Ovostar revenue rises 27%, EBITDA grows 10% in 2017

Ukrainian egg producer Ovostar Union (OVO PW)
increased net revenue 26.9% yoy to USD 98.7 mln in 2017, according to its
annual report published on Apr. 20. The improvement was driven by higher
revenue in both core segments – revenue in its shell egg segment increased
21.8% yoy to USD 67.8 mln and egg product revenue jumped 42.6% yoy to USD 30.1
mln.

The company’s EBITDA increased 10% yoy to USD 26.5 mln
in 2017, which was the result of growing export sales and higher prices. But
the improvements in its operations segment were partly offset by higher
transportation costs and lower income from VAT subsidies. So the company’s net
profit increased 1.8% yoy to USD 22.9 mln in 2017.

The company’s cash flow from operations fell 17.4% yoy
to USD 18.9 mln and CapEx declined 26.9% yoy to USD 11.8 mln. Ovostar’s total
debt decreased 11.1% yoy to USD 13.6 mln, while net debt turned to negative USD
1.3 mln.

In its 2018 outlook, Ovostar announced its plan to
boost its laying hen flock by 9% yoy to 7.2 mln and improve egg production
volumes by 5% yoy to 1.75 bln units. Ovostar plans to increase production of
dry egg products by 9% yoy to 3.55 kt and liquid egg products by 12% yoy to 13
kt. The company’s main focus will be improving export sales by boosting the
share of total sales volume of dry egg products to at least 70% and liquid egg
products to at least 40% in 2018.

Andriy Perederey: Ovostar’s
results met our expectations of a top
line close to USD 100 mln and EBITDA exceeding the 2016 level of USD 24.1 mln.
The company’s focus on export sales brought cash inflow in foreign currency,
which reduced currency-related risks. But on the other hand, transportation
costs connected with export sales reduced the EBITDA margin to 27% in 2017 vs.
31% in 2016.

We see that the company will follow a course of
step-by-step expansion in 2018 using only own funds for investments. Also,
Ovostar remains one of the least leveraged companies in the Ukrainian
investment universe. In our view, the company’s imporved annual EBITDA
(compared to a 14% yoy EBITDA decline in 9M17) should be rewarded by the stock
market.