Gas margin squeeze
GOGC released audited FY19 results. Revenue was up 23.2% y/y to US$ 312.4mn. This growth was entirely driven by gas segment, making up 65% of 2019 revenue. Demand for social gas increased in 2019, as consumption from TPPs and households were up. Notably, unusually dry season led to an increased demand from TPPs, as they operated at full capacity for longer period. In addition, the company started commercial gas sales, which lifted average gas sale price to US$ 128.0/mcm in 2019 compared to 115.5/mcm in 2018.
On the back of increased demand, it became necessary for GOGC to acquire large portion of expensive ‘Additional Gas’ from SOCAR which caused hike in weighted average gas purchase price (+24.1% y/y). As a result, gas supply margin almost halved to 12.3% in 2019 from 24.1% a year before. Other segments remained mostly stable in 2019. Due to deterioration in gas segment, adjusted EBITDA margin fell from 33.6% to 21.8% over 2018-19.
We expect 2020 EBITDA to remain under pressure, due to lower sales price agreed upon COVID-19 related social pressures. We forecast gradual rebound in profitability from 2021, helped by electricity generation unit and reduction in average gas purchase price (as throughput in SCP is expected to increase substantially). Net-debt-to-adjusted EBITDA ratio jumped to 3.02x in 2019 from 1.5x in 2018, mostly due to lower profitability coupled with significant depreciation of GEL.
GOGC intended to refinance the US$ 250mn Eurobond due in April 2021 in 1Q20, however COVID-19 related disruptions in the financial markets prevented the company to secure financing. The company plans to refinance the bond by tapping international debt markets by 1Q21. However, considering current market instability, GOGC is also in active negotiations with IFIs to pre-agree alternative financing option.
Due to pandemic related economic slowdown Fitch revised company’s stable outlook to negative in April 2020 in line with that of Sovereign.
Please see the full report for detailed coverage of GOGC’s FY19 performance.
