Marfin Egnatia keeps Louis target unchanged

Louis Plc released a lower set of FY07 results with bottom line profitability down by 39.9% yoy to EUR 12.9m (CYP 7.5m). Revenues marked a suboptimal increase of 1.4% yoy to EUR 314.7m (CYP 184.2m), whilst EBITDAR was recorded at EUR 56.8m (-23.9% yoy) owing to the elevated expenses associated with short term chartering of other vessels to replace the ‘Sea Diamond’. There was a positive impact of EUR 20.9m on the bottom line representing one-off before-tax gains from: (1) the disposal of 57% of the share capital of ‘CTDC’ to MIG Leisure Ltd and (2) the disposal of 62.5% of the share capital of Gerani S.A., the owner of ‘Louis Creta Paradise’. The bottom line was also positively affected by EUR 2.9m (vs. EUR 6.3m in FY06) representing FX-translation gains.
Following the release of LUI’s FY07 results and our communication with the management, we have proceeded to roll over our explicit estimates up to 2010 and at the same time we have adjusted our estimates upwards on the back of higher cruise revenue estimates as well as incorporating for the group’s significant change in its debt structure following the acquisition of two ships.
Marfin Egnatia upgrade their cruise business top line to accommodate for the two recent ship acquired under a bare boat charter agreement. These ships representing c. 44% of the fleet’s total births of chartered ships deployed in 2008. The contribution of the two ships is estimated at c. EUR 19m in 2008, c. EUR 49m in 2009 and EUR 67m in 2010.
In 2008, LUI operates with a different fleet number vs. FY07. During 2008, LUI will deploy 3 ships out of Greece (vs. 4 up to 2007) and 2 ships out of Cyprus (vs. 3 up to 2007), whilst the Group already withdrew 2 low capacity ships from its fleet. Additionally, cruiser ‘Ivory’ (being deployed out of Cyprus), which is included in 2008 itineraries, would also be removed from LUI’s fleet in 2009.
In the hotel division, the lower number of hotel units in operation in FY08 would negatively affect revenues from the Greek market. In the local market, the disposal of the share capital (c. 57%) of the CTDC, will also hit revenues for the years ahead. LUI is in the process of developing its hotel business in Egypt (has already entered a management contract of the ‘Louis Tiran Sharm’) and will commence operations by November 2008. The management anticipates a contribution on the top line of c. EUR 4.0m in FY09
All in all, our revised bottom line figures (after minority interest) for FY08 comes in marginally higher (+4.5%) compared to our previous estimates (offset by elevated finance charges), resulting from the additional expected revenues from fleet reshuffling and in particular from the new chartering of ships. Going forward, 2009 bottom line figure is significantly upgraded compared to our previous estimates (+23.7%). We estimate a 25% CAGR07/10 in net profit reaching EUR 20.4m in FY08, EUR 27.1m in FY09 and EUR 31.7m in FY10.
Using the Sum of the Parts (SOTP) valuation methodology and accounting for: (1) the upgraded profitability of the group, (2) the lower peer multiples used and (3) the group’s surging debt structure, our revised Target Price remained unchanged to EUR 0.72 per share. This implies a 31% upside potential from the stock’s current price and thus, Marfin Egnatia’s recommendation is maintained to Buy.