GOGC’s 1H14 revenues added just 1.6% y/y (in GEL terms) to US$ 103mn and we see FY14 growth of 2.2% as pipeline rentals (13.8% of total) will be a significant contributor with an estimated 8.4% y/y growth. The 1H14 bottom line weakened on increased gas costs. GOGC expects to finalize the construction of the Gardabani Combined Cycle Power Plant in 2015 with operations launching in 2016. The company had a 2.1x net debt-to-EBITDA ratio at the end of 2013 and is compliant with Eurobond covenants. Ratings Agency, Standard & Poor’s (S&P) raised the company’s credit rating to ‘B+’ from ‘B’ earlier this month.
Profitability flat, revenues inch higher
GOGC reported 1H14 revenue of US$ 103mn (+1.6% y/y in GEL terms), as gas sales, its largest revenue stream (74.8% of sales), added 1.0% y/y to US$ 77mn. Pipeline rentals, the 2nd largest revenue item, grew 20.7% y/y and accounted for 13.8% of sales, with the remaining 11.4% of revenues coming from upstream activities (-20.3% y/y) and oil transportation (+15.3% y/y). As for the company’s bottom line, it weakened 11.8% y/y mainly on increased gas costs in 1H14. For FY14 we see revenues adding 2.2% y/y on a slight rise in gas revenues and expect pipeline rentals to be a significant contributor with an estimated 8.4% y/y growth. We further project 1.8% y/y increase of revenues in 2015.
Gardabani power plant to be completed in 2015
GOGC plans to complete the construction of the Gardabani Combined Cycle Power Plant (CCPP) by the end of 2015 and full operations are slated to be launched in 2016. The plant will cost a planned US$ 220mn, with US$ 160mn in prepayments already made to the construction firm by the end of 1H14. GOGC had remaining capital commitments related to inventory purchases and the construction of Gardabani of around US$ 60mn.
Debt covenants remain stable and comfortable
GOGC posted a 2.1x net debt-to-EBITDA ratio in 2013 vs 2.7x in 2012 and we expect the ratio to remain at the current level this year given 1H14 results. The company’s commitment to the Gardabani plant and the consequent decline in cash reserves will be offset by an increase in EBITDA, in our view, which would maintain the ratio at the 2.1x level in 2014 and 2015. Term deposits (US$ 68mn in 2013) are not included as cash equivalents in net debt calculations, but they would further lower the ratio to 1.0x in 2013.
