Avangardco reports negative EBITDA in 1Q18

Ukraine’s largest
egg producer Avangardco (AVGR LI, AVINPU) reported its 1Q18 EBITDA turned
negative USD 9.06 mln from positive USD 0.1 mln a year ago, according to its interim
financial results published on May 31. The company’s 1Q18 revenue increased
20.9% yoy to USD 41.1 mln (a 5.9% decrease qoq) due to higher sales volume of
shell eggs, the company’s key product, by 36.9% yoy (a 8.4% decrease qoq) to
493 mln units. At the same time, prices advanced 55.8% yoy (or 4.1% qoq) to UAH
1.76/unit (or 52.4% yoy to USc 6.4/unit) in 1Q18.

Export volumes of
shell eggs surged 6.7x to 200 mln units (a 7.8% qoq decrease) in 1Q18. Also,
the company sold 1.65 kt of dry egg products, a 39.0% yoy increase (or 56.6%
qoq). Export sales of dry egg product rose 27.2% yoy to 1.4 kt (a 77.1% qoq improvement). The average
selling price of dry egg product dropped 27.9% yoy to USD 3.8/kg (a 3.3% qoq
increase). In addition, the company conducted grain trading operations that
contributed USD 1.1 mln to 1Q18 revenue. (Grain trading operations contributed
USD 8.0 mln in 1Q17.)

Avangardco’s
operating cash flow before working capital changes turned to positive USD 9.7
mln from negative USD 1.5 mln year ago, while working capital cash outflow was
USD 2.9 mln in 1Q18 (vs. cash inflow of USD 5.7 mln a year ago).

The company’s total
debt rose 2.1% YTD to USD 373.7 mln as of end-March, and its net debt increased
0.16% YTD to USD 348.4 mln. Also, the company reported that it is still in
discussions
with creditor groups on the restructuring of its Eurobonds and the latest
failed coupon payment.

Andriy Perederey: Avangardco’s EBITDA turned negative
in 1Q18 due to the revaluation of biological assets by USD 9.1 mln. Also,
Avangardco’s average selling price of shell eggs was lower than its smaller peer
Ovostar (OVO PW). Ovostar’s average egg price was USc 7.52/unit, or 17.5%
higher than for Avangardco
in 1Q18. A year ago, the difference was broader (24% higher in 1Q17).

Also, the conducting of grain trading operations disturbed the company’s
P&L due to the technical nature of such operations, when Avangardco
purchased grain from the affiliates of Ukrlandfarming PLC at market rates. This
influenced the company’s revenue but didn’t affect its operating and net
profit. All in all, we retain our view that Avangardco securities are not
investable.