On September 17 the SOLLERS company (previously known as Severstal-Auto) released its 1H 2008 financials audited to IFRS. The company managed to boost its revenue by 40.8% y-o-y to USD 1, 262 million in the reporting period. EBITDA advanced by 36.9% to USD 152 million. The net profit came to USD 59 million, a rise of 20.4% y-o-y.
Table 1. SOLLERS: key financial indices for 1H 2008, USD mn
| Indicator | 1H2008 | 1H2007 | Change |
|---|
| Revenue | 1262 | 896 | 40.8% |
| Gross profit | 257 | 193 | 33.2% |
| Gross margin | 20.4% | 21.5% | -1.1%. |
| EBITDA | 152 | 111 | 36.9% |
| EBITDA margin | 12.0% | 12.4% | -0.4% |
| Net profit | 59 | 49 | 20.4% |
| Net margin | 4.7% | 5.5% | -0.8% |
Source: company data, Finam estimates
We view the financials reported by the company as positive. A decline in the company's profit margins, as a result of new projects to open a plant in Yelabuga and establish a dealership network, has fallen short of market expectations and our forecasts. Under accounting rules, not all costs may be related to investments: some of them are regarded as current expenses: hence a downturn in the company's profitability.
The company's resistance to the rapid growth in steel prices in 2008 is another positive factor. As SOLLERS plants are engaged in the assembly production of foreign car models, they buy ready-made car assembly kits, whose prices remain flat throughout the year. The only exception is UAZ vehicles. The company has seen its profit margins on this production line narrow, even though factory prices on UAZ vehicles have risen. However, the share of revenue gained on production of UAZ vehicles is not great and lower margins on this production line should not seriously affect the company's total revenue figures. The company also announced that the prices of component kits would rise in the 2.0% to 2.5% range in 2009 and that the respective deals had already been reached with its core partners, Fiat and SsangYong.
The company said its EBITDA margin on automotive production edged up from 9% to 10%, whereas its margins on engine production decreased from 21% to 20%. As the revenue share of the engine division is lower, the company's overall profitability has increased.
We are upbeat on the company's workable strategy, enabling it to steadily improve its financial indicators. The company's focus on the production of inexpensive cars, off-roaders and commercial vehicles under foreign brands, together with the provision of a full range of after-sales services, currently fully pays for itself. According to our estimates, the fair price of one common share in SOLLERS should be USD 101.5 per share as of year-end 2009, with an upside of 203%, which corresponds to a BUY recommendation.
0.569
0.073
