small & mid cap coverage poland - ambra.com.pl · action 23.5% netia 2.1% apator 9.9 asseco see...
TRANSCRIPT
Dom Maklerski BZ WBK is a separated organizational unit of Bank Zachodni WBK S.A. seated in Wrocław at Rynek 9/11, 50-950 Wrocław, registered by the District Court for Wrocław-Fabryczna in Wrocław, 6th Business Division of the National Court Register, under KRS no. 0000008723, NIP: 896 000 56 73, share capital: PLN 992.345.340 paid up in full..The disclaimers concerning the nature of the published document are found on the last page of the document and constitute its integral part..
November 12, 2014
Small & Mid Cap coverage
Poland
Our Polish Small- & Mid-Caps coverage includes an overview of 58 names. With this report we are initiating coverage of 30 stocks and maintaining coverage of 28. Of the 30 newly covered stocks we are rating 21 as BUYs, 7 as HOLDs and 2 as SELLs. As for the already covered companies, we are making changes to price targets/recommendations for three names only. We are upgrading our target price and recommendation for Netia (Hold from SELL, TP raised to PLN 5.71), reducing target price for ABC Data (down 2% to PLN4, HOLD maintained) and re-initiating coverage of Work Service (Hold rating, Target Price set at PLN19.5).
Companies covered in the note are significantly diversified in terms of sectors, valuations and growth prospects. To make the research more user-friendly, pages 5-6 include a comparison of the stocks by valuation metrics (P/Es and EV/EBITDAs), estimated mid-term EPS/revenue growth and finally past share price performance.
Below we are listing the most expensive/cheap stocks as well as the names offering the strongest/weakest growth prospects.
2015E P/E (x) 2015E EV/EBITDA (x)
10 Highest 10 Lowest 10 Highest 10 Lowest
BPH 108.2 BOS 9.8 MW Trade 38.8 Farmacol 5.9
Voxel 97.0 MW Trade 9.0 Medicalalgorithmics 24.9 Open Finance 5.4
Medicalalgorithmics 31.0 Action 8.9 Work Service 11.1 Tesgas 5.2
Netia 29.2 Ovostar 8.4 CD Projekt 11.0 ZAP 5.2
Atrem 26.5 Pozbud 8.3 DOM Development 10.2 Ovostar 5.1
Emperia 23.9 Paged 8.2 PRESCO 10.1 Hawe 4.6
Budimex 19.5 AB 7.7 Apator 9.9 Asseco SEE 4.5
Pekaes 18.3 ZEPAK 7.7 Synektik 9.9 Emperia 4.5
Synektik 18.0 ABC Data 6.7 Ronson 9.8 Netia 4.4
Work Service 17.5 Hawe 5.4 Forte 9.6 ZEPAK 4.3 Source: DM BZ WBK estimates
2014-2017 EPS CAGR (%) 2014-2017E EBITDA CAGR (%)
10 Highest 10 Lowest 10 Highest 10 Lowest
Bytom 64% Budimex -5.4% CD Projekt 41% Unibep 2.2%
Ciech 48% Hawe -5.8% Medicalalg. 40% Pozbud 0.6%
CD Projekt 44% Wielton -6.4% Bytom 32% ZAP 0.4%
Atrem 40% Wojas -6.9% Elemental 28% Budimex -3.5%
PCE 33% Farmacol -7.5% Work Service 25% PRESCO -3.7%
Medicalalg. 33% Open Finance -7.5% PCE 22% Ovostar -3.7%
Work Service 31% Monnari -12% Ronson 22% Open Finance -5.4%
ACE 29% Ovostar -13% Atrem 21% Netia -5.9%
Gino Rossi 24% Echo -15% Tesgas 21% Monnari -5.9%
Alumetal 21% PHN -29% Pekaes 20% Hawe -6.7% Source: DM BZ WBK estimates
Research analysts:
Pawel Puchalski, CFA
+48 22 586 8095; [email protected]
Dariusz Gorski
+48 22 586 8100; [email protected]
Tomasz Kasowicz
+48 22 586 8155; [email protected]
Adrian Kyrcz
+48 22 586 8159; [email protected]
Tomasz Sokolowski
+48 22 586 8236; [email protected]
Lukasz Kosiarski
+48 22 586 8225; [email protected]
Andrzej Bieniek Securities broker, Investment advisor
+48 22 586 8225; [email protected]
Michal Sopiel
+48 22 586 8233; [email protected]
Tomasz Kucinski +48 22 534 1610; [email protected]
Polish Equity Research
2
Contents SMC Radar: A stock – picking tool .......................................................................................................... 5
AB .......................................................................................................................................................... 7 ABC DATA ............................................................................................................................................... 9 ACE .......................................................................................................................................................11 ACTION ...................................................................................................................................................15 ALUMETAL ...............................................................................................................................................17 AMBRA ....................................................................................................................................................21 AMICA .....................................................................................................................................................25 APATOR ..................................................................................................................................................29 ASSECO SEE ..........................................................................................................................................33 ASSECO BUSINESS SOLUTIONS ................................................................................................................37 ATREM ....................................................................................................................................................41 BANK BPH ..............................................................................................................................................43 BENEFIT SYSTEMS ...................................................................................................................................47 BOS BANK ..............................................................................................................................................49 BUDIMEX .................................................................................................................................................53 BYTOM ....................................................................................................................................................55 CD PROJEKT ...........................................................................................................................................59 CIECH .....................................................................................................................................................61 DOM DEVELOPMENT ................................................................................................................................63 ECHO INVESTMENT ..................................................................................................................................65 ELEMENTAL HOLDING...............................................................................................................................67 EMPERIA .................................................................................................................................................71 ERBUD ....................................................................................................................................................73 EUCO ....................................................................................................................................................77 FARMACOL ..............................................................................................................................................79 FORTE ....................................................................................................................................................81 GINO ROSSI ............................................................................................................................................85 GRAJEWO ...............................................................................................................................................89 HAWE ....................................................................................................................................................93 GRUPA KETY ...........................................................................................................................................97 MEDICALGORITHMICS ...............................................................................................................................99 MIDAS ................................................................................................................................................... 103 MONNARI .............................................................................................................................................. 105 MW TRADE ........................................................................................................................................... 109 NETIA ................................................................................................................................................... 113 NEUCA .................................................................................................................................................. 115 OPEN FINANCE ...................................................................................................................................... 117 OVOSTAR UNION ................................................................................................................................... 119 PAGED .................................................................................................................................................. 121 PRIME CAR MANAGMENT........................................................................................................................ 125 PEKAES ................................................................................................................................................ 129 PELION ................................................................................................................................................. 133 PHN ..................................................................................................................................................... 