ASTARTA HOLDING N.V. Investment research presentation by UKMA team

Transcription

1 ASTARTA HOLDING N.V. Investment research presentation by UKMA team

2 Successful Agricultural Giant Established in 1993 as an agribusiness company, ASTARTA has been evolving rapidly and since 2006 has been listed on Warsaw Stock Exchange. High level of functionary professionalism, decent corporate responsibility, adequate financial transparency, and the innovative approach ensure ASTARTA s successful development and outstanding operating results. ASTARTA operates on nearly 200,000 ha of high quality arable land growing crops, producing sugar and farming cattle. ASTARTA holds a nearly 20% share of the Ukrainian sugar market, exports crops, and is also augmenting its position in the Ukrainian milk segment. B2B connections are consistent and involve firm business relations with the best food & beverage companies of Ukraine. One of the highlight of ASTARTA s activities is also the development of biofuel technologies that grant energy efficiency. Even though the primary goal of the Company is generating profits, ASTARTA takes part in charity on regular basis. 2

3 Operating Activities in Numbers Year Margins Q2010 Gross margin 28,0% 26,1% 32,9% 59,6% Operating margin 29,1% 15,5% 33,8% 85,7% Annual Operating Results, ths UAH Net Revenues Gross Profit Profit from Operations Quarterly Operating Results, ths UAH Ratios Year GP/PP&E(in. v.) GP/WC Net Revenues Gross Profit Profit from Operations 1Q2009 1,32% 3,84% 2Q2009 9,62% 16,49% 3Q ,63% 28,92% 4Q ,26% 28,81% 1Q ,48% 28,91% 2Q ,07% 22,41% 3Q ,31% 20,50% 3 Source: Company data, student estimates

4 Investing Activities in Numbers Investments Investments, Year EUR mln E Purchase of PP&E, ths UAH 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q Acquisition of subsidiaries, ths UAH Q2010 Land Year Land, ths ha E Source: Company data, company estimates, student estimates

5 Financials in Numbers Currency Denomination of Debt 87% 13% UAH denominated loans USD denominated loans Financials & ratios Year Q2010 EBITDA, ths UAH Net Income, ths UAH Net Debt, ths UAH Total Debt ratio 0,43 0,67 0,49 0,42 Long-term Debt to Equity ratio 0,16 0,32 0,56 0,42 Current ratio 1,51 0,92 2,15 3,01 Quick ratio 0,61 0,36 0,78 1,69 Cash ratio 0,02 0,01 0,04 0,04 Return on Equity (ROE) 0,20-0,14 0,24 0,17 Return on Assets (ROA) 0,12-0,05 0,12 0,10 EV, ths UAH EV/Sales 4,20 2,08 3,00 - EV/EBITDA 12,08 9,04 7,37 - P/E 13,71-8,68 8,59 - P/B 2,78 1,20 2,08 - P/BV 3,21 0,66 3,11-5 Source: Company data, student estimates

6 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Macroeconomic Assumptions 30,0% Inflation rate, % 12 Average Exchange rate 25,0% 10 20,0% 8 15,0% 10,0% 5,0% CPI PPI UAH per EUR UAH per USD 0,0% 0 600,0 500,0 400,0 300,0 200,0 100,0 0,0 Russian Gas Cost, $ per 1000m3 Import Cost Industrial Consumer Cost 5000, , , , , , , , ,00 500,00 0,00 Industrial Consumer Gas Price, UAH per 1000m3 6 Source: NBU, NERC of Ukraine, World Bank, IMF, student estimates

7 Key Output Drivers Assumptions 2 1,8 1,6 1,4 1,2 1 0,8 0,6 0,4 0,2 0 YoY Sugar Dynamics YoY Sugar Price Multiplier YoY Sugar Produced Multiplier 30,0 25,0 20,0 15,0 10,0 5,0 0,0 Gas Share in Sugar Costs, % YoY Cattle Farming Dynamics Grain & Oilseed Production, ths tons 1,40 1, ,00 0,80 0,60 0,40 0,20 YoY Milk Price Multiplier YoY Milk Production Multiplier 0,00 7 Source: Company data & estimates, UN, Ukrtsukor, Minagro, student estimates

