On September 30 OGK-5 (RTS: OGKE) disclosed its 1H 2008 financials audited to IFRS.
OGK-5: changes in the key indices of the profit and loss report, in USD mn
| Indicator | IH2007 | IH2008 | IH2008/IH2007 |
|---|
| Revenue | 620 | 845 | 36% |
| Operating expenses | 567 | 796 | 40% |
| EBIT | 53 | 49 | -7% |
| EBITDA | 92 | 100 | 8% |
| Net profit | 46 | 32 | -30% |
Source: company data, Finam estimates
The company cited a 23% increase in electricity sales, rallying producer prices for electricity and capacity, and its expansion on the free market as being behind the 36% growth in sales revenue. Revenue on electricity sales surged by 37.5% and that on thermal power sales jumped by 37%.
OGK-5: changes in operating expenses, USD mn
| Indicator | IH2007 | IH2008 | IH2008/IH2007 |
|---|
| Fuel expenses | 305 | 481 | 57% |
| Electricity purchases | 94 | 90 | -5% |
| Payroll expenses | 45 | 72 | 58% |
| Amortization | 40 | 51 | 27% |
| Repairs | 25 | 35 | 44% |
| Taxes, except for profit tax | 13 | 16 | 24% |
| Other expenses | 45 | 52 | 16% |
| Operating expenses | 567 | 796 | 40% |
Source: company data, Finam estimates
Operating expenses rose by 40%, outpacing revenue growth. The main expenditures were on payroll, amortization and repairs. The increase in fuel expenses is linked to a rise in wholesales prices for gas and coal. The spike in amortization costs is attributed to a re-evaluation of fixed assets in late 2007. Finally, payroll costs grew after the company paid so-called golden parachutes to its outgoing executives.
OGK-5: changes in profit margins
| Indicator | IH2007 | IH2008 | ∆ |
|---|
| EBIT margin | 8.48% | 5.79% | -2.69% |
| EBITDA margin | 14.91% | 11.80% | -3.12% |
| Net margin | 7.43% | 3.79% | -3.64% |
Source: company data, Finam estimates
Changes in the financial results have led to lower profit margins. We are moderately downbeat on the company’s financial performance. On the downside, we point out the narrower profit margins and a conspicuous rise in expenses. Admittedly, some of the expenses were one-offs. In our view, the reported financials are unlikely to have any tangible impact on the company’s stock valuations.
We estimate the fair price of OGK-5 (RTS: OGKE) at USD 0.039 per share, which corresponds to a SELL recommendation.
0.569
0.073
