Daily analyst comments

Baltika releases positive FY 2008 financials


	Baltika

Capitalization: 5 432 130 162,85 $

Common shares
Price	31,50 $

Price changing
week	month	year
0,00%	-10,0%	186,4%

Preferred shares
Price	30,89 $

Price changing
week	month	year
1,3%	-8,1%	160,1%

20.02.09 10:47

We are upbeat on Baltika Brewery’s FY 2008 financial report. The company operates more efficiently than the market in general, and its strong market positions allowed it to boost sales in the reporting period. However, given the low liquidity of the company’s shares and the high volatility of its stock valuations in the last few days due to the publication of information about its dividend payouts, the report should not have any significant impact on Baltika’s stock valuations.

Baltika Brewery has released its FY 2008 financials. In general, the company outperformed the market in the reporting period: its sales in natural terms grew by 2%, while the beer market stagnated and sank 0.4%. Baltika’s sales in US dollar terms rose by more than 20%, primarily thanks to an upturn in average sales prices and its premium product portfolio.

Table. Baltika Brewery: Key Financials FY 2008, USD million

	2007	2008	Change 2008/2007
Revenue	3,087.7	3,718.6	20.4%
Cost of production	1,479.9	1,876.5	26.8%
Gross profit	1,607.9	1,842.1	14.6%
Gross margin	52.1%	49.5%
Distribution expenses	404.9	410.8	1.4%
Business expenses	362.5	424.2	17.0%
Administrative expenses	362.5	424.2	17.0%
Operating profit	737.3	895.1	21.4%
Operating margin	23.9%	24.1%
EBITDA	916.7	1,087.9	18.7%
EBITDA margin	29.7%	29.3%
Net profit	546.4	623.7	14.1%
Net margin	17.7%	16.8%

Source: company data, Finam estimates

We are generally upbeat on Baltika Brewery’s financial report. The downturn in the gross margin was caused mainly by a rise in excise duties of more than 32% and the rapid growth of commodity prices. However, the company’s strict cost control allowed it to outweigh the drop in the gross margin by optimizing its distribution network. In 2009, the company will remain under pressure from high commodity prices. Ruble weakening could also have a negative impact on the company, as about 30% of its raw material expenses are denominated in US dollars and euros.

We retain a positive view on the company. However, in our opinion, given the low liquidity of the company’s shares and the high volatility of its stock valuations in the last few days caused by the publication of its dividend payout data, the published financial report is not likely to exert any significant impact on Baltika’s stock valuations. In line with our estimates, the fair value of Baltika Brewery’s stock is USD 39 per common share and USD 29 per preferred share.

Sergey Filchenkov

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