Aragvi holding (Trans-Oil group), Moldova’s largest agro-producer, recently posted IFRS financials for the full year ending on June 30, 2020 as well as an operating update for three months ending on September 30. Naturally, the released figures reflect the sharp deterioration in the operating environment that started in early March 2020 due to the spread of the pandemic. That said, the results topped our expectations, indicating that Aragvi’s credit profile still looks quite resilient. However, we suggest refraining from forming long positions in HY instruments for now due to high volatility and uncertainty on the back of the upcoming US presidential elections and new lockdowns worldwide. Still as soon as market sentiment improves Aragvi 24 (YTM10,25%) can become an appealing buying opportunity.

FY2020 Financial highlights:

  • The top line came out 47% higher y-o-y, reaching almost $808 mln thanks to strong results of the Operating and Marketing segment that resulted from an effective international marketing programme (the group managed to sell 2 827 mt of commodities of all types, + 43% y-o-y). The Crushing and Refining segment even outperformed in terms of growth rates because of increased crop production in Moldova and rebound in commodity prices. However, the bulk of consolidated turnover (79%) still comes from the commodities trading unit.
  • On the half year basis sales decreased by almost 25% to $350 mln in 2H20. The decline was attributed to a significant failure of the Marketing division (-40% half-on-half). Partly this reduction was offset by the Crushing segment that added 45% compared to 1H20. Extraction plants processed 455,000 tonnes of sunflower seeds in 12M20 (+90% y-o-y), setting a new production record.
  • Additionally, Aragvi faced a margin decrease – consolidated EBITDA margin in 2020 fell to 11.8% from 14.5% in 2019 due to costs inflation in the Origination and Marketing segment. As of 2H20 EBITDA margin stood at 10.9% vs 12.5% in 1H20.
  • Net income for FY2020 was $24 mln, a 15% increase y-o-y.
  • Free cash flow (FCF) turned positive in 2H20 ($69 mln vs -$97 mln in 1H20) thanks to release of working capital. At the same time OCF pre-changes in working capital slipped by 28% in 2H20 (half-on-half). CAPEX hasn't changed since January-June 2020 ($7 mln).
  • The debt profile has undergone some mixed changes since its last reading for 1H20. Specifically, Aragvi’s total debt declined by $10 mln half-on-half down to $467 mln. Almost all borrowings were still denominated in hard currency (around 97% in USD). At the same time, the net leverage ratio materially deteriorated due to a decline in RMIs and lower EBITDA. Namely, the Net Debt (adjusted for RMIs)/ annualized EBITDA ratio for 2H20 stood at 3.3x compared to 1.9x as of FY1H20. The Net leverage ratio calculated on an annual basis (for FY20) equals 2,7x. We view the current debt burden of the group as acceptable, which is especially important for HY category issuers. Short term obligations always account for almost ¼ of the total portfolio.
  • This summer Moldova faced a significant drought that cut the country’s overall crop of major agricultural commodities by almost 50%. Against this background, the results of the group’s Crushing and refining segment weakened materially in July-September 2020 and are expected to decrease going forward. Sunflower procession declined by almost 40% y-o-y and by 85% q-o-q. This drop will obviously affect Aragvi’s financials for 1H21 (ending December 31, 2020) as the Crushing division used to add more than 20% to the consolidated turnover.

Key financial data, IFRS

Aragvi

Source: Company data, ITI Capital estimates

Olga Nikolaeva
03.11.2020
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