Daily analyst comments

On Tuesday the PIK group published its financial performance for 1H 2008. The statement shows that sales revenue surged by more than 63% y-o-y, with robust growth primarily attributed to a 51% plus jump in residential housing presales and a hike of more than 30% in average apartment prices in dollar terms.

Table. PIK group: basic financials for 1H 2008, USD mn

Indicator	1H2007	1H2008	Change 1H2008/1H2007
Revenue	525	859	63.6%
Cost of production	366	539	47.3%
Gross profit	159	320	101.3%
Gross margin	30%	37%
Revenue from developer rights sales	14	0
Distribution expenses	14	41	192.9%
Administrative expenses	43	90	109.3%
Operating profit	115	178	54.8%
Operating margin	22%	21%
EBITDA	134	200	49.3%
EBITDA margin	26%	23%
Net profit	69	93	34.8%
Net margin	13%	11%

Source: company data, Finam estimates

Based on the procedure for calculating revenue and expenses in development companies, we believe that the financial statement does not fully reflect the current pace of growth at the company. Last year, the company’s half-year revenue made up just about 21% its full-year proceeds, and its six-month EBITDA was at a mere 14% of the relevant figure for the full year.

On the whole, we point out the positive changes in the company’s growth, evidenced by a more than 100% surge in its six-month revenue to USD 1.2 billion, as compared to the year-earlier period. The belief in the company’s ability to refinance its debt obligations, now put at over USD 900 million, is one of the key factors that make the company’s shares more appealing for investors. Despite the liquidity crunch on the market, the company’s management looks set to raise the necessary funds via the placement of bonds on the public market, or by sales of stakes in its development projects to partners. The company intends to repay part of its short-term debts, at about USD 400 million, from its own resources.

We estimate the fair price of PIK Group shares at USD 27.3 per share.