NETHERLANDS: Analysts optimistic about CSM despite profit fall

Analysts remain optimistic about CSM's prospects despite a fall in the Dutch food company's quarterly profits.

CSM yesterday (10 August) reported a 34.8% drop in EBITA, excluding one-off costs, for the second quarter of 2011 to EUR36.6m (US$52m).

Over the first six months of the year, EBITA minus the one-off items fell 21.8% to EUR80.2m.

Last month, CSM issued a profit warning in which it said first-half EBITA minus one-off costs would be around EUR80m.

CSM attributed the decline in second-quarter operating profit to a lag in increasing selling prices to compensate for higher raw material costs.

Second-quarter sales fell to EUR765.5m from EUR771.7m, although sales at constant currencies up by 5.5%. Organic sales increased 4.3% despite a 3.1% fall in volumes.

Commenting on the results, ING analyst Marco Gulpers said after the "disappointing" profit warning last month, yesterday's statement from CSM "contained no further negatives".

Gulpers said CSM's volumes would hit "the low point" in the second half of the year but added: "This should mean a recovery in 2012 is fully on the cards."

First-half sales rose 7.7% to EUR1.5bn. At constant currencies, sales increased 10.6%. On an organic basis, sales were up 4.3%, although volumes fell 3.3%. First-half net profit was down 44.8% to EUR29.9m.

MF Global analyst Andy Smith said that the credibility of CSM's management will have been "impacted post the recent profit warning".

However, he said that current stock valuations do not "price in the superior medium-term growth prospects of the business". "We remain firm believers in the value-creation potential in bio-plastics," added Smith.

Gulpers said that "management's realism is convincing enough for us", adding that the company explained the mismatch between the operating performance and its communication earlier in the year. He believes that the market has "now more than discounted the new reality".

CSM said its price increases are "progressively balancing the increase in raw material costs in the second half". It said that it has seen the "first signs of regaining volumes and expects "a gradual recovery of volumes during the second half year".