Cyprus Trading Corporation Plc released its 1Q07 results with Net Profit after Minority Interest reaching CYP 867k (+45.6% YoY), 5.7%. The negative contribution of Minority Interest, however, decreased bottom line profitability by 2.8% YoY to CYP 619k.
Revenues surged by 78.8% YoY to CYP 56.8m (2.2% above our estimates) and is primarily attributed to: (i) higher sales in all classes of business, especially from retail (+216% YoY), and (ii) the consolidation of the revenues of Ermes Department Stores. On a like for like basis, (i.e. excluding Ermes Department Stores Pcl, CTC-ARI Airports Ltd and FashionLink S.A.), revenues advanced by 15.9% YoY to CYP 36.7m.
Following the release of 1Q07’s results, and communication with the management, Marfin Egnatia have proceeded to roll over our implicit estimates up to 2009 and at the same time make some adjustments to previous forecasts to capture the recent changes in the Group structure occurred.
The reclassification of CTC-ARI Ltd from a subsidiary to an associate company, led to some changes in CTC’s P&L. Beyond FY07, the impact from the reclassification would be mitigated as a result of the larger growth arising from Ermes. The additional Ermes shops/stores planned to operate in 2007 and 2008 would counteract the effect of the change in the reclassification of CTC-ARI with respect to gross margin and EBITDA. This is due to: (a) the higher yields offered by Ermes vs. CTC-ARI, and (b) the higher volumes of Ermes vs. CTC-ARI.
All in all, Marfin Egnatia estimate net profitability after the adjustment for minority interests for FY07, to remain marginally lower at CYP 7.19 mln (-0.9% vs. previous estimate), whilst further upgrades vs. previous estimates is anticipated beyond 2007. Marfin Egnatia thus anticipate the bottom line and EPS to grow at a 3-year CAGR of c. 34%.
CTC’s ‘Operational’ activities after adjusting for debt and minority interest, yield a Target Price of EUR 1.48 per share, whilst the value of its investments yields another EUR 0.52 per share. Thus, the SOTP Target Price stands at EUR 2.00 per share (vs. EUR 1.75 p.s. previously), still yielding an upside potential of 10%. “Our previous Buy Recommendation is thus changed to Accumulate. Based on our Target Price, CTC yields a 2008 target P/E ratio of 10.5x. We have also calculated that the additional value to CTC shareholders from a possible 60-65% acceptance rate for FWW would range between EUR 0.14 and EUR 0.18 per share. This would offer a further upgrade to our target price of 7.0% and 9.0% respectively,†conclude Marfin Egnatia in their research note dated July 12.
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