After having profiled the first group of companies that published half-yearly results (material: Mid-Caps half-yearly results (I) posted on our website in the “Fundamental Analysis” section), we now provide concise Information on another group of 7 medium-capitalization issuers, focusing mainly on the construction sector from which we present six issuers: Comnord Bucuresti (COSC), Societatea de Constructii in Transporturi Bucuresti (SCTB), Cominco SA (COBS), Macofil Targu-Jiu (MACO), COMCM Constanta (CMCM), Concefa Sibiu (COFI). Separately, we profiled Bere Azuga (BEGY), after the company announced the intention to expand and increase its production capacities in the upcoming years.
Our preferences for an investment horizon of 6-12 months include the following companies covered in our two materials dedicated to the small and midcap companies on the market:
Artrom Slatina (ART) – pipe manufacturer
Artego Targu – Jiu (ARTE) – conveyor belts
Iproeb Bistrita (IPRU) – cable manufacturer
Constructii Bihor (COBJ) – civil engineering
Constructii Sibiu (CONR) – constructions
Constructii Transilvania (COTR) – civil engineering
Societatea de Constructii in Transporturi Bucuresti (SCTB) – constructions
Bere Azuga (BEGY) – beer production
We mention that the liquidity risk specific to some small-capcompanies or companies that have recently caught the attention of several investors, as well as the risk to fail to meet estimates in some of the cases, might generate pronounced volatility on these issuers. Consequently, we recommend that you diversify your investments across at least a few of the companies profiled herein.
Comnord Bucuresti (COSC) – civil engineering
| 27.09.07 Price: | 25.5 RON/share |
| market capitalization | RON 1020.5 mn |
| H1’07 Unconsolidated sales | RON 130.3 mn |
| H1’07 Unconsolidated Net Profit | RON 14.0 mn |
The Comnord company is the largest issuer in the construction sector listed on the RASDAQ market. The issuer earns revenues from the works carried out, also holding stakes in several significant Bucharest-based projects:
- 10% in Obor Plaza; project assessed at EUR 117 mn;
- 50% in Baneasa Rezidential – project estimated at 3000 houses in the Baneasa area;
- 34% in Lafarge Comnord – building materials manufacturer;
- 99% in Girueta Jilava - company listed on the Rasdaq market, having a market capitalization of EUR 6.4 mn.
Most of the sales figure is related to the development of the Baneasa residential complex, wherein Comnord is the contractor for most of the works. Recently, the investment carried out in the Baneasa Complex was estimated at EUR 1.8 bn. Work began in 2002 and is expected to be complete in 2010. Comnord’s H1 unconsolidated sales figure totaled RON 130.3 mn, over twofold compared to the corresponding period of last year, net profit reaching RON 14 mn, a nine-fold increase.
| COSC – unconsolidated (RON mn) | 2006 | h1'07 | 2007 - estimate |
| sales | 204.5 | 130.3 | 260.6 |
| Net profit | 18.95 | 14.0 | 28.0 |
- the recent announcement regarding the expansion of the Baneasa complex in the commercial segment by app. 50% above the initial plan, along with the involvement in other projects developed in areas nearby Bucharest (e.g. Buftea), guarantee a rise in sales in the upcoming years. We estimate that Comnord will maintain a 30% growth pace throughout the current year and in the medium term.
Other stakes and holdings (table)
- these additional holdings have a significant value as well, which we estimate at app. EUR 100 mn (RON 320 mn), which explains the current large capitalization: RON 1020 mn, corresponding to an unconsolidated 2007 P/E of 36.4.
| 2006 | 2007e | |
| P/E | 53.8 | 36.4 |
| P/S | 5.0 | 3.9 |
Societatea de Constructii in Transporturi S.A. Bucuresti (SCTB) - constructions
| 26.09.07 Price: | 30.5 RON/share |
| market Capitalization | RON 119.5 mn |
| H1’07 sales | RON 67.9 mn |
| H1’07 Net Profit | RON 9.7 mn |
- In H1/2007, the company’s sales figure markeda sharp increase against H1/2006, from RON 13.9 mn to RON 67.9 mn. From a historical standpoint, the company obtains 70 – 80% of its yearly sales during H2, this year, several short-term projects being accounted for in H1. (SCTB) is owned by CCCF Bucharest, a company incurring financial difficulties lately. Nevertheless, we estimate that the business of daughter-companies such as (SCTB) might grow in the medium-term, until a revitalization plan for the whole group is drafted. One of the solutions considered by the owners of CCCF is to sell 51% to a powerful partner;
- At the operating level, (SCTB)’s profitability hiked from 3.4% to 17.9%. In our base-scenario, we estimate operating margin of 16.4%, in the optimistic alternative expecting 17.7%;
- The company’s net margin increased significantly up to 14.3%. In the base-scenario, in the second half of the year, we might expect net profitability comparable to the H2 ’06 level (only 2.1%), yearly net profit mounting to RON 10.6 mn, at the current market capitalization, the P/E ratio standing at 11.2, a level considerably below the current market average.
