Adverse Weather And EU Export Quotas Will Squeeze Margins

Key Takeaways

• Adverse weather and low sugar prices are shrinking margins, potentially reducing future revenue and profitability from crops and sugar production.
  
• Investments in new facilities face delays, and geopolitical issues threaten supply chain costs, affecting short-term earnings and future profitability.
  
• Strategic investments, focus on sustainability, and technological solutions position Astarta Holding for robust profitability and growth despite potential environmental challenges.

Catalysts

ASTARTA Holding N.V., through its subsidiaries, engages in the sugar production, crop growing, soybean processing, and cattle farming businesses in Ukraine, Europe, Asia, and internationally.

• Adverse weather conditions are impacting crop yields, reducing the potential revenue from crops like corn, sunflower seeds, and soybeans. This decrease in yields could negatively affect future revenue and profit margins as the company may harvest and sell less produce than anticipated.
  
• The pricing environment for sugar has worsened, with prices down approximately EUR 100 impacting profitability. Despite a high production volume, the lower prices have caused the company's gross and EBITDA margins in sugar production to shrink. This could lead to lower future earnings as margins compress.
  
• While the company is investing in projects like a soybean protein concentrate plant and new sugar storage facilities, the delay in realizing benefits from these investments may impact short-term earnings. The lag in returns from these capital expenditures could lead to a temporary mismatch between increased CapEx and realized revenue growth.
  
• Potential supply chain and geopolitical challenges due to the situation in Ukraine pose risks to cost efficiency and market accessibility, particularly for European exports. If logistics costs increase due to external geopolitical factors, net margins could be squeezed, impacting future profitability.
  
• The competitive pressure and quota limitations for sugar exports to the EU could limit Astarta's ability to fully capitalize on its production capacity. If export quotas are not favorable, revenue and profitability from this segment could be constrained in the upcoming years, impacting overall earnings growth.

Astarta Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Astarta Holding's revenue will decrease by 6.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 12.6% today to 6.4% in 3 years time.
• Analysts expect earnings to reach UAH 1.5 billion (and earnings per share of UAH 12.7) by about April 2028, down from UAH 3.5 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.9x on those 2028 earnings, up from 4.1x today. This future PE is greater than the current PE for the GB Food industry at 7.5x.
• Analysts expect the number of shares outstanding to grow by 0.82% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.99%, as per the Simply Wall St company report.

Astarta Holding Future Earnings Per Share Growth

Risks

• Astarta Holding has demonstrated solid profitability with a stable 30% EBITDA margin and an expanded net profit margin from 14% to 17%, indicating efficient cost management and a strong financial position that could support stable or increasing earnings.
  
• The company's investments, such as the new silo for sugar preservation and the soybean protein concentrate project, demonstrate strategic growth initiatives that may enhance future revenue streams, particularly in high-demand export markets.
  
• Despite adverse weather conditions impacting crop yields, Astarta reports a positive pricing environment for key crops such as wheat and rapeseeds, which could help maintain or improve revenue levels despite potential volume declines.
  
• Astarta's focus on sustainability and regenerative agricultural practices, coupled with the favorable market positioning as a large exporter, especially in sugar, can improve the company’s competitive edge and possibly enhance profit margins due to premium pricing and lower logistics costs.
  
• The deployment of in-house technological solutions like the Agrichain tool to optimize agricultural operations may reduce operational costs, leading to stable or improved net margins over time.

Valuation

• The analysts have a consensus price target of UAH44.465 for Astarta Holding based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be UAH22.6 billion, earnings will come to UAH1.5 billion, and it would be trading on a PE ratio of 10.9x, assuming you use a discount rate of 9.0%.
• Given the current share price of UAH53.0, the analyst price target of UAH44.46 is 19.2% lower.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.