ASTARTA HOLDING N.V. Investment research presentation by UKMA team
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 bio - fuel technologies that grant energy efficiency. 2 • Even though the primary goal of the Company is generating profits, ASTARTA takes part in charity on regular basis.
Operating Activities in Numbers Annual Operating Results, ths UAH Margins 1 600 000 1 400 000 2007 2008 2009 3Q2010 1 200 000 Year Net Revenues 1 000 000 Gross margin 28,0% 26,1% 32,9% 59,6% 800 000 Gross Profit 600 000 Profit from Operating 400 000 Operations margin 29,1% 15,5% 33,8% 85,7% 200 000 0 2007 2008 2009 Quarterly Operating Results, ths UAH Ratios 600 000 500 000 GP/PP&E(in. v.) GP/WC Year 400 000 1Q2009 1,32% 3,84% Net Revenues 2Q2009 9,62% 16,49% 300 000 Gross Profit 3Q2009 21,63% 28,92% 200 000 4Q2009 15,26% 28,81% Profit from 100 000 Operations 1Q2010 15,48% 28,91% 0 3 2Q2010 15,07% 22,41% 3Q2010 19,31% 20,50% Source: Company data, student estimates
Investing Activities in Numbers Purchase of PP&E, ths UAH Investments 160000 Investments, 140000 Year EUR mln 120000 2005 6 100000 2006 10 80000 2007 23 60000 2008 33 2009 9 40000 2010E 35 20000 0 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 Acquisition of subsidiaries, ths UAH Land 20000 Year Land, ths ha 18000 2003 26 16000 14000 2004 44 12000 2005 67 10000 2006 90 8000 2007 135 6000 2008 166 4000 2009 175 4 2000 2010E 200 0 2007 2008 2009 3Q2010 Source: Company data, company estimates, student estimates
Financials in Numbers Currency Denomination of Debt 13% UAH denominated loans 87% USD denominated loans Financials & ratios Year 2007 2008 2009 3Q2010 EBITDA, ths UAH 213 749 223 461 550 497 976 644 Net Income, ths UAH 149 027 -89 248 323 266 793 135 Net Debt, ths UAH 538 301 1 245 800 1 281 994 1 526 390 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 2 582 176 2 020 315 4 057 594 - EV/Sales 4,20 2,08 3,00 - EV/EBITDA 12,08 9,04 7,37 - P/E 13,71 -8,68 8,59 - 5 P/B 2,78 1,20 2,08 - P/BV 3,21 0,66 3,11 - Source: Company data, student estimates
Macroeconomic Assumptions Inflation rate, % Average Exchange rate 12 30,0% 25,0% 10 20,0% 8 15,0% 6 CPI UAH per EUR 10,0% 4 PPI UAH per USD 5,0% 2 0,0% 0 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Industrial Consumer Gas Price, Russian Gas Cost, $ per UAH per 1000m3 1000m3 600,0 5000,00 500,0 4500,00 4000,00 400,0 3500,00 Import Cost 3000,00 300,0 2500,00 2000,00 200,0 Industrial 1500,00 Consumer 1000,00 100,0 Cost 500,00 6 0,00 0,0 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Source: NBU, NERC of Ukraine, World Bank, IMF, student estimates
Key Output Drivers Assumptions Gas Share in Sugar Costs, % YoY Sugar Dynamics 2 30,0 1,8 1,6 25,0 1,4 20,0 1,2 YoY Sugar Price 15,0 Multiplier 1 10,0 0,8 5,0 YoY Sugar 0,6 0,0 Produced 0,4 Multiplier 0,2 0 YoY Cattle Farming Dynamics 1,40 Grain & Oilseed Production, ths tons 1,20 1,00 2500 YoY Milk Price 2000 0,80 Multiplier 1500 0,60 1000 YoY Milk 0,40 500 Production 0,20 Multiplier 0 0,00 7 Source: Company data & estimates, UN, Ukrtsukor, Minagro, student estimates
Future Performance Outlook Financial Results Margins 70,0% 4 500 000 4 000 000 60,0% 3 500 000 50,0% Gross margin 3 000 000 40,0% 2 500 000 Operational Net Revenues margin 2 000 000 30,0% Gross Profit EBITDA margin 1 500 000 20,0% Net Income 1 000 000 Net Income margin 10,0% 500 000 0,0% 0 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 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 496891 506667 620505 656520 804612 958049 673961 433059 358961 266541 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 8 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 Source: Company data, student estimates
Financial Position Outlook Assets, mln UAH 6 000 000 5 000 000 4 000 000 PP&E 3 000 000 Depreciation Working Capital 2 000 000 Total Assets 1 000 000 0 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Equity & Liabilities, mln UAH 6 000 000 5 000 000 4 000 000 Equity 3 000 000 Short-term Liabilities Long-term Liabilities 2 000 000 Total Equity & Liabilitites 1 000 000 9 0 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Source: Company data, student estimates
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. 10 • 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.
DCF Valuation: Confident Stability 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Free 213 859 77 712 125 494 334 280 331 418 457 362 839 999 723 866 966 015 966 135 Cash Flow, ths UAH DFCF, 213 859 71 295 105 626 258 126 234 785 297 254 500 864 395 980 484 811 444 836 ths UAH Terminal value, ths UAH 8 783 049 Conclusion: Even though ASTARTA is capable of intensifying its business activities and raising revenues, negative drivers such as growing gas prices, DTV, ths UAH 2 496 691 key product supply replenishment, price stabilization, and the possible state Discounted Enterprise value, ths 5 504 126 troubles with debt repayment (UAH depreciation, USD deficit, consumer UAH impoverishment etc.) won’t allow the company to significantly Shares 25000 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 2007-1H2010 financials), average tax rate is 2% (based on tax-to-income ratio) • WACC is estimated to be 15% 11 • 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%
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