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12 I Companies & Markets bne September 2017 Astarta – sweet success
Things are going a lot better in Ukraine. Despite the war in the east of the country the leading agricultural companies were already hardened by the chaotic situation in the country and the fighting is only one more distraction they have ignored.
One of the leading agricultural companies in Ukraine, Astarta saw sugar sales soar by 58% in the first half of this year, while crop sales more than doubled. Astarta operates eight sug-
ar plants in Ukraine, but like Rosagro the company is in the processes of diversifying.
Ten years ago, the share of sugar production in the overall revenues of Kyiv-headquartered agricultural giant stood at more than 70%. “That is when we set ourselves the task of diversifying our business segments. This [diversification]
“Rosagro had excellent years in 2015 and 2016 with profits soaring”
is the strength of the company,” Mykola Kovalski, director for marketing and communications, recently told bne Intel- liNews in an exclusive interview.
The company is having a much better year than its Russian peers. As bneIntelliNews reported in May the January-March, net revenue doubled then y/y to €148mn. And that is despite the fact that the sugar market in Ukraine shrunk as a result of the annexation of Crimea in 2014 and the conflict in the Don- bas, as Kyiv no longer controlled part of this region. “Before, the market was worth about 2mn tonnes, but now it is about 1.6mn tonnes,” according to Kovalski.
Also a significant portion of confectionery products made by Ukrainian companies used to be supplied to Russia and the countries of the Eurasia Economic Union (EEU), but today this export has dried up.
Sugar sales made up €69mn and were backed by strong export sales as well as a 2.6-fold surge in sales of its crop production (to €49mn). Astarta also reported a record-high share of export revenue in the quarter, which reached 73% of all sales as the company re-orientates away from the
domestic market and to exports. That has also alleviated FX risks, something that Rosagro’s focus on the domestic market remains exposed to.
The company kept up the momentum in the second quarter with 81,200 tonnes of sugar sales up 8% y/y – slightly less than half of Rosagro’s 193,900 tonnes, which operates in a market three-times the size – according to its trading update published on July 21. Sugar prices are falling in Russia, but they are rising in Ukraine, up 18% y/y in hryvnia terms.
The difference between the two firms is Rosagro has diversi- fied both vertically and horizontally, whereas Astarta has largely diversified only horizontally – but to good effect.
Astarta’s sale of grains have grown even more strongly than
its core sugar business: the sales of wheat, corn, barley and sunflower surged 154% y/y to 196,000 tonnes in the second quarter, while the sales of soybean oil and soybean meal decreased 17% y/y and 13% y/y, respectively, reports the Con- corde Capital in Kyiv. But all said and done Astarta is much more focused on sugar and bulk production than Rosagro.
“Based on the above operational results, we estimate that Astarta’s total revenue rose 67% y/y to €245mn in 1H17, including revenue from sugar sales of €104mn, which rose 78% y/y. Sugar prices remain strong in Ukraine, allowing Astarta to generate most of its profit from its sugar busi- ness, while we see the risk of domestic prices decreasing in 2H17, as global trends suggest. Nevertheless, the company’s strong operating results allow us to confirm our positive view on Astarta stock, which trades currently at 3.0x EV/LTM Ebitda,” analyst Alexander Paraschiy of Concorde Capital said in a note.
While Ukrainian blue chips don’t see much action on the pub- lic markets, they are also following Russia as they change their attitude to their equity, seeing it more and more as a source of investment capital.
In May, Fairfax Financial Holdings, a Canadian asset man- ager with $27.6bn in equity, made a landmark investment into Ukraine by buying the second largest stake in Astarta, bring its holding to 28% of the total. Viktor Ivanchyk, Astarta’s founder and CEO, remains the largest shareholder with a 36% stake.
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