Kety has announced its estimate for net earnings of PLN 25-26m for 3Q06 (drop of 6-10% y/y), which is 1-5% above our expectations. Sales came in at PLN 275m for 2Q06, up 39% y/y, which is 2% below of our expectation. As in the previous two quarters the growth drivers include extruded products and aluminium profiles businesses benefiting from rebound in the Polish construction sector spurred additionally by consolidation of Aluprof. As expected, operating margin worsened year-on-year, due to soaring aluminium prices and, we believe, lower profitability in the packaging segment. It however improved as compared to the previous two quarters. In 3Q06, the company has recognised, for the first time, a non-cash charge related to its management option plan, which amounted to some PLN 0.3m, much lower than our estimate at PLN 1.25m.
At the same time the company intends to revise its annual management guidance on 26 October, the day of releasing full 3Q06 report.
Our view: Both the results estimate and the fact that the management is going to revise its guidance are fully in line with our expectations. The results confirm the improvement in Kety fundamentals followed by the rebound in the Polish construction sector. We believe that all this improvement is now more than fully discounted in the current share price.