Baltic Morning News
Worldwide correction. The plunge that started from China yesterday extended to Tallinn and the market closed down more than 5.5%. Riga and Vilnius were stronger with 2.5% and 1.6% declines, respectively. All shares in the main list ended in deep red. Harju Elekter (-11.2%), Norma (-8.8%), Tallinna Kaubamaja (-7.8%) and Tallinna Vesi (-7.8%) lost the most. Given that the rest of Europe and the US followed the same path and Asian markets are in the red again (except China), we believe tough times in the Baltics are far from over.
Baltika (Neutral) reports strong Q4. The Estonian clothing retailer Baltika posted Q4 profits above our forecast. The Q4 gross profit came in at EUR 10.308m (forecast: EUR 9.506m), corresponding to a gross margin of 57.4% (forecast: 53.0%). This is also considerably higher than that in Q4/05, when the gross margin was 53.2%. The Q4 operating profit was EUR 2.326m (forecast: 1.441m), equal to a margin of 12.9% (forecast: 8.0%). The Q4 Pre-Tax profit totalled EUR 2.022m (forecast: EUR 1.274m), corresponding to margin of 11.2% (forecast: 6.5%). Much of the deviation came in from lower than expected cost of goods sold (42.6% of Q4 sales vs. 46.8% a year ago), of which much can be attributed to better intake margins. For 2007, we expect sales growth of 39% (company's forecast 40%) with EPS growth of 41%. Having lost 18% since its peak at the beginning of February, the share trades at a PER 2007 of 16.9x and a PER 2008 of 13.7x, i.e. it now looks attractive on valuation basis, while we need to wait for the sentiment turn in order to upgrade the share.
Apranga (Acc) delivers Q4 below expectations. The Lithuanian clothing retailer posted Q4 preliminary Pre-Tax profit of LTL 8.3m, corresponding to a Pre-Tax margin of 10.1%, down from 11.0% a year ago. Our Q4 Pre-Tax forecast was LTL 9.7m, equal to a margin of 11.9%. The company confirmed its targets for 2007: sales of LTL 415m (+38% y-o-y) and a Pre-Tax profit of LTL 31m (margin 8.7%), both more or less in-line with our forecast. By 2010, the company plans to reach turnover of LTL 1 billion, i.e. 3.3 times more than in 2006. The PE 2007 of 21.6x is starting to look good, but probably the current sell-off pushes the market down even more. We will keep closely monitoring Baltic retail stocks.
Eesti Ehitus facing possible court proceeding. According to BBN, Grove Invest is claiming that Eesti Ehitus repays EEK 200m that Grove has paid to the construction company as pre-payment. Eesti Ehitus announced last week it was cancelling the construction contract in the Lutheri estate in Tallinn since Grove had breached the contract. According to Grove, the works performed so far is worth no more than EEK 50m, which it is willing to pay to Eesti Ehitus. The ladder has commented it is currently calculating the total costs involved in the project and is ready to go to court and defend its rights. As the court proceeding will take some time and add uncertainty, we also expect some pressure on the share price.
Starman (Neutral) Q4 today. We are looking for sales of EUR 3.639m, equal to a y-o-y increase of 13%. Our EBITDA forecast stands at EUR 1.345m, corresponding to a margin of 36.6%. The forecasted Q4 Pre-Tax profit is EUR 0.574m, equal to a margin of 17.3%.