Online trading in Poland means QXL Ricardo

Selling your Pope John Paul II trading cards on the internet in Poland? The first stop is likely not eBay, but market leader QXL Ricardo.

Shares in the online auction company which focuses on eastern Europe jumped about 15% after broker reports and strong third quarter results swung into profitability.

The company with a stock market value of £343.56 million operates in Norway, Denmark, Czech Republic, Ukraine, and Hungary. Its chief businesses are in Switzerland and Poland where its market shares are more than 80% and 90%, respectively.

Pre-tax profit for the last three months of 2006 rose to £3.9 million compared with a loss of £140,000 for the same period a year ago on revenue up 52% to £12.4 million against £8.1 million.

QXL Ricardo, which formed in the UK in 1997, added Poland, Hungary and Ukraine to the group last August. Allegro.pl remains the most popular website in Poland with more than three billion page views per month.

‘The addition of the Polish business transforms the group’s absolute level of profitability, its growth prospects and enables it to ride the effect of slowing growth in Western Europe,’ Edison Investment Research wrote in a note.

The company says revenue should expand by another 50% this quarter and chief executive Robert Dighero is eyeing eastward expansion.

‘We’d like to launch in a couple more eastern Europe countries. That’s where our focus is for expansion,’ Dighero told Citywire.

He declined to name his targets but said Romania, Bulgaria, Russia and Slovenia were all on his radar.

Eastern Europe has more potential for growth, says Dighero. Besides the lack of competition from eBay in most markets, there’s more room for broadband penetration than in the saturated West.

‘There’s still great growth in terms of commerce. People will spend more time on line to do their shopping,’ Dighero said.

The Polish business benefited from garnering market share before the arrival of eBay. Now the site has moved beyond auctions to fixed price sales. Dighero says the transformation shows a new maturity in the market and that QXL is the preferred online retail site.

‘The company is using the higher level of Polish margin to reinvest in the business as a whole,’ noted Edison. That includes a 20% increase in sales and marketing in western Europe with expectations of a payback in sales within a year.

Shares in QXL added 102.5p at 817.5 although liquidity is low at 60,000 shares available to the public. They trade on about 19 times 2008-9 earnings, Edison said.

QXL, which is searching for a new chairman, subdivided each of its shares into five new shares in December when they hit a low of 575p.

House broker Evolution increased its full year pre-tax profit to £14.4 million from £12.3 million, raised its earnings per share estimate to 29.5p from 27p and lifts its price target to £10 from 700p.

Investors include Belgian holding company Beleggingsmaatschappij with 27.7%, Brack Capital’s Ron Izaki with 6.9%, Callicroft Holdings at 4.7% and the Apax Partners UK VI Fund with 3.5%.

Source:By Colin McClelland, citywire.co.uk