Industrial Milk increases 9M14 EBITDA 7% yoy, downgrades 2014 guidance

Agricultural producer Industrial Milk (IMC PW) reported a 7% yoy increase in EBITDA in 9M14 to USD 55 mln, on the back of a 35% jump in revenue to USD 98 mln. The key drivers of its top line were more-than-doubled sales of corn at 383 kt (+123% yoy), though counterbalanced by a 20% decrease in the selling price of corn to USD 189/t and by revenue from sunflower of USD 8 mln, which were immaterial a year ago. The main contributor to its 9M14 operating income of USD 46.7 mln was its farming division, while its livestock breeding and storage divisions generated minor positive results.

IMC posted a net loss of USD 14.3 mln in 9M14 compared to USD 34.7 mln a year ago, caused by a FX loss on its dollar-denominated debt. In its comments to its 9M14 financials, management downgraded expectations of its total 2014 top-line growth to 25% from 50% yoy previously, and its EBITDA growth to 10% yoy from 20% yoy. Despite the favorable factor of decreasing dollar-denominated costs, the company justified its downgraded guidance for 2014 by falling grain and oilseed prices, as compared to 2013.

Roman Topolyuk: The company’s revised projection of IMC’s total 2014 EBITDA growth in 2014 of 10% yoy implies total 2014 EBITDA of USD 54 mln and EV/EBITDA of 3.7x. Thus, the upside for IMC PW is quite limited, as the average historical multiple for the stock is 3.8x. Moreover, the company faces high leverage with its net debt/EBITDA ratio at 2.5x, which is a risk factor since a scheduled debt repayment of USD 82 mln within 12 months may threaten IMC’s solvency, unless the company renegotiates new financing terms with lenders.