Ovostar revenue rises 3%, EBITDA drops 31% in 2016

Ukrainian egg producer Ovostar Union (OVO PW) reported a 3% yoy rise in net revenue to USD 77.7 mln in 2016, according to its April 20 filing. The growth was mostly driven by revenue in its egg products segment, which increased 16% yoy to USD 21.1 mln. Revenue in its core segment, shell eggs, was flat yoy at USD 55.7 mln, even though volume of shell eggs sold increased 22% yoy (to 1.05 bln).

The company’s EBITDA fell 31% yoy to USD 24.1 mln, which was the result of growing inventory costs (18% yoy to USD 41.4 mln), growing transportation costs (129% yoy to USD 3.3 mln) and reduced VAT subsidy (-80% yoy to USD 0.9 mln). Ovostar’s net income fell 29% yoy to USD 22.5 mln.

The company’s cash flow from operations remained solid at USD 23.6 mln (-9% yoy), enabling it to raise its CapEx by 34% yoy (to USD 6.4 mln) and slightly deleverage. Ovostar’s total debt decreased 10% yoy to USD 15.3 mln and net debt halved yoy to USD 3.1 mln.

In its 2017 outlook, the company announced its plan to boost its laying hen flock 25% yoy (to 8.1 mln), improve egg production by 15% yoy (to 1.7 bln) and focus more on developing export revenue. It plans to increase its share of export sales to over 35% in 2017, from 31% in 2016.

Alexander Paraschiy: The company’s P&L is slightly better than we earlier expected, as we saw EBITDA falling by up to 40% yoy. So we treat the results as encouraging. And it is particularly encouraging that Ovostar was able to generate 31% in EBITDA margin last year, while its bigger peer Avangardco reported only an 1% margin.

It looks like the company will continue its cautious organic expansion in 2017 by using only own funds for investments, so we expect it will remain one of the least leveraged companies in the Ukrainian investment universe.

We remain optimistic about Ovostar’s investment case, but we’ve become neutral on Ovostar shares, which gained 10% YTD and trade now at one of the highest multiples on the market at 6.0x EV/EBITDA.