Kernel signs tolling agreement for 200 kt crushing

Ukraine’s largest sunflower oil producer and leading grain trader Kernel (KER PW) announced on Sept. 10 it signed a tolling agreement to crush 200 kt of sunflower seed with third-party plants, located in Ukraine. The company didn’t provide details of the agreement beyond that.

Kernel crushed 2,522 kt of sunflower seed in FY2015. Having this tolling agreement in place, Kernel would be able to increase its crushing by 8% yoy.

Roman Topolyuk: The news is positive for Kernel. It indicates the company enjoys high capacity load, in line with previous guidance, and even lacks some crushing capacity, being in the environment of abundant supply of sunflower seeds. With the tolling agreement in place, Kernel, firstly, is effectively removing a competitor from the market, who would have driven higher the purchase prices of sunflower seeds, thus eating into its margin. Secondly, the tolling agreement will contribute to Kernel’s solid financial performance in FY2016, adding up to USD 10 mln to the company’s annual EBITDA, we estimate, the projection of which we now upgrade by 2% to USD 435 mln (+3% yoy).