ICM - Fair value 22 kronor per share

ICM is still attractive despite a 25% increase since I first wrote about the company.

At the time I proposed fair value to be 17 (all figures in SEK) per share, which should be increased to about 22 SEK, for the following reasons:

1. In an interview with BeQuoted, the CEO has stated that he expects earnings for 2006 to be about the same as those of 2005:

http://www.bequoted.com/businessbriefing/bbb-2006-34/bbb-2006-34.htm#Icm

The after tax profit per share last year was 2 SEK per share. There was however an extraordinary income item correpsonding to 24 öre per share. There was also an extraordinary writedown of about 30 öre per share. It is not clear whether the CEO was referring to profit before extraordninary items or not, so the most pessimistic scenario is 1,76 SEK per share for 2006.

2. I was not aware of this at the first time of writing but ICM owns property valued at 14,3 Million SEK. The total amount of interest bearing debt in the company is 6 million SEK. The difference corresponds to 3,22 per share. The company does however have substantial non-interest bearing debt. Equity per share excluding immaterial items is 7,38 SEK.

3. Credit Suisse First Boston has bought stock. It is extremely rare that non-nordic brokers trade shares on aktietorget.

It is always difficult to decide upon a reasonable value for a company, and the earnings of 2005 - 2006 may be unsustainably high due to the unusually high growth Sweden has experienced recently. However, ICM is not as sensitive to business cycle fluctuations as firms only focusing on packaged goods, and so ICM may have less cyclical earnings than one would expect. The CEO has also stated that parts of the increased profits of recent years is due to their effort to focus on quality, not just increased economic activity in the Swedish market.

One must also remember that the first half of 2006 was an unusually bad 6 months for ICM and there is no reason to expect profits to be as low in 2007. If high growth continues unabated in the Swedish economy, we can look forward to strong earnings also in 2007.

Perhaps it is not unreasonable then to expect long term profits per share to be about 1,7 SEK per share. This is plausible not the least because ICM can earn these profits at a profit margin (before tax and financial items) as low as perhaps 4% with the increased sales volumes of this year. This is hardly an unsustainable level, even though margins in the logistics sector usually are quite low.

Swedish interest rates are increasing and are likely to reach 4 to 5% in a couple of years time. I personally would like about a 7,5% expected return on an investment of this type, corresponding to a price per earnings ratio of approximately 13. This gives a fair value of about 22 SEK per share.

In conclusion, I strongly recommend an investment in ICM because:

High profits for 2006 are almost guaranteed after statements made by the comany.
Shareholders can expect a large portion of this profit to be paid out as a dividend.
There is no reason to expect the profit level to fall in the near future. To the contrary, profits may well increase further.