Daily analyst comments
Low electricity prices may negatively affect OGK-1 financials
29.06.09 10:07
OGK-1 management does not rule out that, despite a cost-cutting program, the genco may see its finances down in FY 2009 as electricity prices fall.
On June 26, 2009, generation company OGK-1 (RTS: OGKA) announced the results of its BoD meeting. The meeting decided a number of issues, and heard a report by the genco general director, Vladimir Khlebnikov, on the progress of the OGK-1 cost-cutting program. OGK-1 management expects that the cost-cutting program will help the genco raise profits. For example, management’s forecast for OGK-1 FY 2009 net profit has been raised from RUB 4 million, as was initially scheduled in the business plan, to RUB 1 billion.
However, Khlebnikov believes that OGK-1 may see a shortfall in income in FY 2009 because of low prices on the free electricity market. The economic crunch has led to a 20-40% downturn in electricity prices, depending on the region; in addition, two OGK-1 subsidiary power plants, Kashirskaya and the Verhknetagilskaya, sell electricity at less than fuel cost at certain hours and power utility companies have no real control over gas prices. In our opinion, OGK-1 management projections may exert a moderately negative impact on stock valuations even if it successfully implements the cost-cutting program: if electricity prices go down, it could significantly impair OGK-1’s FY 2009 financial indicators.