Ukraine Markets Daily (April 10, 2015)

Market news

  • Parliament approved the bill on the gas market in Ukraine 
  • Parliament approved the bill on public access to company registers, information about state procurement
  • Astarta’s EBITDA up by 84% y/y to EUR 120 mn in 2014

Market comment

The UX Index was down by 0.8% in UAH terms on Thursday, and up by 0.1% in the US dollar terms, while the PFTS index was down by 0.7% in UAH terms. Five out of of ten companies in the UX index were down in the UAH terms, with the largest decrease in prices observed for Kryukiv carriage plant (-6.8%), Ukrnafta (-2.3%) and Bank Aval (-0.8%).

On the interbank exchange market, the USD/UAH spot rate was down by 0.9% with the closing price of 23.30 (mid price) on Thursday according to Bloomberg. The official exchange rate reported by the NBU was 23.44.

Ukraine 5-year CDS were down by 4.5% on Thursday.


Parliament approved the bill on the gas market in Ukraine 

Yesterday the Ukrainian Parliament voted for the bill #2250 “On the natural gas market”. The bill is intended to break the monopoly of several business groups in the gas distribution sector and create competitive market conditions. Thus, while previously private operators could use gas pipelines for free, the bill stipulates that there should be a fair payment for such services (through lease or concession). 

“The main purpose of the bill is in the creation of an effective competitive environment in the natural gas market with an appropriate level of consumer protection, taking into account the basic requirements of EU legislation,” – says the explanatory note to the bill. 

Our view:

The new law will have a positive impact on Ukrainian economy. In particular, it should lead to the increased competition which will result in lower gas prices for consumers. In addition to this, the initiative creates the necessary preconditions for integration of the Ukrainian gas market into the European Energy Community, including the creation of regional natural gas markets. Therefore, it is definitely a step in the right direction, which will contribute to the economic cooperation with the EU.


Parliament approved the bill on public access to company registers, information about state procurement

Yesterday the Ukrainian Parliament voted for the bill #2171 on the access to public information in the form of open data. The bill stipulates that the state authorities should disclose certain types of public information and allow it to be copied and used, including for commercial purposes. According to the bill, the government should provide disclosure in the form of open data of the Single State Register of Legal Entities, the National Register of Television and Ukraine, the Unified Register of State Property, the Register of Higher Educational Institutions, as well as master plans of settlements and information on public procurement.

Our view:

The new law is an important step towards a more transparent government and decreases the risks of corruption in public procurement. However, we should note that for this initiative to be more effective, the government should ensure that the information presented to the public is regularly updated and presented accurately, without any gaps or missing data.  


Astarta’s EBITDA up by 84% y/y to EUR 120 mn in 2014

Astarta, one of the biggest agricultural companies and the leading sugar producer in Ukraine, published its annual report for 2014. The company’s consolidated revenue was up by 8% y/y to EUR 352 mn, while gross profit increased by 61% y/y to EUR 131 mn in 2014 on the back of increased production volumes and good performance of the new soybean segment. At the same time, EBITDA increased by 84% y/y to EUR 120 mn. However, the company posted a net loss of EUR 68 mn, which was mainly caused by EUR 135 mn of FX losses, most of which was non-cash.

Astarta generated 24% of its revenue (EUR 84 mn) in 2014 from export sales (mostly grain), while the new soybean segment contributed EUR 74 mn or 21% of total sales. The sugar segment remained a top contributor, generating 49% of total sales or EUR 160 mn.

The company’s net cash flow from operations grew by 2.4x to EUR 94 mn, while capital expenditures increased by 14% y/y to EUR 49 mn. Astarta managed to reduce its net debt by 18% y/y to EUR 217 mn, bringing leverage down to just 1.8x. The company reported a cash balance of EUR 13 mn as of end-December.

Our view:

The news is POSITIVE for the company. Despite a steep devaluation of the local currency, Astarta managed to increase its sales and profitability in EUR terms by introducing the new segment and increasing its export share. However, we expect margins of the sugar segment to be lower in 2015 due to oversupply caused by the record production in 2014 and the high production costs, while domestic sales in EUR terms should drop as a result of the UAH devaluation. Thus, we believe that the company will continue to diversify by growing the new soybean segment, simultaneously hedging its currency risks by further increasing export sales.



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