135 POZBUD ................................................................................................................................................ 137 PRESCO ............................................................................................................................................. 139 RONSON ............................................................................................................................................. 143 SYNEKTIK .............................................................................................................................................. 147 TESGAS ................................................................................................................................................ 149 TRAKCJA ............................................................................................................................................... 151 UNIBEP ................................................................................................................................................. 153 VOTUM ................................................................................................................................................. 157 VOXEL .................................................................................................................................................. 161 WIELTON............................................................................................................................................... 165 WOJAS ................................................................................................................................................ 169 WORK SERVICE ..................................................................................................................................... 173 ZA PULAWY .......................................................................................................................................... 175 ZCH POLICE ......................................................................................................................................... 177 ZE PAK ................................................................................................................................................ 179
Polish Equity Research
3
Throughout the report we use share prices as of November 5, 2014
Polish Equity Research
4
Fig. 1. BZ WBK coverage: Initiations of coverage
Company Recomemndation 12M Target Price
current previous change current previous chng. % upside % ACE Buy n.a. - 16.50 n.a. n.a. 54% Alumetal Buy n.a. - 52.40 n.a. n.a. 19% Ambra Buy n.a. - 12.00 n.a. n.a. 36% Amica Buy n.a. - 149.00 n.a. n.a. 37% Apator Hold n.a. - 42.40 n.a. n.a. 12% Asseco BS Buy n.a. - 10.30 n.a. n.a. 37% Asseco SEE Buy n.a. - 16.40 n.a. n.a. 33% Bank BPH Buy n.a. - 59.75 n.a. n.a. 15% BOS Bank Buy n.a. - 49.10 n.a. n.a. 18% Bytom Buy n.a. - 2.00 n.a. n.a. 43% Elemental Holding Buy n.a. - 3.90 n.a. n.a. 35% Erbud Hold n.a. - 29.60 n.a. n.a. 12% Forte Buy n.a. - 67.60 n.a. n.a. 19% Gino Rossi Buy n.a. - 4.00 n.a. n.a. 29% Grajewo Buy n.a. - 35.50 n.a. n.a. 16% HAWE Buy n.a. - 4.40 n.a. n.a. 75% Medicalgorythmics Hold n.a. - 230.00 n.a. n.a. 13% Monnari Buy n.a. - 13.50 n.a. n.a. 42% MW Trade Buy n.a. - 21.60 n.a. n.a. 16% Paged Buy n.a. - 67.00 n.a. n.a. 62% PCM Buy n.a. - 59.70 n.a. n.a. 18% Pekaes Buy n.a. - 10.57 n.a. n.a. 17% Presco Sell n.a. - 3.10 n.a. n.a. -18% Ronson Sell n.a. - 1.53 n.a. n.a. -10% Unibep Buy n.a. - 9.20 n.a. n.a. 16% Votum Buy n.a. - 9.90 n.a. n.a. 32% Voxel Hold n.a. - 12.50 n.a. n.a. 11% Wielton Hold n.a. - 6.00 n.a. n.a. 7% Wojas Hold n.a. - 8.40 n.a. n.a. 5% ZE PAK Hold n.a. - 31.90 n.a. n.a. 7% Source: DM BZ WBK estimates
Fig. 2. BZ WBK coverage: Changes to valuations & recommendations
Company Recomemndation 12M Target Price current previous change current previous chng. % upside % AB Buy Buy ► 43.00 43.00 0% 33% ABC Data Hold Hold ► 4.00 4.10 -2% 4% Action Buy Buy ► 69.70 69.70 0% 50% Atrem Buy Buy ► 7.10 7.10 0% 45% Benefit Systems Buy Buy ► 391.00 391.00 0% 30% Budimex Hold Hold ► 153.00 153.00 0% 13% CD Projekt Buy Buy ► 18.00 18.00 0% 8% Ciech Buy Buy ► 51.40 51.40 0% 22% Dom Development Hold Hold ► 45.10 45.10 0% 0% Echo Investment Buy Buy ► 7.65 7.65 0% 18% Emperia Buy Buy ► 81.00 81.00 0% 65% EuCO Buy Buy ► 31.70 31.70 0% 20% Farmacol Buy Buy ► 66.00 66.00 0% 31% Kety Buy Buy ► 311.00 311.00 0% 12% Midas Buy Buy ► 1.39 1.39 0% 132% Netia Hold Sell ▲ 5.71 4.95 15% 3% Neuca Buy Buy ► 376.00 376.00 0% 63% Open Finance Buy Buy ► 7.00 7.00 0% 23% Ovostar Hold Hold ► 75.00 75.00 0% 7% Pelion Hold Hold ► 79.00 79.00 0% 5% PHN Buy Buy ► 29.10 29.10 0% 15% Pozbud Buy Buy ► 7.70 7.70 0% 71% Synektik Buy Buy ► 32.50 32.50 0% 38% Tesgas Buy Buy ► 7.40 7.40 0% 64% Trakcja Buy Buy ► 1.22 1.22 0% 6% Work Service Hold Restricted - 19.50 Restricted - 3% ZA Pulawy Buy Buy ► 170.40 170.40 0% 17% ZCH Police Sell Sell ► 11.60 11.60 0% -46% Source: DM BZ WBK estimates
Polish Equity Research
5
SMC Radar: A stock – picking tool
Fig. 3. Small& Mid caps – Value Radar 2015E P/E (x) 2015E Net debt to Equity (x)
10 Highest 10 Lowest 10 Highest 10 Lowest
BPH 108.2 BOS 9.8 MW Trade 8.6 Asseco BS -0.2
Voxel 97.0 MW Trade 9.0 Midas 5.0 Bytom -0.2
Medicalalgorithmics 31.0 Action 8.9 PCM 1.4 Tesgas -0.3
Netia 29.2 Ovostar 8.4 Ciech 1.3 Benefit -0.3
Atrem 26.5 Pozbud 8.3 Echo 0.7 Votum -0.3
Emperia 23.9 Paged 8.2 Pelion 0.7 Medicalalgorithmics -0.3
Budimex 19.5 AB 7.7 ABC Data 0.6 Synektik -0.4
Pekaes 18.3 ZE Pak 7.7 Presco 0.6 CD Projekt -0.4
Synektik 18.0 ABC Data 6.7 Voxel 0.5 Monnari -0.5
Work Service 17.5 HAWE 5.4 Paged 0.5 Budimex -2.1 Source: DM BZ WBK estimates
2015E ROE (%) 2015E EV/EBITDA (x)
10 Highest 10 Lowest 10 Highest 10 Lowest
CD Projekt 45.3% ZE PAK 5.1% MW Trade 38.8 Farmacol 5.9
EuCO 36.1% Pekaes 4.9% Medicalalgorithmics 24.9 Open Finance 5.4
Budimex 33.2% Tesgas 4.4% Work Service 11.1 Tesgas 5.2
Bytom 32.0% Trakcja 4.4% CD Projekt 11.0 ZAP 5.2
Votum 31.8% Emperia 4.0% Dom Development 10.2 Ovostar 5.1
Benefit 29.2% Atrem 2.6% Presco 10.1 Hawe 4.6
Action 23.5% Netia 2.1% Apator 9.9 Asseco SEE 4.5
MW Trade 23.1% PHN 1.4% Synektik 9.9 Emperia 4.5
Medicalalgorithmics 22.9% Voxel 1.1% Ronson 9.8 Netia 4.4
Forte 22.0% BPH 0.7% Forte 9.6 ZE PAK 4.3 Source: DM BZ WBK estimates
2014-2017E EPS CAGR (%) 2015E Net margin (%)
10 Highest 10 Lowest 10 Highest 10 Lowest
Bytom 64.1% Budimex -5.4% Medicalalgorithmics 54.0% Erbud 1.7%
Ciech 47.6% Hawe -5.8% Echo 39.9% Neuca 1.7%
CD Projekt 44.3% Wielton -6.4% CD Projekt 30.7% Atrem 1.5%
Atrem 39.6% Wojas -6.9% Euco 24.2% Action 1.4%
Police 33.1% Farmacol -7.5% MW Trade 22.0% Emperia 1.4%
Medicalalgorithmics 32.7% Open Finance -7.5% Hawe 20.7% ABC Data 1.2%
Work Service 31.3% Monnari -11.6% Asseco BS 18.4% Voxel 1.1%
ACE 29.1% Ovostar -12.5% PHN 17.0% Pelion 1.1%
Gino Rossi 24.2% Echo -14.5% Ovostar 15.1% AB 1.0%
Alumetal 20.5% PHN -28.7% Apator 14.4% Midas 1.0% Source: DM BZ WBK estimates
2014-2017E EBIT CAGR (%) 2014-2017E EBITDA CAGR (%)
10 Highest 10 Lowest 10 Highest 10 Lowest
Bytom 62.2% Pelion 0.4% CD Projekt 40.9% Unibep 2.2%
Ciech 47.6% Pozbud 0.2% Medicalalgorithmics 39.7% Pozbud 0.6%
CD Projekt 45.2% Wojas 0.1% Bytom 32.0% ZAP 0.4%
Tesgas 44.2% Presco -2.5% Elemental 28.1% Budimex -3.5%
Police 39.7% Budimex -4.1% Work Service 25.0% PRESCO -3.7%
Medicalalgorithmics 39.6% Echo -5.8% PCE 22.0% Ovostar -3.7%
Atrem 33.1% Monnari -8.3% Ronson 21.5% Open Finance -5.4%
Work Service 25.6% Ovostar -9.1% Atrem 20.8% Netia -5.9%
Alumetal 22.7% Hawe -10.0% Tesgas 20.8% Monnari -5.9%
Votum 22.3% Open Finance -12.4% Pekaes 20.1% Hawe -6.7% Source: DM BZ WBK estimates
Polish Equity Research
6
2015E EBITDA Margin (%) 2014-2017E Revenues CAGR (%)
10 Highest 10 Lowest 10 Highest 10 Lowest
Echo 71.4% Atrem 4.0% Medicalalgorithmics 41.3% ACE 1.2%
Medicalalgorithmics 59.9% Erbud 3.3% Midas 40.0% ZAP 1.1%
CD Projekt 37.3% Unibep 3.2% Work Service 26.7% ZEPAK 0.6%
Hawe 31.3% Emperia 3.2% CD Projekt 22.0% Phn 0.5%
Asseco BS 29.4% Neuca 2.3% Tesgas 16.3% Ciech -1.5%
MW Trade 27.5% Action 2.0% Action 13.7% Hawe -2.4%
Netia 27.3% Pelion 2.0% Forte 13.2% Pozbud -2.6%
Euco 27.1% AB 1.6% MW Trade 11.6% PRESCO -3.1%
Presco 27.0% ABC Data 1.6% Bytom 11.4% Open Finance -3.1%
Ovostar 26.7% Midas -4.6% Votum 11.2% Netia -4.2% Source: DM BZ WBK estimates
Fig. 4. Small& Mid caps – Momentum Radar 1M Market Performance (%)
3M Market Performance (%)
10 Highest 10 Lowest
10 Highest 10 Lowest
Voxel 24.3 ACE -1.9
Bank BPH 36.7 Voxel -3.9
Bank BPH 21.5 Police -2.7
Work Service 35.4 Ambra -4.2
Medicalgorithmics 13.0 Netia -2.8
PCM 34.1 ABC Data -4.8
Midas 11.3 Budimex -3.4
Grupa Kety 33.7 BOS Bank -4.9
Paged 11.0 Farmacol -4.3
Forte 28.3 ACE -6.2
Votum SA 11.0 ZE PAK -4.9
Elemental Holding 26.1 Wojas -6.4
Prime Car Management 10.0 Ambra -5.3
Alumetal 25.3 Wielton -6.5
Benefit Systems 8.2 Presco Group -11.9
PHN 24.5 Emperia Holding -13.4
Alumetal 8.1 Open Finance -12.5
Paged 24.3 Hawe -17.4
Ovostar 8.0 Wielton -12.6
Amica Wronki 23.5 Open Finance -17.7 Source: DM BZ WBK estimates
1Y Market Performance (%)
YTD Market Performance (%)
10 Highest 10 Lowest
10 Highest 10 Lowest
Forte 69.1 Ambra -25.5
Euco 79.9 Farmacol -26.6
Medicalgorithmics 66.4 Ovostar -27.5
Work Service 49.6 Pelion -27.3
Work Service 58.7 Farmacol -27.6
Monnari Trade 48.9 Ovostar -27.5
Euco 57.6 Pelion -28.9
Forte 44.9 Hawe -30.1
Kety 50.9 Emperia -30.7
Paged 35.9 Atrem -31.1
Paged 46.9 Atrem -30.9
Ciech 34.6 ACE -32.5
Votum 42.3 Voxel -34.5
Kety 33.4 Voxel -32.5
Ciech 41.2 Hawe -40.5
Wojas 26.1 Emperia -35.4
Monnari Trade 33.2 Presco -49.0
Votum 25.8 Presco -42.3
Synektik 30.5 Open Finance -71.1
Tesgas 24.3 Open Finance -69.4 Source: DM BZ WBK estimates
Polish Equity Research
7
Poland IT Distribution
NOVEMBER 12, 2014
AB RECOMMENDATION
BUY (MAINTAINED)
Negative earnings dynamics CURRENT PRICE: PLN32.4
TARGET PRICE: PLN43.0 (MAINTAINED)
1Q14/15 Results Preview. We expect that AB continued
its top-line improvement in 1Q14/15, although its earning
may prove to be a small disappointment. We expect that in
the Czech Republic and Slovakia AB kept its strong
dynamics, driven by the distribution agreement with Apple.
