30 May 2014
Ukraine’s largest sunflower oil producer Kernel (KER PW) reported EBITDA of USD 30 mln in 3QFY14 (Jan-Mar 2014), which is 31% lower yoy and 48% lower qoq. The key drivers for the decline were USD 45 mln in currency exchange losses from revaluation of VAT receivables and USD 22 mln in losses from IAS-41 revaluation in the farming segment. EBITDA in Kernel’s core business segment of bulk oil production grew by 37% yoy and 3% qoq to USD 50 mln.
Its grain segment positively contributed to the group’s result with EBITDA of USD 33 mln (8.6x qoq and 6.8x yoy jump), due to export VAT reimbursement from grain exports in force in 3QFY14. The segment generated a record-high USD 25/t EBITDA compared to the average of USD 9/t in FY2012/13. The result of its silo services segment normalized to USD 8 mln in 3QFY14 (+53% yoy), after USD 30 mln a quarter before.
In 9MFY14, the company earned EBITDA of USD 91 mln, 55% lower yoy. Kernel downgraded its 2014 EBITDA guidance to USD 170 mln from USD 250 mln, referring to ForEx losses and weaker-than-expected performance of its farming segment. As a result of a planned special government VAT bonds issuance, the company expects to qualify to receive bonds with a par value of USD 25 mln.
Roman Topolyuk: The company attributed half of the 2014 EBITDA guidance downgrade to the revaluation of VAT receivables in 3QFY14. The other half can be explained by the low financial result reported for 1QFY14, which the company won’t be able to counterbalance by the end of FY2014, despite the strong load of its key production facilities. Grain exports, which boosted strongly the 3Q14 result, will return to normalized, i.e. lower, profitability in 4QFY14, we estimate.
On the most recent company’s guidance for 2014, Kernel’s stock is trading at an expensive EV/EBITDA multiple of 7.9x (vs. a historical average of 7.1x). But closer to the end of the 2014 financial year, we think a more appropriate valuation metric will be 2015 EV/EBITDA, which is now 3.8x for Kernel, compared to its historical average of 6.3x. Our analysis suggests the company will generate USD 354 mln in EBITDA in FY2015 (up 2.1x yoy), while the Bloomberg consensus points to USD 344 mln (up 2.0x yoy).