17 July 2023

Good performance of Astarta, the strong results of Ovostar, the fall of Ferrexpo and the delisting of Kernel are the main takeaways of the activity of Ukrainian public companies in the first half of 2023.

Changes in the market capitalization of Ukrainian public companies during the first half of 2023:

Company	Currency	Share price Dec 2022	Share price June 2023	Market Cap Dec 2022, $M	Market Cap June 2023, $M	Change
Ferrexpo	GBX	162.8	89.5	1 178	680	-42%
MHP	USD	3.75	3.75	401	401	0%
Kernel	PLN	18.3	14.2	323	271	-16%
Astarta	PLN	21.3	30.0	118	179	52%
IMC	PLN	16.0	15.2	130	133	2%
Ovostar	PLN	45.0	45.2	62	67	8%

Kernel

The main newsmaker of the entire Ukrainian corporate segment in the first half of 2023 was Kernel. Andrii Verevsky decided that it was time for Kernel to become a private company again and to delist from the Warsaw Stock Exchange. He himself (through his company Namsen Limited) made an attempt to purchase Kernel shares from other shareholders at a price of 18.5 Polish zlotys per share (which is close to the lowest level of the company's quotations for the entire time its shares were traded on the stock exchange).

Taking into account the significant decrease in the price of Kernel shares during 2022 (by 70% compared to the price at the end of 2021), the business logic of Andriy Verevskyi is completely clear - this is a chance to regain full control over the company at a low cost (Namsen's share in Kernel before the buyout was 38%, still 7.86% Kernel bought back from shareholders in previous years to treasury stock) and get maximum flexibility for further business development.

On the other hand, for Polish institutional investors - pension funds and insurance companies - this decision is very ambiguous, since they do not have the right to own shares of non-public companies so they were forced to sell at low price.

As a result, Andriy Verevskyi bought an additional 36% of the company's shares, so his share increased to 74% of the total number or 80.4% of shares entitled to vote at the general meeting of shareholders. The rest of the shares remained in the possession of minorities. On May 15, the company submitted an application for delisting from the Warsaw Stock Exchange.

Currently, the decision of the Polish supervisory authority regarding the delisting has not yet been made. Meanwhile, as of the end of June 2023, Kernel's share price has fallen to PLN 14.2 per share, the company's total capitalization is only $271 million.

From the point of view of financial performance - between January and June, Kernel reported financial results for the second and third quarters of the fiscal year 2023 - everything in the company is quite good. In the reporting periods, Kernel tried to focus on sunflower processing and the export of sunflower oil and meal, the margin of which was the highest in the last decade.

Due to the unstable operation of the grain corridor from Ukrainian deep-sea ports, the company's grain exports decreased significantly in the reporting periods (to 2.3 million tons compared to 5.6 million tons for the same period of the previous fiscal year).

Despite this fact, Kernel's total EBITDA for the period of October-March made $432 million, operating cash flow - $660 million (the company gradually reduced its inventory stock, which was at a record level as of the beginning of the full-scale Russian invasion).

As of March 31, the amount of cash on the company's balance sheet was $880 million. Currently, the group is negotiating with creditors regarding the extension of working capital loans in the amount of $900 million. In case of reaching an agreement with creditors, Kernel will have a good financial resource for aggressive origination in the grain and oil fields market of Ukraine in the new season.

Analysis of the Kernel financial report for January-March 2023

Ferrexpo

The largest Ukrainian public company by capitalization continues to suffer greatly from the inability to export its products (iron ore pellets) through Ukrainian deep-sea ports.

Ferrexpo is currently operating at 35-40% of its total capacity, which is significantly better than, for example, the fourth quarter of 2022, when capacity utilization dropped to 15% due to power supply issues.

Exports by alternative routes are gradually increasing, according to our expectations, the company's activities remain profitable, but these results are very far from the figures before the full-scale invasion.

Despite this, the overall financial condition of Ferrexpo remains very good. The company is debt-free, equity-financed, and had cash on the balance sheet of $113 million at the end of 2022 (we expect Ferrexpo's operating cash flow to be positive in the first half of 2023, so cash at the end of June will increase).

