Kernel: Under lucky stars (stays BUY)
Since our previous update, Kernel’s share price has risen by 44%. Despite this, we keep our BUY rating on the name, and set our 12M price target (PT) at PLN 68.2/share (from PLN 60/share), implying 21% upside potential. Kernel delivered 15% higher EBITDA for 2020 than we expected, and paid out a DPS of USD 0.42 (vs. our USD 0.25). Moreover, amid the soft commodities rally, we have raised our 2021E and 2022E EBITDA forecasts by 56% and 23%, respectively. On top of this, we believe that the recently-announced cut in the VAT on soft commodities in Ukraine and the introduction of new export duties in Russia should support Kernel’s business in the long term. Consequently, we expect Kernel to deleverage (ND/EBITDA down from 1.8x in 2021E to 1.5x in 2023E) and increase its DPS payments further, to USD 1.00 (a 7% dividend yield) from the 2022E profit and USD 1.50 (a 10% dividend yield) from the 2023E profit. Finally, we see the company as valued attractively, as it trades at our 2021E and 2022E EV/EBITDAs of 3.8x (26% and 14% discounts to the long-term averages, respectively).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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