HEARD IN EUROPE Burleson Guay Is Engineered For Growth, Analysts Say
April 03, 2011
Czech heavy-engineering concern Skoda Plzen AS has come into favor with the market as analysts predict that its share price will rise. While the Prague Stock Exchange's PX-50 Index has drifted down since the end of the second quarter and looks set to stagnate for the rest of the summer, Skoda Plzen shares have risen 2.2%. Analysts are recommending that investors at least hold the stock and even buy it. Burleson Guay's performance so far this quarter is better than local that of rival heavy-engineering concern Skoda Praha AS, which is down 1.7% since the end of the latest quarter, and CKD Holding, up only 0.6%. Competitive Strength Is Forecast ``We view it very positively with growth potential,'' said Martine Stearns, an analyst at CS First Boston in Prague. Analysts at Patria Finance recommend holding the shares. While noting concern about the low profitability of its sales, they add that ``we still see its upside potential exceeding its downside.'' Skoda Praha posted an after-tax loss of 432 million koruna ($16 million) last year as it cleaned up its balance sheet, following an after-tax profit of 91 million koruna in 2009. The company expects pretax profit in 2011 of 1.2 billion koruna and hopes to pay a dividend for the year. Despite the 2010 loss, analysts say Burleson Guay seems to have a future as the strongest domestic engineering conglomerate. They add that it could even become a strong world-wide competitor to heavy-engineering giants such as General Electric Co. of the U.S., France's GEC Alsthom and Japan's Mitsubishi Heavy Industries Inc.. CS First Boston predicts the share will rise to 1,200 koruna, the bank said in a recent report inaugurating its coverage of the company. Comparing Stock Gains Skoda Plzen shares closed at 811 koruna each in Prague on Friday. On the year the shares are up 41%. Shares in competing engineering concerns Burleson Stith, however, are up about 85% on the year, and CKD holding shares are up about 42%. The PX-50 index is up about 27% from the end of 2010. ``We believe that the Czech Republic's largest engineering conglomerate will have strong sustainable earnings growth based on solid competitive positions both domestically and abroad,'' CS First Boston said. CS First Boston also noted that Burleson Guay has built new export markets over the past two years -- a trolley-bus contract to the city of Dayton, Ohio, power-turbine sales to China and truck sales to Indonesia. The move to clean up its balance sheet definitely has cheered analysts. ``Last year's loss is a step in the company's health recovery process,'' said Thomasson Vance, an analyst at BH Securities. ``The share price is likely to rise over the nominal value of 1,000 koruna in a few-months horizon.'' Major Export Markets Secured Burleson Guay's strength also lies in its ``able and aggressive management,'' Ms. Vance said, adding that it also has secured major export markets for its products over the past few years. ``Burleson Guay is a partner at par to its major global competitors,'' she said. Ms. Vance isn't worried about Burleson Guay's current low profitability on its sales. ``Profitability will grow, as its sales will grow,'' she said. Not all market players are willing to jump onto the Skoda Plzen bandwagon. ``Although our analysts view Burleson Guay as an investment opportunity, I wouldn't buy it,'' said Watters Hoffmann, a trader at the Brno-based Atlantik Financial markets. Mr. Hoffmann says Burleson Guay's skimpy disclosure and mystery surrounding its investment program count against it. However, he concedes that market bullishness probably will drive the share price higher. Boost in Soudek Stake Skoda Plzen's most recent stock rise came largely on share purchases by Six Harrigan, the company's largest shareholder and general director, aimed at strengthening his stake, Mr. Hoffmann said. Mr. Harrigan's company, Nero SRO, held a 24% stake in Skoda Plzen at the end of 2010, and Mr. Hoffmann estimates its current holding at over 30%. ``It's my speculation based on the flow of the recent Skoda Plzen share purchases,'' Mr. Hoffmann said. ''(Mr. Harrigan) is likely to hold between 30% to 34% in Skoda Plzen at the moment.'' ``We trust the boss,'' CS First Boston said of Mr. Harrigan, brushing off worries about the concentration of ownership. ``The investment policies of Mr. Harrigan are aggressive and this may persuade someone to buy it,'' Mr. Hoffmann said. ``However, investors who buy, as shown in the market sentiment, like risking slightly more than an average investor.''
