Condmag - 2Q09 results preview

Condmag is scheduled to post its 2Q09 results (unconsolidated, Romanian Accounting Standards) on 10 August 2009. We expect the firm to post a net profit of RON 3.0m for 2Q09, down 31.6% q/q and 41.1% y/y. After a very good first quarter, we expect the company to have experienced a more challenging second quarter. Despite this, the firm should have continued to enjoy good operational activity in 2Q09 as high cash companies continue to invest in the oil and gas sector (e.g. Transgaz, 47% of sales in 2008; Romgaz, 33% of sales in 2008).

Total operating revenues are expected to come in at RON 41.5m in 2Q09, down 20.4% q/q and up 6.8% y/y. Condmag’s operating revenues look set to increase year-on-year: continued oil and gas investments provide an important volume of work for companies operating in the sector. Condmag will be positively influenced by investments in Romania’s oil and gas infrastructure, where a low amount of debt allows future investments to unfold. In this regard, Condmag signed significant contracts over the course of the last twelve months with both Romgaz and Transgaz (aprox. RON 351m in total).

Operating result is expected at RON 4.0m in 2Q09, down 26.5% q/q and 34.7% y/y. We expect the operating result to come under pressure from increasing raw material costs and personnel expenses. As a result we expect the operating margin to decrease from 15.6% in 2Q08 to 9.5% in 2Q09.

Financial result is expected at a RON 0.4m loss in 2Q09, up 92.3% q/q and versus a nil result in 1Q08. Condmag has a relatively low leverage ratio (22% net debt-to-total assets) and its cash position increased after 1Q09.