While we did not expect much in terms of breaking news last week, the markets took negatively (MSCI World Index -1.0% w-o-w) weaker flash PMI data in Europe and the same (probably more important) data in China, which could signal the balance of proponents of hard and soft landing in the latter country is changing. The oil price lost almost a dollar to $122.8/bbl (Urals), while iron ore prices were stable and steel fell by 4%.

First Deputy Prime Minister Valeriy Khoroshkovskiy, in a keynote speech at Dragon Capital’s 8th Annual Ukraine Investor Conference in Kyiv yesterday, sent several encouraging signals concerning the government’s intentions to reform domestic stock market infrastructure and deal with deep-seated problems discouraging portfolio investors from Ukraine. He also commented on several closely watched macro topics including negotiations with the IMF, prospective sovereign Eurobond issuance, and gas talks with Russia.

Motor Sich, at today’s AGM, announced strong 2011 operating and financial results reporting net sales of $727m (+16% y-o-y and almost +$100m in absolute terms). The revenue figure, however, came in 8% below our forecast and 5% below the Bloomberg consensus estimate. Meanwhile, Motor Sich reported payments from customers grew by 16% y-o-y in 2011, to $816m. The company also confirmed its full-year net income at $169m (+7% y-o-y and in line with the provisional figure), implying a hefty net margin of 23.2%. Full-2011 financial statements are expected to be released shortly.

Our revised valuation for LSE-listed Avangard, the largest shell egg producer in Ukraine, yields a price target of $13.27/DR (9% above our previous PT), suggesting a 35% upside to the stock’s current market price. We recommend the stock as a Buy, keeping it second on the sector analyst’s ranking scale. One should also consider Avangard’s underperformance versus local peers, with the stock’s current 2012E EV/EBITDA of 2.9x being the lowest multiple among Ukrainian agri stocks (the average is 4.7x).

Our updated DCF and comparative valuations yield a 12-month price target of $7.28/share — 28% below our previous estimate but 35% above the stock’s current market price. We assign a Buy recommendation to Milkiland.

We initiate coverage on WSE-listed Agroton, a diversified vertically integrated agricultural producer in eastern Ukraine operating in the crop growing, poultry and milk segments. The average of our DCF and comparative valuation models yielded a 12-month price target (PT) of $9.95/share which implies a 35% upside from the stock’s current market price. We recommend the stock as a Buy, ranking it fourth out of seven agri stocks on the sector analyst’s ranking scale, with the stock’s relatively low liquidity a restraining factor.

Despite numerous global and local challenges, Ukraine has many opportunities to drive its economy forward. The most immediate and important is to renegotiate the gas price with Russia, which could have a profound effect on the whole economy. Meanwhile, we think both the government and top corporate borrowers will tap foreign markets, as with current liquidity inflows Ukraine can benefit from high yields and cheap valuations. The recent government reshuffle should be of help, as the newly appointed people are more investor-friendly and can accelerate Ukraine’s return to capital markets. They also seem more capable of jump-starting reforms, though this is unlikely until after the October parliamentary elections. We also expect benefits from the Euro 2012 championship in June, but these are hard to quantify at this stage.

MHP, the largest Ukrainian poultry producer, has reported 2011 audited financial results, increasing net sales by 30% y-o-y to $1,299m, EBITDA by 24% to $401m and net income by 20% to $259m, for an EBITDA margin of 33% (-1pp y-o-y). The numbers generally beat the market’s expectations, with revenues exceeding our estimate by 5% and Bloomberg consensus forecast by 6%, EBITDA coming in 2% lower than our expectation but 5% better than Bloomberg consensus, and net income outperforming our forecast by 2% and Bloomberg consensus by 15%.

No critical bad news is good news, so bulls
continued to dominate globally last week. The MSCI World Index rose by 2.3%
w-o-w, while the S&P 500 added 2.4% and in Europe the Euro STOXX 50
advanced by 3.4%.

The week started on a firm note as all issues generally
traded better, with benchmark Ukraine 20s and 21s closing approx. 1.5-2.0 point
higher. On Wednesday the sovereign curve got hit on headlines about the
possibility of restructuring Ukraine’s IMF loan and a rating outlook downgrade
by S&P.