March 7, 2013

Ukraine's top poultry and egg producers released impressive 2012 results with MHP reporting an on-year 15% rise in net sales while Avangard's net income surged by 16% on-year.

MHP, the country's largest poultry producer, reported US$1.4 billion in net sales, an on-year 15% increase, a 17% surge in earnings before interest, taxation, depreciation and amortisation (EBITDA) to US$468 million and a 20% increase on net income (US$311 million) with a margin of 33.2%.

Investors were not only pleased by the numbers, but by the company's decision to pay out its first dividends, some US$1.13 per share, or a total pay-out of US$120 million.

Looking ahead, the company revealed plans to boost poultry production this year by nearly 15%, and to commence exports to European markets after regulators sanctioned imports of Ukrainian poultry products.

In a note to investors, Kiev-based investment bank Dragon Capital said, "MHP's revenues outperforming our forecast by 5% and Bloomberg consensus by 2%. EBITDA matched our projection of US$468 million and was marginally (1%) below Bloomberg consensus. Revenue growth over the period was mostly attributable to an increase in chicken meat prices as well as higher chicken meat sales volumes and sunflower oil sales. In 2013, we forecast MHP's total revenues at US$1.4 billion and EBITDA at US$$499 million, for an EBITDA margin of 35.5%. MHP's dividend announcement is truly significant, making it the first company in Ukraine's listed food & agriculture universe to distribute profits to shareholders."

Ukraine's Avangard, the leading producer of eggs in Eurasia region, has a slightly less rosy yet still positive story, Dragon Capital stated. According to 2012 results released on Tuesday (Feb 26), Avangard's revenues and EBITDA increased by 14% on-year reaching US$629 million and US$280 million, respectively. Net income surged by 16% to US$228 million.

Dragon Capital concluded, "While Avangard's 2012 revenues came in slightly below expectations (-1% versus our projection and -3% below Bloomberg consensus), profitability was stronger than forecast, with EBITDA coming in 17% higher than our projection and 4% better than Bloomberg consensus and net income outperforming our forecast and Bloomberg consensus by 22% and 7%, respectively. Overall, we find the results quite strong. However, in view of Avangards's corporate governance risks, we put the stock under review for clarification of previously reported "optimisation" at the company's pre-IPO production sites. We believe such restructuring could materially affect our operating and financial outlook for the company. Having obtained little explanation so far, we are waiting for further clarification from management to revise our valuation model."