In Poland, we expect a 4% y/y sales expansion. We expect
the gross margin at 3.95% vs. 3.90% in 1Q13/14. We also
forecast a visible increase in SG&A costs - PLN40.1mn vs.
PLN29.5mn in 1Q13/14 (SG&A/sales ratio at 2.81%). We
assume revenues of PLN1.43bn (+13.7% y/y), an EBITDA
of PLN19.4mn. The net profit should settle at PLN10.7mn
(net margin at 0.75%). Outcome: NEGATIVE.
Recent developments. The company mulls paying a
dividend and a launch of a buyback tender offer. The
company has recently completed a PLN100mn 2019 bond
issue priced Wibor6M + 1.6%.
Outlook. During its last results’ presentation, AB said that
it saw signs of market improvement in the Czech Republic,
mainly in the enterprise sector but also in the public sector.
Change in Forecasts. We apply no changes to our model.
Change in Valuation & Recommendation. We keep our
12-month Target Price for AB at PLN43.0 and maintain our
Buy rating for the stock. The comparative valuation points
to PLN29.2 per share
STOCK PERFORMANCE
ABE
TP
WIG Relative
10
15
20
25
30
35
40
45
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10-23-2014 31.2 43.0 3.7% 3.2
Buy 7-9-2014 29.9 39.0 4.5% -0.6
Hold 4-28-2014 29.1 35.0 2.7% 4.4
Hold 1-30-2014 33.7 35.0 -13.6% -15.9
MAIN SHAREHOLDERS
% of votes
Mr. Andrzej Przybylo 15.0%
ING pension fund 13.1%
Mrs. Iwona Przybylo 10.0%
Allianz pension fund 9.1%
Aviva mutual fund 5.7%
COMPANY DESCRIPTION
One of the largest IT distribution company in Poland and Czech Republic.
ANALYST
Lukasz Kosiarski (+48) 22 586 82 25
Company Data
PLNm 2013/14E 2014/15E 2015/16E 2016/17E Reuters/Bloomberg codes ABEP.WA / ABE PW
Sales 5,758 6,092 6,339 6,596 Market capitalisation (PLNm) 524
EBITDA 96.0 100.0 104.1 108.4 Number of shares (m) 16.2
EBIT 85.3 87.4 90.7 94.6 Free float (%) 79.1%
Net income 57.3 60.6 62.0 64.1 Avg. daily turnover 3M (PLNm) 0.2
P/E (x) 8.4 7.9 7.7 7.5 Price performance
1M 3M YTD
EV/EBITDA (x) 8.6 8.3 8.0 7.6 5.5% 22.3% -0.3% Source: Company data, DM BZ WBK estimates
Fig. 1. AB: 1Q14/15 results preview
Polish Equity Research
8
PLN in millions, unless otherwise stated
1Q11/12 2Q11/12 3Q11/12 4Q11/12 1Q12/13 2Q12/13 3Q12/13 4Q12/13 1Q13/14 2Q13/14 3Q13/14 4Q13/14 1Q14/15E y/y q/q
Sales 944 1,429 1,001 963 1,123 1,730 1,355 1,306 1,256 1,637 1,348 1,517 1,428 13.7% -5.9%
EBITDA 24.2 36.7 13.8 16.9 14.3 28.4 15.2 16.2 20.6 33.5 18.8 23.1 19.4 -5.8% -15.7%
EBITDA margin 2.6% 2.6% 1.4% 1.8% 1.3% 1.6% 1.1% 1.2% 1.6% 2.0% 1.4% 1.5% 1.4% -0.3 -0.2
EBIT 21.8 34.0 11.6 14.1 11.9 25.8 12.6 13.8 18.2 31.0 16.3 19.9 16.2 -10.7% -18.4%
EBIT margin 2.3% 2.4% 1.2% 1.5% 1.1% 1.5% 0.9% 1.1% 1.4% 1.9% 1.2% 1.3% 1.1% -0.3 -0.2
Net profit 10.1 21.6 8.3 7.9 9.3 16.8 6.2 9.5 13.1 21.2 10.6 12.4 10.7 -17.8% -13.6%
Net margin 1.1% 1.5% 0.8% 0.8% 0.8% 1.0% 0.5% 0.7% 1.0% 1.3% 0.8% 0.8% 0.8% -0.3 -0.1
Source: Company data, DM BZ WBK estimates
Fig. 2. AB: Forecasts changes PLN in millions, unless otherwise stated
2014/15E 2015/16E 2016/17E
New Previous Change New Previous Change New Previous Change
Sales 6,092 6,092 0.0% 6,339 6,339 0.0% 6,596 6,596 0.0%
EBITDA 100.0 100.0 0.0% 104.1 104.1 0.0% 108.4 108.4 0.0%
EBIT 87.4 87.4 0.0% 90.7 90.7 0.0% 94.6 94.6 0.0%
Net profit 60.6 60.6 0.0% 62.0 62.0 0.0% 64.1 64.1 0.0% Source: Company data, DM BZ WBK estimates
Fig. 3. AB: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 43.0 43.0 0.0%
Comparable valuation (based on 2013/14-2015/16E) 29.2 29.2 0.0% Source: Company data, DM BZ WBK estimates
Fig. 4. AB: Income statement forecast PLN in millions, unless otherwise stated
2012/13 2013/14 2014/15E 2015/16E 2016/17E
Net sales 5,430 5,758 6,092 6,339 6,596
COGS 5,220 5,484 5,839 6,075 6,322
Gross profit 210.0 273.7 252.9 263.5 274.5
SG&A 139.3 161.2 165.5 172.8 179.9
Other operating income, net -6.6 -27.2 0.0 0.0 0.0
EBITDA 74.2 96.0 100.0 104.1 108.4
Operating profit 64.2 85.3 87.4 90.7 94.6
Net financial income (costs) -12.2 -11.7 -12.7 -14.2 -15.5
Profit before tax 52.0 73.7 74.8 76.5 79.1
Income tax 10.3 16.4 14.2 14.5 15.0
Net profit 41.7 57.3 60.6 62.0 64.1
Gross margin 3.9% 4.8% 4.2% 4.2% 4.2%
EBITDA margin 1.4% 1.7% 1.6% 1.6% 1.6%
Operating margin 1.2% 1.5% 1.4% 1.4% 1.4%
Net profit margin 0.8% 1.0% 1.0% 1.0% 1.0%
Source: Company data, DM BZ WBK estimates
Fig. 5. AB: Balance sheet forecast PLN in millions, unless otherwise stated
2012/13 2013/14 2014/15E 2015/16E 2016/17E
Current assets 1,002 1,091 1,213 1,306 1,393
Fixed assets 166 168 185 179 173
Total assets 1,167 1,260 1,398 1,485 1,565
Current liabilities 741 791 868 893 921
bank debt 211 195 195 195 195
Long-term liabilities 5 5 5 6 6
bank debt 0 0 0 0 0
Equity 421 464 524 586 638
share capital 16 16 16 16 16
Minority Interest 0 0 0 0 0
Total liabilities 1,167 1,260 1,398 1,485 1,565
Net debt 199 149 161 160 125
Source: Company data, DM BZ WBK estimates
Fig. 6. AB: Cash flow forecast PLN in millions, unless otherwise stated
2012/13 2013/14 2014/15E 2015/16E 2016/17E
CF from operations 0.9 77.8 16.3 8.5 54.9
CF from investment -4.9 -13.4 -29.3 -7.4 -7.2
CF from financing 0.0 26.4 0.0 0.0 -12.4
Net change in cash -4.0 90.8 -13.0 1.1 35.3
Source: Company data, DM BZ WBK estimates
Polish Equity Research
9
Poland IT Distribution
NOVEMBER 12, 2014
ABC DATA RECOMMENDATION
HOLD (MAINTAINED)
Least preferred IT distributor CURRENT PRICE: PLN3.83
TARGET PRICE: PLN4.00 (PREV. PLN4.10)
3Q14 Results Review. ABC Data reported 3Q14 results
way below expectations due to PLN10mn impairment on
receivables; adjusted results came in line with
expectations. Revenues expended 13% y/y to PLN1.37bn,
matched expectations (PLN1.35-1.40bn); revenues from
Polish market increased by 15% y/y to PLN703mn (we
expected a 5% growth), sales in EU countries came flat y/y
at PLN506mn (huge disappointment, we expected +20%
y/y), while export sales outside EU increased by 69% y/y to
PLN166mn. Gross margin stood at 4.79% vs. 4.46% in
3Q13 and 5.11% in 2Q14. Our assumption was 4.70%.
