Ukrainian Sugar Industry

Publication Date	February 2008
Publisher	Concorde Capital
Product Type	Report
Pages	32
ISBN Number	not applicable
Product Code	CNC00024

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Summary

In accordance with WTO agreements, Ukraine will open its borders to 260 ths mt of imported raw cane sugar starting from 2009 (the import duty on which will reduce from 50% currently to 2% of the customs value). We expect this feedstock will partially replace sugar beets sold to sugar makers by small-scale farms. We also expect WTO accession to trigger growth in Ukraine's domestic prices for grain, constituting a side business for Ukraine's sugar-makers. We project grain prices to rise and converge with those at international exchanges as Ukraine gradually lifts export quota restrictions in line with WTO requirements.

Investors increasingly view Ukrainian sugar stocks as plays on agriculture rather than pure sugar thanks to the vast land banks sugar producers lease. It is our view that the value of sugar makers' agricultural operations, elevated recently by surging agricultural commodity prices, sets a floor for the companies' value and provides a hedge against possible adversities in the sugar business.

We expect inefficient players to continue leaving the business. Unable to secure sufficient feedstock supplies, ten sugar mills did not relaunch in 2007/08 season, and we expect 35 more will either be shut or acquired before next season. We believe that sugar producers with in-house beet supplies are well-positioned to seize a larger market share.

Our DCF-based target prices yield upsides for all the three traded sugar producers. A reality check using peer comparison shows that DCF-implied target prices are inside the range offered by EV/EBITDA and P/E 2009E multiples.

Content

1. Investment thesis
- Investment summary
- Investment cases
- Stock market monitor
- Outpacing the market
- Sugar or land: What comes first?
- Case study. Dakor: value-added sugar producing capacities
- Relative valuation
2. Sugar markets
- Global sugar prices gaining momentum
- Ukraine: Beginning of the recovery
- Reduced supply to trigger sugar price growth in 2008
- WTO effect : cane sugar to meet only 12% of demand
- Future of Ukraines sugar prices
- Weak players are out
3. Land bet
- Soaring prices for crops add value for sugar-makers
- Getting land ownership
4. Company profiles
4.1 Astarta (AST PW)
- Investment case
- Business overview
- Key forecasts
- Market information
- Stock ownership
- Corporate governance
- Share price performance
- Market multiples
- Key ratios
- DCF model
- DCF model sensitivity analysis
- Income Statement Summary, USD mln
- Balance Sheet Summary, USD mln
4.2 Dakor (DAKOR UZ)
- Key forecasts
- Revenues: Crops to reveal potential
- Cost trends: Efficiency increase evident
- Investment case
- Business overview
- Key forecasts
- Market information
- Stock ownership
- Corporate governance
- Share price performance
- Market multiples
- Key ratios
- DCF model
- DCF model sensitivity analysis
- Income Statement Summary, USD mln
- Balance Sheet Summary, USD mln
4.3 Ukrros (UROS UZ)
- Investment case
- Business overview
- Key forecasts
- Market information
- Stock ownership
- Corporate governance
- Share price performance
- Market multiples
- Key ratios
- DCF model
- DCF model sensitivity analysis
- Income Statement Summary, USD mln
- Balance Sheet Summary, USD mln
5. Analyst Certification
- Investment Ratings
CHARTS
- Stock performance
- Stock Performance, 12M*
- Trading volumes, USD ths
- Astarta. Stock performance. Spread, %. Trading volumes, USD mln
- Dakor. Stock performance. Spread, %. Trading volumes, USD mln
- Ukrros. Stock performance. Spread, %. Trading volumes, USD mln
- Concorde Sugar Producers Index* vs. PFTS
- Sugar vs wheat prices, USD/mt
- Sugar vs oil prices, USD/mt
- Calculation of price of sugar, imported to Ukraine
- Sugar prices: Ukraine and the world
- Distribution of mills by days in operation
- Sugar production breakdown, 2007/08 season
- Change in market shares, pp, 2007/08 vs 2006/07 seasons
- Dakors agricultural business
- Dakors crops yields, mt/ha
- Beet cultivation & transportation, USD/mt of sugar*
- Beets processing, USD/mt of sugar*
- Change in production cost components, 2007/08 to 2006/07, USD/mt
TABLES
- Key ratios. 2007E
- Sugar makers vs pure crop producers
- Commodity prices
- Relative valuation
- Ukrainian sugar balance, ths mt
- Cane vs beet sugar costs
- Strategies of the market leaders
- Astarta. Key forecasts
- Astarta. DCF model
- Astarta. Sensitivity analysis
- Astarta. Income Statement Summary, USD mln
- Astarta. Balance Sheet Summary, USD mln
- Dakor. Revision of forecasts
- Dakor. Key forecasts
- Dakor. DCF model
- Dakor. Sensitivity analysis
- Dakor. Income Statement Summary, USD mln
- Dakor. Balance Sheet Summary, USD mln
- Ukrros. Key forecasts
- Ukrros. DCF model
- Ukrros. Sensitivity analysis
- Ukrros. Income Statement Summary, USD mln
- Ukrros. Balance Sheet Summary, USD mln