Ovostar reports strong 1Q14 financials

Ukraine’s egg producer Ovostar (OVO PW) reported an 11% yoy increase in net revenue to USD 19.5 mln in 1Q14, according to its May 15 report. The key growth driver was the company’s shell egg segment, which generated 12% more revenue yoy (USD 12.9 mln) as the sales volume of shell eggs increased 13% yoy. Revenue in the segment of egg products increased 4% yoy to USD 5.4 mln.

The company’s 1Q14 EBITDA advanced 42% yoy to USD 9.2 mln. The core drivers for the growth were a 14% yoy decrease in COGS, mainly on lower costs of fodder. As the company has no leverage (its net debt stood at USD 6.2 mln as of end-1Q14), it avoided reporting any foreign currency losses, unlike most its peers. Ovostar’s net profit, therefore, increased 54% yoy to USD 7.9 mln.

Alexander Paraschiy: The company’s 1Q14 results indeed looks encouraging and they promise that this year will be as strong for Ovostar as it was 2013. With no FX-denominated debt, Ovostar will be among the few foreign-listed Ukrainian companies to report an improvement in their bottom line in 2014.

We also have to stress that the company’s revenue growth in shell eggs segment does not correspond to the change in eggs pricing and deliveries. Based on earlier presented operating results, Ovostar’s revenue in the shell egg segment should have increased only 6% yoy, in USD terms.

As the Ukrainian currency is weakening, Ovostar should report a yoy decrease in its revenue in 2Q14 (it used an average exchange rate of UAH 8.83/USD in 1Q14, while the current rate is 11.8x).  On the other hand, we expect the next two quarters will also be strong for Ovostar’s margins as prices for crops, the core cots component of Ovosar, are still weaker yoy.