Avangardco still burning cash despite 50% EBITDA growth in 1Q16

Ukraine’s largest egg producer Avangardco (AVINPU, AVGR LI) reported its 1Q16 EBITDA surged 50% yoy to USD 9.6 mln, according to the company’s financial statements published on May 31. The growth in EBITDA was reported despite a 40% yoy plunge in total egg production to 627 mln units, fulelled by growth in average dollar price of shell eggs by 17% yoy to USD 0.06 cents/unit in 1Q16. Its laying hen flock decreased 36% yoy to 10.7 mln heads as of end-March, but remained unchanged YTD.

The company generated net operating cash flow of USD 2.0 mln in 1Q16 (vs. minus USD 3.4 mln a year ago), as the bulk of positive operating cash flow was tied up in working capital. CapEx was USD 7 mln during the quarter (-38% yoy). Thus, free cash flow was negative USD 5 mln in 1Q16, better than negative USD 14.5 mln last year.

Roman Topolyuk: Avangardco reported a couple of positive developments in its quarterly report: the company stabilized the steep decrease in its laying hen flock that occurred in 2014-15 and managed to reach solid selling prices in dollar terms. However, Avangardco continued to freeze the operating cash flow in its working capital and again recorded an investment amount higher than what the company earned, with nothing left for its minority shareholders or creditors.

Avangardco hasn’t provided any guidance for 2Q16, but we expect a significant deterioration in its financial results as Ukraine’s average domestic egg prices in April-May were 36% below the average number for 1Q16. We affirm our negative view on Avangardco’s Eurobonds.