On July 9, Sollers, previously known as Severstal Auto, released its 1H 08 operating results. In the reporting period, sales of domestic makes (UAZ) grew by 8%, while sales of foreign makes, SsangYoung and Fiat, jumped by 29.7% and 24.9%, respectively.
Table 1. Sollers: Operating Results 1H 2008 versus 1H 2007, pcs
| | 1H 2008 | 1H 2007 | Growth rate |
|---|
| Fiat | 12,762 | 9,457 | 34.9% |
| SsangYong | 7,320 | 5,645 | 29.7% |
| Isuzu | 2,454 | 690 | 256% |
| UAZ | 36,831 | 34,103 | 8.0% |
Source: company data
In our opinion, the company's operating results are in line with market expectations and will not affect the company's stock valuations. Slack growth of UAZ sales as compared to Fiat and SsangYong was caused by a slower upturn of the Russian brand segment of the automobile market as compared to the foreign brand segment. In general, the growth rates of automobile sales under UAZ, SsangYong and Fiat brands are in line with the growth rates of the relevant market segments. Isuzu trucks, which are also assembled by Sollers, are currently in strong demand. Sollers management said earlier that the demand for these automobiles was very large, and the production plan for Isuzu trucks had been increased.
We expect the company's quick sales upturn to be preserved in 2H 2008 due to the ongoing growth of the passenger car market. In line with our projections, in 2008, sales on the car market should advance by 28%. Additionally, in late April, the company launched a plant to produce Fiat Ducato LCVs. This should enable the company to enter a new market and boost sales volumes.
In line with our estimates, the target price for Severstal Auto as of late 2009 is USD 101.5 per share, which implies a 68.3% upside and corresponds to a Buy recommendation.
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