Prime Transaction: "The easing of monetary policy has favorable consequences for TeraPlast"

• "The company's approach is to increase its market share, at the expense of current profitability", say the brokerage house's analysts

• "It is possible that fiscal changes will occur in the period immediately following the elections; their effect on society will likely be negative, but it is impossible to quantify," according to Prime

The relaxation of monetary policy by central banks has favorable consequences for the TeraPlast company, directly influencing the cost of existing debts, but also the cheapening of potential new lines of credit, Prime Transaction analysts write in a report.

The team of the brokerage house points out that the first half of this year was full of challenges for the company, which is the largest processor of polymers in Central and South-Eastern Europe, which recorded a net loss of 6.6 million lei . "Despite this worrying result, TeraPlast reported a 34% increase in turnover compared to the first semester of 2023, reaching the value of 428 million lei," the attached report states.

Prime analysts add: "The situation the company is in can be seen as a compromise, choosing to sacrifice current results to strengthen its market position and achieve significant growth in the future."

According to the brokerage house's team, among the economic factors that influence TeraPlast's activity but are not under the company's control are: the evolution of the construction sector - which includes the majority of TeraPlast's clients, the evolution of inflation - which influences the prices of raw materials and recent legislative changes.

Regarding TeraPlast's internal strategy, Prime Transaction analysts point out: "The company's approach is to increase its market share, at the expense of current profitability. This type of strategy is common for companies with high growth potential, but it is up to each investor to determine whether TeraPlast falls into this category.

In addition to the aforementioned general direction, the company focuses on the following aspects:

- Reducing dependence on retail customers for the Window Segment, with a 38% increase in contracts with non-retail customers;

- Expansion on foreign markets, through the acquisitions of the companies Wolfgang Freiler and Palplast Moldova".

According to the Prime Transaction, in addition to the easing of TeraPlast's favorable monetary policy, the company also indirectly benefits from influences on the sector and the cost of raw materials.

"The construction sector is sensitive to variations in the cost of capital, most of the companies operating in this field use rather long payment terms, thus being forced to use credit lines to finance current activities until the date of collection of receivables", the Prime report states , in which it is added: "The costs of raw materials are directly influenced by inflation, determining the total expenses of society.

Last but not least, the Prime team emphasizes the uncertainty of the legislative framework, as it is possible that fiscal changes may occur in the period immediately following the elections, with the aim of covering the budget deficit, which is continuously growing.

"The effect of these changes on society will probably be negative, but it is impossible to quantify", the report also states.

Analysts draw attention to the fact that all the above estimates are speculative, as it is possible for some events to fundamentally alter the achieved results. "Therefore, it is up to each investor to feel the pulse of the market and adapt their decision-making process to macroeconomic changes and changes in trends, as they occur", points out in the attached Prime document.