Kernel completes spring planting campaign

Ukraine’s largest sunflower oil producer and farming company Kernel (KER PW) reported on the finalization of its spring planting campaign, having sown 384,000 ha, only slightly up from the acreage guidance published in its 3QFY15 trade update (+3% yoy). Crop structure also remained almost unchanged, with corn remaining first among other crops at 41% of total sown acreage (down from 48% a year ago). Soybean took 17% of total planted land, which is on par with last year, sunflower seed accounted for 16% (vs. 18% last year), winter wheat for 19% (vs. 8% of last year) and winter rapeseed for 2% (with no rapeseed harvested last year). Unlike the previous season, all acreage was fertilized in autumn, with fertilizer application volume between 8% and 43% yoy higher, Kernel reported.

Roman Topolyuk: Benefitting from higher yields and lower costs in the farming segment in FY2015, Kernel has set the stage for a strong harvest in FY2016, which also to a great extent is subject to weather conditions and volatile soft commodity prices. The stars falling into place, including a strong farming segment, should contribute to a promising turnaround for Kernel after its stock was beaten down in FY13-14. Two other factors that may positively drive the farming’s EBITDA in financial year 2016 are: (1) a possible VAT reimbursement for farming companies to be reinstated by parliament and (2) hryvnia devaluation, which will decrease production costs (which are less linked to U.S. dollar, as compared to prices of to-be-harvested crops) by around 10-12% yoy, we estimate. We reiterate our positive view on Kernel stock.