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Ukraine Markets Daily (November 19, 2014)

Market comment

The UX Index was up by 1.9% in UAH terms on Tuesday, and up by 2.3% in the US dollar terms. At the same time, the PFTS index was down by 0.6% in UAH terms. Seven out of ten companies in the UX index were up in the UAH terms, with the largest increase in prices observed for Alchevsk MP (8.4%), Azovsteel (6.2%) and Enakievo MP (4.6%). 

 

On the interbank exchange market, the USD/UAH spot rate was down by 0.5% with the closing price of 15.43 (mid price), according to Minfin.com.ua, while the average exchange rate reported by the NBU was 15.26. 

Ukraine 5-year credit default swaps were up by 2.9% on Tuesday. 

Market news

  • Industrial production in October 2014 down 16.7% y/y vs. 16.6% y/y decline in September 
  • MHP’s EBITDA up 43% y/y, net income before FX up 66% y/y in 9M2014

 

Industrial production in October 2014 down 16.7% y/y vs. 16.6% y/y decline in September

According to the data released by the State Statistical Service of Ukraine, industrial production in Ukraine in January-October-2014 declined by 9.4% y/y. In October alone it fell by 16.7% y/y, but increased 7.5% m/m. It is noteworthy that in 9M2014 some industries were able to demonstrate moderate growth: food, beverages and tobacco production (2.6%), pharmaceutics (4.6%), and production of electrical equipment (0.7%).

Our view:

The news is moderately negative for the Ukrainian economy. While the overall decline in industrial production doesn’t sound optimistic, the October numbers were nearly equal to September’s statistics (-16.6% y/y). Industrial production growth in October 2014 in comparison to September 2014 can be explained at least partially by greater number of working days in October. Besides this, military clashes, terroristic actions, and political instability in the Eastern Ukraine are totally responsible for the unsustainable work of the enterprises. We expect the industrial production to recover fast when the situation in Eastern Ukraine calms down, and emphasize the great role of the government to be appointed in stabilization of the social and business environment.

MHP’s EBITDA up 43% y/y, net income before FX up 66% y/y in 9M2014

MHP [MHPC LI], one of the leading Ukrainian poultry meat producers and exporters, yesterday published its preliminary financial results for 9M2014. The company’s sales were down by 4% y/y to USD 1,034 mn in 9M2014, while gross profit rose by 55% y/y to USD 417 mn. At the same time, MHP’s EBITDA increased by 43% y/y to USD 453 mn, which was primarily due to the increased production volumes and lower production costs from consumption of low priced crops harvested in 2013. The company’s net income before FX losses increased by 66% y/y to USD 259 mn in 9M2014, while net loss (including USD 561 mn of non-cash FX losses)  amounted to USD 302 mn.

MHP’s net operating cash flow increased by 1% y/y to USD 262 mn in 9M2014, while the company’s CapEx halved to USD 100 mn. The company also paid USD 96 mn of dividends in 9M2014, bringing net cash flow from financing activities down to USD -159 mn. As of 30.09.2014, the company’s cash balance amounted to USD 151 mn, down by 9% y/y.

MHP also reported that the company’s breeding farm Shakhtarska Nova located in the conflict area in Eastern Ukraine, which provided approx. 30% of hatching eggs, is still not operational. The company is planning to re-equip one of the broiler farms (Peremoga Nova – 35,000 tonnes capacity per annum) to produce hatching eggs and gradually substitute import of those with no adverse effect onto overall poultry production volumes.

Our view:

The news is POSITIVE for the company. Increasing volumes of production and exports of poultry meat, growing poultry prices, along with the positive effect of the Ukrainian currency devaluation on costs in USD terms, resulted in a substantial increase of EBITDA margin (from 29% in 9M2013 to 44% in 9M2014). Nevertheless, MHP has already reported a USD 49 mn loss on impairment of assets in the Donetsk region, and we believe that in 4Q2014-1Q2015 the company’s cash flow could be affected by additional costs attributed with the import of hatching eggs until Peremoga Nova farm is re-equipped for breeding farm operations.

 

Disclaimer

Although the information in this report has been obtained from sources which Empire State Capital Partners believes to be reliable and was collected in good faith, we do not represent or warrant its accuracy, except with respect to information concerning Empire State Capital Partners, its subsidiaries and affiliates, either expressly or implied, and such information may be incomplete or condensed. Nor has the information and/or data been independently verified, and so is provided without further caveat regarding its reliability, suitability for commerce or specific purpose. 

This report does not constitute a prospectus and is not intended to provide the sole basis for an evaluation of the securities discussed herein. All estimates and opinions included in this report constitute our judgment as of the date of the report and may be subject to change without notice. Empire State Capital Partners or its affiliates may, from time to time, have a position or make a market in the securities mentioned in this report, or in derivative instruments based thereon, may solicit, perform or have performed investment banking, or other services (including acting as advisor, manager) for any company referred to in this report and may, to the extent permitted by law, have used the information herein contained, or the research or analysis upon which it is based, before its publication. Empire State Capital Partners will not be responsible for the consequences of reliance upon any opinion or statement contained herein or for any omission. This report is confidential and is being submitted to select recipients only. It may not be reproduced (in whole or in part) without the prior written permission of Empire State Capital Partners.

Any recommendations, opinions, forecasts, estimates or views herein constitute a judgment as at the date of this report. This document has been produced independently of Empire State Capital Partners and the recommendations, forecasts, opinions, estimates, expectations, and views contained herein are entirely those of the research analyst(s). While all reasonable care has been taken to ensure that the facts presented herein are accurate and that the respective recommendations, forecasts, opinions, estimates, expectations, and views are fair and well considered, none of the research analyst(s), Empire State Capital Partners or any of its directors, managers or employees has verified the contents of this document and, accordingly, no research analyst, Empire State Capital Partners or any of its respective directors, managers or employees shall be in any way responsible for its contents.

 

Ukraine Markets Daily

Market news

  • MHP is to refinance its 2020 Eurobonds with the new issue

Market comment

The UX index remained unchanged on Friday as well as the PFTS index due to holidays. The WIG-Ukraine index increased by 0.6%. On the interbank exchange market, the UAH/USD remained unchanged too at UAH 26.10 (mid price), according to Thomson Reuters. The official exchange rate reported by the NBU was UAH 26.35.

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