According to 1H2014 financial results, released yesterday, Samruk-Energy’s net loss amounted to T16.6bn against T23.4bn of profit during the same period. The net loss was mainly associated with a T31.3bn goodwill impairment recognized by the company following the acquisition remaining 50% stake in EGRES-1.
Adjusted net profit wasТ 14.6bn which represents a 37.5% YoY decrease. As a result of consolidation EGRES-1, the company's revenue increased by 38% YoY to T96bn, with 6.1pp YoY widening gross margin to 41.2%. However, EBITDA margin narrowed to 38% due to a lower share of profits of associates (EGRES-2 and Bogatyr-Komir) and higher administrative expenses.
In the 1H2014 net debt tripled to T359.4bn compared to T116.5bn in 2013 mainly attributable to mostly debt-funded acquisition of EGRES-1. Net debt to EBITDA ratio surged at 5.0x in 1H2014 from 1.8x in 2013, while net interest expense coverage ratio plummeted to 6.3x from 10.5x, based on our estimates.
Our view. Although the credit metrics were negatively impacted by the acquisition, it was largely expected. However, a decline in profitability margin is a red flag for us. SE's rating at BBB from Fitch is still on the Rating Watch Negative list, while its BB+ rating from S&P has a negative outlook.
The company has one outstanding Eurobond ($500mn, cpn 3.75%, December 2017, Fitch BBB-, S&P BB+), which is traded at bid-ask YTM of 3.6-3.3%. We do not have Samruk-Energy under credit research coverage yet.