Ovostar increases sales 13%, cuts EBITDA 31% yoy in 1Q13

Egg producer Ovostar Union (OVO PW) reported a 13% yoy increase in 1Q13 revenue to USD 17.7 mln, fueled mainly by an increase in its egg products segment (+72% yoy to USD 5.1 mln). Revenue in the company’s shell egg segment was flat yoy at USD 11.6 mln, while sunflower oil revenue declined 11% yoy to USD 0.9 mln. Ovostar reported a 31% drop in EBITDA to USD 6.5 mln, citing an increase in fodder costs by one-third as a key reason for the profit decline. The company’s operating cash flow (before working capital adjustments) fell even more, 38%  yoy, to USD 4.7 mln. The company’s 1Q13 bottom line turned to be 38% smaller yoy at USD 4.7 mln.

Alexander Paraschiy: Ovostar’s top line is of little surprise as it corresponds to numbers presented earlier in its 1Q13 operating update, and it looks to be in fulfillment of the company’s growth plan for the year. However, the bottom line surprised us on the negative side, and a decline in its EBITDA margin from 60% in 1Q12 to just 37% in the last quarter looks really worrying. This suggests the company has a low chance to show a profit increase in FY13, even though production and sales volume will increase significantly. With such results on hand, we cannot consider Ovostar a growth story any more.