31/7/14

Market Comment - In the Spotlight by Manos Chatzidakis

Market Comment

Greek stocks eased on Wednesday, in subdued trading conditions as the market is entering its traditional summer lull. General Index fell 0.10 pct to end at 1,194.78 points, off the day’s lows of 1,182.54 points. Turnover was a low €74.4 mn. As July ends today General Index is lagging 1.6% since the beginning of the month. Results announcements may increase selective interest today along with some forward looking on next week’s H1 scheduled announcements. Given the low trading activity we don’t expect significant volatility in today’s session and market may consolidate at current levels.
After market hours Titan cement announce its Q2 results while Moody’s is expected to announce its credit rating on Greece tomorrow.

In the Spotlight

Greece: Trading in credit-default swaps tied to Greek government bonds has been reported by the Depository Trust & Clearing Corp. for the first time since the country undertook the biggest sovereign debt restructuring more than two years ago. There were 74 trades covering a gross $165 million of Greek debt last week, according to the DTCC, which runs a central registry for the market and publishes data for the 1,000 most- traded entities. A total of 292 contracts protecting a net $505 million of bonds are now outstanding, the data show.

Greece/Hellenic Petroleum: The EU commission approved the sale of DESFA to Ajeri Socar under certain conditions. The commission want the voting rights of Socar to be reduced every time the company break EU rules. The sales is expected to be completed by early October. Recall that Socar will pay EUR 400mn for the 66% of the company with c. EUR212mn going to Hellenic Petroleum.

Plaisio (Results H1 2014): The Group's turnover for the first half of 2014 amounted to € 143,291 thousand vs € 131,541 thousand in the corresponding period of 2013, posting an increase of 8.9%. The second quarter of 2014 was the third consecutive quarter with increase in sales. The significant improvement is mainly attributed to the favourable product mix (private label with higher margins) and market share increase in various market segments.

Key points:
¡  Computers and  digital applications amounted to € 82,549 thousand posting an increase of 12.6% compared to the same period of  2013 reflecting 57.6% of total Group sales (6M 2013: 55.7%).
¡  Telephony amounted to € 18,014 thousand representing an increase of 6.5% compared to the same period in 2013 and contribute 12.6% of total Group sales (6M 2013: 12.9%).
¡  Office supplies  amounted to 41 754 thousand €, an increase of 4.1% over the first half of 2013, contributing a percentage of  total sales 29.1% (6M 2013: 30.5%).
¡  Service revenues amounted to € 973 thousand and other income  amounted to 35 thousand.
¡  EBITDA margin is improved to all three main segments with the highest margins in the Office Equipment and the Telecom Equipment segments.
¡  Profit Margins remained relatively high in second quarter with EBITDA margin at 7.34% (-20bps) and net margin at 4.37% (+11bps)
¡  On the flip side Operational cash flows are negative by almost € 7 m., due to the reduction of the vendors’ balances (by almost the same amount), affecting positively cost of sales of the goods.  Flows from financing activities are also
¡  negative by roughly € 6,6 m., one third of which is due to the decrease of the long term borrowing and the other two thirds due to the payment of the dividend.
¡  Cash and cash equivalents on 30.06.2014 came up to € 38,4m., while banking debt is reduced to €12.1m. Plaisio is net cash by €26.3m
¡  We note that 2013 net earnings include a  positive tax effect of 0.8m.

We feel confident with our FY2014 estimate for sales of €298m, EBITDA of €26.8mn and net earnings of €17.3m as H2 traditionally accounts for 61% – 65% of sales and EBITDA.


Plaιsio
Results H1 2014
In thous. euro
2013
2014
Δ
Sales
131,541 
143,291 
8.9% 
Q2
62,547 
70,494 
12.7% 
EBITDA
8,416 
9,917 
17.8% 
(% Sales)
6.40% 
6.92% 
+52 bps 
Q2
4,712 
5,171 
9.7% 
(% Sales)
7.53% 
7.34% 
-20 bps 
Net Income
5,657 
5,800 
2.5% 
(% Sales)
4.30% 
4.05% 
-25 bps 
Q2
2,662 
3,079 
15.7% 
(% Sales)
4.26% 
4.37% 
+11 bps 

Hellenic Petroleum (Results H1 2014):  Hellenic Petroleum reported a weak set of results affected by adverse refining environment. Adjusted 2Q 2014 EBITDA came at €49m (vs 55mn consensus estimate) and adjusted net earnings reached -50mn (vs €-38mn in Q1 and -23mn consensus estimate). Despite the positive contribution of the Elefsina refinery and the improvement of its Marketing subsidiaries’ performance, both Greek and international, Group results were negatively affected by weak benchmark refining margins.
On reported results, operating performance and gains from inventory valuation led Reported EBITDA, to €53m (2Q13: -€25m), while Reported Net Results, which include €53m of financial expenses and €48m of depreciation were also improved at -€50m (2Q13: -€95m).

