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Kety: Disappointing 2006 guidance despite acquisition

2.2.2006 9:27
Autor: KBC/Patria

Kety’s management announced 2006 guidance, that we find disappointing, despite the inclusion of newly announced acquisition Aluprof. Kety targets 2006 sales at PLN 857.7m, which is 16% above our forecast, due to the consolidation of Aluprof (likely to begin from 1 February 2006). Should we exclude Aluprof’s PLN 100m sales, the implied difference stands only at 2.7%. Furthermore, Kety also targets 2006 net earnings at PLN 80m, which is some 1% below our forecast of PLN 80.6m. This seems disappointing, as it incorporates not only the newly acquired company but also an unrealistic aluminum price forecast of 1,900 USD/t. This price is by 17.4% lower than our assumption of 2,300 USD/t and 26% lower than current market price 2,577 USD/t. The currency assumptions seem reasonable and do not deviate by more than 2% from our assumptions. A remaining question is the extent to which management has assumed EBIT will be reduced by fire damage, where we have been more optimistic than management's worse-case scenario. Overall, we view the management guidance as disappointing and based on a too bullish aluminum price estimate. Should we incorporate the current aluminum price or the market consensus, the implied net income result would strongly deteriorate.

As far as the acquisition announced today is concerned, Kety acquired a 100% stake in Aluprof – the domestic leader in roller shutters and a producer of roller garage doors - for PLN 96m. Contrary to management’s earlier statements, we do not see Aluprof adding a 4th pillar to Kety’s business model. However, Aluprof’s products do offer higher value-added than the majority of Kety’s products and therefore should enable charging decent margins. Aluprof’s 2005 results (provided by Kety) show a substantial fall in both sales and earnings. Sales for 2005 should reach PLN 100m, which implies a 15% decline to 2004 sales of PLN 118m. The decrease in net income was even stronger, as in 2005, the bottom-line stood at some PLN 9m, down 40% y/y from PLN 15m in 2004. These poor results could have been a reason for the company being bought rather cheap – at a 2005 P/E of 10.7x (i.e. lower than Kety’s 2005 multiples of 13.6x).

Kety also published 4Q05 results that are in line with market’s and our expectations. These should not constitute a surprise for the market, as they conform to Kety’s December 2005 preliminary results announcement. In our opinion, the overall impact should be rather negative, as we do not expect the market to believe in Kety’s 2006 forecast and to start pricing in lower results. We will be revising our estimates based on 4Q05 results and management's 2006 guidance, after hearing more details at the analyst conference scheduled for 11am today.

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