SG&A came at PLN56.8mn vs. PLN36.4mn in 3Q13. Sales
costs include PLN10mn one-off costs of impairment on
receivables. SG&A to sales ratio stood at 4.13% vs. 3.01%
in 3Q13. EBIT came at PLN7.5mn (-59% y/y), adjusted
EBIT came at PLN17.5mn vs. expectations of PLN19.2mn
(market) and PLN18.2mn (BZ WBK). Net earnings came at
PLN2.0mn, tax rate in 3Q14 at 54.7%. Operating CF in
3Q14 stood at PLN30.8mn.
2014 guidance. Company slashed its FY14 official
guidance: new forecast is sales at PLN5.54bn (vs.
PLN5.76bn), EBITDA at PLN74.8mn (vs. PLN92.1mn).
New FY14 guidance implies 4Q14 sales at PLN1.61bn and
EBITDA at PLN31.6mn.
Recent developments. Mrs. Ilona Weiss, deputy CEO, will
replace Mr. Norbert Biedrzycki as CEO on 1 January,
2015.
Change in Forecasts. We have applied some changes to
our model following 3Q14 results release.
Change in Valuation & Recommendation. We cut our
12-month Target Price for ABC Data at PLN4.00 and
maintain our Hold rating for the stock. The comparative
valuation points to PLN3.76 per share
STOCK PERFORMANCE
ABC
TP
WIG Relative
0
1
1
2
2
3
3
4
4
5
5
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Hold 10-23-2014 3.6 4.1 5.2% 4.7
Sell 7-9-2014 4.3 4.0 -14.4% -19.5
Sell 4-28-2014 3.9 3.9 8.1% 9.8
Sell 1-30-2014 4.1 3.9 -5.1% -7.4
MAIN SHAREHOLDERS
% of votes
ABCD Management 41.0%
MCI Venture Projects 20.5%
PZU pension fund 9.3%
Aviva pension fund 7.0%
BZ WBK Asset Management 5.0%
COMPANY DESCRIPTION
One of the largest IT distribution company in Poland.
ANALYST
Lukasz Kosiarski (+48) 22 586 82 25
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes ABCP.WA / ABC PW
Sales 4,822 5,623 5,924 6,267 Market capitalisation (PLNm) 480
EBITDA 79.6 72.4 96.5 101.6 Number of shares (m) 125.3
EBIT 77.2 70.2 93.8 98.8 Free float (%) 37.2%
Net income 59.2 39.3 67.5 71.1 Avg. daily turnover 3M (PLNm) 0.2
P/E (x) 7.7 11.6 6.7 6.4 Price performance
1M 3M YTD
EV/EBITDA (x) 9.2 11.4 8.5 8.1 -1.8% -4.5% -10.9% Source: Company data, DM BZ WBK estimates
Fig. 1. ABC Data: 3Q14 results review
Polish Equity Research
10
PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q
Sales 752 1,304 760 742 892 1,300 1,089 1,096 1,212 1,425 1,169 1,391 1,375 13.4% -1.1%
EBITDA 11.7 19.3 13.2 8.0 9.5 28.1 16.9 14.9 19.5 28.3 12.7 22.5 8.0 -58.9% -64.3%
EBITDA margin 1.6% 1.5% 1.7% 1.1% 1.1% 2.2% 1.5% 1.4% 1.6% 2.0% 1.1% 1.6% 0.6% -1.0 -1.0
EBIT 10.4 18.3 12.3 7.3 8.7 27.3 16.3 14.4 18.9 27.6 12.2 21.9 7.5 -60.5% -65.9%
EBIT margin 1.4% 1.4% 1.6% 1.0% 1.0% 2.1% 1.5% 1.3% 1.6% 1.9% 1.0% 1.6% 0.5% -1.0 -1.0
Net profit 6.4 29.5 6.4 0.2 5.0 19.5 11.0 14.3 14.2 19.7 6.8 11.2 2.0 -86.0% -82.2%
Net margin 0.9% 2.3% 0.8% 0.0% 0.6% 1.5% 1.0% 1.3% 1.2% 1.4% 0.6% 0.8% 0.1% -1.0 -0.7
Source: Company data, DM BZ WBK estimates
Fig. 2. ABC Data: Forecasts changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previuos Change New Previuos Change New Previuos Change
Sales 5,623 5,787 -2.8% 5,924 5,924 0.0% 6,267 6,267 0.0%
EBITDA 72.4 86.6 -16.4% 96.5 96.5 0.0% 101.6 101.6 0.0%
EBIT 70.2 84.4 -16.8% 93.8 93.8 0.0% 98.8 98.8 0.0%
Net profit 39.3 51.5 -23.6% 67.5 67.5 0.0% 71.1 71.1 0.0% Source: Company data, DM BZ WBK estimates
Fig. 3. ABC Data: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 4.00 4.10 -2.4%
Comparable valuation (based on 2014-2016E) 3.76 3.76 0.0% Source: Company data, DM BZ WBK estimates
Fig. 4. ABC Data: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 3,693 4,822 5,623 5,924 6,267
COGS 3,509 4,596 5,358 5,650 5,977
Gross profit 183.8 226.5 265.9 273.9 289.5
SG&A 132.8 151.0 198.2 180.1 190.7
Other operating income, net 4.6 1.7 2.4 0.0 0.0
EBITDA 58.8 79.6 72.4 96.5 101.6
Operating profit 55.6 77.2 70.2 93.8 98.8
Net financial income (costs) -11.4 -9.1 -11.6 -10.5 -11.2
Profit before tax 44.2 68.0 58.6 83.3 87.6
Income tax 9.0 8.9 19.3 15.8 16.6
Net profit 31.1 59.2 39.3 67.5 71.1
Gross margin 5.0% 4.7% 4.7% 4.6% 4.6%
EBITDA margin 1.6% 1.6% 1.3% 1.6% 1.6%
Operating margin 1.5% 1.6% 1.2% 1.6% 1.6%
Net profit margin 0.8% 1.2% 0.7% 1.1% 1.1%
Source: Company data, DM BZ WBK estimates
Fig. 5. ABC Data: Balance sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 824 842 995 1,065 1,152
Fixed assets 73 75 81 85 87
Total assets 896 917 1,076 1,151 1,239
Current liabilities 587 600 765 817 875
bank debt 112 141 230 253 278
Long-term liabilities 21 1 1 1 1
bank debt 20 0 0 0 0
Equity 288 316 310 332 363
share capital 125 125 125 125 125
Minority Interest 0 0 0 0 0
Total liabilities 896 917 1,076 1,151 1,239
Net debt 118 124 220 228 231
Source: Company data, DM BZ WBK estimates
Fig. 6. ABC Data: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 73.7 30.1 -42.4 43.8 43.1
CF from investment -1.8 -4.0 -8.3 -7.3 -4.8
CF from financing -67.6 -22.7 44.1 -22.1 -15.2
Net change in cash 4.3 3.3 -6.7 14.4 23.1
Source: Company data, DM BZ WBK estimates
Polish Equity Research
11
Poland Automotive
NOVEMBER 12, 2014
ACE RECOMMENDATION
BUY (INITIATION)
A highly probable rise in earnings CURRENT PRICE: PLN10.7
TARGET PRICE: PLN16.5
Equity Story. We are initiating our coverage of ACE, a leading
supplier of disc brake system components in Europe, with a Buy
recommendation and a target price of PLN16.5 per share (54%
upside!). We expect the company to improve its profitability in the
coming years due to efficiency improvements in Fuchosa (Spain),
implementation and utilisation of nodular iron technology in Feramo
(Czech Rep.) and new aluminium projects in EBCC (Poland). That
said, we expect the gross margin to rise on improving sales in 2015E
and 2016E, by 1.5pp and by 0.5pp to 23.5% and 24%, respectively.
We thus expect company to show substantial net profit dynamics in
years ahead. Given ACE’s strong cash generation nature we see the
company as attractive from dividend pay-outs point of view.
Automotive market outlook. According to PWC, Autofacts
passenger and light-commercial vehicle production (key driver for
ACE volumes) should grow y/y by 5.4% in EU in 2014, though fall by
0.3% in the CEE region. For 2015 and beyond, PWC expects the
European automotive market to continue to grow, albeit at a slower
pace (2013-2018 CAGR at 3.4%).
