While Waiting For The Q3 Figures, Analysts Turn Pessimistic: Few Listed Companies Will Report Growth

• Crisis seems to have spared food companies and State contractors

The financial crisis will take a heavy toll on the Q3 results of most of the companies listed on the Bucharest Stock Exchange (BSE), according to analysts, who expect that increasingly more companies will report declining figures. Nevertheless, they say that a return to profit is not impossible, as a result of cost cuts, which have not yet reached their full extent, judging by the results posted so far.

On international markets, however, some 74 per cent of the earnings reported by U.S.-based companies for the third quarter were above expectations, this being one of the best ratios between estimates and actual figures in the last decade, according to a report by Bespoke Investment Group.

From a domestic perspective, analysts believe that the crisis is far from over and that improvements should not be expected before the second quarter of 2010. "The general context is still negative, but estimates indicate that some stabilization has been achieved," Daniela Ropota, an analyst with Intercapital Invest, told BURSA. She believes that attention is currently shifting from cost control in the past few months to efficiency and production growth, while maintaining a watchful eye on spending.

"Generally speaking, companies tend to consolidate their business, so the financial status in the third quarter remained negative compared to the corresponding period of last year," the Intercapital Invest analyst added.

Paul Brendea of Prime Transactions also expects that Q3 results be weaker than in Q2, amid a general decline in turnovers. "The economic climate has deteriorated, so we will definitely see some decline in turnovers. A positive scenario would include better earnings, but definitely not better sales," Brendea told BURSA.

The measures taken by companies to protect themselves against the crisis continue to be yet another question and the Q3 earnings could fluctuate as a function of such measures, Brendea added. "The third quarter will be weaker than the second quarter and I believe that, overall, we will continue to see decline in the first quarter of 2010, too," Brendea said.

• Food industry, least affected by the crisis

Defence companies, whose sales do not normally fluctuate during times of uncertainty, and State contractors are the least affected by the ongoing crisis, analysts believe. "The most optimistic expectations are focused on the food industry and the companies that have secured firm contracts with the State," Cristian Alexa, an analyst with Broker - Cluj Napoca, told BURSA.

Condmag - Brasov became an example in this respect after having exceeded the profit forecast for the entire year 2009 only six months through the year. Natural gas transportation company Transgaz is another example, as its contracts with the State have led to a substantial improvement in the turnover budgeted for the current year. "The food industry will also be immune to recession and we may even see an increase in sales of milk and meat," Alexa further told BURSA.

According to the analysts, the heavy industries and the construction industry will continue to have the weakest results in the predictable future. Profit margins are likely to remain constant in the pharmaceutical industry, but turnovers may decrease. Banks might improve their performance but insignificantly, making trading results essential for sustaining financial performance.

On a macro-economic scale, investments decreased in the third quarter amid a slight depreciation of the national currency. However, lending picked up in August and September, after five consecutive months of recession. Studies indicate that industrial order intakes and production, as well as commerce and construction works, lost up to 25 per cent of the turnover, compared to the corresponding period of 2008.