Valuation Of Ukrainian Thermal Power Generation
Market Research Report

Valuation Of Ukrainian Thermal Power Generation Market Research Report

The five publicly traded thermal power generation companies account for 2/5 of electricity production in Ukraine. Thermal generation will carry all the country's power demand growth in the future as the alternative, nuclear power plants, are already close to full capacity load.

In this report, we revise our valuation approach for thermal power generation companies (GenCos). We set aside DCF modeling (which is sensitive to mid-term assumptions that are highly uncertain in the current market) and valuation by Russian peers. We apply an economic profit model instead.

Due to mid-term uncertainties related to the tariff policy and GenCos' profitability, we believe an economic profit model is a more appropriate valuation instrument:

Fair value = Invested capital + NPV of future economic profits

We discuss 9M08 electricity production in Ukraine and revise our forecasts for 2008 and 2009.

• 1. Generation Companies
  • 1.1 Employed assets + economic profit
• 3. Performance: better than Russian peers
• 4. GenCos' power production growth exceeded Ukraine's consumption growth
• 5. Financials: profits are decreasing
• 6. Valuation revision
• 7. Estimation of initial invested capital
  • 7.1 Adjustments to invested capital
• 9. 9.1 Assumptions for EP model's terminal value
  • 9.2 Final formula for estimating GenCos' EV
• 10. Investment Ratings
• List of CHARTS AND TABLES
  • Financial forecasts
  • Valuation summary
  • Market price performance YTD
  • EV/Capacity, USD/kW
  • Market multiples
  • Change in Ukraine's power output in 9M08, yoy, TWh
  • Power output, TWh
  • 9M08 financials, USD mln
  • Financial forecast revisions
  • Assumption
  • Breakdown of GenCos' equipment by hours worked
  • Summary: invested capital estimation
  • Valuation results, USD mln
  • Sensitivity analysis: share price, USD