agri-business, Angry Birds, Avangardco, Chuckie Egg, eggs, IPO, Oleg Bakhmatyuk, platformers, trading update, Ukraine, Ukrlandfarming, US ADR program
Please see my recent Avangardco (AVGR:LN) post here. Since then, it’s been interesting to see Bakhmatyuk engaging more actively with the media, for example here and here. Definitely seems to be part of a gradual ramp-up to an IPO for Ukrlandfarming (Ukr) – looks like further news may even come as early as end-May. We still don’t have any real hard info, though, but I’m encouraged by positive noises to date from the company & Bakhmatyuk, and by his explicit pairing of Avangardco & Ukr (eggs & grain) in recent comments/interviews.
However, it’s obvious a significant number of shareholders (potential, or actual) will continue to view this as a stock negative until there’s a specific transaction & terms on the table to evaluate. Ironically, a counterweight to this might well be a potential Ukr transaction itself! The buzz & analyst/media blitz ahead of an IPO would be sure to generate plenty of good publicity/attention for Avangardco also. As I’ve mentioned before, fair/preferential treatment of Avangardco shareholders in a potential Ukr transaction is essential, and would provide valuable support to Bakhmatyuk in pursuit of his longer-term ambitions. Continued maintenance of a foreign listing‘s essential also (in London, obviously, but adding a US ADR program might be attractive eventually).
But today, what I really wanted to focus on is the release of Avangardco’s Q1 trading update yesterday. Wow, give it a read! Recent EU regulations have had a v positive effect on pricing (well, unless you’re a consumer..!), even for Avangardco. While they continue to await potential EU export approval, what I missed was the other obvious opportunity: Increased exports to MENA & Asia to replace reduced (and more expensive) EU exports. I’m encouraged to see AVGR’s now exporting shell eggs (111 mio vs. just 1 mio pieces in the prior year). If they can export shell eggs to Mauritania & Libya, potential exports to the EU would present no big challenge..!
The laying flock increased 10.2% YoY to 20.5 mio heads. Production was a little better, up 11.3% to 1.551 billion pieces. Even more spectacular is the 37% increase in the average shell egg sale price to UAH 0.74 ($0.092)! This combination of volume & price growth obviously multiplies the impact on revenue. But one egg doesn’t fill a basket – with sales prices rising last year, we should review this trading statement from a full year perspective.
So let’s have a little fun, and figure out what 2012 revenues might look like if this production & pricing is maintained for the rest of the year. There are a few different ways to do this. I’m going to assume Q1 YoY production growth’s maintained for FY 2012 – note this implies the same level of flock growth throughout 2012 as with 2011. I’ll also compare Q1 2012 sales prices with average sales prices for 2011. First, we have their Other segment: Let’s presume unchanged YoY revenues of $65.5 mio. Second, we have the Egg Products segment – results were not so hot, but I guess higher shell egg prices should feed through in due course. Volumes processed were up 0.4%, and sales price was $7.60 per kg, down 5.6% from last year’s $8.05 average. This would suggest:
$98.5 mio 2011 Rev * 100.4% * 94.4% = $93.3 mio 2012 Rev
Finally, we get to the real yolk – the Shell Egg segment. Sales volume was up 14.3%, while the sales price of UAH 0.74 ($0.092) jumped 14.8% in dollar terms from a 2011 average of UAH 0.64 ($0.08). This equates to:
$389.3 mio 2011 Rev * 114.3% *114.8% = $510.6 mio Rev 2012 Rev
This might suggest Total 2012 Revenue of $669.4 mio, up 21% from 2011. This is wonderful news – and it implies significant extra operating cashflow, needed for the company’s 2012 surge in capex spending. Considering Avangardco’s fixed costs and no apparent elevation in variable costs (in fact, grain input cost was previously flagged as a 2012 positive), the impact on earnings (growth) should be disproportionately positive… We also probably won’t see a negative YoY hit on Interest & Taxes, like we did in 2011, so Avangardco’s true underlying earnings growth should really shine through in 2012..!
But let’s not lose our minds here, it’s only April and we already know Avangardco’s undervalued. I can comfortably hold off on what should hopefully be a significant jump in Fair Value, based on 2012 revenue/earnings, ’til later this year when we have more definitive numbers to hand. Meanwhile, let’s be miserly and just back into/include a Last 12 Mths Revenue number into my valuation – which I estimate will raise my Fair Value slightly to $28.20 per share. Vs. today’s close at $11.75, that offers a pretty hefty 140% Upside Potential. Based on this, and anticipating good earnings news to come, I’ve increased my AVGR portfolio stake from 2.6% to 3.0%.
Now, why don’t we celebrate this trading update with the very appropriate Chuckie Egg! I’ll confidently state it was the finest, and most addictive, platformer released during the golden years of UK computer gaming. Here’s a marvelous fan site, packed with absolutely everything Chuckie Egg related. And here’s the best (emulated) version of the game online. Don’t worry, nothing complicated to install, just click Start, and the only controls you need to know are Up/Down/Left/Right (your arrow keys or AZ<>) and Jump (space bar). This was the Angry Birds of the ’80s, folks (in fact, it has an angry bird…you’ll see!). And don’t be put off by the graphics, just give it a whirl and you’ll be v quickly addicted to the gameplay & sounds!
Happy egg collecting!
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