On November 14, GAZ Group published its 1H 2008 financial report audited to IFRS. In the reporting period, the company’s revenue rose by 30.6% y-o-y to USD 3.92 billion, operating profit (EBIT) grew by 3.1% y-o-y to USD 228.3 million, and net profit went down by 6.8% y-o-y to USD 118 million.
Table 1. GAZ Group: key y-o-y IFRS financials 1H 2008, USD million
| | 1H2008 | 1H2007 | Change |
|---|
| Revenue | 3,392.0 | 2,596.8 | 30.6% |
| Cost of production | 2,772.9 | 2,076.7 | 33.5% |
| Gross profit | 619.1 | 520.0 | 19.0% |
| Gross profit margin | 18.3% | 20.0% | - 1.7 p.p. |
| Business expenses | 94.8 | 81.5 | 16.3% |
| Administrative expenses | 256.5 | 187.1 | 37.1% |
| EBIT | 228.3 | 221.5 | 3.1% |
| EBIT margin | 6.7% | 8.5% | - 1.8 p.p. |
| EBITDA | 311.4 | 289.7 | 7.5% |
| EBITDA margin | 9.2% | 11.2% | - 2.0 p.p. |
| Net profit | 118.0 | 126.5 | -6.8% |
| Net profit margin | 3.5% | 4.9% | - 1.4 p.p. |
Source: company data, Finam estimates
On the downside, we note the growth in the company’s production costs compared with revenue, which was primarily caused by a rise in steel prices. As a result, GAZ Group’s gross profit margin dropped 1.7% to 18.3%. A considerable rise in administrative expenses, which grew by 37.1%, was also negative news. We believe that the company will have to optimize its expenditures in view of the financial crisis and do not expect the situation to change for the better in the near future.
We expect that in 2H 2008, GAZ will face a substantial fall in demand for its main products, LCVs and trucks, which could be caused by the inaccessibility of leasing resources and credit schemes. We note that up to 50% of the company’s goods have been purchased with credit resources. GAZ Group has already had to stop its assembly line due to a drop in demand, which should have a negative impact on the company’s financial results. However, we believe that amid slackening demand and problems attracting floating assets, the decision to stop the assembly line was sensible.
In line with our estimates, the fair value of GAZ Group commons is USD 57 per share, which implies a 246% upside potential and corresponds to a Buy recommendation. The fair value of the company’s prefs is USD 31.4 per share with a 116% upside, which also corresponds to a Buy recommendation.
0.244
0.616
