OREANDA-NEWS. September 14, 2011. Cherkizovo Group reported upbeat 1H11 financial results today (14 Sep). The figures came in above our estimates as the company received USD 19.2mn in direct subsidies from the government to compensate for increased grain prices. Nevertheless, margins are down vs 1H10 due to the high base effect: gross margin came in at 24.6%, down 4 ppts YoY, while EBITDA margin was down 4.4 ppts to 15.3% in the same period. Net income decreased 11% YoY in 1H11 bringing net margin to 9.6% vs 12.9% last year.

Bottom line

In our view Cherkizovo should do well in a toughening environment: meat prices are unlikely to decline, driven by government protection of the market via import quotas. Meanwhile, soft commodity prices are likely to fall as the world (and Russia) moves from a crop deficit to a crop balance during the current agricultural season. Our outlook for Cherkizovo in 2H11 is positive: the second half normally features high meat consumption and grain prices are down roughly 25% YtD, which is positive for margins.