Ukrproduct boosts revenues by 29% y-o-y in 1H11

Ukrproduct (AIM: UKR LN, N/R), a processed cheese and butter producer, said yesterday its revenues were up 29% y-o-y to UAH 322 mln in 1H11, EBITDA up 7% y-o-y to UAH 14.8 mln, and net income was down 21% y-o-y to UAH 3.9 mln. Yegor Samusenko: The revenue growth came mainly from improved market positions in processed cheese. Despite the encouraging top line growth, the company was not able to improve its relatively poor EBITDA margin, which fell by 1 pp y-o-y to 4.6% in 1H11. This came due to cost side pressure, as raw milk prices were up 31% y-o-y because of temporary government subsidy shortages, while the company was able to increase its branded dairy product prices by only 10%. We expect the cost pressure to be tight in 2H11 because the government is stalling on new subsidies for milk producers, but to ease next year. The cost reduction should also have a positive effect on Ukrproduct’s margin next year, as the company expects to finish modernization of its flagship Starokonstantiniv plant in March 2012. The stock trades at 3.7x EV/EBITDA 2010.