November 30, 2021 8:00 AM

Kernel Releases Strong Quarterly Results  

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Kernel (B + / - / BB-) revenue for the first fiscal quarter of 2022, which ended September 30, increased 43% yoy to $ 1.3 billion: Oilseed revenues increased 24%, sales revenue jumped up 39%, sales of the agriculture division soared 69%. The company's EBITDA rose 9% yoy to $ 315 million, driven by a 5% and 29% increase in the profitability of the trading and agricultural divisions, respectively. The ratio of net debt to EBITDA at the end of the reporting quarter decreased to 1.1x compared to 1.6x at the end of 1 fiscal quarter 2021. However, compared to the end of fiscal 2021, net leverage increased slightly from 0.9x, which was associated with an increase in short-term debt due to an increase in investment in working capital. Adjusted net leverage per marketable inventory decreased to 0.5x from 0.8x in F1Q21 and 0.6x at the end of FY2021.

YTM

6.3%

RISK

B+ / - / BB-

DURATION

5

Despite the low efficiency of oilseed processing in the first fiscal quarter of 2022 (a decline of 36% yoy to $ 66 per tonne), the annual forecast for the segment is very positive: Kernel management predicts an 18% yoy increase in oilseed processing volumes after a record harvest in Ukraine. This should lead to a sharp recovery in efficiency to the historic level of $ 70-90 per tonne. The outlook for the agriculture segment is also very optimistic due to high yields of wheat, maize and oilseeds, as well as high grain prices. The sales outlook is less optimistic due to logistics problems and harvest delays, as well as slow grain sales by farmers. Nevertheless, we believe that the optimistic revenues for the oil refining division and the revenues of the agricultural segment completely offset the negative effect. Kernel has three Eurobond issues in circulation. We like Eurobonds due in 2027 (ISIN - XS2244927823). The bonds offer dollar yields of 6.3% per annum with a duration of 5 years.

Kernel Holding SA is a diversified agri-business company operating in Ukraine. The Company produces, procures, transports, stores, processes and merchandises agricultural commodities on the international markets through Company-owned port transshipment facilities. Kernel also produces, refines, packages and merchandizes bottled vegetable oil.