Vassiliko to hike cement prices

…Egnatia ups target price on higher profit forecast

Vassiliko Cement Works Pcl (VCW), Cyprus’ leading cement producer announced that it will proceed to hike cement prices effective October 1, 2006 to account for the continuous rise in energy prices, which the company incurred during the year. The price hike will affect all major types of cement, both on a retail and wholesale level. According to management, the annualised effect from the change in VCW’s pricing policy will result in a CYP 1 per ton rise in the local price of cement (export prices will remain the same).

Given that quantities of cement sold will remain unchanged, Egnatia Financial Services have fine-tuned their previous revenue estimates by adjusting VCW’s local pricing as follows:

Egnatia have adjusted the average local price of cement for FY06 upwards by 0.30 cent per cement ton to CYP 35.55 per ton, whilst the full impact will be booked in FY07 onwards (CYP 36.45 vs. CYP 35.75 previously). This leads to an upward adjustment of forecasted revenue expectations by 0.7% for FY06 and by 1.6% and 1.8% for FY07 and FY08 respectively.

At the profitability level, as stated in earlier reports, any price increases accommodated by VCW have a direct impact on the bottom line. Egnatia’s financial model indicates a 50bps increase in gross profit margin in FY06 (to 27.7%) vs. previous estimate, while margins for FY07 are upgraded to 29.5% and 30.9% respectively.

Overall, Egnatia have upgraded their FY06 net profit expectation by CYP 250k to CYP 8.39 mln, falling in line with management’s guidance. The new estimates for net profit of FY07 and FY08 were raised to CYP 10.3 mln and CYP 11.7 mln respectively.

Egnatia note that VCW’s prices are still well below EU averages and we expect further convergence towards EU levels in the next couple of years. Based on the above revisions Egnatia have revised higher their target price on VCW to CYP 1.66 (from CYP 1.60 previously) while the Buy recommendation is maintained.