On July 24 the Acron holding company published its preliminary 1H 2008 financials audited to RAS. The statement says revenue amounted to USD 950 million, compared to USD 546 million in the year-earlier period, a 74% jump y-o-y. EBITDA surged to USD 435 million from USD 148 million a year earlier, with the EBITDA margin widening from 27% to 46%. The RAS net profit quadrupled to USD 353 million from USD 88 million, not counting the re-evaluation of financial investments, with the net margin more than doubling from 16% to 37%. Growth in the financial indices was driven by a rally in global prices for mineral fertilizers, the company's core product, slow growth in its expenses and production expansion.
Table 1. Acron: basic RAS financials for 1H 2008, mn USD
| Indicator | 1F2007 | 1F2008 | 1F2008/1F2007 |
|---|
| Revenue | 546 | 950 | 74% |
| EBITDA | 148 | 435 | 194% |
| EBITDA margin | 27% | 46% | |
| Net profit | 88 | 353 | 301% |
| Net margin | 16% | 37% | |
Source: company data, Finam estimates
Dorogobuzh, an Acron subsidiary, likewise posted its financial results for 1H 2008. The company said revenue had shot up 73% to USD 233 million, vs. USD 135 million a year ago. EBITDA soared by 3.1x, from USD 35 million to USD 107 million and the EBITDA margin expanded from 26% to 46%. The net profit leapt by 3.9x to USD 89 million, from USD 23 million in the year-earlier period, excluding the re-evaluation of financial investments.
Table 2. Dorogobuzh: basic 1H 2008 financials to RAS, mn USD
| Indicator | 1F2007 | 1F2008 | 1F2008/1F2007 |
|---|
| Revenue | 135 | 233 | 73% |
| EBITDA | 35 | 107 | 206% |
| EBITDA margin | 26% | 46% | |
| Net profit | 23 | 89 | 287% |
| Net margin | 17% | 38% | |
Source: company data, Finam estimates
We are upbeat on the 1H 2008 RAS financials reported by Acron and its Dorogobuzh subsidiary, which specifically show that the company is good at deriving profits amid favorable price trends on the global mineral fertilizer market. Since the start of the year, world carbamide prices have nearly doubled, those of ammonia have risen by 58% and those of ammonium nitrate have jumped by 40%. The company's low production and raw-material costs are also an important factor behind its robust financial indicators. In particular, the company buys natural gas, phosphates and potassium chloride at prices markedly below those on world markets. The company is steadily moving to raw-material self-sufficiency. By 2012, the company is set to independently provide itself with apatite concentrate and potassium chloride.
We expect even stronger financials from Acron for FY 2008, which are to benefit its fundamental value. The company may cash in on the continuing rally in global prices on mineral fertilizer. Since the start of July alone, the prices of carbamide have increased by 19% and those of ammonium nitrate have risen by 11%.
On the downside, Acron and Dorogobuzh shares are now under downward pressure from unfavorable market conditions. Jitters on the world markets have adversely impacted both companies' shares, which closed 6% down on July 24.
We estimate the fair price of Acron (RTS: AKRN) at USD 153.4 per share, which implies an upside potential of about 40% and corresponds to a BUY recommendation. Our target price for Dorogobuzh (RTS: DGBZ, DGBZP) is USD 1.88 per common and USD 1.31 per pref, which, in both cases, implies a significant upside potential and corresponds to a BUY recommendation.
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