Korado Bulgaria

Steel radiators producer Korado achieved 10% y/y bottom line growth to record bgn 5.3m in FY2018 despite tough market conditions. Profitability continued to improve on lean management, net profit margin reaching record 11.9%. Product innovation and diversification strategic plans expected to sustain the company’s good position in a highly competitive market.

This is what ELANA Trading analysts say in their latest research report.

Rising bottom line

Hard market conditions characterised by increasing steel prices and slowdown in European construction’s growth didn’t hurt Korado’s profitability. Thanks to end product price increase and lean cost management the Company managed to compensate for the 1.6% y/y drop in volumes sold, boosting sales by 2.8% y/y, while OPEX advanced slower at 2.3% y/y. As a result, net profit added 10% y/y to record BGN 5.3m. Margins continued their upward trend for seventh year in a row, with EBITDA margin adding 0.70 p.p. y/y to 16.02%, while net income margin was up 0.72 p.p. y/y to 11.93%.

Interim dividend distribution

In 2018, Korado became one of the two companies on the Bulgarian stock exchange to pay interim dividends taking advantage of newest local legislative changes.

After distributing BGN 0.10 DPS for 1H2018, the Company’s management announced BGN 0.19 DPS for 2H2018. If voted at upcoming GSM, the FY2018 dividend will reach record high BGN 0.29 DPS, entailing 4.08% yield at current quotes.

High-added value product diversification to drive growth in the midterm

In order to sustain its leading position among top 10 radiator producers globally, Korado Group announced a strategic plan to introduce high-added-value production in subsidiary Korado Bulgaria. These plans include production of complex ventilation and heating systems that meet highest EU2020 energy efficiency requirements. The Company’s earlier announced plans for the setup of a new paint shop and storage capacity have been put on hold until more details concerning a start of new production are laid down.

Re-entering the Russian market

In Mar’19 Korado announced it managed to re-enter the Russian market after successfully meeting the newest technical requirements imposed by Russian legislation. Being present there will add to growth as the Russian construction market is expected to undergo an 18% growth till 2023 compared to 2017.

Joining SOFIX remains a goal

A key short-term target is entering BSE main index SOFIX. Currently, Korado meets all requirements except for the one related to the number of shareholders. The management has announced it would work towards meeting this criteria by end2019. Realistic expectations are to join the blue-chip index in Mar’20. The latter will additionally contribute to the stock’s liquidity.

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