Ovostar reports 22% yoy EBITDA plunge in 1Q16

Egg producer Ovostar Union (OVO PW) reported a 4% yoy revenue increase to USD 17.8 mln in 1Q16, according to the company’s May 12 filing. The increase was driven by a 22% yoy surge in revenue in its second-largest segment, egg products, to USD 4.9 mln. At the same time, sales in its flagship segment, shell eggs, increased just 1% yoy to USD 12.2 mln.

The company’s 1Q16 EBITDA dropped 22% yoy (or USD 1.9 mln) to USD 6.9 mln, while its operating cash flow before working capital declined 36% yoy to USD 6.3 mln in 1Q16.

Ovostar’s net profit fell 33% to USD 6.1 mln. Net debt remained insignificant at USD 5.0 mln, and its net debt-to-LTM EBITDA was 0.15x as of end-1Q16.

Alexander Paraschiy: The company’s results are discouraging, especially in its shell egg segment, where we were expecting a 5% yoy revenue increase in 1Q16, based on the company’s operating update released a month before. The company’s EBITDA is also surprisingly low, though we see that most of the decline can be attributed to zero VAT subsidies reported in 1Q16, compared to USD 1.1 mln in 1Q15. The decline seems to be temporary and may reverse itself in the coming quarters. As an egg producer, Ovostar is eligible to retain 50% of VAT payable in 2016.

As another negative development, we are observing a significant decline in egg prices on the Ukrainian market. Currently, they are about 20% lower yoy, in local currency terms. Such a decline can be only partially attributed to the seasonal Easter factor. This should be reflected in further declines in Ovostar’s revenue and EBITDA in its shell egg segment in 2Q16, unless the company significantly increases its export efforts. While we expect recovery in shell egg prices in mid-2016, it’s very likely that Ovostar’s average egg prices and overall P&L will decline in 2016, as compared to the previous year. All in all, we remain optimistic about Ovostar’s mid-term value growth, while we are becoming bearish on the short-term price prospects of Ovostar’s stock.