Kernel beats guidance on crushing, posts record-high grain sales in FY15

Ukraine’s largest sunflower oil producer and grain trader Kernel (KER PW) reported on July 20 a set of strong operating results for the fourth quarter and financial year 2015 (ending June). Sunflower seed crushing volumes came in at 612 kt during the quarter, which is 22% higher than our expectations of an 8% yoy drop. Thus, total FY15 crushing volume rose 8% yoy to 2.52 mmt, having exceeding the range of 2.4-2.5 mmt that management guided for the year. The amount of seeds crushed exceeded the company’s previous record of 2.49 mmt reported in 2012.

Sunflower oil sales in bulk increased 1% yoy during the quarter to 300 kt, leading to 12% yoy growth in bulk oil sales in FY15 to 1.03 mmt, or 11% above our projections. Such performance in the bulk oil segment more than compensated the 5% yoy decrease in sales of bottled sunflower oil during 4QFY15 to 18.1 mln liters. Kernel’s bottled oil sales rose 5% yoy to 98.9 mln liters in FY15.

The company’s grain sales grew 11% yoy in 4QFY15 to 788 kt, boosting the FY15 result to 4.74 mmt, or 12% more than the prior fiscal year’s record high. Export terminal throughput advanced 13% yoy to 950 kt in 4QFY15, driven among other reasons by a strong performance in grain trading. Grain transshipment through terminals amounted to 4.82 mmt in FY15, beating last year’s record high by 23%.

Roman Topolyuk: By reporting all-time-high operating results in most of its segments, Kernel beat our projections for FY15. The company is benefiting from the plentiful availability of sunflower seeds, strong grain harvest in Ukraine and the weakness of some competitors, which lost their assets owing to the war in easternmost Ukraine. An important future positive driver will be a recovery in soft commodity prices, which appear to have already bottomed out and may contribute to the farming segment’s positive result in FY16. We reiterate our BUY recommendation for Kernel stock.