Ovostar posts flat yoy sales, fall in 3Q12 bottom line

Ukraine’s egg maker Ovostar Union (OVO PW) reported 16% growth in 9M12 revenue to USD 40.3 mln. The growth was mostly backed by an increase in shell egg prices by 8% over the period (at flat yoy volumes), a 1.5x  increase in liquid egg product sales on a 25% advance in volume sales, as well as the establishing of a sunflower processing segment that contributed 7% to revenue. The company reported 9M12 EBITDA of USD 16.1 mln, a 10% or USD 1.5 mln growth yoy, owing entirely to a gain from biological revaluation. EBITDA adjusted for revaluation remained flat yoy at USD 12.2 mln and matched cash-EBITDA of USD 12.3 mln (the latter fell 5% yoy) in 9M12. Ovostar posted a USD 14.3 mln net profit for 9M12, +27% yoy. The results, however, look discouraging if we look at 3Q12 alone: revenue remained flat yoy, as the effect of a 10% yoy decline in shell egg prices was offset by revenue that emerged from its sunflower segment. The company’s EBITDA nearly halved yoy to USD 2.9 mln in 3Q12.

Alexander Paraschiy: The company’s key achievement for 3Q12 is completing an investment project that had been declared before its 2011 IPO. For some reason, however, the increase in production capacity was barely reflected in sales and production numbers. For instance, a 39% yoy higher count of laying hens at the beginning of 3Q12 caused just 9% yoy growth in egg output in the quarter. Moreover, the company sufferedfrom higher soft commodity (i.e. input) prices on the back of declining egg prices, which resulted in the stagnation of operating profit in the last two quarters: the company earned less in the last six months than in 1Q12. With 9M12 results in hand, we see the company will be unable to reach 2011 EBITDA of USD 20.8 mln this year.