Sector: Metals
Polyus Gold's financial report shows a downturn in margins and slow business growth. We believe that the company's shares are currently overestimated by the market and do not recommend investors buy them.
On June 9, Polyus Gold released its FY 2008 financial results audited to IFRS. In our opinion, the main problems reflected in the report are low margins and slow growth. All the company's margins, from gross margin to net margin, have shown a decline, while the company's revenue rose by just 18%. Polyus Gold's sales grew thanks to favorable pricing conditions on the gold market: the company's real output in 2007 amounted to approx 1.214 mn oz against 1.215 in 2006. At the same time, market price for gold grew by 30.3% in 2007. The company's average sales price in FY 2007 amounted to USD 706.48 per oz of gold.
| Thousand USD | 2007 | 2006 | 2007 / 2006 |
|---|
| Revenue | 867,123 | 734,559 | 18.05% | | Gross profit | 332,095 | 311,358 | 6.66% | | Gross margin | 38.23% | 42.38% | - | | EBITDA, company's estimates | 334,814 | 305,964 | 9.43% | | EBITDA margin | 38.61% | 41.65% | - | | Corrected EBITDA | 171,150 | 371,830 | | | Corrected EBITDA margin | 19.74% | 50.62% | - | | Operating profit | 53,773 | 212,092 | -74.65% | | Operating margin | 6.2% | 28.87% | - | | Net profit | 47,087 | 1,159,441 | -95.93% | | Net margin | 5.43% | 157.84% | - | | Corrected net profit | 47,087 | 178,941 | -73.68% | | Corrected net profit margin | 5.43% | 24.36% | - |
Source: company data, Finam estimates
The company attributes the negative impact on cost of production to fuel expenses, vehicle and mining machinery parts, and energy, as well as the RUB/USD exchange rate. The main downside driver for the company's operating margin was a 228.5% upsurge in SG&A, which jumped from USD 79.68 mn in 2006 to USD 261.78 mn in 2007. We should also point at a 38% growth in labor expenses, an 18% upside on the all-Russia average value, primarily due to bonus payouts to the company's employees.
We believe that the market value of Polyus Gold's shares is currently overstated. This has been caused by recent investment fund offers to purchase the company's shares, which exceeded Polyus Gold's market valuations. Sulinov Aleksey
Other comments of the day
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Polyus Gold
Capitalization: $3 587 614 198,54
Common shares:
Price: $18,82
Delta week: 11,1%
Delta month: -16,2%
Delta year: -56,4%
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0.569
0.073
