Kernel EBITDA jumps 45% yoy in 9MFY19

EBITDA at Ukraine’s largest sunflower oil producer and
grain trader Kernel (KER PW, KERPW) jumped 45.4% yoy to USD 285 mln in 9MFY19,
according to its earnings release on May 26. The surge was driven by its
sunflower oil segment, in which EBITDA rose 47.7% yoy to USD 86 mln (the EBITDA
margin in sunflower oil sold in bulk rose 32.3% yoy to USD 69.3/t), and its farming
segment, in which EBITDA jumped 2.5x to USD 132 mln. On the other hand, the
company’s EBITDA in infrastructure and grain trading decreased 17.1% yoy to USD
97 mln in 9MFY19. The company’s grain trading generated USD 34 mln in EBITDA,
or 23.6% yoy lower, while its EBITDA margin dropped 68% yoy to USD 4.6/t in
9MFY19. Its silo services segment added to total EBITDA USD 36 mln (a 18.1% yoy
decline) and export terminals generated USD 27 mln (a 30.2% yoy drop) in
9MFY19.

The company’s 9MFY19 revenue advanced 89.5% yoy to USD
3,058 mln, operating cash flow before working capital changes improved 51.3%
yoy to 281 mln, while working capital investments fell 36.6% yoy to USD 116 mln
in 9MFY19. The company’s net profit surged 3.7x times to USD 190 mln in 9MFY19.

In 3QFY19, Kernel’s EBITDA slid 24.4% yoy to USD 55
mln (and a 57.2% qoq drop). The company’s sunflower oil sold in bulk generated
USD 26 mln (a 91.2% yoy surge), while its EBITDA margin in this segment
increased 35% yoy to USD 72.7/t in 3QFY19. But these results were offset by a
grain trading EBITDA drop by 12x to USD 2.7 mln and export terminal EBITDA
decrease by 9.7% yoy to USD 8 mln in 3QFY19.

Andriy Perederey: The company’s core sunflower oil segment showed improved
profitability, while the average EBITDA margin of USD 69.3/t is in line with
its expectations for FY2019. We expect that the EBITDA margin of its bulk
sunflower oil segment will slightly decrease in 4QFY19 due to seasonally low margins
in that quarter. Due to weaker interim results in grain trading and
infrastructure, we significantly downgrade our expectations on its FY2019
EBITDA to USD 330-340 mln (compared to USD 223 mln in FY2018). At the same
time, we maintain our bullish view on KERPW bonds.