Kernel deleverages on strong 1QFY15, may pay USD 0.25 in DPS

Ukrainian farmer and sunflower oil producer Kernel (KER PW) reported a set of strong operational and financial results for 1QFY15 (July-Sept. 2014). Its top line improved 40% yoy to USD 579 mln, mainly driven by doubled revenue in its flagship segment, bulk oil, to USD 233 mln. Notably, the core reason for the spectacular yoy performance is the extremely weak results achieved a year before, when the company’s crushing capacities were nearly idle due to an interim deficit of sunflower seeds.



For this reason, Kernel’s volumes of sunflower crushing rose 118% yoy to 506 kt, while its amount of bulk oil sales increased 112% yoy to 203 kt. The company increased its volumes of grain sales (+38% yoy) and export terminals throughput (+56% yoy) on “faster selling by farmers” this season.



Kernel’s EBITDA in the quarter amounted to USD 80.5 mln (vs. USD 3.0 mln a year before), with bulk oil (USD 40.9 mln), grain (USD 17.7 mln) and farming (USD 10.7 mln) being the core contributors. The company highlighted that its EBITDA per ton of bulk oil increased to USD 202 in 1QFY15 (25x surge yoy and +17% qoq) as it took advantage of lower competition – in sunflower seeds procurement, we assume. The company’s bottom line was USD 22.3 mln (with EPS amounting to USD 0.29) which is the first positive quarterly result since 1QFY14.



The company’s cash flow from operating activities amounted to USD 46.0 mln in the quarter (vs. USD -35.9 mln a year before), while cash outflow from investment activities was minimized to USD 11.6 mln in 1QFY15. This allowed the company to repay USD 45 mln in debt in the quarter. Its net debt decreased USD 28 mln qoq to USD 654 mln, and net debt-to-LTM EBITDA stood at 2.2x, down from 3.3x a year before.



Kernel also announced at its Dec. 10 AGM that it will consider distributing dividends in the amount of USD 0.25 per share.



Roman Topolyuk: Kernel’s EBITDA per ton of bulk oil sold in 1QFY15 of USD 202/t came in close to what was guided by the chairman of the board for the first half of this financial year during a conference call held in October. Such robust profitability in the company’s key business segment should be the core driver for its bottom line growth in FY2015.



Its grain-trading segment also demonstrated a better performance than we expected, having generated EBITDA of USD 14/t (compared to USD 11/t a year before). That result is likely to increase in future quarters if the government reinstates the redemption of export VAT for those exporting their own harvested grain starting Oct. 1, 2014, as provided by recent changes to legislation.



The company’s EBITDA in 1QFY15 might have a positive impact on consensus estimate of the annual result (USD 341 mln currently vs. our projection of USD 358 mln). The strong net operating cash flow of USD 338 mln that we project in FY2015 (Kernel reported USD 46 mln in 1QFY15) will positively influence the company’s equity through deleverage, as Kernel aims to minimize CapEx at USD 55 mln this financial year. Its stock trades at a cheap EV/EBITDA ratio of 3.8x consensus and at 3.6x our projection, compared to its historical average of 6.5x.

Источник: Конкорд Капитал