Astarta Holding: Sweet rebirth at the peak of the cycle (HOLD - initiation of coverage)
We initiate coverage of Astarta Holding, with a HOLD rating and a price target (PT) of PLN 49.0/share (12% upside). The company has the fifth-largest landbank in Ukraine (c.220k ha), and its two most important segments are agriculture (68% of 2020 EBITDA) and sugar (18%). Over 2018-19, Astarta’s business was struggling with devastatingly low sugar prices in Ukraine (it was at EBITDA breakeven in the sugar segment), and a stretched balance sheet (2018 ND/EBITDA at 5.1x). The recent soft commodities rally, coupled with cost cutting and the optimisation of working capital, helped to expand the EBITDA by 44% yoy in 2020, and reduce the gearing (2020 ND/EBITDA at 1.2x). Moreover, for the first time in the company’s history, management has recommended a dividend (EUR 0.50, a 5% yield) from the 2020 profit. Nonetheless, we believe the positive changes have been reflected in the stock price already (+270% in the LTM). Moreover, the Bloomberg consensus assumes that soft commodities prices may peak in 2021E, then drop in the coming years. Therefore, although we like Astarta’s strong financial standing, the positive changes in the Ukrainian sugar market (production capacity reduced to the level of demand), and expect growth in the DPS over the coming years, we do not see the risk-return profile as attractive enough to command a BUY rating at this stage.Astarta is a holding company. Through its subsidiaries, Co. specializes in sugar production, crop growing and cattle farming, ensuring wholesale distribution of sugar for industrial consumers and individuals. Co. produces sugar primarily using its own-grown sugar beet. Co.'s products include sugar and sugar by-products, such as granulated sugar, molasses, and sugar beet pulp; agricultural products comprising barley, wheat, rye, sunflower seed, soy bean, corn, peas, and varietal and regular cycle seeds of agricultural crops; and cattle farming produce, such as milk and meat, as well as canned goods, fodder, and gas.
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