DTEK's EBITDA down 80%YoY in 1H15

Обзор облигаций 01.10.2015 In its 1H15 unaudited financial results released yesterday, DTEK announced that its revenue declined 50% to US$2.1bn while adjusted EBITDA dropped 80% YoY to US$138m. The company generated a net loss of US$1bn versus US$480m in 1H14, and its free cash flow was negative US$164m compared to negative US$39m in 1H14. As of June 30, DTEK's net debt declined 8% to US$2.7 from US$2.9bn as of end-2014, with its net debt/LTM EBITDA surging to 5.24x from 2.92x. Investment implications: Sales volumes severely undermined by the military conflict in Donbass and the hryvnia's devaluation were the two key negative factors which affected DTEK's 1H15 EBITDA. The gradual recovery of economic activity and restoration of the railway infrastructure, which are currently taking place in this embattled region after the ceasefire, should support the demand for the company's electricity and boost supply of deficit anthracite to DTEK's thermal power plants in the second half of the year. First signs of recovering operations in Donbass, hryvnia stabilization and rising tariffs for the thermal power electricity show promise for moderate HoH growth in the company's earnings in 2H15. We estimate DTEK's free cash flow to firm at US$70-120m in 2H15, which is enough to pay US$38m of Eurobond coupons, however may still be challenging to pay overall debt interest.