8 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Future Performance Outlook Financial Results 70,0% Margins Net Revenues Gross Profit Net Income 60,0% 50,0% 40,0% 30,0% 20,0% 10,0% 0,0% Gross margin Operational margin EBITDA margin Net Income margin Ratios & Financials 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Current ratio 2,90 2,83 3,14 3,31 3,15 2,83 3,45 3,67 3,16 3,50 Quick ratio 2,43 0,85 0,90 1,10 1,06 1,05 1,10 1,23 1,24 1,29 Cash ratio 0,07 0,05 0,06 0,05 0,05 0,04 0,06 0,06 0,03 0,07 Long-term Debt to Equity ratio 0,33 0,37 0,33 0,28 0,29 0,31 0,27 0,26 0,28 0,26 Capital expenses, ths UAH Return on Equity (ROE) 0,42 0,34 0,36 0,25 0,24 0,19 0,27 0,24 0,15 0,29 Return on Assets (ROA) 0,26 0,20 0,22 0,16 0,16 0,12 0,18 0,16 0,10 0,20 Book value per share, UAH 88,33 92,62 111,60 111,78 117,01 115,45 135,31 131,43 117,00 136,98 GP/PP&E(init. v.) 0,56 0,63 0,72 0,51 0,49 0,39 0,60 0,58 0,40 0,64 GP/WC 0,74 0,78 0,75 0,69 0,70 0,70 0,69 0,66 0,64 0,79 8 Source: Company data, student estimates

9 Financial Position Outlook Assets, mln UAH PP&E Depreciation Working Capital Total Assets E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Equity & Liabilities, mln UAH Equity Short-term Liabilities Long-term Liabilities Total Equity & Liabilitites E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Source: Company data, student estimates 9

10 Relative Analysis: In The Golden Middle 2010 P/E EV/EBITDA Astarta 6,00 5,63 Mriya AgroHolding (Ukraine) 4,5 8,76 Razguliay Group (Russia) 11,17 6,95 Illovo Sugar (South Africa) 11,50 5,75 Cosan Limited (Brazil) 11 5,8 Nanning Sugar (China) 12,2 10,2 Shree Renuka Sugars (India) 8,8 3,8 Suedzucker (Germany) 10,3 5 Balrampur Chini Mills (India) 9,7 9,7 Average 9,46 6,84 Astarta vs. Main Peers -36,63% -17,69% Source: Companies & stock exchange data, student estimates Differences to: Ukrainian peers Astarta prevailing due to superiorities in operation management, investment strategy implementation and corporate relations quality. Russian peers more available land and huge inner market make their success easier than that of Astarta. Brazilian, African, Chinese peers low cost of manpower and auspicious climate encourage better results than those of Astarta. German peers higher yields due to better mechanization, fertilization and functionary professionalism ensure outstanding results. Indian peers cheap labor assists perfect outcomes but fluctuant climate may make production extremely scarce. 10

11 DCF Valuation: Confident Stability 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Free Cash Flow, ths UAH DFCF, ths UAH Terminal value, ths UAH Conclusion: Even though ASTARTA is capable of intensifying its business DTV, ths UAH activities and raising revenues, negative drivers such as growing gas prices, Discounted Enterprise value, ths key product supply replenishment, price stabilization, and the possible state UAH troubles with debt repayment (UAH depreciation, USD deficit, consumer Shares impoverishment etc.) won t allow the company to significantly increase its profits during the projected period, though financial Fair share value, UAH 220,2 performance and health are likely to remain outstanding. Current price, UAH 221,3 Downside <1% RECOMMENDATION: HOLD Source: Company data, student estimates Considerations: Risk-free rate was assumed to be 9% - the average projected inflation rate As we assume that there will be no significant dividend pay-outs, cost of equity is near to zero Average effective rate paid on debt is 15,5% (based on H2010 financials), average tax rate is 2% (based on tax-to-income ratio) WACC is estimated to be 15% Factors that influence stable growth rate: inflation, absence of export constraints for the company, currency used is UAH, and, as we have taken effective debt rates, stable growth should be shifted from nominal values to real ones); stable growth rate is assumed to be 4% 11

12 Risks Key product price correction (mainly sugar, as it should make the largest part of the revenues). Change in government regulations (taxation alterations, pending import quotas, demonopolization activities). High investment rates require huge funds (even though equipment modernization expenses should eventually fall, probable after 2012 land moratorium lifting will cause additional fund requirements to buy the land). Russian gas price rise, which is likely to commence in a few years if to believe intentions of Gazprom to double prices for Europe and shift Ukraine to European price level; after 2019 additional tariffs of 30% are to be applied to import prices of Russian gas. General macroeconomic and political risks (elections, monetary abuse, national currency fluctuations, state debt rise etc. affect production costs and the level of both industrial and household demand on key products). Finally, the most uncertainty is connected to the climate instability which may bring to nothing all ASTARTA s intentions to raise the yields, higher the output, and, eventually, to gain additional income. 12

13 APPENDIX Detailed Business Outline Of ASTARTA 13

14 Operating Activities Overview Operating activities Crops Cattle farming Sugar beet Other Milk Meat Manure* Sugar Byproducts* 14