Financials. We forecast ACE revenues in 2014E at EUR98.1mn (-
3% y/y), while in 2015E company’s sales should go up to
EUR101.1mn (+3% y/y). For 2016E We expect ACE revenues to
grow 5% y/y (above the market CAGR for 2013-2018), when the
company should be fully utilising its new capacities and projects.
EBIT is expected to rise to EUR4.9mn (+10% y/y) in 2014E, to
EUR5.8mn (+19% y/y) in 2015E and to EUR7.1mn (+21% y/y) in
2016E. That said, the net profit margin should rise to 4.1% (2015E)
and 4.9% (2016E) from 2.8% in 2014E.
Risks/triggers. The deepening slowdown in the European economy
could hit sales of passenger cars and LCV sales and this is the key
risk that we see for ACE’s business. Among other risks, the delay in
obtaining homologation for its products could also harm the pace of
the company’s earnings growth in the future years.
Valuation & recommendation. Based on our DCF model, we arrived
at a 12 month TP of PLN16.5 per share, which implies a 54% upside
potential. We thus initiate our coverage of ACE with a Buy
recommendation.
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
n/a n/a n/a n/a n/a n/a
COMPANY DESCRIPTION
The ACE group (casting company) is a leading supplier of disc brake system components to the production-focused European automotive industry (Tier 2). The company’s main products are: iron anchors and aluminum calipers. The company’s production is based in three plants in Spain (Fuchosa), Poland (EBCC) and the Czech Republic (Feramo).
Main shareholders % of votes
Casting brake (Spain) 11.45%
PZU pension fund 15.91%
Aviva pension fund 14.70%
ING pension fund 14.13%
ANALYST
Tomasz Kasowicz (+48) 22 586 81 55
Company Data
EURmn 2013 2014E 2015E 2016E Reuters/Bloomberg codes ACEP.WA / ACE PW
Sales 100.8 98.1 101.2 106.5 Market capitalisation (PLNm) 230.1
EBITDA 10.4 10.4 11.3 12.6 Number of shares (m) 21.2
EBIT 4.5 4.9 5.8 7.1 Free float (%) 82.7%
Net income 1.9 2.7 4.1 5.2 Avg. daily turnover 3M (PLNm) 0.1
P/E (x) 28.1 20.1 13.2 10.4 Price performance
1M 3M YTD
EV/EBITDA (x) 6.6 6.6 6.1 5.5 -4.5% -9.7% -33.9%
Source: Company data, BZ WBK Brokerage research
Polish Equity Research
12
Fig. 1. ACE: DCF valuation EUR in millions, unless otherwise stated
DCF valuation 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E beyond
EBIT 5.8 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1
Tax rate 19% 19% 19% 19% 19% 19% 19% 19% 19% 19% 19%
Taxes on EBIT -1.1 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3
NOPLAT 4.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7
Depreciation 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5
Capital expenditures 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 5.5
Change in working capital 0.4 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Free cash flow 5.4 6.2 6.7 6.7 6.7 6.7 6.7 6.7 6.7 6.7 5.7
Terminal growth rate
1.0%
Terminal value
93.7
Discount factor 0.93 0.87 0.81 0.76 0.71 0.66 0.62 0.58 0.54 0.50 0.47
Discounted free cash flow at 31.12.2014 5.0 5.4 5.5 5.1 4.8 4.4 4.1 3.9 3.6 3.4 47.1
Enterprise value 92.3 Net debt at 31.12.2014 14.3 Minorities 0.0 Proceeds from non-core assets 0.0 Fair value at 31.12.2014 78.0 Number of shares 21.2 Fair value per share at 31.12.2014 3.7 Cost of equity 9.0% 12M Target Price in EUR 4.0 EUR/PLN rate 4.2 12M Target Price in PLN 16.5 Curren value per share 10.7 Up/downside 54.3%
PV FCF/PV TV 49%
2015E P/E @ TP (x) 20.4 2015E EV/EBITDA @ TP (x) 8.7
Source: Company data, BZ WBK Brokerage
Fig. 2. ACE: Comparable valuation
P/E EV/EBITDA
2014E 2015E 2016E 2014E 2015E 2016E
BREMBO SPA 14.5 12.9 11.7 6.6 5.9 5.4
ELRINGKLINGER AG 15.0 13.2 11.7 6.7 6.1 5.6
FISCHER (GEORG)-REG 11.9 10.2 9.5 5.6 5.1 4.8
SOGEFI 15.3 8.5 6.9 2.1 1.7 1.5
VALEO SA 12.7 10.9 9.6 5.0 4.4 4.0
LE BELIER 8.8 7.7 6.8 4.4 3.8 3.4
TRW AUTOMOTIVE HOLDINGS CORP 13.2 12.0 11.0 6.2 5.7 5.2
POLYTEC HOLDING AG 9.8 7.9 6.9 4.0 3.2 2.9
AKEBONO BRAKE INDUSTRY CO 22.6 15.7 9.8 n/a 2.8 2.3
CIE AUTOMOTIVE SA 18.2 12.4 10.6 4.9 4.1 3.7
NISSIN KOGYO CO LTD 10.2 10.0 8.8 4.3 4.0 3.6
Median international peers 13.2 10.9 9.6 4.9 4.1 3.7
ACE 20.1 13.2 10.4 6.6 6.1 5.5
Premium/discount 53% 21% 8% 34% 49% 48%
Implied value (in PLN per share) 7.0 8.8 9.9 10.0 9.1 9.1
Source: BZ WBK Brokerage research, company data, Bloomberg
Polish Equity Research
13
Fig. 3. ACE: 3Q14 results preview EUR in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Sales 22.8 25.3 27.2 26.0 23.1 22.3 26.1 26.7 24.1 24.0 26.6 25.5 22.8 -5.3% -10.5%
EBITDA 2.5 2.7 2.1 2.5 1.7 1.9 2.0 2.8 2.2 3.4 3.1 2.7 2.3 3.7% -15.5%
EBITDA margin 11% 11% 8% 10% 7% 9% 8% 11% 9% 14% 11% 10% 10% 0.9 -0.6
EBIT 1.1 1.1 0.8 1.3 0.6 0.4 0.8 1.6 0.9 1.2 1.7 1.3 0.9 -2.3% -35.0%
EBIT margin 5% 4% 3% 5% 3% 2% 3% 6% 4% 5% 7% 5% 4% 0.1 -1.4
Net profit -0.1 0.5 0.8 0.3 0.7 0.6 0.2 0.7 0.6 0.5 1.0 0.6 0.5 -8.1% -6.7%
Net margin -1% 2% 3% 1% 3% 3% 1% 2% 2% 2% 4% 2% 2% -0.1 0.1
Source: Company data, BZ WBK Brokerage
Fig. 4. ACE: Forecast changes EUR in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 98.1 n/a n/a 101.2 n/a n/a 106.5 n/a n/a
EBITDA 10.4 n/a n/a 11.3 n/a n/a 12.6 n/a n/a
EBIT 4.9 n/a n/a 5.8 n/a n/a 7.1 n/a n/a
Net profit 2.7 n/a n/a 4.1 n/a n/a 5.2 n/a n/a
Source: Company data, BZ WBK Brokerage Fig. 5. ACE: Valuation changes In PLN per share, unless otherwise stated
New Previous Change Weight
DCF valuation 16.5 n/a n/a 100%
Comparable valuation (based on 2014-2016E) 9.0 n/a n/a 0%
Source: Company data, BZ WBK Brokerage
Fig. 6. ACE: Income statement forecast EUR in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 98.6 100.8 98.1 101.2 106.5
COGS -81.6 -81.4 -76.1 -77.4 -81.2
Gross profit 17.0 19.5 22.0 23.8 25.3
SG&A -15.4 -15.8 -17.7 -18.0 -18.2
Other operating income, net 1.5 0.8 0.6 0.0 0.0
EBITDA 8.3 10.4 10.4 11.3 12.6
Operating profit 3.1 4.5 4.9 5.8 7.1
Net financial income (costs) -0.4 -1.1 -0.8 -0.8 -0.6
Profit before tax 2.7 3.3 4.1 5.1 6.5
Income tax -0.3 -1.4 -1.4 -1.0 -1.2
Net profit 2.4 1.9 2.7 4.1 5.2
Gross margin 17.2% 19.3% 22.4% 23.5% 23.8%
EBITDA margin 8.4% 10.3% 10.6% 11.2% 11.8%
Operating margin 3.1% 4.4% 5.0% 5.8% 6.6%
Net profit margin 2.4% 1.9% 2.8% 4.1% 4.9%
Source: Company data, BZ WBK Brokerage
Fig. 7. ACE: Balance Sheet forecast EUR in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 36.0 31.2 30.0 30.9 32.4
Fixed assets 47.1 45.6 45.8 44.9 44.0
Total assets 83.1 76.8 75.9 75.8 76.4
Current liabilities 20.4 21.9 22.6 21.9 22.3
bank debt 3.5 5.2 7.0 6.1 4.7
Long-term liabilities 22.1 17.2 18.0 16.1 13.3
bank debt 18.5 14.0 14.8 12.9 10.0
Equity 40.7 37.7 35.2 37.7 40.9
share capital 3.2 3.2 3.2 3.2 3.2
Minority Interest 0.0 0.0 0.0 0.0 0.0
Total liabilities 83.1 76.8 75.9 75.8 76.4
Net debt 9.5 11.5 14.3 11.2 6.6
Source: Company data, BZ WBK Brokerage
Fig. 8. ACE: Cash flow forecast EUR in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 3.8 8.2 9.0 9.4 11.4
CF from investment -11.5 -5.1 -5.8 -4.5 -4.5
CF from financing -1.0 -7.8 -3.5 -4.7 -6.5
Net change in cash -8.7 -4.8 -0.2 0.2 0.4
Source: Company data, BZ WBK Brokerage
Polish Equity Research
14
This page has been left intentionally blank.
