Federal Grid Co. of Unified Energy System PJSC :FGCUL-US: Earnings Analysis: Q3, 2017 By the Numbers : December 11, 2017

Federal Grid Co. of Unified Energy System PJSC reports financial results for the quarter ended September 30, 2017.

We analyze the earnings along side the following peers of Federal Grid Co. of Unified Energy System PJSC – Avista Corporation, Great Plains Energy Incorporated and Portland General Electric Company (AVA-US, GXP-US and POR-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 997.93 million, Net Earnings of USD 319.99 million.
  • Gross margins narrowed from 47.27% to 44.70% compared to the same period last year, operating (EBITDA) margins now 56.67% from 49.54%.
  • Year-on-year change in operating cash flow of 60.64% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 997.93 899.13 855 1432.48 846.6
Revenue Growth (%YOY) 17.88 0.45 17.41 57.94 25.63
Earnings (mil) 319.99 330.95 100.08 139.05 221.44
Earnings Growth (%YOY) 44.51 -24.77 -56.3 -25.63 -1.51
Net Margin (%) 32.07 36.81 11.71 9.71 26.16
EPS 0.13 0.13 0.04 0.06 0.08
Return on Equity (%) 2.52 2.61 0.8 1.21 2.06
Return on Assets (%) 6.7 6.88 2.13 3.2 5.36

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Market Share Versus Profits

Revenues History
Earnings History

FGCUL-US’s change in revenue this period compared to the same period last year of 17.88% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that FGCUL-US is holding onto its market share. Also, for comparison purposes, revenues changed by 10.99% and earnings by -3.31% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s gross margins showed no year-on-year improvement. In spite of this, the company’s earnings rose, influenced primarily by the improvement in operating margins (EBITDA margins) from 49.54% to 56.67%. For comparison, gross margins were 50.19% and EBITDA margins were 59.94% in the last period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

FGCUL-US’s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days are now 16.19 days from 71.57 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

FGCUL-US’s change in operating cash flow of 60.64% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 31.19% to 36.85% and (2) one-time items. The company’s pretax margins are now 40.66% compared to 28.95% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Federal Grid Co. of Unified Energy System PJSC

Company Profile

Federal Grid Co. of Unified Energy System PJSC engages in the provision of electricity transmission services. It operates through the following business division: Electric Energy Transmission, Technical Connection, Investments, and Repair Programs. The Electric Energy Transmission division transmits electricity from large generators through backbone grid lines to distribution grids which supply power to the end consumers. The Technical Connection division business involves a set of measures aimed at connecting the power equipment of legal entities and individuals to the company’s grid facilities. The Investments division includes the development and renovation of the company’s grid assets, implementation of electric grid construction projects. The Repair Programs division improves the performance reliability of the electric grid equipment and includes repair of the capital equipment at substations, elements of transmission lines, buildings, and structures. The company was founded on June 25, 2002 and is headquartered in Moscow, Russia.

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