Daily analyst comments

On July 31 Power Machines released their basic 1H 2008 financials calculated to RAS. According to the report, revenue rose 42.3% y-o-y to USD 477 million (RUB 11.4 billion). EBITDA amounted to USD 24.7 million (RUB 590.8 million). By comparison, the same period last year saddled the company with losses. The financial statement includes the results of the company's subdivisions (the company does the bulk of its business via its affiliated branches rather than subsidiary companies).

Table 1. Power Machines: key financial results for 1H 2008

	1H2008	1H2007	Change
Revenue	477.1	335.2	42.3%
EBITDA	24.7	-0.5
EBITDA margin	4.1%	-0.2%	+ 4.3%.
Net profit	1.4	-22.7
Net margin	0.3%	-6.8%	+7.1%

Source: company data

We view the posted financials as moderately upbeat. For the first time since 2005, the company has made operating and net profit. The losses were incurred on ongoing contracts with India and Vietnam, which were concluded at fixed prices. Once these contracts are completed, the company is likely to see steadier profit margins. The loss-making contracts prevented the company from making heftier profits in the period. As a result, the company reported a modest EBITDA margin, at 4.1%, and a paltry net margin, at just 0.3%.

Also on the bright side, the company saw its order-book expand by USD 3.2 billion (RUB 75.9 billion) in 1H 2008. The company has a geographically diversified base of clients. In the reporting period, the company reached deals for equipment supplies to the Novovoronezh AES-2 nuclear plant, the Leningrad AES-2 nuclear plant, the Kalinin nuclear plant, the Tver TETs-3 thermal power plant, the Kostroma TETs-2 thermal power plant and the Yaroslavl TETs-2 thermal power plant. The company also concluded a series of export contracts in the period. The large number of contracts should enable the company to boost its financials before long.

We estimate the fair value of one common share in Power Machines at USD 0.143 per share, which implies a downside potential of 30.8% to the current stock valuations and corresponds to a SELL recommendation.