Agroton EBITDA doubles in 1H16

Farming company Agroton (AGT PW), based in the partially occupied Luhansk region of Ukraine, posted a 3% yoy decrease in revenue to USD 17.3 mln in 1H16, according to its Aug. 30 release. Its 1H16 EBITDA improved 2.1x yoy (USD 4.8 mln yoy) to USD 9.1 mln, mainly due to an increase of IAS 41 revaluation gains by USD 8.0 mln. As a result of better EBITDA and an 85% yoy decrease in foreign currency revaluation losses (to USD 3.2 mln), the company managed to report a positive bottom line at USD 5.2 mln in 1H16 (compared to negative USD 18.2 mln a year before).

Agroton’s operating cash flow before working capital changes was halved yoy to USD 2.0 mln, but total operating cash flow remained strong at USD 7.2 mln (-22% yoy) in 1H16. This enabled the company to reduce its net debt to a safe level of USD 8.6 mln (-39% YTD). The company still remained a big creditor with its lending balance staying at USD 17.6 mln as of end-1H16 (+8% YTD), including USD 13.9 mln (+7% YTD) in loans provided to related parties.

The company reiterated its earlier-declared intention to repurchase or redeem its notes (AGTPW, USD 21.3 mln outstanding as of end-1H16).

Alexander Paraschiy: It’s encouraging to see that a company operating near the occupied territory is able to generate cash flow and service its loans. However, we do not expect Agroton will return to being a safe business for equity investors until it fully recalls its loans provided to its majority shareholder. According to company data, all the loans granted by the company had an initial maturity in 2013-2014, but have been prolonged till the end of 2016. If the loans are recalled on time (which does not look very likely), and the situation in Luhansk region doesn’t worsen, the company with a current MCap of USD 15.8 mln has a solid chance to grow.