May
27
We revised our fundamental estimation of Power Machines considering the results of 2008. Note, last year was completed by the company rather positively. Sales of the Power machines added 70.4% and totaled 1.3 bn USD. At the same time the expenses of the group grew less aggressively, which in the end leaded to net profit in the volume of 85 mn USD versus 304 mn USD loss a year before. EBITDA of the company formed 104 mn USD versus loss before tax and amortization amounting 193 mn USD in 2007. EBITDA margin totaled 7.9%, net profit margin – 6.5%. Note that the company did not gain profit within the past 4 years.
Income of Power Machines last year grew mostly on behalf of the domestic consumers. Sales from the Russian customers has almost doubled versus 2007 to 935.8 mn USD, and a share of Russian consumers in the regional structure of sales grew up to 71% versus 53% a year before. In 2008 the order portfolio of Power Machines increased by 83% to 3.25 bn USD. The positive trend remains in the current year: by the results of 1Q 2009 the portfolio added another 4.8%.
The fact that Power Machines entered 2009 with light debt load is very significant. The financial leverage in 2008 formed 0.72 versus 1.35 in 2007. Credit portfolio of the enterprise reduced within the previous year by 22.6% to 133 mn USD. Net debt of Power Machines in 2008 was negative and formed 195 mn USD, which indicates a proper level of cash assets at the enterprise’s balance.
We assume this year the positive dynamics of Power Machines’ financial estimates will remain: the orders with due dates in 2009 have been placed in 2007-2008 – before the crisis. In the prospect the impact of the crisis will also not be that ultimate. The government insists on execution of the investment programs by the energy companies, which will affect the orders to Power Machines directly. Nevertheless, we stick to moderate scenario in our forecasts, basing on the matter that introduction of new capacities in coming years will slow down and will be significantly lower, than provided in the general layout.
Due to updates we estimated the cost of Power Machines at the level of 1.26 bn USD, which relates to 0.145 USD per common shares of the enterprise. So, our target price grew by 16%. According to the current market quotes that provides for 65.24% growth potential. Due to that we up our recommendation from SELL to BUY for the shares of Power Machines.
Power Machines: Signs of revival - May 27, 2009 (PDF)