Astarta reports strong 1Q16 earnings on solid prices, VAT refund

Ukraine’s leading sugar producer and soybean processor Astarta (AST PW) reported a 24% yoy increase in net revenue to EUR 70.2 mln in 1Q16. The growth was fueled by a 32% yoy increase in sugar segment sales (to EUR 29.1 mln), backed by a 24% yoy advance in sugar prices; and a 138% yoy surge in sales in its crop production segment (to EUR 19.0 mln), buttressed by a 110% yoy advance in volume of crops sold. On top of that, Astarta reported a record-high share of export revenues in the quarter, which reached 51% of all sales.

The company’s EBITDA improved 3% yoy to EUR 43.2 mln in 1Q16, as a 50% yoy decline in IAS 41 gains (to EUR 10.0 mln) was offset by a 56x yoy surge in income from VAT refunds (to EUR 13.5 mln). The company explained to us that most of the income from VAT refunds reported in the quarter was the result of a decrease in deferred income. As of end-2015, Astarta accumulated deferred income in the form of “special VAT regime liabilities” of EUR 13.8 mln, which it was going to transfer into a part of income from VAT refunds during 2016.

Astarta’s net income reached EUR 18.8 mln in 1Q16 (vs. EUR 28.9 mln in net losses a year before). Its cash flow from operations swelled 67% yoy to EUR 38.0 mln.

Astarta’s net debt stood at EUR 135.0 mln as of end-1Q16, which is a 22% decline qoq and 36% decline yoy. Its net debt/LTM EBITDA ratio strengthened to 1.02x as of end-1Q16, from 1.71x a year before.

Alexander Paraschiy: Astarta’s result looks exceptionally strong, which is attributable to advances in sugar and grain prices from the same year-ago period, as well as increased export efforts. At the same time, we have to keep in mind that it was VAT refunds income that contributed most significantly to the company’s EBITDA in 1Q16. In the coming quarters, this item won’t contribute much, as the amended legislation in Ukraine reduces the amount of VAT retained by crop farmers to just 15% in 2016 from 100% in 2015. Nevertheless, Astarta’s 2016 income from VAT refunds will certainly be higher yoy in 2016, as compared to EUR 12.0 mln reported in 2015.

We expect that in the following quarters, Astarta will continue to benefit from strong sugar prices. Thus far, sugar prices in Ukraine, in USD terms, are about 10% stronger yoy, and most likely they will become stronger in the near future. This, as well as the company’s solid deleveraging result in 1Q16, supports our positive outlook on Astarta stock.