Avangardco revenue declines 16% yoy in 1H17

Revenue at Ukraine’s largest egg producer Avangardco
(AVGR LI, AVINPU) declined 16% yoy to USD 54.7 mln, according to its 1H17
interim financial results published on Aug. 31. Of its revenue, USD 9.6 mln was
generated from grain trading, a new sphere of activity. Its core revenue,
therefore, dropped 30% yoy to USD 45.1 mln in 1H17. This includes a 31% yoy
drop in sales of shell eggs (to USD 27.2 mln) due to a decline in the average
egg price by 32% yoy to USc 3.6 per unit.

Avangardco’s laying hen flock declined 1% yoy to 10.7
mln heads (which is a 4% growth YTD). The company produced 993 mln eggs in
1H17, a 20% drop yoy. Sales of shel eggs increased 2% yoy (to 763 mln units)
and export sales dropped 21% yoy (to 103 mln units) in 1H17.

The company’s EBITDA was at negative USD 9.0 mln in
1H17 (up from negative USD 12.6 mln in 1H16). Its net loss fell 64% yoy to USD
11.7 mln. Avangardco’s operating cash flow before working capital changes
turned negative at USD 1.9 mln in 1H17 vs. positive USD 11.6 mln year ago. The
company’s net cash from operations was negative USD 0.5 mln in 1H17 vs.
negative USD 0.8 mln year ago. Avangardco’s net debt increased 4.7% YTD to USD
347.2 mln as of end-June.

Andiy Perederey: The company’s results are
generally in line with our expectations that it won’t be able to generate positive operating cash flow in 2Q17. However,
there are two more worrying items in Aavangardco’s report: the first is the
average egg price, which fell 29% yoy in local currency to UAH 0.95 per egg and
contrasts with the results of its peer Ovostar (OWO PW), which enjoyed a 2% yoy
increase in egg price to UAH 1.30. The second item is its grain trading
operations, which distort the company’s P&L and add more risks to boosting
its working capital. We remain bearish about the prospects of Avangardco
securities.