Albalact Shares Down 70% In 2008

Albalact - Alba Iulia shares (ALBZ) have dropped over 70% since the beginning of the year to 0.204 RON/share on Friday. Brokers say that the trading volume of ALBZ shares has been normal recently, with the exception of the purchases made by the investment fund RC2 (Cyprus) Ltd., which consolidated their holding in October to 23.23% of the share capital, from 17.28% at the end of June.

October"s low was around 0.15 RON share, while November brought a slight growth to 0.2 RON/share. The next major milestones were 0.25 RON/share and 0.30 RON/share. Estinvest"s Alin Cucos believes that one of the problems reflected by the company"s financial reports for this year consists of rising operating costs, i.e. 190 million RON annualized for the last four quarters, as opposed to 100 million RON and 160 million RON in 2006 and, respectively, in 2007. The increase in operating costs was triggered by green field investments at the company"s proprietary production facilities in Oiejdea.

Cucos added that the annualized operating results reported in Q3, i.e. 3.5 million RON, was by 60% lower than last year"s EBIT. Financial losses in the amount of 5.2 million RON are another weakness in the financial reports. In the first three quarters, Albalact paid interests of 2.06 million RON, but the times-interest-earned indicator was only 1.3.

According to Cucos, the company"s profitability has been declining for the past four quarters (the annualized loss in Q3 is 1.45 million RON), so the current market price of ALBZ shares is justified, considering also the other vulnerabilities mentioned above. "The Romanian dairy market, which reached 1 billion EUR last year, is becoming increasingly competitive, one of the factors being the very strong growth of the latest player, Tnuva. The impact of the ongoing international crisis should not be too hard, considering that the foodstuff sector is normally better prepared for economic decline," Cucos added.

Brokers believe that the domestic dairy industry will consolidate through a number of strategic partnerships and that a business development policy is necessary in order to better deal with the competition. Daniela Ropota, an analyst with Intercapital Invest, investments require further operating costs, which affect margins, but the medium- and long-term benefits are quite important. She added taht Albalact"s profit margin in Q3 was 0.74%, down from 5.09% year-on-year. The turnover increased by 20%, but the operating profit amounted to only 2.7 million RON, approximately three times less than in Q3, 2007, amid a 28% increase in operating costs. Albalact recently acquired Suceava-based dairy company Raraul and thus secured new markets and the opportunity to develop cheese production. Albaiact also intends to relocate production from Alba Iulia and sell the land they have there. Albalact has a share capital of 65.27 million RON, divided into 652,708,867 shares with a face value of 0.1 RON.

Albalact - Alba Iulia is listed on RASDAQ Tier III since 19 November 1996. According to a report dated 30 June, Petru Ciurtin holds 31.74%, followed by Petru-Raul Ciurtin with 14.22%, RC2 (Cyprus) Ltd. with 17.28% and free float - 36.77%. Albalact is one of the top five dairy producers in Romania. In addition to the Albalact brand, the company is also known for the yoghurt, milk and sour cream product families Zuzu and Fulga.