Kernel: Revived crush (stays BUY)
We maintain our strong optimism towards Kernel, raising our price target (PT) to PLN 75.6/share (from PLN 69.0) and keeping our strong BUY recommendation. We see good momentum for a share price recovery in the coming months, given: 1) the expected positive EBITDA dynamics in 4Q FY18E, for the first time in the past eight quarters; 2) the favourable global outlook for crop prices, which may bring investors’ attention towards the agriculture sector; as well as 3) our very strong forecast for sunflower seed supply in Ukraine and the good outlook for local grains, despite the drought. We believe that the market still has not fully priced in the recovery potential stemming from potential agriculture price rebounds, while the 4Q FY18E recovery could be the first confirmation of this improvement. We also believe that rebounding prices could lead to strong destocking at Kernel, which could free up USD 200m of cash, held right now in bulk oil. We also believe that a more favourable crop price outlook could trigger some positive surprises for Kernel in FY19E, as well as positive sentiment towards the name. Kernel trades currently at FY19-20E EV/EBITDAs of 4.8x and 4.0x, respectively, which implies 24-28% discounts vs. its local peers’ averages (Rusagro and MHP), which we see as unjustified given the strong earnings momentum, resulting from a rebound from the record weak FY18E, as well as significant capacity additions at the company.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.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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