Teraplast - August 2008

IULIANA SIMONA MOCANU - Head of Research Department RAIFFEISEN CAPITAL & INVESTMENT S.A.

 

Business environment still strong

Teraplast consolidated results for 1H showed strong growth on the top line (+26% yoy) and a lean on strategic product categories such as PVC pipes and sandwich panels, which increased their weight in total turnover. The company benefited from benign constructions environment and new EU-funded infrastructure projects throughout the country, especially on sewage and water adduction works. After a less flattering 1Q when profitability was affected by the RON depreciation and raw materials price hikes, Teraplast recovered its profitability momentum in 2Q as a result of higher sales and a lid on wages. Still, the key raw materials polypropylene (PP) and PVC have seen hikes of 5.2% and 11%, respectively, in their average EUR prices in 1H 2008 compared to the same period last year. EBIT rose 58% yoy to RON 13.4 mn, helped by lower cost of merchandise, while the bottom line came in at RON 10.6 mn, up 23% yoy under the negative impact of a RON 0.6 mn financial loss, as expected.

Outlook: We believe that the overall growth of the local constructions sector will show signs of easing as early as the third quarter of this year. The primary and secondary residential markets already witness decreasing demand and we feel that tighter credit conditions proposed by the National Bank will only reduce demand growth for construction materials this year and possibly in 2009 as well. We nonetheless believe that the ease will be temporary and the market will rebound starting 2010, as Romania is still lagging a few leaps behind other CEE countries in terms of number of residential compounds and infrastructure works and demand is still high. Based on this perceived ease of constructions activity in the short run and the 1H results, we have made some adjustments to our valuation model.

Recommendation: Our DCF valuation, which we will use as our base scenario, points to a FV of RON 326 mn for the company’s equity. Our international peer group multiples yield a range of RON 211 – 292 mn for the company’s equity, but we believe that international peers with western operations are less comparable for the moment. We move forward with a Buy recommendation and a 12-month TP of RON 1.23 for TRP stock.

1

2

3

4

5

6

The tricky lag LUCIAN CROITORU Adviser to the Governor - BANCA NAŢIONALĂ A ROMÂNIEI Lucian Croitoru, Adviser on monetary policy issues to the National Bank of Romania Governor, talks about the NBR’s next moves and explains why the decrease ofthe policy rate hasn’t been reflected into lower interest rates on bank loans. mai mult... The turnaround CRISTIAN SPORIS Secretar de Stat - MINISTERUL ECONOMIEI ŞI FINANŢELOR Cristian Sporis, Secretary of State at the Ministry of Public Finance, in charge with the national treasury and public debt, explains how the state managed to borrow money at the lowest costs in the last seven years and how it turned from a clear market taker into a player with a strong position on the market. mai mult...