (1.31 mn Gcal) growth in energy sales in natural terms and a 14.7% (RUB 60.64 per Gcal) upturn in prices due to an upsurge in the approved rate.
TGK-1 operating expenses grew by 24% in 2007. The key expenditure items were fuel expenses, expenses for purchased electric and thermal energy and amortization.
Fuel expenses rose due to a 15% rise in wholesale gas prices and a 7% increase in fuel consumption. Growth of expenses for purchased energy is attributed to a change in relations on the wholesale energy market in 2007 due to the introduction of the principle of fulfilling obligations under regulated contracts.
TGK-1 margins
| | 2006 | 2007 | ∆ |
|---|
| Operating margin | 9.32% | 13.49% | +4.17 p.p. |
| EBITDA margin | 15.45% | 20.73% | +5.27 p.p. |
| Net profit margin | 4.94% | 8.49% | +3.55 p.p. |
Source: Finam estimates
The company's EBIT, EBITDA and net profit margins grew due to the changes described above.
Therefore, we are upbeat on the company's report and believe that in future, the company's value will depend on the management's ability to control operating expenses and exploit to the maximum extent the opportunities provided by the wholesale energy market. We do not expect the report to have any significant impact on the company's stock valuations due to a sell-off of the securities basket received by former UES shareholders.
The fair value of TGK-1 (RTS: TGKA) is USD 0.00067 per share, which corresponds to a Sell recommendation.
11.8
12.74
