EUR 50.90 For Business Accounts Only

Galenika Fitofarmacija (FITO)

Galenika Fitofarmacija (FITO)

Despite the worsened agricultural season, Galenika Fitofarmacija (FITO) left behind another successful business year, but negative FX differences spoiled the bottom line. Last year, shares of this company recorded modest growth, slightly below the benchmark performance, and since the beginning of 2018, they are in the focus of investors and represent the most traded stock on the market.

The company's revenues rose 1.1% to RSD 4bn, while the operating profit was almost identical to 2016 and amounted to slightly over RSD 1bn (a slight drop in the operating margin to 25.3%). However, the bottom line dropped due to high negative FX differences that jumped almost 12x to RSD 236.1m. In addition, the company no longer had a tax credit, so the income tax in 2017 is higher than in 2016 by 20% (RSD 21m). These two factors decisively influenced the decline in net profit by 16.3% to RSD 754.1m. At the end of 2017, the company was free of debt with a cash position and bank deposits of RSD 2.5bn.

¤ Plans - Fitofarmacija plans a revenue of RSD 4.8bn (19.9% ​​growth) in the current year and operating profit of RSD 1.05bn (4% growth). In the current year, the largest contribution to the growth of sales is expected from the sale of products on the domestic market (RSD 3.1bn), and the products on the foreign market of EUR 3.3m. The management expects a significant sales growth of 58.8% in the field of sales of merchandise (RSD 811.1m).

¤ Foreign markets - The company expects sales at EUR 3.3m (EUR 1.65m in 2017) in the foreign market this year, with EUR 1.85m from EU registration products (in 2018, the company will compete with three products at all foreign markets of interest). This year, three new products will be applied for registration, the effects of which can be expected in 2019.

¤ Ownership structure - This year, nearly 6% of the total number of shares was traded, while the turnover of 2.4% of shares was realized in the past year, which may suggest more intensive changes in the ownership structure in 2018. The management holds a controlling package with over 54% (composed of several independent parties, but with unanimous performance in the past).

¤ Valuation - Fitofarmacija shares are traded above the book value and on the expected P/E ratio for this year of almost 9x, which this stock probably deserves considering its business conducting of net balances and a very strong cash position for many years (almost a third of the current capitalization consists of cash and deposits). However, in order to continue the upward trend, the company should offer more tangible results in the foreign market, while higher price levels could be supported by possible significant changes in the ownership structure.