Electricity Generation and Distribution

According to Ukraine’s National Energy Strategy, DonbasEnergo’s two thermal power plants are slated for a complete overhaul during the next decade. We believe that ongoing modernization of the company’s power units will allow it to reduce operating costs and raise its profitability, with the EBITDA margin reaching 12% by 2014, up from 5.5% in 9M11. Currently DonbasEnergo trades with an EV/Capacity multiple of USD 45 per 1 kW of installed capacity, which is more than 2x below its peers’ average. We reiterate our BUY recommendation on the DOEN stock with a revised target price of USD 8.9 per share, implying a potential upside of 150%.

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