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The net income of Sollers (former Severstal-Avto) in 1H 2008 under IAS had increased +20% to 59 mn USD, reported Mikhail Sobolev, company’s financial director this Wednesday. Company’s revenue increased by 41% and formed 1.262 bn USD. EBITDA added 37% and reached 152 mn USD.

Regarding Sollers’ effectiveness: it should be noted that 6 months 2008 results indicates that it has fell down. EBITDA margin formed 12.1% vs 12.4% over the same term of year 2007, net income margin totaled 6.4% vs 7%. A fall of effectiveness is temporary and could have been triggered by the expenses, brought on by the launch of new projects, for example the launch of a plant in Yelabuga.

Company’s management mentioned several key-moments of this period. The first moment is a signing of several agreements, particularly, concerning Fiat Linea, the production of which will begin on December 2008. Moreover, the company signed an agreement on production of diesel motors (FTP), which determines the production of F1A motors for Fiat Ducato, UAZ Patriot and some other cars, among of which could be IVECO as well. The company plans to launch the production next year, with total output about 90 th cars per year. It should be mentioned that the company has started selling Fiat Ducato this year, which can compete with Gazel and Maxus. Sollers has ambitious plans towards this project. Moreover, the company started selling agricultural and construction vehicles. Today this segment is one of the most promising among other business segments.

Over 2H 2008 Sollers’ management expects that EBITDA margin of Fiat model can increase. It related to exchange rate effect, i.e. the payments for this model settled in EUR. However, EBITDA margin of Ssang Yong is expected to be lower, because this model is purchased with USD. According to 2008 results, EBITDA margin can form about 11-11.5%.

We see company’s activity as positive. Taking into account new data, we have reviewed financial model of the company and increased forecasted price of Sollers’ stocks by 16% to 94.9 USD per common share. Taking into account a fall of fund market, a growth potential of company’s stocks significantly increased. We confirm our previous “BUY” recommendation on company’s securities.

Sollers: 1H 2008 results - September 19, 2008 (PDF Stock Market)

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