Analysts question Kalev decisions, stock price

  • 2003-09-25
  • Baltic Business News
TALLINN - Delays in completing its scheduled move to a new production site have forced Kalev, the Baltics' largest confectioner, to readjust its earnings data, while analysts have expressed concern as to the profitability of a real estate investment recently made by company management.
Kalev, acting as part of a syndicate together with Skanska EMV, recently acquired a former state-owned summer cottage in Keila-Joa for 52.7 million kroons (3.4 million euros).
In order to complete the acquisition, Kalev will borrow 30 million kroons from Hansa Leasing and pay 22 million kroons through Kalev Real Estate Company, a subsidiary firm.
The acquisition, coming at a time when the company has been struggling to meet production targets due to relocating production facilities from Tallinn to Juri, a suburb of the capital, has caused alarm among analysts, who said the real estate deal would affect the company's cash flow significantly.
Aadu Oja, a partner at Trigon Capital, even claimed that Kalev's real estate purchase has raised doubts as to whether the company is focusing on its core business.
He also questioned the company's stock price, which has rocketed by one-third over the past month in "strange circumstances."
Kalev, which controls over half of the Estonian candy market, is controlled by chairman Oliver Kruuda.
Earlier this months the Tallinn Stock Exchange's listing and surveillance committee fined Kalev 200,000 kroons for violating rules and regulations. After completing an investigation, the committee found that Kalev had repeatedly delayed the disclosure of information and had publicized partial, incorrect or misleading information.
"The way the company's management does business raises a whole lot of questions, especially considering one of Kalev's shareholders, Milestone, which owns 25 percent, has filed a lawsuit against current Kalev management," said Oja.
Sander Danil, an analyst at Uhispank, went so far as to say that Kalev has become more a real estate developer than a food producer.
In addition to the summer cottage purchase, the company is also converting its former production building on Parnu Road in Tallinn into an office complex.
Analysts said that because of the confusing corporate environment surrounding Kalev they no longer publish fair price targets for Kalev.
"I don't have a full overview of what is happening in their real estate business at the moment," said Danil.
Kalev management issued a statement Sept. 18 estimating the impact of the current production problem. In the management's opinion, the delay in restarting production in Juri may cause a sharp drop in sales volumes and lower revenues by 20 million kroons - 25 million kroons.
However, in spite of lower sales, the company expects its net profit for this year to remain at the level of the two last years.