Kernel reports on 3Q operations, worsens full-year financial outlook

Ukraine’s leading sunflower oil producer and grain trader Kernel (KER PW) reported quarterly declines in most of its operations in 3QFY13 (Jan-Mar 2013), except grain export terminal throughput, which improved 5% yoy. The company’s grain sales declined 21% yoy to 0.654 mmt, processing of sunflower seeds declined 7% yoy to 0.679 mmt, while export terminal throughput grew 5% yoy to 0.625 mmt.

Kernel explained the result as a shift in the seasonality of soft commodity supplies: Kernel (as with most traders) did most of its annual operations in the first half of the marketing year. A 21% decline in deliveries of bottled oil, a less seasonal business, was explained by Kernel as the result of an anticipated execution of a contract of a significant amount in the next quarter.

In 9MFY13 (July 2012 – Mar 2013), the company increased grain deliveries 21% yoy to 2.230 mmt, sunflower crushing volume 7% yoy to 1.898 mmt and export terminal throughput 78% yoy to 2.589 mmt. Production and sales of bottled oil dropped by more than 20% yoy, while bulk oil sales rose 32% growth during the period.

Kernel also hinted that its full-year forecast for sunflower crushing and oil sales is unlikely to be met this year, with its EBITDA and net income expected to be “moderately below” earlier guided estimates of USD 350 mln and USD 200 mln, respectively.

Alexander Paraschiy: Given that Kernel shares lost some 8% in two sessions after announcing its latest downgrade in its 2013 bottom line estimate, we should expect a negative reaction in Warsaw on the new downgrade. Since we remain positive on Kernel’s value-creation potential in the mid-term, we regard possible weakness in KER stock as a good entry opportunity. So far, we do not see any reason to revise our estimates on Kernel’s 2013 financials.