Kernel EBITDA jump 54% yoy in 3QFY15

Ukraine’s largest sunflower oil producer Kernel (KER PW) reported EBITDA of USD 115 mln in 3QFY15 (+54% yoy) in earnings report released on May 28. The result was 31% higher than consensus. 9MFY15 EBITDA came in at USD 338 mln (2.5x higher yoy), which has already beaten the consensus projection for FY2015 of USD 335 mln.

Kernel’s key business segment of sunflower oil crushing performed strongly in 3QFY15. Bulk oil sales generated an EBITDA of USD 278/t (contrary to USD 189/t in 3QFY14 and USD 204/t in 2QFY15), which the company attributed to its ability to lock in higher margins, as other competitors on the local market don’t have sufficient access to working capital financing. Another driver of the high operating profit in the bulk oil segment was a ForEx effect of USD 35 mln in the quarter.

Margins in the bottled oil segment were squeezed in 3QFY15 as retail hryvnia-based prices for bottled oil didn’t fully make up for steep hryvna devaluation during the quarter.

Kernel’s farming segment reported EBITDA of USD 12 mln compared to a loss of USD 22 mln last year, and EBITDA of USD 67 mln in 9MFY15 compared to a loss of USD 70 mln in 9MFY14.

Its grain trading segment surprised to the upside, with an EBITDA margin of 8%, by 3pp higher than we expected and what the company reported for previous quarter. Grain trading generated EBITDA of USD 23 mln in 3QFY15 (-31% yoy), and USD 55 mln (+20% yoy) in 9MFY15, making a solid contribution to the group’s result.

Such strong earnings helped Kernel to overcome the USD 156 mln ForEx loss in 9MFY15 and to finish the period in black, with net income of USD 79 mln compared to a net loss of USD 75.8 mln in 9MFY14. Positive net operating cash flow of USD 218 mln in 9MFY15 (contrary to negative USD 193 mln in the same year-ago period), combined with CapEx of USD 18 mln during the period (-54% yoy), caused net debt to decrease to USD 482 mln (-47% yoy and a 34% decline since December 2014).

Roman Topolyuk: Kernel is on track to post its largest fiscal year EBITDA on record, even though margins in sunflower oil seeds will normalize in 4QFY15, down from its record high reported in 3QFY15. The released financials are supportive of our expectations of USD 256 per hectare to be generated in the farming segment this year, which appears to be prone for improvement next season.

Kernel’s decrease of net debt is materializing even quicker than we projected (refer to our report of May 27), on very limited use of capital for investments. A quicker deleveraging will have even more positive effect on the market value of equity, as compared to our recent projections. All this is supportive to our BUY recommendation for Kernel stock.

Источник: Конкорд Капитал