Marfin Egnatia Financial Services have issued a price target of EUR 1.62 on Logicom Pcl (LOG) following the release of the 9M07 results with a “buy†recommendation compared to current prices of EUR 1.20, indicating a 35% potential return on investment.
Logicom recorded a satisfactory increase in bottom line figure of 19.2%yoy to EUR 5.35mln compared to EUR 4.4 mln a year ago in the same period. The key driver of profitability was the increased volumes in the markets of Greece, Dubai and the new markets of Turkey and Italy.
Revenues marked a considerable improvement (+30.2%yoy) to EUR 238.7mln, with local revenue rising by 23.4%yoy. Revenues from foreign markets, which were suboptimal in 1Q07 (-1.7%yoy), marked a considerable improvement (+31.5%yoy) due to higher volumes originating from the expanding markets of Greece, Italy and Dubai.
Marfin Egnatia have made some minor adjustments in their top line figures, as some markets performed above management’s expectations (i.e. Greece, Italy, Dubai and Turkey). Dubai’s unsatisfactory performance recorded in 1H07 seems to have been reversed in 9M07, whilst the Greek, Italian and Turkish markets continued improving their business quite significantly during 9M07. LOG’s strategy to expand overseas in larger and under-penetrated markets continues to underpin expectations for higher
growth rates in revenues (CAGR06/09 in foreign markets: 19.9%).
At the gross profit, as competition gets tighter in some established markets and as new markets become more penetrated, margins will be fairly squeezed, notes Egnatia. Despite the change in LOG’s sales mix, especially in Greece and Turkey, towards more value added products (high yield), the sharp drop in the local market in both the distribution and services division as well as the introduction of new lower yielding countries led them to revise their gross profit margins lower.
No major adjustments were made to revised bottom line estimates for 2008 and 2009, whilst for 2007 the net profit is revised marginally lower (-2.1%) due to lower profitability margins. CAGR06/09 is expected at 15.3%, whilst net profit in 2009 is expected at CYP 5.15m by FY09 (unchanged). Egnatia’s new EPS stands at CYP 0.0627 in 2007, CYP 0.0730 for 2008, whilst for FY09 EPS stands at CYP 0.0759.
Following the September rights issue, as from 2008 the Company’s number of shares will increase to 67,906,300 ordinary shares (vs. 61,733,300 previously). Following the above share capital increase, EPS dilution is estimated at c.10%.
On 2 July 2007 the Company announced the commencement of operations in Hungary, Romania, Bulgaria and the Kingdom of Saudi Arabia for the distribution of its technology products.
On 28 September 2007, the Company issued 61,733,000 rights to LOG shareholder, a the ratio of 1 right for each 1 LOG share of CYP 0.20 (EUR 0.34 ) held. For every 10 rights exercised at the exercise price of CYP 0.65 (EUR 1.11), each shareholder will receive 1 new ordinary LOG share and 1 share warrant. Additionally, each share warrant exercised, will be converted into 1 LOG share with the exercise price been set at the lower price between EUR 2.00 and 75% of the average closing price of the share during
the last 60 days from the date of announcement of the exercise price. The trading of the share warrants would commence on 7 Junuary 2008, whilst the exercise date of the share warrants is set between 20-31 October of 2008, 2009 and 2010.
The above decision falls in line with LOG’s expansionary strategy and aims to increase the Company’s ability to expand its operations further and penetrate into the new highly promising European markets to a greater extend.
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