4Q FY17 results weak end of tough year, but strong mid-term outlook
Kernel has reported its 4Q FY17 results. Although these were rather weak, with EBITDA falling 23% yoy, we do not find this surprising, given weak market conditions in the crushing business. At the same time, it also reported its volumes for 1Q FY18. On the one hand, oil crush and sales volumes look promising, indicating a potential recovery in market conditions. On the other, Kernel has guided for FY18E farming yields, which are rather weaker than our assumptions. Weaker yields, together with cost inflation, should translate into a tough year for the farming segment, although this may be partially offset by a slow recovery in the crushing margin, as well as guided strong volume growth. Overall we find the guidance as rather neutral to our FY18E EBITDA forecast of USD 347m at the current stage. Kernel also reported a strategic target of USD 500m of EBITDA for FY21E, which should be driven by three new projects, of which two have recently been announced but are not included in our forecast. Excluding the new projects, FY21E EBITDA may reach USD 433m, still 10% ahead of our estimate, and we therefore find the new strategic target as positive. After the recent correction, Kernel is trading at an attractive FY18E EBITDA of 3.8x, on our estimates, 25% below its CIS agricultural peers’ median.
Kernel Holding is a holding company. Co.'s is a diversified agribusiness engaged in the production and sale of bottled sunflower oil (sold under brand names Schedry Dar, Stozhar and Chumak Zolota), the production and subsequent export of bulk sunflower oil and meal, the wholesale trade of grain (mainly wheat, barley and corn), farming, and the provision of logistics and transshipment services n the ports of Ilyichevsk, Taman and Mykolaiv. The majority of Co.'s manufacturing facilities are primarily based in Ukraine and Russia. In addition, Co. is a private provider of inland silo services in Ukraine.
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