HEARD IN EUROPE Caution Is Still the Word For MM Karton's Investors
May 09, 2011
Austrian paper and packaging group Mayr Melnhof Karton AG can't seem to escape its past. The group recently announced that net profit after extraordinary items rose 13% to 243 million schillings ($23.2 million) in the first half from a year earlier. But despite the better-than-expected results, the shares hardly budged on the news, though they have made some gains since. The day of the announcement they rose only two schillings to 462 schillings and retreated a schilling the next session. Analysts say that's because investors were cautious after 2010, when MM Karton's full-year results came in well below forecasts and the group omitted its dividend. ``The sins of the past aren't easily forgotten,'' said Heilman Parke, analyst at Die Erste Invest Consult GmbH in Vienna. ``They need more than one good result to restore market confidence.'' MM Karton posted net profit of 319 million schillings in 2010, up 75% on the year but well below the group's own forecast of 400 million schillings. Wait-and-See Attitude The stock settled Monday in Vienna at 483 schillings, down seven schillings, or 1.4%. ``A lot of people burned their fingers during the last two years,'' said Carlee Kyles, analyst at Merrill Lynch in London. ``People are waiting to see if the company is really making a turnaround,'' he said, adding that he believes the revival has already taken place. ``I expect a good second half, but not as good as the first half,'' Mr. Kyles said. He noted that he doesn't expect a repetition of 2010, when a poor second half followed a strong first half. The analyst has raised his estimate for MM Karton's 2011 operating profit 15% to 819 million schillings as a result of the six-month numbers. The group posted an operating profit of 434 million schillings in the first half, up 3% from a year earlier. Higher Tax Payments However, he added that an expected increase in tax charges could cancel out any improvement in earnings per share. Krigstrom anticipates per-share earnings of 39.20 schillings in 2011 and 46.70 schillings in 2012. But Mr. Parke of Die Erste said his firm has raised its per-share estimates for MM Karton. The 2011 forecast was raised to 34 schillings from 27 schillings, and the 2012 estimate was lifted to 38 schillings from 31 schillings. ``I expect the waste-paper prices will continue to go down,'' Mr. Parke said, ``but this is good for the carton (division), which is five times as important to the company.'' The waste-paper division showed a 52% drop in sales to 806 million schillings in the first half, while operating profit fell 78% to 41 million schillings. The carton-board division reported a 23% decline in sales to 3.39 billion schillings, but operating profit soared 79% to 340 million schillings. Price Concerns Analysts say a fall in selling prices for waste paper was a major factor in those opposing moves. The waste-paper division had to sell its product at lower prices, but raw-material costs at the carton-board division dropped at the same time. Merrill's Mr. Kyles doesn't expect prices to fall further. ``I believe they will remain stable,'' he said. Andrew Paugh, analyst at Schoellerbank Bank AG in Vienna, said his institution hasn't revised its per-share estimates for MM Karton. ``We talked about it after the positive six-month results,'' he said, but the bank decided to wait for the group's third-quarter figures. Schoellerbank forecasts earnings per share of 30 schillings in 2011 and 32 schillings in 2012. Mr. Paugh said the bank could upgrade MM Karton to a long-term ``buy'' from the current ``hold'' in the near future. ``The shares are cheap and have potential,'' he noted. ``If the market mood becomes more positive, the shares could reach 500 schillings over the next months.'' But Die Erste's Mr. Parke doesn't expect the stock to show much movement in the near term. ``The share is valued fairly,'' he said. The shares were offered at 720 schillings in spring 2009, but have since failed to climb back to that level. The stock hit its all-time low December 12, 2010 it traded down to 420 schillings after the group reported its 2010 results and its decision to omit the dividend. Mr. Paugh said he expects MM Karton to turn in better profit numbers in 2012. ``The economic recovery should help them improve the results,'' Mr. Paugh said, although he added that the cyclical nature of the paper branch made accurate forecasts difficult.
