Ovostar EBITDA plunges 66% yoy in 9M19

Revenue at Ukraine’s egg producer Ovostar Union (OVO
PW) fell 18.0% yoy to USD 77.6 mln in 9M19, according to the company’s interim
report published on Nov. 14. The company’s EBITDA plunged 65.8% yoy to USD 5.9
mln and net profit crashed 81.2% yoy to USD 2.6 mln in 9M19. Its operating cash
flow before working capital changes plummeted 58.0% yoy to USD 8.9 mln, while
net cash generated from operations decreased 22.7% yoy to USD 13.6 mln. The
company’s investments into fixed assets and biological assets slightly
increased by 6.4% yoy to USD 18.2 mln. Also, the company’s reduced its cash
balance by 59.0% ytd to USD 5.9 mln of end-9M19.

The company’s shell egg sales fell 15.9% yoy to 888
mln units in 9M19 and its egg export volume slid 0.7% yoy to 440 mln units,
while its export sales share was 49.5% in 9M19 vs. 42.0% a year ago. Average
shell egg prices declined 9.0% yoy to USD 0.061/unit in 9M19. Ovostar sold
1,736 tons of dry egg products (19.5% yoy decline) and its export sales
decreased 21.4% yoy to 1,235 tons in 9M19. The company’s sales of liquid egg
products rose 17.9% yoy to 10,453 tons and export sales climbed 17.2% yoy to
5,069 tons in 9M19. The average selling price of its dry egg products dropped
9.7% yoy to USD 4.39/kg and the average selling price of its liquid egg
products decreased 3.4% yoy to USD 1.41/kg.

In 3Q19 alone, the company’s shell egg sales dropped
26.3% yoy to 278 mln units, while its export sales declined 29.5% yoy to 105
mln units and domestic sales fell 24.1% yoy to 173 mln units.

Andriy Perederey: The operating results reveal that the negative trend of Ovostar’s shell
egg sales intensified in 3Q19. The key driver of the company’s EBITDA drop in
9M19 was declining shell egg sales in 2Q and 3Q, while the slide in average
selling price added pressure on the company’s financial results. The biggest
factor was a drop in its domestic market sales, which was exacerbated by the
strengthening hryvnia. In 4Q19, a seasonal price increase could improve the
company’s profitability, but our neutral view on OVO stock remains.