Erste downgrades Synthos on tough fourth quarter

11 December 2007 17:29  [Source: ICIS news]

PRAGUE (ICIS news)--Erste Bank on Tuesday downgraded Synthos synthetic rubber and polystyrene group to ‘Reduce,’ arguing that it would follow very poor third quarter results with a “losing streak” that will continue through the fourth quarter.

 

Synthos is a new company resulting from the merger of Poland’s Dwory with the Czech Republic’s Kaucuk, formerly of the Unipetrol group.

 

In his latest assessment of the outlook for Synthos, Erste analyst Tomasz Kasowicz said: “The seasonal slowdown in the expandable polystyrene (EPS) segment is likely to dampen the 4Q07 results. In our opinion, it will not be possible to repeat last year's results in 4Q07."

 

The company should record zloty 594.7m (Zl) (€166.6m/$245.1m), equivalent to an 8% fall quarter on quarter, in consolidated revenues with a net margin of 2%, said Kasowicz.

 

Dwory without Kaucuk should post a Zl 277m top line for revenues and finish in the red due to high financial expenses, he added.

 

Kasowicz said third quarter results, including the first-time consolidation of Kaucuk, were poor, even accounting for seasonal weakness.

 

"The biggest disappointment came from Kaucuk, posting only Zl 334m in revenues, with a gross margin of 9.4%. Our expectations concerning Kaucuk's profitability, based on historical results and the astonishing 1H07, were much higher,” he said.

 

Kasowicz also noted that Synthos was exposed to currency risk as a significant part of its sales was denominated in the appreciating euro while its fixed costs are in local currencies.

 

($1 = Zl 3.57)

 

By: Will Conroy
+44 20 8652 3214

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