Avangard Approves 12.5% Dividend Payout

Avangard (AVGR LI), Ukraine's leading producer of eggs and egg products approved dividend payout at 12.5% of 2013 net income at an AGM held on September 30. The company will spend USD 29.5 mln of its USD 238 mln 2013 net income on dividends, implying a DPS of USD 0.4625/DR and dividend yield of 5.9% on yesterday's closing price. The record day is set for October 14, 2014 and the payment will be made by December 31, 2014. Avangard also announced its intention to buy back a portion of its outstanding USD 200 mln Eurobond that matures in October 2015. The company will provide details on timing and the size of the deal at a later stage.

The news looks encouraging even though the dividend payout ratio was set below the initial indication of 25%. Avangard will report weaker financials this year due to the shaky macro environment and sharp hryvnia depreciation. We project the company's EBITDA will roughly halve yoy in 2014 as domestic sales, that make up more that 60% of total revenue, get squeezed in USD equivalent. In view of growing challenges, Avangard chose to preserve a thicker cash cushion to be able to safely service its debt obligations and ensure that possible new macro shocks don't threaten company's operations. We expect the company will increase the dividend payout ratio as macro risks subside.

The intention to buy back Eurobonds from the market is undoubtedly a positive message that underscores the company's determination to repay the Eurobond on time and in full. Since Avangard has completed its investment program and its further CAPEX needs are limited, it is now fully in position to deleverage. Moreover, it has sufficient cash to start offloading debt ahead of the redemption schedule.

Avangard had USD 236 mln in cash and cash equivalents in June 2014 with over USD 200 mln held at accounts in foreign banks. The recently approved NBU regulation that prohibits FX purchases in the local market for dividend repatriation doesn't pose any obstacles to dividend payout.