Undoubtedly, the main negative factor for Ferrexpo was and remains the court cases against the company itself and its main shareholder Kostantyn Zhevago from the Ukrainian state authorities. Zhevago continues to protect its biggest and most expensive asset, and the main tool for this is the status of Ferrexpo as public company.

In this respect, as an additional mean of protection, during the reporting period, the company sold previously purchased to treasury stock shares from the market to a third party, due to which the nominal share of the main shareholder in the company decreased to 49.5%.

Another negative factor for Ferrexpo was a significant decline in the global price of iron ore in March-April, so it is not surprising that during the first half of 2023 the value of the company's shares decreased by 45%, and its capitalization at the end of June was $680 million.

The future prospects of the company depend on the situation with Konstantin Zhevago, as well as the further dynamics of world prices for iron ore.

Analysis of the financial report of Ferrexpo for 2022

MHP

The price of MHP shares at the end of the first half of 2023 remained almost unchanged compared to the beginning of the period and amounted to $3.75 per share.

At the same time, the company's quotations during most of the period were lower (an average of $3.5 per share) and increased close to the dates of the release of financial statements for the first quarter of 2023. MHP's operating and financial results in the fourth quarter of 2022 and the first quarter of 2023 were quite good.

Firstly, the export of chicken remains dynamic - the company exports 60% of the produced poultry meat (30-35 thousand tons per month). Second, after declining at the end of 2022, chicken prices in the main export markets stabilized during the first quarter of 2023, moreover, they showed growth during May-June.

The record-high sunflower and soybean crushing margins also had a positive impact on the group's overall result. According to the results of October-March, the company's EBITDA amounted to $226 million, operating cash flow - $104 million.

A negative impact on the overall results of MHP in 2022 was quite low late grain and oilseed crops in Vinnytsia (as a result, the average yield of corn in 2022 was 7.2 t/ ha versus 10 t/ha in 2021). So it is possible that improved yields in 2023 could have a positive impact on MHP's financial results.

We see a high debt load as the main risk for MHP - as of March 31, 2023, the company's total debt is about $1.5 billion, while the first big payment on Eurobonds in the amount of $500 million should be made in 2024.

As of the last reporting date, the amount of cash on the balance sheet of MHP was $351 million, but we expect the company to negotiate with creditors regarding the extension or (perhaps partial) restructuring of obligations, taking into account the need to have a reserve of liquidity in case of adverse military and other situation, as well as investments planned for 2023.

In 2022, the total amount of funds allocated to investment activities amounted to $174 million, a similar amount was included in MHP's plans for 2023 (the main directions, in addition to general maintenance/support for activities, are the planned further development of MHP as a culinary company, as well as investments in the development of operations at Slovenian Perutnina Ptuj).

Capitalization of MHP as of the end of the first half of 2023 was about $400 million.

Analysis of the financial report of the MHP for January-March 2023

Astarta

The share price dynamics of Astarta was the best among all Ukrainian companies during January-June 2023.

To the general undervaluation of the company (whose capitalization as of the end of 2022 was only $118 million) was added quite strong financial results for the last two reporting periods, as well as the fact of paying dividends to shareholders based on the results of the company's activities in 2022.

Apart from Ovostar, which paid extraordinary dividends back in January, Astarta was the only Ukrainian public company that paid ordinary dividends based on the results of financial results for 2022. The payment in the amount of EUR 12.5 million (EUR 0.5 per share) was made in June.

It should be noted that at the end of June, one of the main owners of Astarta - the company Albacon Ventures Limited, owned by Viktor Ivanchyk - bought about 28,000 shares of the company from the market for $200,000 (at a price of about 29 zlotys per share), which also supports the share price .

The value of Astarta's shares in the considered period increased from PLN 21.3 per share at the end of 2022 to PLN 30 per share as of June 30, 2023. The total capitalization increased to $179 million.

In recent months, the significant increase in global sugar prices, as well as the record profitability of soybean processing in Ukraine in the 2022/23 season, played in favor of Astarta.

