Special comment on Alliance Oil results for Q3 and 9 months 2012

Alliance Oil has recently announced relatively upbeat Q3 IFRS statements. Oil production decline that posed a real threat for the issuer’s credit profile has almost ceased.
Increased refinement and sales, as well as oil products price growth in Q3 strongly improved financial results. Thus, revenue increased 11.0% q/q, whereas after 9 months it reached $2 536.6 million (+12.0 y/y).
9 months EBITDA amounted to $565 million, +26.0% y/y, while EBITDA margin added 22.0%.
The issuer’s credit quality has undergone no dramatic changes. During the quarter debt increased 11.6% to $1.95 billion. However, since cash increased more than twice, net debt stayed almost unchanged and totalled $1.65 billion. Therefore, net debt/EBITDA ratio remained at 2.1.
The main risk factor now is not the possibility of debt load increase due to the ongoing reconstruction of Khabarovsk refinery but the uncertainty over Kolvinskoye field.
We consider Alliance Oil-15 and Alliance Oil-14 still attractive in terms of risk/return ratio.
Series 3 and BO-1 may be interesting in the domestic market.