Orgachim – One Year Later

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Orgachim – One Year Later

Rousse-based Orgachim specializes in the manufacturing of paints, varnishes, glues, resins, anhydrides and other chemicals used in machine building, in the electronic industry, in the construction sector and in plastics processing.

Orgachim is controlled by Malta-registered Whitebeam Holding, which owns 64% in the paint and varnish maker. The actual owner of Orgachim is Romania's Policolor. All other shareholders own less than 5-percent stakes in Orgachim.

 

NameShares%
Whitebeam Holdings322,8664,21%
VPF Doverie 61,19%
PPF Doverie 7,841,56%
UPF Doverie23,344,44%
Advance Invest8,031,06%
Mei-Roemenie En Bulgarije Fonds16,583,30%
RC2 (Cyprus) Ltd11,922,37%
Other legal entities under 1%61,2812,93%
Individuals – 190244,978,94%

Orgachim sells mainly finished products, as well as raw and semi-finished materials for the chemical industry.

The prices of the raw materials are extremely dependent on the prices on international stock exchanges. The difference between the cost price of the material and the end product is very dynamic. The domestic market accounts for the bulk of Orgachim's product sales revenue.

Orgachim's major markets for raw materials and semi-finished products include Turkey, Romania, Egypt, some Middle East countries and Central Europe.

Orgachim will set Ukraine as a priority in 2008 as far as exports are concerned, the company said. The company operates a representative office in Ukraine, jointly with Romania's Policolor.

Due to the correction of the Bulgarian Stock Exchange (BSE) over the last five months, Orgachim's stock depreciated by 44%, compared to the all-time high of 836 leva per share set on October 8, 2007. Nevertheless the stock price of the company rose more than three-fold in the last 12 months, which makes Orgachim one of the most profitable investments on BSE (especially among the blue chips).

Orgachim's sales revenue marked a 27-percent year on year increase in 2007. This is a slow down compared to the 32.92% and 30.4% growth recorded in 2006 ad 2005, respectively. The exports of the company accounted for 56% of the sales in 2007.

 

Mln Leva200720062005
Exports69,4154,4841,51
Domestic market54,443,0931,89
Sales of output43,2635,9125,74
Sales of products7,623,521,82
Sales of services1,990,720,41
Other sales1,542,953,92
Total123,8197,5773,4
Growth26,90%32,92%30,40%
Share of exports56,06%55,84%56,56%

Policolor and Orgachim signed a framework contract in 2003 under which the Rousse-based company ships its output to its Romanian owner (at market prices and under conditions set by the company). These sales amounted to 25.21 million leva in 2007 and accounted for 20% of the overall sales of the company.

Despite the growth in revenue, the profit of the company went down by 35% to 5.13 million leva. The decline may be put down to the 3.054 million leva costs of the company related to deferred corporate taxes.

Another reason for the decline are the amortization costs of the company which went up from 1.836 million leva to 4.904 million leva following а revaluation of the assets. As a result a long-term asset revaluation reserve in the amount of 48.273 million leva was established.

The positive financial effect of the company from a discount on an early loan payment under the ZUNK stood at 2.11 million leva.

Orgachim's operating profit (similar to the EBIT indicator) totaled 8.656 million leva, up by nearly 56% year on year. If the amortization costs are extracted, the EBITDA* of the company amounts to 13.58 million leva, up 83.6%. (*another form of the financial reports, applied in the USA, is used in the EBITDA and EBIT calculation. The figures given here are approximate).

Nevertheless, the margins of the company are not impressive. Orgachim's profit margin (profit/sales) went down by 4% in 2007, while the operating margin of the company rose to 6.8%. The revaluation of the assets resulted in a decrease in the return on capital and assets due to the considerable growth of the latter.

 


2007Growth2006
Assets108102116,79%49865
Equity capital68026365,17%14624
Liabilities3961411,51%35525
Total revenue12723219,73%106268
Profit5129-35,02%7893
Operating profit865655,71%5559
EBITDA 1358483,59%7399
EPS 10,2
15,7
BV135,29
29,08
Profit margin4,03%
7,43%
Operating margin6,80%
5,23%
RoA4,74%
15,83%
RoE7,54%
53,97%
Gearing ratio0,58
2,43

The considerable growth in the assets and the equity capital of the company may be put down to the revaluation of the assets. The establishment of a reserve will allow the company to raise its capital with own funding, which some stock market speculators regard as a sign for buying the stock.

Orgachim's liabilities grew by 11.5% 39.6 million leva for the 12 months, but the gearing ratio of the company went down to 0.58 as a result of the equity capital growth.

Orgachim's market capitalization as at March 5 amounted to 236 million leva (nearly twice the market capitalization of Policolor), compared to 74 million leva a year earlier. The appreciation of the stock and the decrease in the net profit resulted in an increase in the Р/Е ratio (price/earnings) to 46, as well as the P/S ratio (price/sales) to 2.22. Orgachim's book value per share grew to over 135 leva as a result of the above mentioned revaluations.

 

Indicators05.03.200705.03.06
Price as at March 5469,46148
Market cap236,174,4
SPS211,35211,34
EPS10,214,84
BV135,2928,22
P/E46,039,98
P/S2,220,7
P/B3,475,24

Part of Policolor's traditional paint and varnish production was transferred to Orgachim in 2007, due to the growth in the output of the Romanian plant and the need for providing additional output capacity for new products.

Orgachim will launch a wet sand drying installation with an operating capacity of 3.5 tonnes per hour. The launch of the facility is aimed at reducing the cost value of the dry construction mixtures manufactured by the company.

The long-term goals of Orgachim's managerial team include retaining the company's market share, tapping into new markets through the establishment of new brands and series of products, as well as setting foot on the European market. The company already opened representative offices in Turin, Italy and in Skopje, Macedonia and established limited liability companies in Italy, Ukraine, Serbia and Georgia.

There is a stiff competition on market for paints, varnishes and glues and the preferences of the consumers vary. The flexibility of the companies regarding the timely reaction to the changes is of crucial importance to retaining and expanding their market share. These products are marketed mainly due to their low price or high quality, but the established image and th brand, as well as the well-developed distribution network are also of great importance.

Orgachim plans to stick to its long-term marketing strategy and especially to its broad advertising campaign. Investments in market surveys, the monitoring of how Orgachim's products are accepted by the clients and the reaction of the competitors will be considered a priority.

Some 30% of Orgachim's output is sold on the consumer market. The remaining output goes to the industrial market. The risks for the company are related to a great extent to the construction sector.

There has been a boom in the construction sector both in Bulgarian and in the region in the recent years, which contributed to the successful performance of the Rousse-based company. There are certain signs of saturation of the domestic housing market, which could have a negative effect on the construction sector and subsequently on the consumption of Orgachim's products.

This slow down will have a deferred effect and Orgachim's financial reports in 2008 should be monitored closely. The question is whether the company will maintain the sales growth from the recent years or a slow down will follow.

The article is not a recommendation for buying or selling stock. As of the day of publication the author does not own stock in Orgachim.

 

 

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