Research Notes

Wimm-Bill-Dann Foods, rated among the biggest companies in the consumer sector, expects to release its 1Q 2008 financials on June 6. We expect the financial results to meet the targets earlier set by the company's management against the backdrop of high raw material prices.

We expect the company's 1Q 2008 revenue to increase by over 34% y-o-y to USD 727.1 mn in dollar terms, with growth to be largely driven by price rises on the company's products rather than an increase in its sales volumes.

We forecast EBITDA to rise by 23% to USD 86.3 mn and net profit to climb by about 18% to USD 38.6 mn. The projected figures mean a marginal decrease in the company's margins over a year earlier, while indicating a rise over the previous quarter. The projections take into account the high level of raw milk prices at the start of the year, following a more than 67% surge in the ruble prices of milk throughout 2007 (see figure 1).

However, a correction in raw milk prices that began to shape up in 1Q should enable the company to reduce its raw material costs and widen its profit margins in 2008. The company said the procurement prices of raw milk declined by an average of 12%, in ruble terms, in 4M 2008.

We expect Wimm-Bill-Dann management to reaffirm its financial targets for FY 2008, at USD 3.0-3.2 bn for revenue and USD 410-430 mn for EBITDA, which generally coincide with our projections.

Although we expect the release of sound financial results on June 6, the company's lower margins, as compared with 2007, and steadily low sales volumes in the quarter caused by a rise in sales prices, could exert a marginal downward pressure on the company's stock valuations in the short term.

That said, we believe that Wimm-Bill-Dann shares are now conspicuously undervalued and reiterate our target price for the company's common shares at USD 113.3 apiece as of year-end 2008. Our estimate of the company's fair value in a year's time is USD 118.3 per share, which implies an upside potential of 49.7% to the current stock valuations and corresponds to BUY recommendation.

Sergey Filchenkov

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