Polish Equity Research
15
Poland IT Distribution
NOVEMBER 12, 2014
ACTION RECOMMENDATION
BUY (MAINTAINED)
In line with official guidance CURRENT PRICE: PLN46.62
TARGET PRICE: PLN69.7 (MAINTAINED)
3Q14 Results Preview. Most of the growth in 3Q14 sales
at Action, as was the case in the previous quarter, should
come from operations abroad. For 3Q14, we expect export
sales to expand by 42% y/y and the domestic sales, in line
with the market, by 3% y/y. Overall, we expect the
company’s sales at PLN1.33bn (+17% y/y). We see the
gross margin at 6.10% vs. 6.02% in 3Q13 and estimate the
SG&A costs at PLN59.0mn (SG&A/sales ratio at 4.43%).
The EBIT should reach PLN21.3mn and the net profit
PLN15.7m (+12% y/y, net margin at 1.17%). Outcome:
POSITIVE.
Recent developments. The company has recently signed
two large contracts for hardware shipments with science
universities in Krakow and Gdynia worth PLN41.0mn and
PLN30.6mn, respectively. CEO Mr. Piotr Bielinski recently
sold 150k shares at PLN47/share. According to his
statement, the cash will be used to capitalise game
developer Action Game Labs (Action 40% subsidiary).
2014 guidance. The company sees its 2014 revenues at
PLN5.45bn and the net profit at PLN70.9mn. 1H14 results
account for 46% of the forecasted FY14 sales and 47% on
the net level. Our forecasts for 2014 are higher than the
guidance by 3% both on the top-line and the net level.
Change in Forecasts. We apply no changes to our model.
Change in Valuation & Recommendation. We keep our
12-month Target Price for Action at PLN69.7 and maintain
our Buy rating for the stock. The comparative valuation
points to PLN39.40 per share.
STOCK PERFORMANCE
ACT
TP
WIG Relative
0
10
20
30
40
50
60
70
80
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10-23-2014 46.0 69.7 1.3% 0.9
Buy 7-9-2014 43.0 69.7 7.0% 1.8
Buy 4-28-2014 46.9 65.0 -8.3% -6.6
Buy 1-30-2014 49.0 69.0 -4.3% -6.6
MAIN SHAREHOLDERS
% of votes
Mr. Piotr Bielinski 20.9%
Mrs. Aleksandra Matyka 18.6%
Generali pension fund 10.8%
Mr. Wojciech Wietrzykowski 7.2%
Aviva pension fund 5.9%
COMPANY DESCRIPTION
One of the largest IT distribution company in Poland.
ANALYST
Lukasz Kosiarski (+48) 22 586 82 25
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes ACT.WA / ACT PW
Sales 4,749 5,640 6,619 7,396 Market capitalisation (PLNm) 774
EBITDA 91 110 135 143 Number of shares (m) 16.6
EBIT 82 98 118 127 Free float (%) 53.2%
Net income 62 73 90 97 Avg. daily turnover 3M (PLNm) 0.6
P/E (x) 12.9 10.9 8.9 8.2 Price performance
1M 3M YTD
EV/EBITDA (x) 9.5 7.9 6.4 6.1 -0.8% 12.7% -2.9% Source: Company data, DM BZ WBK estimates
Polish Equity Research
16
Fig. 1. Action: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Sales 669 1,023 788 752 827 1,148 1,132 989 1,140 1,488 1,324 1,197 1,333 16.9% 11.3%
EBITDA 16.5 24.0 18.0 16.9 18.8 25.9 22.6 21.1 21.1 26.6 25.8 24.1 23.8 12.6% -1.3%
EBITDA margin 2.5% 2.3% 2.3% 2.2% 2.3% 2.3% 2.0% 2.1% 1.8% 1.8% 1.9% 2.0% 1.8% -0.1 -0.2
EBIT 13.7 21.0 15.1 14.0 16.0 23.1 20.3 18.8 18.7 24.2 23.5 21.6 21.3 13.8% -1.4%
EBIT margin 2.1% 2.1% 1.9% 1.9% 1.9% 2.0% 1.8% 1.9% 1.6% 1.6% 1.8% 1.8% 1.6% 0.0 -0.2
Net profit 10.1 15.0 11.1 9.3 11.0 16.8 15.0 13.3 14.0 19.3 17.3 15.9 15.7 12.0% -1.5%
Net margin 1.5% 1.5% 1.4% 1.2% 1.3% 1.5% 1.3% 1.3% 1.2% 1.3% 1.3% 1.3% 1.2% -0.1 -0.2
Source: Company data, DM BZ WBK estimates
Fig. 2. Action: Forecasts changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 5,640 5,640 0.0% 6,619 6,619 0.0% 7,396 7,396 0.0%
EBITDA 109.7 109.7 0.0% 134.9 134.9 0.0% 143.4 143.4 0.0%
EBIT 98.2 98.2 0.0% 118.2 118.2 0.0% 126.8 126.8 0.0%
Net profit 72.5 72.5 0.0% 89.6 89.6 0.0% 97.2 97.2 0.0% Source: Company data, DM BZ WBK estimates
Fig. 3. Action: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 69.7 69.7 0.0%
Comparable valuation (based on 2014-2016E) 39.4 39.4 0.0% Source: Company data, DM BZ WBK estimates
Fig. 4. Action: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 3,515 4,749 5,640 6,619 7,396
COGS 3,288 4,452 5,293 6,220 6,957
Gross profit 226.8 297.1 347.8 399.2 439.1
SG&A 158.5 210.5 247.9 279.3 310.7
Other operating income, net 0.0 -4.6 -1.7 -1.7 -1.7
EBITDA 79.6 91.4 109.7 134.9 143.4
Operating profit 68.3 82.1 98.2 118.2 126.8
Net financial income (costs) -7.3 -5.2 -7.2 -7.7 -6.7
Profit before tax 60.9 76.9 91.0 110.6 120.0
Income tax 12.7 16.1 18.5 21.0 22.8
Net profit 48.3 61.6 72.5 89.6 97.2
Gross margin 6.5% 6.3% 6.2% 6.0% 5.9%
EBITDA margin 2.3% 1.9% 1.9% 2.0% 1.9%
Operating margin 1.9% 1.7% 1.7% 1.8% 1.7%
Net profit margin 1.4% 1.3% 1.3% 1.4% 1.3%
Source: Company data, DM BZ WBK estimates
Fig. 5. Action: Balance sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 763 1,021 1,090 1,157 1,229
Fixed assets 138 151 182 171 159
Total assets 901 1,172 1,273 1,328 1,389
Current liabilities 636 854 902 952 1,011
bank debt 107 107 107 107 107
Long-term liabilities 5 23 55 55 56
bank debt 0 20 50 50 50
Equity 260 295 316 320 322
share capital 2 2 2 2 2
Minority Interest 0 0 0 0 0
Total liabilities 901 1,172 1,273 1,328 1,389
Net debt 99 44 143 160 178
Source: Company data, DM BZ WBK estimates
Fig. 6. Action: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 14.7 102.4 -24.4 13.2 2.0
CF from investment -5.9 -21.9 -43.3 -5.3 -4.8
CF from financing -9.3 -6.0 -0.7 -25.6 -15.1
Net change in cash -0.5 74.5 -68.4 -17.6 -17.9
Source: Company data, DM BZ WBK estimates
Polish Equity Research
17
Poland Industrials
NOVEMBER 12, 2014
ALUMETAL RECOMMENDATION
BUY (INITIATION)
Automotive shift to CEE CURRENT PRICE: PLN44.0
TARGET PRICE: PLN52.4
Equity Story. Alumetal is the fourth biggest secondary aluminium
(aluminium casting alloys) producer in Europe, enjoying superior
profitability over its competitors thanks to an advanced metal
management system, its modern facilities and lower staff costs. The
company is capitalising on the shift of the automotive industry production
to the CEE region from Western Europe. According to OICA data, the
share of the CEE5 countries (Poland, Hungary, Czech Republic, Slovakia
and Slovenia) in EU engine and gearbox production (main use for
aluminium casting alloys) rose to 13% in 2012 from 1% in 2005 and this
trend continues. Following the second stage of the Nowa Sol project,
which expanded capacities by additional 33kt, we expect Alumetal to
reach a nearly 93% utilisation this year. The company decided to launch a
greenfield investment in Hungary, which will expand its capacities by
another 60kt (to 225kt), starting from 4Q16. We believe that this a good
move for Alumetal as it has a dominant position on the domestic market
(with a 50% market share) and has already established a base of clients
in Southern Europe (Hungary is, for instance, its third biggest export
market so far). The Hungarian project should allow Alumetal to grow by
leaps and bounds once more. The strong balance sheet and cash
generation will enable it to finance this project (CAPEX of PLN120mn)
and to simultaneously maintain its 50% dividend payout and safe
indebtedness levels (net debt/EBITDA’16 at 1.2x)
Financials. We assumed the alloy-to-scrap spread at PLN1,365/t for the
forecasted period, in line with the historical average. Having said that, the
company should be able to maintain its 8.5% gross profit margin. We also
expect the new capacities in Hungary to be utilised in 65% in the first full
year of their running (though this will cannibalise the previous Hungarian
sales).
