ASTARTA HOLDING N.V. Investment research presentation by UKMA team - - PowerPoint PPT Presentation

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ASTARTA HOLDING N.V. Investment research presentation by UKMA team - - PowerPoint PPT Presentation

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ASTARTA HOLDING N.V. Investment research presentation by UKMA team Successful Agricultural Giant Established in 1993 as an agribusiness company, ASTARTA has been evolving rapidly and since 2006 has been listed on Warsaw Stock Exchange.

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ASTARTA HOLDING N.V.

Investment research presentation by UKMA team

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  • Established in 1993 as an agribusiness company, ASTARTA has been

evolving rapidly and since 2006 has been listed on Warsaw Stock Exchange.

  • High level of functionary professionalism, decent corporate responsibility,

adequate financial transparency, and the innovative approach ensure ASTARTA’s successful development and outstanding operating results.

  • ASTARTA operates on nearly 200,000 ha of high quality arable land growing

crops, producing sugar and farming cattle.

  • ASTARTA holds a nearly 20% share of the Ukrainian sugar market, exports

crops, and is also augmenting its position in the Ukrainian milk segment.

  • B2B connections are consistent and involve firm business relations with the

best food & beverage companies of Ukraine.

  • One of the highlight of ASTARTA’s activities is also the development of bio-

fuel technologies that grant energy efficiency.

  • Even though the primary goal of the Company is generating profits,

ASTARTA takes part in charity on regular basis.

Successful Agricultural Giant

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Operating Activities in Numbers

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100 000 200 000 300 000 400 000 500 000 600 000 Net Revenues Gross Profit Profit from Operations 200 000 400 000 600 000 800 000 1 000 000 1 200 000 1 400 000 1 600 000 2007 2008 2009 Net Revenues Gross Profit Profit from Operations

Annual Operating Results, ths UAH Quarterly Operating Results, ths UAH

Source: Company data, student estimates Year 2007 2008 2009 3Q2010 Gross margin 28,0% 26,1% 32,9% 59,6% Operating margin 29,1% 15,5% 33,8% 85,7% Year GP/PP&E(in. v.) GP/WC 1Q2009 1,32% 3,84% 2Q2009 9,62% 16,49% 3Q2009 21,63% 28,92% 4Q2009 15,26% 28,81% 1Q2010 15,48% 28,91% 2Q2010 15,07% 22,41% 3Q2010 19,31% 20,50%

Margins Ratios

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Investing Activities in Numbers

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Year Investments, EUR mln 2005 6 2006 10 2007 23 2008 33 2009 9 2010E 35

Source: Company data, company estimates, student estimates

20000 40000 60000 80000 100000 120000 140000 160000 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010

Purchase of PP&E, ths UAH

2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 2007 2008 2009 3Q2010

Acquisition of subsidiaries, ths UAH

Year Land, ths ha 2003 26 2004 44 2005 67 2006 90 2007 135 2008 166 2009 175 2010E 200

Land Investments

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Financials in Numbers

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Year 2007 2008 2009 3Q2010 EBITDA, ths UAH 213 749 223 461 550 497 976 644 Net Income, ths UAH 149 027

  • 89 248

323 266 793 135 Net Debt, ths UAH 538 301 1 245 800 1 281 994 1 526 390 Total Debt ratio 0,43 0,67 0,49 0,42 Long-term Debt to Equity ratio 0,16 0,32 0,56 0,42 Current ratio 1,51 0,92 2,15 3,01 Quick ratio 0,61 0,36 0,78 1,69 Cash ratio 0,02 0,01 0,04 0,04 Return on Equity (ROE) 0,20

  • 0,14

0,24 0,17 Return on Assets (ROA) 0,12

  • 0,05

0,12 0,10 EV, ths UAH 2 582 176 2 020 315 4 057 594

  • EV/Sales

4,20 2,08 3,00

  • EV/EBITDA

12,08 9,04 7,37

  • P/E

13,71

  • 8,68

8,59

  • P/B

2,78 1,20 2,08

  • P/BV

3,21 0,66 3,11

  • Source: Company data, student estimates

13% 87%

Currency Denomination

  • f Debt

UAH denominated loans USD denominated loans

Financials & ratios

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Macroeconomic Assumptions

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Inflation rate, %

Source: NBU, NERC of Ukraine, World Bank, IMF, student estimates

0,0% 5,0% 10,0% 15,0% 20,0% 25,0% 30,0% 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E CPI PPI 0,00 500,00 1000,00 1500,00 2000,00 2500,00 3000,00 3500,00 4000,00 4500,00 5000,00

