Astarta EBITDA falls 39% in 9M18, breaches debt covenants

Ukrainian farming company and leading sugar producer
Astarta (AST PW) generated EUR 253.5 mln net revenue in 9M18, according to its
Nov. 8 report. This is a 27% yoy decline and 2% below our estimate. Revenue in
its core segments, sugar and crop sales, dropped 38% yoy and 28% yoy,
respectively. The company’s EBITDA fell 39% yoy to EUR 68.1 mln in 9M18, being
9% below our estimate. The company’s bottom line plunged 80% yoy to EUR 14.5
mln.

Astarta’s total interest-bearing debt rose 42% YTD to
EUR 206.7 mln as of end-September, while its short-term debt doubled YTD to EUR
201.3 mln. The company attributed the short-term debt surge to reclassification
of EUR 82.3 mln from long-term debt “due to deviation from certain financial
covenants.” Its net debt swelled 47% YTD and net debt-to-LTM EBITDA ratio
jumped to 2.50x as of end-September 2018, from 1.1x as of the year’s start.

The company also reported the interim results of its
oilseed harvest, with its soybean yields being higher 33% yoy (2.91 t/ha) and
sunflower yields being 27% better yoy (2.93 t/ha). Based on this data, as well
as the results of its ongoing corn harvesting campaign, Astarta expects its
total harvest of grains and oilseeds will reach 1 mmt this year, which will be
a record high (last year, its total harvest amounted to 0.79 mmt).

Alexander Paraschiy: Due to weak
sugar prices this year and Astarta’s weak harvest of the previous year, its
P&L is expectedly weak in 2018. We were expecting some better profit to be
reported in 9M18 due to higher revaluation of Astarta’s new harvest, but this
did not happen. Otherwise, the company’s financials are broadly in line with
our estimates. Due to expected bumper harvest in 2018, we see Astarta will
improve its revenue and profits in its grain segment in 4Q18 and early 2019,
while still weak sugar prices will unlikely allow the company to show
significant improvement in overall profit in the coming quarters.

Astarta’s breach of some financial covenants came as a
negative surprise to us, but we do not expect any consequences for the company
from that. Meanwhile, we expect some negative reaction of the market to
Astarta’s report, which might create a good entry point to purchase its stock.
That said, we continue to believe that Astarta’s equity price has a good
potential to rise in the mid-term.