Milkiland sales fall 2% yoy in 3Q12, despite cheese war being over

In its non-audited results for 9M12, Milkiland (MLK PW) posted 3% yoy growth in revenue (to EUR 206.6 mln) as a 4% decline in sales of its main cheese and butter segment was offset by 12% growth in its whole milk products segment. The company declared its 9M12 EBITDA at EUR 27.3 mln (-5% yoy), while its cash-EBITDA (operating cash flow before working capital, interest and taxes) grew 33% yoy to EUR 32.8 mln. Milkiland stressed its EBITDA margin was improving considerably in 3Q12 to 15.3%, from 14.4% in 2Q and 10.0% in 1Q. The company explained improved profitability in the quarter by a decrease in raw milk prices. The company’s 9M12 profit fell 23% yoy to EUR 12.3 mln. Milkiland also confirmed its plan to commission the Polish Ostrowia dairy in 1Q13, and updated a plan to commission two dairy farms in 2013. The company expects the new farms will provide for up to 45 kt p.a. of milk at full capacity, thus raising its own milk output 4x and allowing for Milkiland’s self-sufficiency in milk to exceed 10%.

Alexander Paraschiy: We see the results as slightly discouraging: for the 3Q alone, company revenue fell 2% yoy and its sales in its most profitable segment, cheese and butter, fell 8% yoy, by our estimates. This is a bigger decline than in the first six months of the year, four of which affected by a ban on cheese exports to Russia. The ripple effects of the ban, which was officially lifted in May, has had a longer effect on the company’s sales than we expected: Milkiland informed it would fully return to its pre-ban export levels only in November. This suggests the company will post strong 4Q results. So far, we maintain Milkiland’s revenue forecast at EUR 296 mln (+4% yoy) and EBITDA forecast at EUR 38 mln, while we see a risk of underperformance. We remain positive on Milkiland’s investment case and confirm our BUY recommendation for the stock.