In specifics:

¡  Domestic Refining Adjusted EBITDA came at €9m (2Q13: -€11m) as Elefsina contribution, the improved operational performance of both Aspropyrgos and Thessaloniki refineries, as well as cost control, with fixed opex excluding maintenance 17% lower, offset the adverse refining environment. Total refined product sales amounted to 3.2 million tons, with exports maintained at 50% of total sales.
¡  Domestic market sales recorded a 2% increase, improving the Group’s market shares while exports, at 1.5m MT, remained at the same high level as a share of total sales (50%).
¡  Stronger Petchem margins vs 1Q13, cost control and high level of vertical integration between Aspropyrgos and Thessaloniki plants,  led to a 26% profitability increase with Adjusted EBITDA at €19m. (€17m, 1Q14).
¡  DEPA contribution to Group results at €5m (vs €9m in 2Q13), due to weak demand from IPPs.
¡  ELPEDISON posted EBITDA at €13m (+21% vs 2Q13).
¡  Net debt declined to 1.625bn vs 2.333bn in Q1 (-30%) on lower working capital needs (€3.751bn vs €4,505bn in Q1).

Overall another poor quarter in terms of profitability despite the improvement in working capital. We don’t ignore that market conditions remain adverse for the core business yet there is gradual and slow improvement to refining margins in the beginning of Q3. Catalysts for the stock are DEPA sale, increase in Med margins, stabilization in domestic demand and Elefsina full utilization. Market has incorporated most of these risks to current price yet we haven’t seen a related development apart from current Med margins increase that will enhance visibility.

Sarantis (Results H1 2014):  Sarantis released its H1/Q2 2014 group results yesterday, post market close, which came in broadly in line with our forecasts. In Q2, group recurring net earnings remained flattish at EUR4m (vs a drop of 19% in 1Q14) indicating a mild sequential improvement as Greece’s sound performance (sales recovery, strong efficiency gains) was largely offset by operating margin erosions in Poland and Romania.
The company will host a conference call today at 17:00 AST (Athens), 15:00 BST (London), 10:00 EST (New York). Conference Phone: GR +30 211 180 2000, FR +33 (0) 170 918 711, DE +49 (0) 69 2222 4493, IT +39 06 452 36 748, UK +44 (0) 800 368 1063, US +1 866 288 9315

Key points:
¡  H1 group sales grew by 4% y-o-y to EUR121m (1% above BETAe), rising 5% y-o-y to EUR122m at constant currencies.
¡  In contrast, H1 2014 group EBIT and clean net earnings (ex-EUR0.8m one off deferred taxation linked to ASTRID acquisition) posted declines of 3% and 7% y-o-y to EUR6.9m (vs BETAe of EUR7.1m) and EUR5.9m (vs BETAe of EUR6.1m, respectively. This rather small miss to our earnings forecasts call is largely attributed to lower than expected net financial income in Q2 2014 (EUR0.2m against BETAe of EUR0.8m).
¡  Q2 group sales were up 7% y-o-y to EUR70m (1% ahead of our estimates) thanks to a rise of 9% y-o-y to EUR41m in international markets, driven also by a home sales increase of 4% y-o-y to EUR29m - reversing first quarter’s negative growth trend of 3%. This top-line rebound in Greek operations may prove a game changer, in our view, acting as a key growth driver for the group. Recall that Greece’s April 2014 turnover index in retail trade advanced 3.9% y-o-y (+7.3% volume wise) - the first positive growth in retail sales since June 2010.
¡  In terms of Q2 2014 sales, Greece represented 42% of group total, while international operations 58%. Second quarter sales in Poland and Romania posted increase of 2% and 12% y-o-y to EUR18m and EUR10m, respectively, accounting for 26% and 14% of total.
¡  As expected, Sarantis group gross margin remained resilient in Q2 at 49.9% courtesy of better sourcing and lower production costs.
¡  Moving further down the P&L, Q2 group EBITDA and EBIT rose 1% and 3% y-o-y to EUR5.6m (vs BETAe EUR5.8m) and EUR4.7m (vs BETAe EUR4.9m), despite seasonally increased marketing (promotional) costs to boost demand for Sarantis products. Tellingly, Q2 selling expenses were up 11% y-o-y to EUR28m (representing 39.4% of sales against 38% in Q2 2013).
¡  Greek EBIT margin surprised positively gaining 110bps to 13.6% pushing domestic EBIT up 14% y-o-y to EUR4m, 13% higher vs our forecasts of EUR3.5m. On the flip side, international operations EBIT dropped 32% y-o-y to EUR0.8m (quite lower vs BETAe of EUR1.3m), albeit from a low base, hit by a significant margin erosion (down to 1.9% from 3% in Q2 2013), particularly painful in the key markets of Poland and Romania.
¡  Adjusting for EUR0.8m deferred tax linked to ASTRID’s recent acquisition, Q2 recurring EBT fell 12% y-o-y to EUR4.4m largely due to EUR0.3m financial expenses (compared wirth EUR0.4m net financial income in Q2 2013).
¡  In the same vein, clean Q2 2014 net earnigs were flattish at EUR3.9m, down 21% y-o-y to EUR3.1m at a reported level.

Titan (Results Η1 2013): Titan will report its 2Q/Η1 2014 results today after the bell. For the 2Q period consensus estimates call for sales of €331m increased by 4.0% on the back of strength in the US market (+13%) and Greece (+14%) that will offset weakness in East Mediterranean region (-25%). EBITDA should reach 62m decreased by -5.2% Finally, the Group is expected to record Net earnings of €10m vs. €5m the year ago period. FCF generation, Co2 emission rights and outlook for US and Egypt will be in the spotlight in the conference call following the announcement with financial analysts (18:00pm Athens time, 16:00 pm London time and 11:00 am New York time).
Conference call details:

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