Industrial Consumer Gas Price, UAH per 1000m3

2 4 6 8 10 12 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E UAH per EUR UAH per USD

Average Exchange rate Russian Gas Cost, $ per 1000m3

0,0 100,0 200,0 300,0 400,0 500,0 600,0 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Import Cost Industrial Consumer Cost

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Key Output Drivers Assumptions

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0,2 0,4 0,6 0,8 1 1,2 1,4 1,6 1,8 2 YoY Sugar Price Multiplier YoY Sugar Produced Multiplier 0,00 0,20 0,40 0,60 0,80 1,00 1,20 1,40 YoY Milk Price Multiplier YoY Milk Production Multiplier

Source: Company data & estimates, UN, Ukrtsukor, Minagro, student estimates

YoY Sugar Dynamics YoY Cattle Farming Dynamics

0,0 5,0 10,0 15,0 20,0 25,0 30,0

Gas Share in Sugar Costs, %

500 1000 1500 2000 2500

Grain & Oilseed Production, ths tons

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Future Performance Outlook

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500 000 1 000 000 1 500 000 2 000 000 2 500 000 3 000 000 3 500 000 4 000 000 4 500 000 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Net Revenues Gross Profit Net Income 0,0% 10,0% 20,0% 30,0% 40,0% 50,0% 60,0% 70,0% 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Gross margin Operational margin EBITDA margin Net Income margin

Source: Company data, student estimates

Margins Financial Results

2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Current ratio 2,90 2,83 3,14 3,31 3,15 2,83 3,45 3,67 3,16 3,50 Quick ratio 2,43 0,85 0,90 1,10 1,06 1,05 1,10 1,23 1,24 1,29 Cash ratio 0,07 0,05 0,06 0,05 0,05 0,04 0,06 0,06 0,03 0,07 Long-term Debt to Equity ratio 0,33 0,37 0,33 0,28 0,29 0,31 0,27 0,26 0,28 0,26 Capital expenses, ths UAH 496891 506667 620505 656520 804612 958049 673961 433059 358961 266541 Return on Equity (ROE) 0,42 0,34 0,36 0,25 0,24 0,19 0,27 0,24 0,15 0,29 Return on Assets (ROA) 0,26 0,20 0,22 0,16 0,16 0,12 0,18 0,16 0,10 0,20 Book value per share, UAH 88,33 92,62 111,60 111,78 117,01 115,45 135,31 131,43 117,00 136,98 GP/PP&E(init. v.) 0,56 0,63 0,72 0,51 0,49 0,39 0,60 0,58 0,40 0,64 GP/WC 0,74 0,78 0,75 0,69 0,70 0,70 0,69 0,66 0,64 0,79

Ratios & Financials

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Financial Position Outlook

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1 000 000 2 000 000 3 000 000 4 000 000 5 000 000 6 000 000 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E PP&E Depreciation Working Capital Total Assets 1 000 000 2 000 000 3 000 000 4 000 000 5 000 000 6 000 000 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Equity Short-term Liabilities Long-term Liabilities Total Equity & Liabilitites

Assets, mln UAH Equity & Liabilities, mln UAH

Source: Company data, student estimates

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Relative Analysis:

In The Golden Middle

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2010 P/E EV/EBITDA Astarta 6,00 5,63 Mriya AgroHolding (Ukraine) 4,5 8,76 Razguliay Group (Russia) 11,17 6,95 Illovo Sugar (South Africa) 11,50 5,75 Cosan Limited (Brazil) 11 5,8 Nanning Sugar (China) 12,2 10,2 Shree Renuka Sugars (India) 8,8 3,8 Suedzucker (Germany) 10,3 5 Balrampur Chini Mills (India) 9,7 9,7 Average 9,46 6,84 Astarta vs. Main Peers

  • 36,63%
  • 17,69%

Differences to:

  • Ukrainian peers – Astarta prevailing due to superiorities in operation

management, investment strategy implementation and corporate relations quality.

