[BUY] Astarta: revision of target price (August 20, 2015)

On August 18, 2015 Astarta [AST PW] published its financial results for 1H2015. The company’s revenues were down by 23% y/y to EUR 126 mn, while gross profit declined by 15% y/y to EUR 94 mn in 1H2015 (including EUR 49 mn of change in fair value of biological assets and agricultural produce). Astarta reported an EBITDA of EUR 81 mn (-22% y/y) and an EBITDA margin of 70% for 1H2015 (adjusting for change in fair value of BA: 32%). The company’s net income was up by 95% y/y to EUR 23 mn for the first six months of 2015.

Astarta’s cash flow from operating activities was down by 47% y/y to EUR 41 mn, while capital expenditures amounted to just EUR 5 mn, which was offset by a withdrawal of cash deposits. The company recorded an outflow of EUR 47 mn from its financing activities due to low borrowing during the period. Astarta’s cash balance as of end-June 2015 amounted to EUR 4 mn (EUR 7.5 mn with cash deposits), while the company’s net debt amounted to EUR 206 mn, which implies a healthy leverage ratio of 2.2x. Though the market overall feels some form of liquidity crunch, during the recent conference call the management noted that the company is still comfortable with financing, having an open credit line cushion from banks. In opposite to market peers, Astarta enjoys cheaper financing thanks to its cooperation with IFIs and export credit agencies. The management looks into the near future with optimism, however still intends to follow a cautious financial policy, which includes, among other, cost cutting, restriction on capital investments, and a conservative debt policy.

The sugar segment remained a top contributor to revenues (47% share) with sales reaching EUR 60 mn in 1H2015. Astarta reported that export sales of sugar amounted to 20 ths tonnes or 13% of total sales (156 ths tonnes). According to Astarta’s management, the domestic market is more attractive to the company right now regarding the adverse global sugar market developments. As for export, the management singled Central Asian and Middle East as its market growth target, considering the maintenance of quota restrictions on Ukrainian sugar on the European market in the coming years.

The sales of soybean processing products amounted to EUR 31 mn (25% of revenues), with 100% of soy oil and 36% of soymeal being exported abroad. Sales of agricultural segment amounted to EUR 21 million (17% of total revenues), while the dairy segment generated EUR 12 million (9% of total revenues).

Our view:

The news is moderately POSITIVE for the company. Despite a sizable drop in revenues and EBITDA (which was expected due to the effect of the UAH devaluation on domestic sales) and weak performance of the agricultural segment, profitability actually improved, while FCF yield amounted to a hefty 18%. The company also managed to increase its export share to about 38% thanks to export sales of sugar and soybean oil. Looking forward, domestic sugar prices have a good chance to increase in 2H2015 due to lower expected production in the 2015/2016 season, while grain prices could remain low in the short-term perspective.

We upgrade our target price for Astarta to USD 14.30 (PLN 53.81) per share with an upside of 59% to the current market price of USD 9.01 (PLN 34.00).



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