Astarta reports strong 9M12 results despite weak sugar prices

Integrated crop and sugar producer Astarta (AST PW) reported a 26% yoy increase in revenue to EUR 235 mln, strengthening its leading position in the sugar and industrial milk segments of Ukraine. The farming segment posted a 63% yoy revenue increase in 9M12 on 52% growth in tonnage crop sales, with a 5x increase in export sales to 58% of segment’s total. Sugar segment revenue grew just 8% yoy despite a 54% increase in volume sales, as average sugar prices were 31% lower yoy. In its milk segment, the company showed 31% yoy growth in 9M12 on a 28% increase in milk output to 64 kt. The company’s costs growth exceeded its revenue increase, causing a decrease in its EBITDA margin of 9pp yoy to 49%. EBITDA itself increased 6% yoy to EUR 115 mln. EBITDA adjusted for revaluation of biological assets and agricultural produce decreased 6% yoy to EUR 62 mln and matched cash-EBITDA of EUR 62 mln. The company’s bottom line declined 10% yoy to EUR 84 mln, mainly on 1.5x growth in financial expenses. Astarta guided total crop production this season at 600 kt (-10% yoy vs. -20% yoy for Ukraine total), milk output at 83 kt (+19% yoy, vs. +3% in Ukraine), and sugar output at 400 kt (+10% yoy, vs. Ukraine’s expected result -20% yoy). As of the day of the report, Astarta produced 240 kt of sugar from the new beet harvest (18% of Ukraine’s total), and was able to cut specific natural gas consumption at sugar plants by 7% yoy.

Alexander Paraschiy: Astarta’s vertical integration and diversification allowed it to keep operating profit relatively stable despite a severe decline in prices for its key output, sugar. The share of the sugar segment in Astarta’s revenue declined to 56% in 9M12 from 65% a year ago, and we see its contribution to the bottom line fell even more sharply. This year, the crop and milk segments will drive Astarta’s bottom line, and we will see sugar prices start to recover in the beginning of the next year as 2011 sugar stockpiles decline. Being one of the most cost-efficient and cash-rich players on the domestic sugar market, Astarta has a good chance to use the current market weakness (with many producers being cash-lean) to grow non-organically at low cost. The results are slightly better than we initially expected, and suggest our full-year outlook for the company has been too conservative. We therefore remain bullish on Astarta and confirm our BUY recommendation for the stock.