- In the optimistic scenario, we assumed that the company will maintain its current net margin in H2 as well, earning RON 17.5 mn in net profit in 2007. In this scenario, the share becomes particularly attractive, at a P/E ratio of only 6.8.
SCTB (table)
Cominco S.A. Bucuresti (COBS) - constructions
| 24.09.07 Price | 107.4 RON/share |
| market Capitalization | RON 193.5 mn |
| H1’07 sales | RON 99.6 mn |
| H1’07 Profit | RON 0.12 mn |
- S.C. Cominco S.A. is the mother-company within a group of construction companies. Cominco S.A. has 6 branches: Ardeal, Banat, Bucovina, Bucuresti, Oltenia and Mecanizare Frasin, and 3 subsiaries: Cominco Bucovina, Cominco Oltenia and Cominco Transilvania; Cominco has 3500 employees, and it specializes in construction and assemblage works, providing some 20 other types of services as well, ranging from welding, sandblasting, painting, to heating and ventilation systems, tinsmith and structure building;
- The company’s activity is also market by seasonality, most of the sales figure being obtained in the second half of the year. In H1, the company’s sales doubled y-o-y; In a base-scenario we believe that the company will attain H2 sales similar to the H2 ‘06 figure, at the yearly level, pulling a 28% hike up to RON 230 mn;
- Cominco posts a reduced profitability level in its financial statements, the operating margin standing at 0.4 – 0.6% from a historical standpoint. However, in H1’ 2007, the company’s operating margin jumped from 0.4% to 1.4%;
- For the current year, we expect net margin of 0.2%. This level would lead to an extremely high P/E ratio, therefore we believe that the P/E valuation is irrelevant in the case of Cominco. Considering the growth potential of its sales, we expect the company to post better profit levels in the future. Taking into account the sales volume estimated for the current year, the P/S 07e ratio is of 0.8, a fairly good level compared to most of the issuers in the construction sector. An average P/S ratio of the issuers within the construction sector stands at around 2-3.
COBS (table)
Macofil S.A. Targu-Jiu (MACO) - constructions
| 27.09.07 price | 97.1 RON/share |
| market Capitalization | RON 28.2 mn |
| H1’07 sales | RON 9.5 mn |
| H1’07 Net Profit | RON 0.4 mn |
- The company specializes in civil engineering and building-maintenance works, along with the manufacture of bricks and tiles. The company’s H1 sales totted up to RON 9.5 mn, a 31% upside y-o-y. For the whole year, we estimate at least a 20% increase in sales, up to RON 22.5 mn.
- The company’s H1 operating margin remained relatively the same, adding only 0.2 percentage points. The operating profit marked a 35% increase, up to RON 0.73 mn. Considering the emphasized seasonality of the operating activity, we forecast operating margin of 12% for the end of the current year, i.e. RON 2.7 mn in operating profit, up 17% against the previous year.
- In the base-scenario considered, we assumed the recurrenceof last year’s net margin, expecting a net profit of RON 1.7 mn in 2007, up 21% from last year. Considering this profit level, the MACO stock is currently assessed at a P/E ratio of 16.7, below the sector’s valuation average.
- Information with regard to the share capital increase with RON 21 mn: the majority shareholder, Mr. Ion Patrut, is to bring as in-kind contribution a plot of land valued at EUR 2.1 mn (RON 7.4 mn), whereas minority shareholders will contribute with RON 13.8 mn at most, entailing full subscription, of 19.1 new shares for 1 share owned. The suggested registration date is 29.10.2007.
MACO (table)
COMCM S.A. Constanta (CMCM) - constructions and construction materials
| 27.09.07 Price | 200 RON/share |
| market Capitalization | RON 159.8 mn |
| H1’07 sales | RON 19.9 mn |
| H1’07 Net Profit | RON 3.15 mn |
- COMCM S.A. produces concrete with three concrete manufacturing stations (in Constanta, Mangalia, and 23 August), as well as sand, gravel, pea gravel and aggregate. The company also specializes in civil and industrial engineering;
- The company’s 2007 half-yearly sales amounted to RON 19.9 mn, up by 62% y-o-y. In a base scenario, which entails H2 sales to be quite similar to the corresponding period of last year, the company would obtain a 25% yo- y sales increase, up to RON 38 mn. The growth rate is in line with the industry’s expectations regarding the growth of the construction market this year;
- However, the company’s operating profitability dropped in excess of 3 percentage points over the first half of the current year. Throughout the entire year, we expect operating margin of 15%, corresponding to an operating profit (EBIT) of RON 5.7 mn, up by only 3.6% compared to last year;
- We believe that the annual net margin will stand at 12.2 %, the net profit figure marking a slight decrease compared to last year, down to RON 4.6 mn. Under these circumstances, the stock is valued at a P/E 07e of 34.5, an average valuation level within the construction sector.
