Astarta reports 1.5x jump in EBITDA in 9M20

Ukraine’s leading sugar producer and farmer Astarta
(AST PW) reported an 11% yoy drop in net revenue to EUR 290.5 mln in 9M20,
according to its Nov. 10 interim report. The decline was caused mainly by
smaller sales of crops (-18% yoy to EUR 121.3 mln) and soy processing products
(-13% yoy to EUR 53.6 mln), while revenue in other segments (sugar and milk)
was flat yoy. Meanwhile, the company managed to reduce its COGS by 18% yoy to
EUR 241.7 mln and SG&A costs by 19% yoy to EUR 38.6 mln, which – together
with increased IAS 41 gains (up 24% yoy to EUR 33.5 mln) – enabled it to report
operating profit of EUR 38.3 mln, or 4.9x more yoy. Its bottom line was
negative at EUR 4.7 mln in 9M20 (vs. positive EUR 1.9 mln a year before), which
was mostly the result of EUR 18.6 mln in exchange losses (vs. EUR 22.7 mln
gains a year before).

The company’s EBITDA swelled 53% yoy to EUR 81.8 mln,
while EBITDA excluding the effect of IAS 41 gains improved 2% yoy to EUR 74.3
mln in 9M20. Its cash flow from operations before working capital changes
surged 90% yoy to EUR 51.4 mln, while its net cash from operations decreased
21% yoy to EUR 105.7 mln in 9M20 due to its working capital buildup. The
company halved its CapEx yoy to EUR 10.5 mln, which allowed it to reduce its
net debt by 37% YTD to EUR 174.8 mln.

As a result, Astarta’s net debt to LTM EBITDA improved
to 1.65x as of end-September, from 3.54x as of end-December and 5.59x a year
before. The company also reported that it complied with all its debt covenants
as of end-September, for the first time since 2018.

Alexander Paraschiy: The
company’s cost optimization measures and cautious investment policy paid off,
while it benefited from a recovery in grain prices (which were up 8% yoy, on
average). As a result, its interim results look surprisingly strong, so the key
question becomes how sustainable is the improvement. In our view, there is a
downside risk for its revenue in the short term, on a lower 2020 harvest and
key product output. At the same time, improving soft commodity prices are
likely to allow the company to keep its operating profit at a high level, as
well as avoid any financial covenants breaches in the near future. All in all,
we remain optimistic about Astarta’s mid-term value growth.