Indesit Company posted higher full year results yesterday, supported by restructuring, analysts said, adding their focus is on UK market outlook and any China acquisition.
They said said western Europe sales volumes are seen down 1 pct, in the UK down 3 pct, eastern Europe up 3 pct and CIS up 6 pct.
“The price mix (of product sales) in the last quarter of 2007 has been rather stable (compared to earlier in the year), though in the UK market it has been weak,” said an analyst with a Milan bank.
“This is due to consumer spending in the last quarter (in the UK), which could also be a problem in 2008,” he said.
He said the 2007 results will include 33 million Euros of restructuring costs, mainly transferring production to low cost countries in the east of Europe, against a company forecast of 30 million.
Supplies for low-cost country factories will increasingly come from these countries with this proportion up to 50 pct in 2008, from 43 in 2007 and 36 in 2006, the analyst slide presentation said.
On labour costs, low cost countries should represent 60 pct of direct manpower hours in 2008, with the other 40 pct in Western Europe, and against 51 pct low-cost countries in 2007, it said.
A program to shift of manufacturing activities to low-cost countries has helped Indesit’s higher results in 2007. And this may indicate that the story reported recently by ourselves and by ERT may well be true and that UK production of Indesit Company products may well be switched to low cost labour countries. Interestingly such a closure to switch production abroad has already happened in Wales as we reported in a story recently.
The analyst also said he has yet to change his 2008 estimates for Indesit, noting that the UK represents 20 pct of group sales.
A London-based analyst said she does not expect Indesit to give clear guidance for 2008, while on the UK market, Indesit is “maybe more bullish” than UK electrical retailer Dixons.
DSG International PLC, which includes Currys and Dixons retailers, issued a profit warning at the start of January. “Indesit says it does not have lower orders” from Dixons at start of 2008, she said, adding sterling has weakened since first half of 2007 and will cut Indesit’s euro-denominated results.
“Indesit is also exposed to the Russian rouble and the Turkish lira and that might compensate” for weak sterling,” she said.
With respect to international expansion, Indesit has declined to comment on reports in January (reported in a recent news item) that it is interested in acquiring a 24 pct stake in China”s white goods company Wuxi Little Swan in a privatisation.
The Milan analyst said he sees Indesit announcing an international acquisition in the short term, with Wuxi Little Swan one possibility, and where it would have to a pay a premium to market.
Wuxi Little Swan currently trades on 0.5 times its 300 mln eur sales and five times EBITDA, while Indesit could pay a 20 pct premium, taking the overall company value to 200-210 mln, he said.
The London analyst said Indesit may decide Wuxi Little Swan is “expensive and not that profitable”, she said.
Other factors making an acquisition less likely are that Indesit would like more than a 24 pct stake, other Chinese companies want to buy Wuxi, and Wuxi already has ties with General Electric, he said. “I am not sure Indesit is the ideal candidate” for a partnership aimed at selling Indesit products into the Chinese market, she said.
On other international expansion, analysts said Indesit could launch “a green field operation” in India, rather than via an acquisition, while a Brazil deal could take place before China.