KGHM: Audited 2005 earnings in line with expectations

Yesterday, KGHM published its 2005 annual report, revealing additional provisions, created for tax liabilities and other items, amounting to PLN 97m on the EBIT line, close to what has been expected. The provisions reduced the earlier reported (in the 4Q05 results announcement) net earnings figure of PLN 2.37bn to PLN 2.29bn.

Out of this amount, the management proposed paying out in dividends PLN 700m, in line with the company’s stated policy of a 30% payout ratio. The dividend amounts to PLN 3.5 per share, would result in 4.5% dividend yield.

As the news on the actual figure of additional provisions and the proposed dividend are in line with expectations, it should not affect today’s trading, we think. Nonetheless, we expect KGHM to follow copper price movements, which gained 2.6% to $/t 5240 on LME yesterday.

Going forward, we anticipate more volatility relating to any supply disruptions, as the latest ICSG report revealed 98% global mining capacity utilization in December 2005. The recent accident in Grasberg mine, the world’s second largest, left production unaffected, according to the reports. We reiterate our Hold rating for KGHM with PLN 69.2 fair value estimate.