  • Russian peers – more available land and huge inner market make their success

easier than that of Astarta.

  • Brazilian, African, Chinese peers – low cost of manpower and auspicious climate

encourage better results than those of Astarta.

  • German peers – higher yields due to better mechanization, fertilization and

functionary professionalism ensure outstanding results.

  • Indian peers – cheap labor assists perfect outcomes but fluctuant climate may

make production extremely scarce.

Source: Companies & stock exchange data, student estimates

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DCF Valuation:

Confident Stability

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2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E Free Cash Flow, ths UAH 213 859 77 712 125 494 334 280 331 418 457 362 839 999 723 866 966 015 966 135 DFCF, ths UAH 213 859 71 295 105 626 258 126 234 785 297 254 500 864 395 980 484 811 444 836 Terminal value, ths UAH 8 783 049 Conclusion: Even though ASTARTA is capable of intensifying its business activities and raising revenues, negative drivers such as growing gas prices, key product supply replenishment, price stabilization, and the possible state troubles with debt repayment (UAH depreciation, USD deficit, consumer impoverishment etc.) won’t allow the company to significantly increase its profits during the projected period, though financial performance and health are likely to remain outstanding. RECOMMENDATION: HOLD DTV, ths UAH 2 496 691 Discounted Enterprise value, ths UAH 5 504 126 Shares 25000 Fair share value, UAH 220,2 Current price, UAH 221,3 Downside <1%

Source: Company data, student estimates

Considerations:

  • Risk-free rate was assumed to be 9% - the average projected inflation rate
  • As we assume that there will be no significant dividend pay-outs, cost of equity is near

to zero

  • Average effective rate paid on debt is 15,5% (based on 2007-1H2010 financials),

average tax rate is 2% (based on tax-to-income ratio)

  • WACC is estimated to be 15%
  • Factors that influence stable growth rate: inflation, absence of export constraints for

the company, currency used is UAH, and, as we have taken effective debt rates, stable growth should be shifted from nominal values to real ones); stable growth rate is assumed to be 4%

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Risks

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  • Key product price correction (mainly sugar, as it should make the largest

part of the revenues).

  • Change in government regulations (taxation alterations, pending import

quotas, demonopolization activities).

  • High investment rates require huge funds (even though equipment

modernization expenses should eventually fall, probable after 2012 land moratorium lifting will cause additional fund requirements to buy the land).

  • Russian gas price rise, which is likely to commence in a few years if to

believe intentions of Gazprom to double prices for Europe and shift Ukraine to European price level; after 2019 additional tariffs of 30% are to be applied to import prices of Russian gas.

  • General macroeconomic and political risks (elections, monetary abuse,

national currency fluctuations, state debt rise etc. affect production costs and the level of both industrial and household demand on key products).

  • Finally, the most uncertainty is connected to the climate instability which

may bring to nothing all ASTARTA’s intentions to raise the yields, higher the output, and, eventually, to gain additional income.

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APPENDIX

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Detailed Business Outline Of ASTARTA

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Operating Activities Overview

Operating activities Crops Sugar beet Sugar By- products* Other Cattle farming Milk Meat Manure*

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Considerations:

  • Sugar supply deficit (12 mln tons on global markets in 2010, est. 10-15% deficit in

Ukraine in 2010-2011)

  • Higher prices (+19,7% during 2010 in Ukraine)
  • Vertical integration (growing + processing + disposing, lower risks + economy)
  • Increase in conversion ratio (1% yearly) and yields
  • Market share rise (18%  20% in 2010)
  • Business success of industrial clients (Sandora, Konti, Хортиця etc)

Risks:

  • Growing costs of natural gas ($180  $260/1000m3 in last 3 years, further

doubling pending)

  • Competitors orientation on sugar (Mriya expanding fields from the West, UkrRos

from the East)

  • Fulfillment of sugar-import quota agreement (267 ths tons pending)
  • Population impoverishment (higher costs of living lowers the demand on sugar-

related products)

  • Government control over prices

Sugar beet

Sugar

By-products

Sugar beet Sugar

By- products

Considerations:

