Milkiland 2011 EBITDA was EUR 35 mln, in line with consensus

Milkiland (MLK PW) reported preliminary unaudited results for 2011 yesterday, with revenue growing 10% yoy to EUR 284 mln (4% above our projection, 2% above Bloomberg consensus) and EBITDA down by 23% yoy to EUR 35 mln (5% below our projection, 2% above consensus). The company cited raw milk cost growth in Russia, the cancellation of subsidies for milk producers in Ukraine and ruble depreciation in 2H11 as key reasons for diminishing profitability. Milkiland estimates it lost EUR 12 mln in EBITDA due to the cancellation of subsidies in 2011, and EUR 3 mln in EBITDA due to ruble depreciation in 3Q11, which affected its cheese exports to Russia. Management is positive about 2012 prospects, taking into account the partial renewal of subsidies for milk producers and anticipated growth in consumer demand in Russia. Commenting on the ban on cheese exports to Russia from three Ukrainian plants, including one of Milkiland’s, the company said it expects removal of the limitations soon, noting that its plant is one of the best equipped cheese facilities in Ukraine and has been certified according to EU standards. Milkiland expects losses associated with temporary low volumes of exports to be compensated by a respective decrease in raw milk prices, which has already taken place in Ukraine since the beginning of 2012.

Yegor Samusenko: As the preliminary figures were generally in line with consensus, we believe they are already priced in. The trades at 4.6x on EV/EBITDA 2011, which we deem low given margins in 2011 were suppressed by the three aforementioned negative factors and we believe were at the lows of a long-term cycle. We confirm our projections of EUR 300 mln in revenues in 2012E and EBITDA of EUR 40 mln in 2012E, and note an upward revision might be warranted after 1Q12 results are published if the company delivers promised improvement in profitability. We confirm our BUY recommendation; Milkiland is our top pick in the Ukrainian consumer goods universe at current price levels.