Cyprus Trading Corporation Plc released its 1H07 results with Net Profit before Minority Interest reaching CYP 2.57m (+24.1% YoY), 4.2% below Egnatia Financial Services estimate of CYP 1.30m. The negative contribution of higher Minority Interest and the loss arising from discontinued operations (disposal of CDL), decreased bottom line profitability by 36.7% YoY to CYP 1.20 mln.
Revenues (excluding CDL results) surged by 98% YoY to CYP 112.2 mln (1.8% above estimates) and is primarily attributed to: (i) higher sales in all classes of business, especially from retail (+246% 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 14.8% YoY to CYP 65.1m.
Following the release of 1H07’s results, and our communication with management, Egnatia have proceeded to make some adjustments to previous forecasts to capture the recent changes in the Group structure occurred.
The introduction of Ermes in the Group coupled with the reclassification of CTCARI Ltd (from a subsidiary to an associate), led to some changes in CTC’s P&L. Operating profitability levels, exhibited a robust performance in 1H07, are likely to be sustained for FY07 as current local market conditions for retail trade continue to be on a rising trend. Higher finance charges and lower gains from associate companies lowered our estimate of bottom line profitability for 2008 and 2009.
All in all, Egnatia estimate net profitability after the adjustment for minority interests for FY07, to improve by 7.5% to CYP 7.73 mln, whilst beyond 2007 Egnatia anticipate that the bottom line would be marginally revised downwards. Overall, we anticipate the bottom line and EPS to grow at a 3-year CAGR of c. 31%.
CTC’s ‘Operational’ activities after adjusting for debt and minority interest, yield a Target Price of EUR 1.67 per share (vs. our previous estimate of EUR 1.48 p.s.), whilst the value of its investments yields another EUR 0.50 per share (vs. previous estimate of EUR 0.52 p.s.). Thus, the Target Price is revised upwards to EUR 2.18 per share (from EUR 2.00 p.s.), yielding an upside potential of 25%.
Egnatia says its previous Accumulate Recommendation is thus changed to Buy. Based on our Target Price, CTC yields a 2008 target P/E ratio of 11.8x. “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 Egnatia analysts in a research note dated September 6, 2007.
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