Softbank: 4Q05 figures out today after session

Today after the session Softbank is scheduled to publish the figures for 4Q05 which we believe could at least slightly disappoint the market. We perceive the market’s sales expectations of some PLN 252m as realistic although they imply some 10% y/y growth versus a very good 4Q04 results. Top-line growth should mainly stem, as we see it, from consolidation of three companies acquired in 2H05: Koma could add up at least PLN 80m (ap. value of its hardware contracts with the ministries), Incenti and Gladstone some PLN 6m each. At the same time PLN 6.2m should be missing due to lack of Epsilio (sold to Asseco). In terms of sales splits we expect the public administration line to show higher growth than the finance and banking line mainly due to higher year-to-year hardware contracts.

We would expect the sales split to negatively influence the EBIT line as gross margins in finance and banking are far higher than on public administration. Furthermore, we believe that some additional cost base should stem from merging with acquired companies, especially joining the operations of Softbank Servis with Koma. Therefore, we expect the EBIT for 4Q05 to be substantially worse than market consensus. At the same time, Softbank should show net income for 4Q05 higher than EBIT. This should come, as we see it, from the valuation of embedded financial instruments that should result in FX gains as year-on-year the PLN/USD was more favourable for the company. Even though we believe that the net income for 4Q05 could come below market’s expectations.

We would also like to draw the attention to Softbank’s 4Q04 results that should change dramatically due to IFRS adjustments and we believe that instead of some PLN 20m income we could even see a loss. Therefore, the figures for 4Q05, although uninspiring, could look better due to low comparable base. Nevertheless, market consensus suggestS EBIT to be higher than net income; as we expect an inverted relation, we believe this discrepancy could cause at least some negative trading impact.