IMC net income doubles in 2016

Ukrainian farmer Industrial Milk Company (IMC PW) reported on April 26 its 2016 net income doubled to USD 21.8 mln. Its net revenue decreased 11% yoy to USD 125 mln and EBITDA slid 10% to USD 59 mln. 61% of IMC’s revenue was generated by corn sales, which dropped 19% yoy to USD 76 mln in 2016. The company’s second-largest crop sold, sunflower, accounted for 20% of its total revenue and remained flat yoy at USD 25 mln.

The lower revenue from corn was caused by reduced volumes sold yoy in 2016 (-17% to 503 kt) and lower average selling price (USD 151 in 2016 vs USD 155 in 2015).

The company’s net debt fell 20% yoy to USD 87 mln and its net debt-to-EBITDA ratio remained healthy, having improved to 1.5x in 2016 (vs. 1.7x in 2015). Its operating cash flow before working capital changes plummeted 44% yoy to USD 42 mln.

IMC also reported it remains on track with its strategy to expand its land bank to 156,600 ha in 2017 and 206,600 ha in 2020 from 136,600 ha currently.

Igor Zholonkivskyi: The surge in IMC’s 2016 net income was predictable as the company’s 2015 bottom line was heavily dented by foreign currency losses. Global corn prices continue to remain low compared to 2007-2014. However, the price surges during that period could have been to a large extent caused by a speculative commodity bubble, and we think current corn prices, which are now slightly higher than long-term historical averages – absent any severe weather shocks – can be considered fair. 

IMC currently trades at a 2.4x EV/EBITDA multiple, which we think offers potential for a good upside, while the key risk for the company remains the implementation of its land bank expansion strategy.