Astarta bottom line weakens in 2012

Ukraine’s leading sugar producer Astarta (AST PW) revealed its preliminary financials for 2012, with revenue up 16% yoy to EUR 352 mln and EBITDA falling 32% yoy to EUR 75 mln. Revenue improved in all major segments, including 9% yoy in sugar (by our estimates), 27% in crop farming and 15% in cattle farming.

The company reported it produced 430 kt of sugar in the 2012 season (up 15% yoy) and increased its share in Ukraine’s sugar sector to 19.3% (vs. 16.1% in 2011). Milk output increased 20% yoy (to 84 kt, by our estimate), while Astarta’s crop harvest declined 9% yoy to 600 kt. Despite its harvest decline, Astarta sold 18% more crops in 2012.

In its report, Astarta stressed that the current weak situation in the sugar market “promotes its consolidation and encourages strategic players.”

Alexander Paraschiy: Whatever the reason is, Astarta’s full-year EBITDA looks very disappointing given that the company posted EUR 115 mln in EBITDA for 9M12. Most likely, the company was too optimistic in October, overestimating the fair value of its biological assets for 9M12.

Since 2012 marked the second consecutive year that Ukraine overproduced sugar, prices will remain weak domestically, at least by mid-year. Since we consider Astarta to be the best-prepared sugar sector player for tough times (since it’s well-diversified and financially strong), we expect the company will utilize the current market weakness to grow non-organically and consolidate the most interesting assets on the cheap. Meanwhile, the company was able to demonstrate its strength in the sugar market by raising its sugar sales volumes 33% yoy in 2012 against the backdrop of over supply on the domestic market.

We recommend Astarta as a good investment opportunity for the next 2-3 years. At the same time, we do not expect the company will significantly improve its financials in 2013. We expect farming will be the main profit driver this year, on both good commodity prices and recovery of crop yields (compared to last season, which was affected by drought).