CMCM (table)
Concefa S.A. Sibiu (COFI) - constructions
| 26.09.07 Price | 4.3 RON/share |
| market Capitalization | RON 203.7 mn (including subscribed shares) |
| H1’07 sales | RON 30.5 mn |
| H1’07 Net Profit | RON 1.7 mn |
- Sibiu-based Concefa S.A. group carries out the entire range of civil and industrial construction works, also specializing in the manufacture of construction materials, profiles and thermal-break windows, the development and sale of residential units, as well as on-land transportation services. 40% of the company’s sales figure comes from orders placed by the government, 30% of orders are from private customers, the rest of 30% deriving from the sale of goods (building materials, profiles, termopane glass windows, apartments) and transportation services. These last business segments are expanding, according to statements by the management; The Concefa SA company, listed on the Bucharest Stock exchange, focuses mainly on civil and industrial engineering.
- Concefa’s H1 sales hiked 80% y-o-y, up to RON 30.5 mn. The company expects sales growth in H2 as well. Considering this matter, in a basescenario we estimate a 25% increase in H2 sales, leading to a yearly figure of some RON 73 mn (+44% y-o-y). In a more prudent scenario we forecast that H2 sales will be quite similar to those of H2/2006, therefore leading to a 2007 sales figure of RON 64 mn;
- The company’s operating profitability doubled in H1/2007, surging from a 4.9% margin in H1/2006, to 9.8% in H1/2007. For the entire year, we expect operating profit of RON 4.1 mn or RON 3.6 mn, depending on the considered scenarios.
- At the bottom-line,this year’s H1 result marked a sharp growth, the net margin hiking three-fold. In the base-scenario, the company might also some RON 1.1 mn in profit in H2, leading to RON 2.8 mn yearly, which bears a P/E 07e ratio of 71.7. In the prudent scenario, the P/E ratio is 83.5.
- The company might continue its upwardtrend in the following years as well, therefore the current P/E report has a limited relevance in the perspective of the upcoming 2 -3 years.
COFI (table)
Bere Azuga S.A. Azuga (BEGY) - beer production
| 26.09.07 Price | 11.7 RON/share |
| market Capitalization | RON 27.5 mn |
| H1’07 sales | RON 13.8 mn |
| H1’07 Net Profit | RON 0.1mn |
- The Prahova-based company is specialized in the production of beer. During the first half of the current year, the company marked a 55% increase in sales, up to RON 13.8 mn. For the end of the year, we estimate a consistent 80% increase in sales, the underlying reason being the company’s expectations of total revenues for the year (RON 37.8 mn);
- At the operating level, the company’s profit margin soared from 13% to 19%, the operating profit hiking twofold during the first half of the current year, up to RON 2.6 mn. For the entire year, we estimate operating margin of 23.8%, corresponding to an EBIT figure of RON 8 mn; for the end of the year, the company expects net profit of RON 2.9 mn, placing the company at a very attractive P/E ratio of 9.5 given the current capitalization;
- By 2009, the company estimates a four-fold increase in production volume, up to 700.000 hectoliters. In 2006, production reached170.000 hectoliters. In 2007, the company expects production of 200.000 hectoliters, being estimated to reach 500.000 hectoliters in 2008. Considering the levels set by the company for the following years, in a cautious scenario, we have extended our estimates until 2009, obtaining forward P/E ratios that support the opportunity of a medium/long-term investment in this stock.
BEGY (table)
Comparison of Bere Azuga (BEGY) vs. Bermas Suceava (BRM)
| BEGY | BRM | |
| 2007 Production (hl/year) | 220,000 | 330,000 |
| 2008 Production | 500,000 | 330,000 |
| 2009 Production | 700,000 | 330,000 |
| Current market capitalization (RON mn) | 27.7 | 74.1 |
Maintaining the proportion given by the production estimated for the upcoming years, we notice the sizeable growth potential of Bere Azuga’s market capitalization due to the increase in production. In the case of Bermas, no substantial increase in production capacity was announced, therefore we assumed it will stagnate overall.
The far-reaching capital expenditure program of Bere Azuga will total EUR 11 mn, and is to be backed by loans and operating cash inflows; however, an incash share capital increase will be required. No Information has been disclosed in this regard yet, nevertheless, we believe that an EUR 5 mn increase is quite likely in the upcoming months in order to sustain the company’s rapid development.
In conclusion, assuming theaccomplishment of the medium-term capital expenditure plan, Bere Azuga (BEGY) might become a more visible company in the beer industry than its competitor - Bermas Suceava. We would like to call attention to the 6-12 month potential of the BEGY stock. On the other hand, one should be aware of potential high volatility periods, specific to non-liquid stocks. Historically, we noticed periods in which the stock might temporarily lose up to 20% of market value.
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http://reports.aiidatapro.com/BOB/Vanguard/Midcaps2_Sept2007.pdf
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Copyright: 2007 SSIF Vanguard SA. All rights reserved. For further Information please contact Vanguard, 19 Unirii Blvd. , Bl. 4B, Sector 5, Bucharest, Romania
Tel. +40 21 336 93 25, fax: +40 21 336 92 33, e-mail: office@vanguard.ro, web site: http://www.vanguard.ro
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Midcaps2 Sept2007.pdf, 103 Kb
