Stakhanov Ferroalloy Financials Interim Results More Revealing.

In 2005 the company’s (SFER: BUY) sales grew 52.2% yoy to USD 93 mln, while its bottom line stayed almost unchanged in absolute terms year-on-year (net losses of USD 5.8 mln). The company remained in the red last year due mostly to its extremely poor first quarter performance. However, over the quarters that followed a clear trend of improving profitability can be seen. According to preliminary results, in 1Q06 the company posted a positive EBITDA margin of 2.5% versus a negative 5.6% in 1Q05.  SFER’s Net margin in 1Q06 slightly improved from -10% to -3%. The company’s top line posted solid 21.6% qoq growth. These results support our positive view of SFER as a company that is willing to scale back shadow schemes and post more reliable financials. We maintain our BUY recommendation with a USD 0.006 target. For a more in depth look at SFER’s corporate governance please refer to our equity report on April, 19, 2006.