  • Cattle farming silage (economy on fodder acquisition)
  • Bio-fuel raw material (reduction of natural gas consumption to less than 30 m3

per ton of beet processed in future)

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Other crops Wheat Sunflower Barley Corn Soybeans

Considerations:

  • Crop rotation secures high soil productivity (5-20% of existing yields

depend on effectiveness of crop rotation)

  • Prices on different crops often shift in different directions, which

grants additional profit diversification

  • Deficit of certain crops quite probable from year to year (world supply
  • f grains is expected by UN to fall in 2011 – wheat by 10%, corn 12%,

barley 35%; soybeans and sunflower supply is probable to be stable)

  • Unsold or damaged crops may be used as fodder in cattle farming and

as a fertilizer on fields

  • Soybeans can also serve as another bio-fuel source

Risks:

  • Higher than beet root susceptibility to climate unsteadiness may

provoke scarce yields (overconcentration on grains raises the risks) 16

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Cattle farming

Milk

Meat Manure

Considerations:

  • Prices on milk are likely to rise (+5-10% next year, and continual

inner-state underproduction should keep prices high, import of milk is quite unlikely)

Cattle farming Milk

Meat

Manure

Risks:

  • Meat isn’t a perspective direction of business due to the fact that even

Brazilian meat is cheaper than Ukrainian (unless there are significant changes in cattle farming national meat production will have a minor role)

Cattle farming Milk Meat

Manure Considerations:

  • Cattle waste utilization allows to cut on costs of fertilizers in crop

growing (fertilizers constitute more than 25% of costs)

  • Waste may also be used in bio-fuel implementation (a good CH4

source)

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Investing Activities Overview

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Investing Activities PP&E Land Purchase* Lease Equipment Purchase Modernization Acquisition of subsidiaries

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Land

Lease

Purchase

Considerations:

  • Leasing from private lessors (reduced costs)
  • Lower risk of fund insufficiency due to moderate YoY expenses (in

comparison to purchasing thousands of ha)

  • Land shift available (if the land is of no use the lease contracts isn’t

prolonged; no selling of land required)

  • No tax on the land paid until land is purchased

Land Lease

Purchase

Considerations:

  • If the moratorium is lifted acquisition of land will replaced the

lease

  • Land price growth after the abolishment of the moratorium will

grant additional yearly profits on land revaluation Risks:

  • Buying land requires huge funds which will be likely to affect the

retained earnings and dividend payout horizons

  • Taxation of land in property will arise
  • Depletion of quality land available for sale
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20 Equipment

Purchase Modernization

Considerations:

  • Continual purchase of new generation machinery and appliances

allows better processing, transportation and realization productivity

  • New adjacent business directions can be set up in longer

perspective (raw sugar processing etc.)

  • Investment in bio-fuel technologies allows to cut on costs

Risks:

  • Loading of funds is inevitable (even though in longer perspective

CapEx should be lower, renovation of morally and physically worn equipment costs grow in proportions with the Company’s PP&E arsenal)

Acquisition of subsidiaries

Considerations:

  • Acquiring production complexes implies certain expenses but is
  • ften more suitable than buying land, property etc. separately
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Financing Activities Overview

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Financing Activities Proceeds Short-term debt Long-term debt Payments Principals and % Dividends*

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Proceeds

Short-term Long-term

Considerations:

  • Successful restructuring of short-term debt into long-term

(short-to-long debt annually: 2007 – 3,6; 2008 – 5,21; 2009 – 0,75; 3Q2010 – 0,74)

  • Trustworthy creditors (2009: European Bank of

Reconstruction & Development – $20 mln; Raiffeisen Bank Aval UAH 208,6 mln)

  • Foreign currency inflow from export grants additional coverage
  • f non-UAH debts (ex. sales in 2009 constituted more than

$20 mln, and in 2010 are est. to be about $25 mln) Risks:

  • Significant part of debt is using floating rate and thus financial

expense may fluctuate sharply (2009: UAH 737 mln, which was 75% of total debt)

  • In case of high inflation Hryvnia devaluation may cause losses

in ForEX operations

  • Dividend pay-out period is likely to be postponed due to high

investment rate (consideration for the minor shareholders , not risk at all)

Payments

Principals and % Dividends

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Thank you for your attention!

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