ComputerLand has reported that the stand-alone net earnings for 2H06 should exceed PLN 17m, versus the PLN 20m forecasts. According to the management, the net earnings for 2H06 would have stood at PLN 18m (within the +/- 10% deviation that does not have to be signalized to the market), however a PLN 1m provision had to be created for risk stemming from one contract conducted. The downgraded forecast does not include the effects of consolidation of Emax via full method in 4Q06.
Our view: We believe the news should have a negative trading impact, not only because the forecast was downgraded, despite recent assurance about its feasibility, but also because this being the second year in a row with management downgrading the forecasts. We believe that ComputerLand management’s credibility that has recently started to rebuilt will be to a certain extent damaged again. Moreover, similarly to the previous year, the blame was put on the necessity to create a provision. We would also like to point to out that the PLN 17m net earnings in 2H06 will be achieved due to booking a PLN 3.8m one-off gain on sale of Russian subsidiary in 3Q06 figures. As a consequence we will have to cut our stand-alone expectations for ComputerLand for 2006 by 15%. However, on the consolidated level, we believe that the result could exceed the PLN 20m in 2H06, standing at some PLN 22.5m.