On 14 February, Kety’s subsidiary Aluprof, initiated agreement with the State Treasury to purchase 85% of Metalplast Zlotow. One of the conditions precedent to sign the contract is signing a social package with the trade unions.
Our view: In our opinion, the information is positive for Kety, however expected and should have only slightly positive trading impact. Metalplast Zlotow is a major Polish producer of fixtures and fittings used in aluminium or wood joinery. According to Kety, the target’s sales revenues for 2005 came in at PLN 45m and net earnings at PLN 3-4m and decreased to PLN 1-2m in 2006. Kety’s strategy is to merge this company with a subsidiary Metalplast Karo, which supplies the aluminium profiles division internally with fittings and fixtures and has annual sales revenues of PLN 19m. According to Kety, fixtures and fittings are high-margin and constitute up to 30% of the value of aluminium profiles contracts. The acquisition would enable Kety to fully supply its needs internally and also sell to other entities. We would view this acquisition as providing a good opportunity to strengthen the competitive position of Kety, in the growing aluminium profiles business, and lengthen the company’s value chain. Given the highly competitive privatisation process, we would expect the P/E ratio of the Metalplast Zlotow transaction to be higher than in case of the acquisition of Aluprof (2005 P/E of 10.7x). Acquisition of Metalplast Zlotow is neither in our 2007 forecast nor management’s, however given the small size of the target and the fact that the acquisition should be completed only by midyear we do not expect a material contribution to this year’s earnings.