Daily analyst comments

Kalina released its 1H 2008 performance report on Monday. The press release says revenues surged by more than 21% y-o-y in dollar terms. The robust financial results are mainly linked to a 15% surge in the company’s average selling price. The slower rise in production costs as compared with sales growth contributed to wider profit margins.

Table. Kalina concern: basic 1H 2008 financials, USD mn

On the downside, the fast sales growth was offset by a 35% plus rise in marketing expenses, which, together with a rise in interest expenses, have led to a downturn in the EBITDA and net profit margins.

We are generally neutral about the financial results reported by Kalina, as a decrease in the profit margins may adversely affect its stock valuations. At a recent meeting, the company’s management altered its full-year financial targets. Even though the revenue target was upped by 8% to USD 498.9 million, the target for gross profit was lowered from 56.4% to 50.6%, as a serious rise in raw material costs could exert an upward pressure on production costs. The earlier EBITDA target was also lowered, by 19% to USD 53.9 million.

We are generally upbeat on the company’s stock valuations, while at the same time believing that the reduction in its profit margins and marked cuts in its full-year targets could have a negative impact on its stock valuations in the short term. According to our estimates, the fair price of Kalina shares should be in the neighborhood of USD 47.2 per share, which implies an upside potential of more than 98% to the current stock valuations.