Triggers/Risks. The company is heavily exposed to the automotive
segment (90% of sales), so any worsening environment in this industry
will have a negative impact on the company’s financials. The company
has a good track record of utilising new capacities but the Hungarian
project is Alumetal’s first greenfield investment.
Valuation & recommendation. Our DCF model points to a TP of
PLN52.4 per share. The comparative valuation points to PLN41.8 but
since the peer group is flawed (no listed close peers), we have set our TP
at PLN52.4, implying a 19% upside potential.
STOCK PERFORMANCE
AML
WIG Relative
30
32
34
36
38
40
42
44
46
Ju
l-14
Ju
l-14
Aug
-14
Aug
-14
Aug
-14
Sep
-14
Sep
-14
Sep
-14
Oct-
14
Oct-
14
Oct-
14
No
v-1
4
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
COMPANY DESCRIPTION
Company is a biggest polish and 4th biggest in Europe
manufacturer of secondary aluminium casting alloys used primarily in automotive sector.
Main shareholders % of votes
Ipopema 30 FIZAN 40.0%
Aviva pension fund 10.0%
ING pension fund 5.5%
ANALYST
Tomasz Kucinski +48 22 534 16 10
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes AMT.WA / AML PW
Sales 1015.3 1197.3 1263.3 1322.7 Market capitalisation (PLNmn) 663.3
EBITDA 54.0 75.4 90.1 93.7 Number of shares (mn) 15.1
EBIT 37.1 56.2 69.0 68.2 Free float (%) 42.5%
Net income 35.8 55.8 62.1 60.5 Avg. daily turnover 3M (PLNm) 0.7
P/E (x) 18.5 11.9 10.7 11.0 Price performance
1M 3M YTD
EV/EBITDA (x) 13.6 9.8 8.5 8.3 7.6% 25.8% n.a. Source: Company data, DM BZ WBK estimates
Polish Equity Research
18
Fig. 1. Alumetal: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Revenues 1,197.3 1,263.3 1,322.7 1,547.7 1,578.7 1,610.3 1,642.5 1,667.1 1,692.1 1,717.5
EBIT 56.2 67.0 66.2 82.1 83.7 85.4 87.1 88.4 89.8 91.1
Cash taxes on EBIT 0.0 2.7 2.6 2.6 2.7 2.7 13.2 13.4 14.3 17.3
NOPAT 56.2 64.3 63.5 79.5 81.1 82.7 73.9 75.0 75.4 73.8
Depreciation 19.2 21.1 25.5 26.3 26.3 26.3 26.3 26.3 26.3 26.3
Change in operating WC 31.8 11.6 10.5 39.6 5.5 5.6 5.7 4.3 4.4 4.5
Capital expenditures 10.0 70.0 52.0 26.3 26.3 26.3 26.3 26.3 26.3 26.3
Net investment 22.6 60.6 37.0 39.6 5.5 5.6 5.7 4.3 4.4 4.5
Free cash flow 78.7 3.8 26.6 39.8 75.6 77.1 68.2 70.7 71.0 69.3
WACC 8.2%
PV FCF 2014-2023 320.5
Terminal growth 1.0%
Terminal value (TV) 976.7
PV TV 481.8
Total EV 802.3
Net debt 74.8
Equity value 727.5
Number of shares (mn) 15.1
Value per share (PLN, 31 Dec 2014) 48.3
Month 11.0
Curent value per share (PLN) 47.9
12M target price 52.4
Source: Company data, DM BZ WBK estimates
Fig. 2. Alumetal: Comparable valuation
Price Mkt cap (EURmn)
P/E EV/EBITDA
2014E 2015E 2016E 2014E 2015E 2016E
Alumetal SA 43.6 155 11.9 10.7 11.0 9.8 8.5 8.3
AMAG Austria Metall AG 26.99 951.8 20 16.1 13.1 9.1 7.6 6.7
Hindalco Industries Ltd 156.1 4,224 11.3 9.1 7.3 8.3 7.0 6.3
Alcoa Inc 16.33 15,483 20.0 15.3 13.5 8.4 6.7 6.1
United Co RUSAL PLC 4.25 6,699 14.8 6.9 6.5 14.4 10.3 9.5
Grupa Kety SA 288.05 639 14.0 13.1 12.7 8.7 8.4 8.1
Impexmetal SA 2.75 130 9.2 9.2 9.2 7.4 6.8 6.5
Median 14.4 11.1 10.9 8.5 7.3 6.6
Premium/discount vs. median -15.0% 16.7% -17.4% -3.9% 0.6% 14.9%
Source: BZ WBK Brokerage research, company data
Polish Equity Research
19
Fig. 3. Alumetal: 3Q14 results review PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q
Sales n.a. n.a. n.a. n.a. n.a. n.a. 244.1 225.4 274.2 271.6 311.4 305.2 292.3 6.6% -4.2%
EBITDA n.a. n.a. n.a. n.a. n.a. n.a. 9.2 9.4 16.4 18.4 22.8 13.3 19.7 20.1% 48.1%
EBITDA margin n.a. n.a. n.a. n.a. n.a. n.a. 3.8% 4.2% 6.0% 6.8% 7.3% 4.4% 6.7% 0.8 2.4
EBIT n.a. n.a. n.a. n.a. n.a. n.a. 5.2 5.4 12.4 14.1 18.0 8.5 14.9 20.2% 75.3%
EBIT margin n.a. n.a. n.a. n.a. n.a. n.a. 2.1% 2.4% 4.5% 5.2% 5.8% 2.8% 5.1% 0.6 2.3
Net profit n.a. n.a. n.a. n.a. n.a. n.a. 5.7 4.8 12.4 12.9 17.2 10.7 14.0 12.9% 30.8%
Net margin n.a. n.a. n.a. n.a. n.a. n.a. 2.3% 2.1% 4.5% 4.8% 5.5% 3.5% 4.8% 0.3 1.3
Source: Company data, DM BZ WBK estimates
Fig. 4. Alumetal: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 1197.3 n.a. n.a. 1263.3 n.a. n.a. 1322.7 n.a. n.a.
EBITDA 75.4 n.a. n.a. 90.1 n.a. n.a. 93.7 n.a. n.a.
EBIT 56.2 n.a. n.a. 69.0 n.a. n.a. 68.2 n.a. n.a.
Net profit 55.8 n.a. n.a. 62.1 n.a. n.a. 60.5 n.a. n.a.
Source: Company data, DM BZ WBK estimates
Fig. 5. Alumetal: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 52.4 n.a. n.a.
Comparable valuation (based on 2014-2016E) 41.8 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. Alumetal: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 845 1015 1197 1263 1323
COGS 784 953 1096 1156 1210
Gross profit 61 62 101 107 112
SG&A 25 28 38 40 46
Other operating income, net 4 3 -4 2 2
EBITDA 53 54 75 90 94
Operating profit 39 37 56 69 68
Net financial income (costs) 4 2 2 4 5
Profit before tax 37 36 55 65 63
Income tax 3 1 0 3 3
Net profit 34 36 56 62 61
Gross margin 7.2% 6.2% 8.5% 8.5% 8.5%
EBITDA margin 6.3% 5.3% 6.3% 7.1% 7.1%
Operating margin 4.7% 3.6% 4.7% 5.5% 5.2%
Net profit margin 4.1% 3.5% 4.7% 4.9% 4.6%
Source: Company data, DM BZ WBK estimates
Fig. 7. Alumetal: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 237 272 345 340 351
Fixed assets 196 210 201 250 296
Total assets 432 483 547 591 647
Current liabilities 140 165 210 195 199
bank debt 56 60 92 72 70
Long-term liabilities 43 33 33 57 80
bank debt 18 11 11 37 44
Equity 249 285 304 338 368
share capital 248 284 302 336 366
Minority Interest 0 0 0 0 0
Total liabilities 433 483 547 591 647
Net debt 72 70 75 103 114
Source: Company data, DM BZ WBK estimates
Fig. 8. Ambra:: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 52 36 43 72 76
CF from investment -13 -35 -10 -72 -55
CF from financing -39 -2 -5 -22 -25
Net change in cash 0 -1 28 -22 -4
Source: Company data, DM BZ WBK estimates
Polish Equity Research
20
This page has been left intentionally blank.
