Gradus: Better days should come, but uncertainty remains (downgraded to HOLD)

We have downgraded Gradus to HOLD (from Buy), cutting our 12M price target (PT) to BGN 1.55/share (0% upside potential), from BGN 1.76/share. The pandemic has resulted in a negative combination of lower chicken meat and eggs prices in Bulgaria (both -9% yoy in 2020, according to the Bulgarian National Statistics Institute (BNSI)). On top of this, it has suffered from bans on egg exports to Russia and Iraq. Consequently, the top line has dropped 9% yoy, while the EBITDA has contracted 22% yoy. As we believe that 2021E should mark an economic recovery, supporting both prices and volumes for Gradus, we see some room for the financials to recover (2021E EBITDA up 36%, and a 2020-23E EBITDA CAGR of 27%, on our numbers). It still has a strong balance sheet position (2021E ND/EBITDA at only 0.2x), but its current valuation (19x EV/12M trailing EBITDA, 13% above its long-term average) and still significant degree of uncertainty over further developments in the pandemic, do not offer a sufficiently attractive risk-reward profile to command a Buy rating, in our view.