On November 10, Concern Galnaftogaz [GLNG UZ, Speculative BUY] disclosed its selected consolidated UAS 1H08 results.
The 9M08 P&L data (USD/UAH 5.05): net sales, USD 1,009.8 mln (+76% YoY); OIBDA, USD 56.7 mln (+168%); net income, USD 32.7 mln (+768%). The margins: OIBDA, 5.6% (up 1.9 pp YoY); net, 3.2% (up 2.6 pp). Selected items from the September 30, 2008 balance sheet: total assets, USD 543.0 mln; net PP&E, USD 256.1 (+44.4% YtD); shareholders’ equity, USD 214.2 mln.
During 9M08, Galnaftogaz sold about 490 thsd mt of fuel.
According to our calculations, the 3Q08 P&L details are: net sales, USD 400.4 mln (+80% YoY); OIBDA, USD 20.8 mln (+183%); net income, USD 5.1 mln (+545%). During 3Q08, shareholders’ equity increased by 2.5%, or by USD 5.3 mln. The fuel sales reached 176 thsd mt in 3Q08, or about 7.5-8.0 mt per OKKO station per day.
In a separate development, on November 12, Galnaftogaz reported an increase in the number of OKKO-branded filling stations by 7 to 259. The total number of units in the retail network has exceeded 290.
Galnaftogaz is an independent fuel retailer, one of the largest in Ukraine, and a member of the diversified Universal Group. Its filling stations network is present in 18 of 24 oblasts (regions) of Ukraine, as well as in Kyiv. As of November 2008, the company’s filling stations network consists of at least 290 units, including 259 high-turnover units of the OKKO brand. Galnaftogaz operates 15 fuel storage depots throughout Ukraine. By 2011, the company plans to operate 505 filling stations. At the end of 2007, Galnaftogaz secured USD 250 mln in credit from the European Bank for Reconstruction and Development, the International Finance Corporation, and the Black Sea Trade and Development Bank. A share capital increase fetched an additional USD 48.3 mln at the end of 2007. Galnaftogaz is planning an IPO, likely on the London Stock Exchange, in 2H09.
Our view: We value Galnaftogaz on the basis of consolidated IFRS results, but also compare our estimates to the UAS results, both consolidated and non-consolidated. For 2008, we expect net sales of USD 1.251 bln (-7% vs. annualized 9M08 UAS consolidated data), OIBDA of USD 75 mln (-1%), and net income of USD 21 mln (-52%). Both sales and OIBDA will experience downward pressure in 4Q08 from the Ukrainian fuel prices, which followed oil in dropping substantially during the last few months. However, the growth (both quantitative and qualitative) of Galnaftogaz’s network may allow it to meet our FY08 expectations.
The annualized 9M08 fuel sales amount to 653 thsd mt, which is 24% below our expectations of 899 thsd mt and 14% below the April 2008 management target of 760 thsd mt. The daily fuel sales volumes of 7.5-8.0 mt per station also fall short of the management’s 10 mt per station target. Again, network expansion and, more importantly, the company’s rebranding efforts (increasing the number of OKKO stations) may allow it to increase fuel sales and possibly reach 190-200 thsd mt in 4Q08. However, Galnaftogaz still has to demonstrate it can sell close to 9-10 mt per day per station.
The management’s target of having at least 300 filling stations (including at least 270 OKKO-branded units) by the end of 2008 looks realistic, but will require a year’s end boost in expansion.
Overall, Galnaftogaz performed well during 9M08, which is POSITIVE.