RusAgro (AGRO LI: O/W, TP $16.9) reported somewhat mixed 3Q21 IFRS results: while revenue growth accelerated to 45% y/y, the adj. EBITDA margin deteriorated 6.5pp y/y to 16% mainly affected by the Oil & Fats and Meat segments. At the same time, the Sugar segment’s margin was flat y/y and in the Crops segment profitability came as high as 53%. Leverage was virtually flat q/q at a comfortable 1.6x. Overall, we see the results as supportive for the stock and do not expect a negative reaction to the margin deterioration given that the company is well on track to deliver the record high EBITDA guided for this year. We expect that at the conference call later today among other issues investors will address price regulation of vegetable oil and sugar in Russia.
Mixed set of numbers: while revenue was up 45% y/y, there was pressure on margins from the Oil & Fats and Meat segments; leverage broadly flat q/q. 3Q21 IFRS revenue (after intra-group eliminations) of RUB53.2bn suggests a strong 45% y/y increase, accelerating from 39% y/y in Q2. The Oil & Fats segment delivered 88% to incremental revenue in Q3. 3Q21 adjusted EBITDA came to RUB8.6bn (up 4% y/y), implying a 16.2% margin (-6.5pp y/y). Margin deterioration was attributed to a higher cost of feed and animal protection, raw materials (sunflower seeds, sunflower and tropical oil) as well as the start of operations in Primorye. 3Q21 net profit was RUB17.8bn (3x higher y/y). RusAgro’s gross debt stood at RUB190.2bn as of 30 September (up 4.8% q/q). The company’s net debt came in at RUB69.5bn as of 30 September (up 4% q/q). Thus, leverage slightly increased to 1.62x net debt / LTM EBITDA from 1.57x as of 30 June. The company spent RUB2.6bn on capex in 3Q21. 9M21 FCF (OCF – Capex) came RUB23.4bn vs. RUB14.6bn in 9M20.
The Oil & Fat’s profitability came under pressure from more expensive raw materials, the Meat segment was affected by a higher cost of feed and the start of operations in Primorye; the Sugar and Crops segments benefited from price recovery.
- Oil & Fat division’s EBITDA margin came at 8% (-9pp y/y and -5p q/q). The segment’s profitability was negatively affected by increased COGS (due to higher prices for sunflower seeds, sunflower and tropical oil). We note that market prices for crude sunflower oil continued to decrease from the April-May peaks (RUB108-109.1/kg EXW, excl. VAT) and reached RUB77.9/kg in September.
- The Sugar segment’s EBITDA of RUB1.6bn increased 9% y/y, with the margin flat y/y at 21%. We note that the sugar market price (ISCO-Krasnodar) started to recover from July levels and reached RUB41.2/kg in September.
- The Meat segment’s 3Q21 EBITDA margin decreased 4pp y/y to 18% mainly reflecting expenses related to the launch of operations in Primorye. Excluding these expenses (RUB955mn), the organic EBITDA margin of the segment would have decreased only 1pp y/y, given the continuous pressure from the higher cost of feed and animal protection. Market pork prices continued to rise throughout the quarter, reaching RUB126.6/kg (live weight excl. VAT) in September.
- The Crop segment’s EBITDA jumped 25% y/y with a margin improvement by 10pp y/y to 53% apparently on high prices.
Price regulation of vegetable oil and sugar in Russia. RBC today reported that on 8 November Vice PM Victoria Abramchenko ordered the Ministry of Agriculture, Economic Ministry, Minpromtorg and the antimonopoly body to develop a price forecast for sugar and vegetable oil in the domestic market as well as proposals to curb their growth amid ongoing upward global price trend. The Ministry of Agriculture forecasts a higher y/y sugar beet and sunflower harvest in 2021, which should ensure proper supply volumes of processed goods in the domestic market. For stabilizing the situation in the sugar market the ministry is considering the introduction in 2022 of a tariff quota for imports of sugar and raw sugar, and in the sunflower oil market does not rule out (subject to a sharp rise in sunflower seed price in Russia and globally) the possibility of an upward change of the floating duty rate.
Conference call. Rusagro management will host a conference call today at 4pm (Moscow) / 1pm (London). Link to connect via Zoom (password 066909):
Figure 1. RusAgro 3Q21 IFRS financials
Source: Company data, Alfa-Bank
Figure 2. RusAgro financials by segments
Source: Company data, Alfa-Bank