Astarta EBITDA decreases 4% in 1H20

Ukraine’s leading sugar producer and farmer Astarta (AST
PW) decreased net revenue 24% yoy to EUR 172.1 mln, according to an interim
report on Aug. 12. The key factor of the decline was a 47% yoy decrease of
crops sales to EUR 54.5 mln. Meanwhile, sales of sugar increased 3% yoy to EUR
56.8 mln. Astarta’s EBITDA decreased 4% yoy to EUR 66.6 mln. Its farming
segment remained a key contributor to EBITDA, generating EUR 52.8 mln (8% less
yoy). The sugar segment’s EBITDA doubled yoy to EUR 8.1 mln in 1H20, mostly on
better sugar prices (up 8% yoy to 354 EUR/t). Meanwhile, foreign currency
losses of EUR 12.6 mln in 1H20 (vs. EUR 10.1 mln gain a year before) resulted
in the company’s bottom line falling 75% yoy to EUR 7.4 mln in 1H20.

Astarta’s operating cash flow before working capital
changes increased 62% yoy to EUR 31.1 mln. Net operating cash flow of EUR 46.4
mln and CapEx limited to EUR 9.0 mln allowed the company to decrease its net
debt 13% YTD and 18% yoy to EUR 239.3 mln as of end-June 2020. The company’s
ratio of net debt to LTM EBITDA improved to 3.2x as of end-1H20, from 3.8x a
year ago. The company reported that it was still in breach of some debt
covenants, which resulted in the reclassifying of EUR 73 mln long-term debt to
current debt. The management believes creditors won’t demand early debt repayment
based on such breaches.

The company reported it harvested 230 kt of winter
wheat with an average crop yield of 4.8 t/ha this season, down from 5.1 t/ha
last year.

Alexander Paraschiy: Astarta’s 1H20 revenue is mostly in line with our estimate of EUR 171
mln, while EBITDA was much better than our estimate of EUR 50 mln. The company’s weak result of winter wheat
harvesting is in line with the local trend (which was a result of low humidity
in winter), while we expect its yields of corn and sunflower should be no worse
than last year. This, as well as slightly better crop prices, should allow
Astarta to improve its results in 2H20. This will let the company continue
deleveraging and improve its debt/EBITDA ratios. All in all, we remain positive
about Astarta’s mid-term value growth.