Ovostar EBITDA plunges 57% yoy in 1H19

Revenue at Ukraine’s egg producer Ovostar Union (OVO
PW) fell 15% yoy to USD 54.0 mln in 1H19, according to the company’s interim
report released on Aug. 30. Its EBITDA plunged 57% yoy to USD 5.9 mln and net
profit plummeted 65% yoy to USD 3.7 mln. Its operating cash flow before working
capital changes were halved yoy to USD 8.4 mln, while net cash generated from
operations increased 5% yoy to USD 11.0 mln. The company boosted its
investments into fixed assets and biological assets 61% yoy to USD 12.6 mln,
thus having slightly reduced its amount of net cash to USD 3.2 mln and of
end-1H19 (from USD 5.0 mln as of end-2018).

The fire that erupted at a Kyiv regional
factory in early June resulted in the loss of 270K laying
hens and financial damages of USD 0.4 mln, which were reported as other
operating expenses. The company accounted for some insurance compensation for
that accident. Among other important events of 2Q19, Ovostar received a USD
2.95 mln of state subsidy for a partial refund of its construction of hen
facilities (accounted for as other operating income).

Alexander Paraschiy: Net of the
above mentioned one-off events (the government subsidy and the losses related
to fire), the company’s adjusted EBITDA amounted to just USD 3.4 mln, or 75%
less yoy, which is definitely a poor result. In 3Q19, the company’s profitability
is set to improve significantly as egg prices in Ukraine in August are about
25% higher compared to the average level of 2Q19 (though still slightly weaker
yoy). Our neutral view on OVO stock remains.