Ovostar reports 34% EBITDA fall on weak egg prices in 1H16

Egg producer Ovostar Union (OVO PW) reported a 3% yoy revenue increase to USD 34.5 mln in 1H16, according to its earnings report released on Aug. 29. The increase was driven by 24% yoy growth in revenue in its second-largest segment, egg products, to USD 9.8 mln. At the same time, sales in its main segment, shell eggs, decreased 3% yoy to USD 23.9 mln. The decline was solely caused by an 11% yoy decrease in the average egg price to USD 0.050 per unit in 1H16. In local currency terms, egg prices slightly improved yoy in 1H16 to UAH 1.27 per unit.

The company’s 1H16 EBITDA dropped 34% yoy (or by USD 5.3 mln) to USD 10.5 mln, and its operating cash flow before working capital declined 39% yoy to USD 9.3 mln in 1H16. The decline seems to be a result of lower shell egg prices, as well as a 95% yoy drop in VAT subsidy (by USD 2.0 mln yoy). Ovostar’s net profit fell 43% yoy to USD 9.1 mln. Its net debt decreased 16% yoy to USD 5.2 mln, remaning insignificant.

Alexander Paraschiy: As we expected earlier, the second quarter proved weak for Ovostar. The company’s average shell egg price was UAH 1.09 (USD 0.043) per unit, which is a 28% qoq decline (-27% in USD terms) and 10% yoy decline (-23% in USD terms). Currently, domestic egg prices are 13%-14% higher than they were in 2Q16, which suggest Ovostar will enjoy some recovery in P&L in the third and fourth quarters. We expect this won’t help the company show a yoy improvement in its bottom line in 2016. Nevertheless, we remain optimistic about Ovostar’s mid-term value growth.