Thursday 13 March 2014

Kernel report H1 2014

Kernel, H1, Q2, 2014, report, financial

The half year report from Kernel was a big disappointment and the stock dropped directly 5% which kind of disappeared due to all the other problems with Russia stepping in to Ukraine etc. which has caused the price of the shares to drop and it keeps dropping so the knife has not yet stopped to shake. Still was it correct of the market to respond with a drop in the shares based on the report?

In my opinion there was no reason for the drop due to the report. Everything was already known from their operational report from half year 2014 of which a summary can be found here. So we already knew that their biggest profit comes from the sun flower oil and when production and sales of that is decreasing the revenue also follows that same trend. Maybe this gives more information how poorly the market is informed and follows Kernel than any thing else. All the information presented here was extracted from their half year report that can be found in full here.

What we can see in the table below is that the revenue was decreased by over 20% in H1 2014 compared to in 2013 and for the half year Kernel carries a loss. We also see the effect from the tons of goods sold and the increased sale of grains and how little effect that has in comparison to the oil that for the bulk dropped almost 40% and the bottles around 10%.

Kernel, H1, 2014, revenue & production
In the table below we are looking a little more closely on the segments and the revenue that was being generated both in the quarter as well as in the half year and we what those decreased tons of oil is creating in decreased revenue.  

Kernel, H1, 2014, segments, finance

By the look of things Kernel needs to sort out and make a more homogeneous revenue flow of the sunflower oil business. I doubt that it will happen during this year due to all the complications they are facing with the political / war situation.

Conclusion: I have no fear in terms of the long-term profitability of Kernel and the dip in the share price as well as dip in earnings / revenue recently meant that I decided to step in and buy even more shares (see article here) to secure a larger part of the future earnings in this company. When things will turn around I have absolutely no clue but things must first stabilise in Ukraine/Russia and then we must give it another couple of year for it to reach its potential. The shares will definitely remain in my portfolio since the fundamentals of the company are unchanged.

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