As a result, the company's total EBITDA during October-March was EUR 62 million, operating cash flow was EUR 81 million. Astarta's debt burden remains low - as of March 31, 2023, the company's total loans amounted to EUR 45 million, with cash on the balance sheet of EUR 28 million.

The restrictions on the export of Ukrainian sugar introduced at the beginning of June may have a negative impact on the overall financial result of Astarta during the second and third quarters of 2023, but in our opinion, this impact is far from critical (taking into account the current domestic sugar prices in Ukraine - according to our according to estimates, the sale of sugar in the following periods will be profitable).

The main risk for the activity of Astarta (as well as most other Ukrainian exporters of agricultural products) is the uncertainty with the functioning of the grain corridor from Ukrainian deep-sea ports, which has a significant impact on the sale prices of grain and oilseed crops.

On the other side, an increase in soybean acreage in Ukraine in 2023 should have a positive impact on the volume and profitability of soybean processing.

Analysis of Astarta's financial report for January-March 2023

IMC

Unlike Astarta, whose business is quite diversified (production of sugar and milk, soybean processing, crop cultivation), IMC completely depends on the situation on the grain market of Ukraine, as it is pure grains and oilseeds grower.

On the other hand, although the 2022 harvest was significantly delayed (harvesting campaign was actually completed in February-March 2023), the yield of the main crops of IMC was close to a record (for instance, the yield of corn was 10.5 t/ha), which helped to maintain profitability under the conditions of relatively low sales prices and high logistics costs.

It is also very important for the company that during January-May 2023, IMC sold most of the 2022 harvest, so it is expected that the balance of grain and oil crops at the end of the second quarter of 2023 will significantly decrease (at the end of the first quarter, the balance of corn amounted to about 400 thousand tons).

IMC enters the new season with a fairly good balance sheet structure and a low debt burden (the total amount of loans as of March 31 was $35 million with cash of $16 million and unrealized harvest of $69 million).

The company's sown area, which due to a full-scale Russian invasion in 2022 was reduced from the usual 120,000 hectares to 87,700 hectares, increased to 110,000 hectares in 2023, which is also a positive factor for assessing the prospects of IMC.

The main risk factor is, once again, complete dependence on the price of grain and oil in Ukraine, which means - on the functioning of Ukrainian deep-sea ports. If the ports do not function normally, IMC (as well as most Ukrainian farmers) will face another difficult season, in which break-even result is a good result.

During the first half of 2023, IMC's capitalization remained almost unchanged and amounted to $133 million at the end of the period.

Analysis of the financial report of IMC for January-March 2023

Ovostar

The period starting from September 2022 is the most profitable for Ovostar in recent years.

Due to the significant increase in domestic prices for eggs in Ukraine, as well as fairly active exports (primarily to EU countries), profitability increased significantly, and the company's total operating cash flow during October-March amounted to about $40 million.

Moreover, the traditional seasonal decline in egg prices in Ukraine, starting from April-May (due to increased household egg production), was not as significant as it was in previous years, so we expect quite strong financial results for Ovostar in the following reporting periods as well.

Ukrainian industrial producers of eggs - Ovostar's competitors, such as Avangard and Inter-Zaporizhya group, - have suffered significant losses of production assets as a result of full-scale Russian aggression, and the company itself is trying to maximize its exports of eggs and egg products. Domestic prices for grain and oilseeds in Ukraine remain quite low (which means a relatively low net cost of egg production), so 2023 as a whole could be the most successful year in the company's history.

In January of the current year, Ovostar paid extraordinary dividends to shareholders in the total amount of EUR 3.9 million.

Given the company's strong current and expected financial results, some investors hoped for a dividend payment after the publication of the 2022 report in May, but the company's management decided to pursue a conservative dividend policy, so there was no additional payment.

Despite this, in the first half of 2023, Ovostar's capitalization increased by 8% and amounted to $67 million at the end of June (and already in July it increased by another 20%).

Analysis of the financial report of Ovostar for January-March 2023.