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Alumil First Impression 2Q 2010: Not yet back into black

Aluminum profiles processor Alumil Rom Industry (ALU) released its 2Q 2010 results under Romanian Accounting Standards (RAS) and the key figures for 1H 10 results under IFRS.

We will comment the second quarter performance based on 2Q 10 RAS results and since our valuation model is based on IFRS consolidated figures we will use 1H 10 IFRS figures to cross-check our annual forecasts.

Sales stabilized: As we expected the drop in sales slowed down significantly compared to 1Q when ALU sales were practically cut in half yoy. Demand remained weak over the second quarter and sales revealed a drop of 26% yoy to RON 18.9 mn, which was just slightly better than our forecasts (-29% yoy). ALU operating profitability was hurt RON 0.7 expenses coming from the write of some receivables. Excluding the impact of these expenses, EBIT and EBITDA margins would have been in line with our forecasts. Financial losses of RON 1.1 mn from the revaluation of payables (95% of which are EUR denominated) sunk the bottom line into negative territory. Alumil posted a loss of RON 0.4 mn. Most likely these FX losses will be reversed over the next quarters as we expect RON to appreciate by the end of the year compared to end-June level.

1H 2010 results (IFRS): 1H sales are in line with the RAS figures and also with our forecasts, but the gross margin narrowed more than we estimated. Alumil reduced drastically G&A expenses (actual -35% yoy vs. our est. -10% yoy), more than we expected, which, however, did not compensate for the reduction in the gross margin. Consequently, EBIT remained negative at –RON 0.7 mn. Under IFRS losses were higher at RON 1.4 mn vs. 1H 10 RAS loss of RON 0.7 mn.

Outlook and recommendation: We are glad to see a qoq improvement in Alumil top line performance, which corresponds to the management guidance issued last quarter. We expect sales to continue to recover in the following quarters and costs to remain under control, which should translate into higher margins. Since the main differences from our forecasts were triggered by the receivables write-offs and FX losses (a part to be reversed in the next quarters) we consider the results as neutral. We maintain our hold recommendation for Alumil with the target price set at RON 1.86.

Sursa: http://www.rciro.ro

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