Coal Energy suffers EBITDA plunge of 68% yoy in FY2014

Обзоры по компаниям и отраслям 04.11.2014 Steam and coking coal producer Coal Energy reported a set of adverse financial results for FY2014 ending in June, which were influenced by the ongoing military conflict in the Donbas region, where the company’s production subsidiaries are located. Revenue declined 11% yoy to USD 112 mln, EBITDA plunged 68% yoy to USD 6.8 mln, net loss increased to USD 39 mln this fiscal year from USD 17 mln in FY2013. The company reported it has shifted operations at most of its assets into sustaining mode, due to the existing threat posed to the lives of its employees. Coal Energy is heavily concentrated on cost-cutting, managing accounts receivable (receivables increased 13% throughout the year to USD 37.6 mln) and restructuring of existing loan facilities (total debt grew 8% in FY2014, compared to end of FY2013). On the bright side, the company stated that the coal deficit and growing prices in the local market will bring future opportunities for local and imported coal trading. Most probably, this trading activity was the reason behind the positive EBITDA generated in 4Q14 of USD 2.6 mln, compared to a loss of USD 1.4 mln in 3Q14. Roman Topolyuk: The outlook for restoring Coal Energy’s business to a normal level is uncertain for two key reasons. Firstly, peace in Donbas hasn’t been established yet, which doesn’t enable the company to restart mining activity and avoid the fixed costs of keeping its mining assets idle (they reached USD 13.1 mln in 2014). Secondly, high debt loads compared to generated EBITDA create hurdles not only for timely debt repayment, but also for the servicing of debt. Coal Energy’s stock trades at a trailing EV/EBITDA ratio of 20x compared to its average historical level, and given the uncertainty, it’s not cheap enough for a long position.