Fourlis firing on all cylinders ahead of IKEA Cyprus launch

Citigroup Global Markets Equity Research has increased its price target on Fourlis Holdings (FRLr.AT) following the announcement of the first half results and ahead of the opening of the IKEA store in Cyprus on September 6.

Under the title “Now Firing on All Cylinders – Strong 2Q” headline, Citigroup analysts described the second quarter results as another strong quarter. Sales increased by 33%, to reach EUR144 mln; EBITDA was up 49%, to EUR 17 mln, and net income increased by 130%, to EUR 10 mln – 20-40% ahead of Citigroup estimates and consensus.

In recent years the wholesale division of electrical goods has been the weak point of the results. This time round it has been the strongest, with sales growth of 58%, to EUR80 mln, and EBITDA up fourfold, to EUR 4.4 mln. Strong performance is due to sales of high margin air-conditioning units in Greece (helped by June’s heat wave) and the strong growth in Romania.

IKEA Remains the Group’s Engine: IKEA’s 14-15% sales and EBITDA growth in 2Q was in line despite EUR 2 mln of pre-opening costs. Slowdown from 30% sales growth in 1Q was expected, and we expect 3Q growth to pick up. This week, the first store in Cyprus opens, but Citi analysts feel that the second Athens opening plans may be pushed back by 1-2 months to January 2008, hence Citi’s reduction of 2007 EPS by 3%.

Upgrade 2008-09 EPS Estimates by 6% for the strong performance in the wholesale and Intersport divisions. The long-term upside remains with IKEA from economies of scale, new initiatives like royalty card / credit terms, expanded product range and on-line shopping (for islands).

IKEA Opening in Cyprus may feel heavy at 7.30 in the morning, starting with a Swedish breakfast, but investors should feel as light as after a Swedish massage with the smooth earnings momentum of Fourlis. “We increase our price target to €24.5 from €23.0 and maintain our Buy rating,” concluded Citigroup analysts.