15 Sugar beet Sugar By-products Considerations: Sugar supply deficit (12 mln tons on global markets in 2010, est % deficit in Ukraine in ) Higher prices (+19,7% during 2010 in Ukraine) Vertical integration (growing + processing + disposing, lower risks + economy) Increase in conversion ratio (1% yearly) and yields Market share rise (18% 20% in 2010) Business success of industrial clients (Sandora, Konti, Хортиця etc) Risks: Growing costs of natural gas ($180 $260/1000m 3 in last 3 years, further doubling pending) Competitors orientation on sugar (Mriya expanding fields from the West, UkrRos from the East) Fulfillment of sugar-import quota agreement (267 ths tons pending) Population impoverishment (higher costs of living lowers the demand on sugarrelated products) Government control over prices Sugar beet Sugar Byproducts Considerations: Cattle farming silage (economy on fodder acquisition) Bio-fuel raw material (reduction of natural gas consumption to less than 30 m 3 per ton of beet processed in future) 15

16 Other crops Wheat Sunflower Barley Corn Soybeans Considerations: Crop rotation secures high soil productivity (5-20% of existing yields depend on effectiveness of crop rotation) Prices on different crops often shift in different directions, which grants additional profit diversification Deficit of certain crops quite probable from year to year (world supply of grains is expected by UN to fall in 2011 wheat by 10%, corn 12%, barley 35%; soybeans and sunflower supply is probable to be stable) Unsold or damaged crops may be used as fodder in cattle farming and as a fertilizer on fields Soybeans can also serve as another bio-fuel source Risks: Higher than beet root susceptibility to climate unsteadiness may provoke scarce yields (overconcentration on grains raises the risks) 16

17 Cattle farming Milk Meat Manure Considerations: Prices on milk are likely to rise (+5-10% next year, and continual inner-state underproduction should keep prices high, import of milk is quite unlikely) Cattle farming Milk Meat Manure Risks: Meat isn t a perspective direction of business due to the fact that even Brazilian meat is cheaper than Ukrainian (unless there are significant changes in cattle farming national meat production will have a minor role) Cattle farming Milk Meat Manure Considerations: Cattle waste utilization allows to cut on costs of fertilizers in crop growing (fertilizers constitute more than 25% of costs) Waste may also be used in bio-fuel implementation (a good CH 4 source) 17

18 Investing Activities Overview Investing Activities PP&E Acquisition of subsidiaries Land Equipment Purchase* Lease Purchase Modernization 18

19 Land Lease Purchase Considerations: Leasing from private lessors (reduced costs) Lower risk of fund insufficiency due to moderate YoY expenses (in comparison to purchasing thousands of ha) Land shift available (if the land is of no use the lease contracts isn t prolonged; no selling of land required) No tax on the land paid until land is purchased Land Lease Purchase Considerations: If the moratorium is lifted acquisition of land will replaced the lease Land price growth after the abolishment of the moratorium will grant additional yearly profits on land revaluation Risks: Buying land requires huge funds which will be likely to affect the retained earnings and dividend payout horizons Taxation of land in property will arise Depletion of quality land available for sale 19

20 Equipment Purchase Modernization Considerations: Continual purchase of new generation machinery and appliances allows better processing, transportation and realization productivity New adjacent business directions can be set up in longer perspective (raw sugar processing etc.) Investment in bio-fuel technologies allows to cut on costs Risks: Loading of funds is inevitable (even though in longer perspective CapEx should be lower, renovation of morally and physically worn equipment costs grow in proportions with the Company s PP&E arsenal) Acquisition of subsidiaries Considerations: Acquiring production complexes implies certain expenses but is often more suitable than buying land, property etc. separately 20

21 Financing Activities Overview Financing Activities Proceeds Payments Short-term debt Long-term debt Principals and % Dividends* 21

22 Proceeds Short-term Long-term Considerations: Successful restructuring of short-term debt into long-term (short-to-long debt annually: ,6; ,21; ,75; 3Q2010 0,74) Trustworthy creditors (2009: European Bank of Reconstruction & Development $20 mln; Raiffeisen Bank Aval UAH 208,6 mln) Foreign currency inflow from export grants additional coverage of non-uah debts (ex. sales in 2009 constituted more than $20 mln, and in 2010 are est. to be about $25 mln) Payments Risks: Principals and % Dividends Significant part of debt is using floating rate and thus financial expense may fluctuate sharply (2009: UAH 737 mln, which was 75% of total debt) In case of high inflation Hryvnia devaluation may cause losses in ForEX operations Dividend pay-out period is likely to be postponed due to high investment rate (consideration for the minor shareholders, not risk at all) 22

23 Thank you for your attention! 23