Tire makers best bet for investors looking to cash in on auto growth
The few other publicly traded auto part makers, including paint producer Polifarb Cieszyn-Wroclaw and automotive group Sobieslaw Zasada Centrum, do not offer investors the same exposure to car industry growth.
"I would never recommend Sobieslaw Zasada," said Jacek Dzierwa, vice president of global emerging market equities at Salomon Smith Barney.
The company lacks structure and has only limited liquidity because of investor Sobieslaw Zasada's large stake in the company, Kasprzak said. While Zasada independently owns 20.3% of Sobieslaw Zasada Centrum, he has complete ownership of Sobieslaw Zasada Ltd., representing an additional 42.5% share in the company. His daughter Aleksandra Zasada-Chwist owns a 12.8% stake in the business.
In contrast to Sobieslaw Zasada, most analysts did recommend paint producer Polifarb Cieszyn-Wroclaw. However with only 8-10% of its total sales going to the automotive industry, the company does not have the same auto market exposure as Debica and Stomil-Olsztyn.
Debica, as the leading producer of passenger-car tires in Poland, holds an 80% share of domestic production of passenger-car tires, 57% of the original equipment market and 50% of the replacement market.
Debica has seen profits decrease by 12.7% to zl. 36.3 million ($10.2 million) during the first half of 1998 as compared to the same period last year. At the same time, sales grew 17.8% to zl. 420 million ($116.7 million) in the first half of 1998.
Kasprzak attributed the decline in profit to the strong zloty earlier in the year. If the zloty continues to weaken as has happened in the first part of the second half, this trend should reverse, he added.
Merrill Lynch forecast 1998 net profit for the company of zl. 78.5 million ($21.8 million) vs. zl. 75.3 million ($23.5 million). Based on projected 1998 net profit, Debica currently has a price to earnings (p/e) ratio of 10.9.
The company's shares closed at zl. 62 on Thursday, down 38% from its year high of zl. 101.
While Debica focuses on passenger-car tires, Stomil-Olsztyn corners the heavy truck tire market. The company produces more than 50% of domestic tires in terms of weight.
Stomil-Olsztyn's profits leapt 112% in the first half of 1998 to zl. 25.9 million ($7.2 million). However, one factor behind this profit growth is Stomil-Olsztyn's poor second-quarter performance last year, when the company had a net loss of $2.9 million, partly due to provisions to cover the cost of recalling 70,000 defective tires.
The company's shares closed at zl. 16.8 on Thursday, down 51% from its year high of zl. 34.
Forecast net profit, based on Nomura International estimates, should reach zl. 50.1 million ($13.9 million). Based on this projection and using current share price, the company would have a p/e of 9.1.
Sales growth for both tire makers is likely to continue since Poland currently has only 18% car penetration, or 180 cars per 1,000 residents, one of the lowest in all of Europe. In addition, both companies will likely gain from new exhaust emission regulations that are prompting Poles to sell their old cars and purchase more environmentally friendly models.
Potential competition is on the horizon, though, with Bridgestone/Firestone planning to team up with Stomil Poznan to produce passenger-car tires in Poland.
In addition, a possible problem for the companies could arise from their strategic partners. U.S. tire maker Goodyear owns 57.6% of Debica and French tire producer Michelin owns 52.1% of Stomil-Olsztyn.
"There have been suspicions that strategic partners have been taking money out of these companies one way or the other," said Frances Cloud, senior Eastern European analyst for Nomura International in London.
"I would never recommend Sobieslaw Zasada," said Jacek Dzierwa, vice president of global emerging market equities at Salomon Smith Barney.
The company lacks structure and has only limited liquidity because of investor Sobieslaw Zasada's large stake in the company, Kasprzak said. While Zasada independently owns 20.3% of Sobieslaw Zasada Centrum, he has complete ownership of Sobieslaw Zasada Ltd., representing an additional 42.5% share in the company. His daughter Aleksandra Zasada-Chwist owns a 12.8% stake in the business.
In contrast to Sobieslaw Zasada, most analysts did recommend paint producer Polifarb Cieszyn-Wroclaw. However with only 8-10% of its total sales going to the automotive industry, the company does not have the same auto market exposure as Debica and Stomil-Olsztyn.
Debica, as the leading producer of passenger-car tires in Poland, holds an 80% share of domestic production of passenger-car tires, 57% of the original equipment market and 50% of the replacement market.
Debica has seen profits decrease by 12.7% to zl. 36.3 million ($10.2 million) during the first half of 1998 as compared to the same period last year. At the same time, sales grew 17.8% to zl. 420 million ($116.7 million) in the first half of 1998.
Kasprzak attributed the decline in profit to the strong zloty earlier in the year. If the zloty continues to weaken as has happened in the first part of the second half, this trend should reverse, he added.
Merrill Lynch forecast 1998 net profit for the company of zl. 78.5 million ($21.8 million) vs. zl. 75.3 million ($23.5 million). Based on projected 1998 net profit, Debica currently has a price to earnings (p/e) ratio of 10.9.
The company's shares closed at zl. 62 on Thursday, down 38% from its year high of zl. 101.
While Debica focuses on passenger-car tires, Stomil-Olsztyn corners the heavy truck tire market. The company produces more than 50% of domestic tires in terms of weight.
Stomil-Olsztyn's profits leapt 112% in the first half of 1998 to zl. 25.9 million ($7.2 million). However, one factor behind this profit growth is Stomil-Olsztyn's poor second-quarter performance last year, when the company had a net loss of $2.9 million, partly due to provisions to cover the cost of recalling 70,000 defective tires.
The company's shares closed at zl. 16.8 on Thursday, down 51% from its year high of zl. 34.
Forecast net profit, based on Nomura International estimates, should reach zl. 50.1 million ($13.9 million). Based on this projection and using current share price, the company would have a p/e of 9.1.
Sales growth for both tire makers is likely to continue since Poland currently has only 18% car penetration, or 180 cars per 1,000 residents, one of the lowest in all of Europe. In addition, both companies will likely gain from new exhaust emission regulations that are prompting Poles to sell their old cars and purchase more environmentally friendly models.
Potential competition is on the horizon, though, with Bridgestone/Firestone planning to team up with Stomil Poznan to produce passenger-car tires in Poland.
In addition, a possible problem for the companies could arise from their strategic partners. U.S. tire maker Goodyear owns 57.6% of Debica and French tire producer Michelin owns 52.1% of Stomil-Olsztyn.
"There have been suspicions that strategic partners have been taking money out of these companies one way or the other," said Frances Cloud, senior Eastern European analyst for Nomura International in London.