Polish Equity Research
21
Poland FMCG
NOVEMBER 12, 2014
AMBRA RECOMMENDATION
BUY (INITIATION)
Growing on cider CURRENT PRICE: PLN8.8
TARGET PRICE: PLN12.0
Equity Story. Ambra is the leading wine and strong, non-vodka
alcohol distributor in Poland with a high c.50% share of own
brands in its portfolio. Ambra also distributes its products in
Romania (c.13% share) and the Czech Republic (c.10%). The
company’s portfolio includes popular brands, such as: Dorato,
Cin&Cin, Piccolo, ElSol, Fesco and Cydr Lubelski. Ambra offers
investors exposition to the continuously growing wine market (c-4-
5% pa), despite the recent slowdown to just 0-1% in 2014. The
company has recently invested in cider production and a new
brand ‘Cydr Lubelski’ to benefit from the rising popularity of this
soft apple drink in Poland. The cider market is likely to grow to
40mn litres in the next five years, which would constitute just
c.1% of the beer market. Ambra can be distinguished from other
WSE companies by a good FcF profile. Since its managers
turned the company around from when it faced problems with
foreign investments in 2008, Ambra generates a stable OCF (avg.
conversion ratio at 0.8x), which, along with the limited CAPEX,
makes it possible to deliver an attractive FcF yield (11.5% in
2008-13 on average). This has allowed Ambra to start paying
attractive DY since 2012, which should, in our view, continue in
the coming years.
Financials. We expect the 2014/15E results to be pretty much
flat y/y, with growth appearing in 2015/16E on the rising positive
impact of ‘Cydr Lubelski’. We expect Ambra to earn a net profit of
PLN16mn and an EBITDA of PLN42mn on sales of PLN468mn
(+12% y/y due to the rising sales of cider). In regards to the cider
project, we expect an EBIT loss of PLN2mn on sales of 29mn in
2014/15E, which will turn into an EBIT profit of PLN2mn next
year. In the long run (2018/19E), we estimate that cider might
give a PLN6mn boost to Ambra’s bottom line.
Valuation & recommendation. Ambra is currently trading with a
PE of 14x and 11x in 2014/15-15/16, respectively, which implies a
premium vs. fair PE (c.10x). On the other hand, we believe that
the relatively high FcF yield justifies such a premium. Based on
our DCF model, we arrived at a 12-month TP of PLN12.0 per
share, which implies a 38% upside potential. We initiate Ambra’s
coverage with a Buy rating.
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
COMPANY DESCRIPTION
Ambra is one of the largest Polish beverage manufacturers and distributors.
Main shareholders % of votes
Sektkellerei Schloss-Wachenheim 61.1%
Aviva pension fund 7.6%
Mr. Nick Gunther Reh 1.3%
Free float 30.0%
ANALYST
Tomasz Sokolowski (+48) 22 586 82 36
Company Data
PLNm 2013/14 2014/15E 2015/16E 2016/17E Reuters/Bloomberg codes AMB.WA / AMB PW
Sales 418.2 467.9 479.5 492.9 Market capitalisation (PLNm) 222
EBITDA 41.0 41.7 46.2 47.4 Number of shares (m) 25.2
EBIT 30.2 30.5 34.6 35.4 Free float (%) 37.3%
Net income 16.5 15.8 19.6 21.1 Avg. daily turnover 3M (PLNm) 0.1
P/E (x) 13.4 14.0 11.3 10.5 Price performance
1M 3M YTD
EV/EBITDA (x) 7.5 7.7 6.8 6.6 -4.9% -3.5% -13.4% Source: Company data, DM BZ WBK estimates
Polish Equity Research
22
Fig. 1. Ambra: DCF valuation PLN in millions, unless otherwise stated
2014/15E 2015/16E 2016/17E 2017/18E 2018/19E 2019/20E 2020/21E 2021/22E 2022/23E 2023/24E
Net sales 468 479 493 507 523 531 537 543 550 557
EBIT 31 35 35 36 35 35 33 32 31 30
Cash taxes on EBIT 5 6 6 6 6 6 6 6 5 5
NOPAT 26 29 30 30 29 29 27 26 26 25
Depreciation 11 12 12 12 13 13 14 14 14 15
Change in operating WC 13 2 3 3 3 1 1 1 1 1
Capital expenditure 10 11 17 13 14 14 15 15 16 16
Free cashflow 14 27 22 26 25 26 25 24 23 22
WACC (2014-23) 8.0%
PV FCF 2014-23 157
Terminal growth 2.5%
Terminal Value (TV) 447
PV TV 207
Total EV 364
Net debt 86
minorities 4
Equity value 274
Number of shares (m) 25.2
Value per share (PLN, 1 Jan 2014/15) 10.9
Month 11
Current value per share (PLN) 11.0
Year-end target price (PLN) 12.0
Source: Company data, DM BZ WBK estimates
Fig. 2. Ambra: Comparable valuation
P/E EV/EBITDA ROE g'13-15E PEG2Y
Name 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E Sales EBITDA net
WHOLESALE
METRO 15.4 12.6 10.5 4.9 4.7 4.5 10% 12% 13% 0% -4% -324% 0.0
BOOKER 26.4 21.9 19.5 16.7 14.3 12.9 17% 19% 20% 2% 9% 7% 3.1
SYSCO 21.7 20.1 18.7 10.7 10.1 9.4 19% 19% 20% 5% 7% 10% 2.0
SIAM MAKRO 36.7 29.2 23.7 23.4 18.7 15.3 44% 49% 54% 15% 25% 22% 1.3
BIZIM 28.9 22.1 17.7 9.4 8.0 6.6 17% 21% 24% 12% 14% 1% 23.2
Median 26.4 21.9 18.7 10.7 10.1 9.4 17% 19% 20% 5% 9% 7% 2.0
Ambra 14.0 11.3 10.5 7.7 6.8 6.6 7% 9% 9% 14.7% 12.8% 18.6% 0.6
vs. wholesalers -47% -48% -44% -28% -33% -30%
Source: BZ WBK Brokerage research, company data
Polish Equity Research
23
Fig. 3. Ambra: 3Q14 results review PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q
Sales 84.3 187.2 71.2 86.4 80.0 188.7 65.8 90.0 86.1 174.8 68.8 88.5 86.8 0.7% -1.9%
EBITDA 7.0 33.4 4.6 1.8 7.9 34.5 -0.7 0.7 9.8 31.3 -0.2 0.0 9.0 -7.9% 47168.4%
EBITDA margin 8.3% 17.8% 6.4% 2.0% 9.9% 18.3% -1.1% 0.8% 11.3% 17.9% -0.2% 0.0% 10.1% -122 1008
EBIT 4.5 30.7 -3.2 -1.0 5.3 31.9 -3.1 -2.2 7.1 28.6 -2.8 -2.7 6.3 -11.0% -334.2%
EBIT margin 5.4% 16.4% -4.5% -1.2% 6.7% 16.9% -4.7% -2.4% 8.2% 16.4% -4.1% -3.0% 7.1% -106 1016
Net profit 2.7 20.7 -4.8 -2.6 1.6 20.7 -3.2 -2.6 3.4 20.3 -3.4 5.8 2.4 -28.1% -57.9%
Net margin 3.3% 11.0% -6.7% -3.0% 2.0% 11.0% -4.9% -2.9% 3.9% 11.6% -4.9% 6.5% 3.4% -54 -314
Source: Company data, DM BZ WBK estimates
Fig. 4. Ambra: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 468 n.a. n.a. 479 n.a. n.a. 493 n.a. n.a.
EBITDA 41 n.a. n.a. 46 n.a. n.a. 47 n.a. n.a.
EBIT 30 n.a. n.a. 34 n.a. n.a. 35 n.a. n.a.
Net profit 15 n.a. n.a. 19 n.a. n.a. 21 n.a. n.a.
Source: Company data, DM BZ WBK estimates
Fig. 5. Ambra: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 12.0 n.a. n.a.
Comparable valuation (based on 2014-2016E) 15.4 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. Ambra: Income statement forecast PLN in millions, unless otherwise stated
12/13 13/14 14/15E 15/16E 16/17E
Net sales 425 418 468 479 493
COGS 284 286 320 327 338
Gross profit 141 132 148 152 155
SG&A 105 101 118 117 119
Other operating income, net -4 -1 0 0 0
EBITDA 42 41 42 46 47
Operating profit 32 30 31 35 35
Net financial income (costs) -7 -6 -6 -5 -4
Profit before tax 25 24 25 29 31
Income tax 9 -2 9 10 10
Net profit 17 26 16 20 21
Gross margin 33.1% 31.6% 31.7% 31.7% 31.4%
EBITDA margin 10.0% 9.8% 8.9% 9.6% 9.6%
Operating margin 7.5% 7.2% 6.5% 7.2% 7.2%
Net profit margin 3.9% 6.2% 3.4% 4.1% 4.3%
Source: Company data, DM BZ WBK estimates
Fig. 7. Ambra: Balance Sheet forecast PLN in millions, unless otherwise stated
12/13 13/14 14/15E 15/16E 16/17E
Current assets 229 222 243 258 267
Fixed assets 190 197 196 196 201
Total assets 420 419 439 454 468
Current liabilities 149 142 160 162 165
bank debt 72 73 83 83 83
Long-term liabilities 30 23 23 23 23
bank debt 26 20 20 20 20
Equity 212 226 224 233 240
share capital 93 93 93 93 93
Minority Interest 29 28 32 36 40
Total liabilities 420 419 439 454 468
Net debt 84 86 100 90 88
Source: Company data, DM BZ WBK estimates
Fig. 8. Ambra: Cash flow forecast PLN in millions, unless otherwise stated
12/13 13/14 14/15E 15/16E 16/17E
CF from operations 27 29 10 27 28
CF from investment -5 -18 -10 -11 -17
CF from financing -13 -18 -4 -7 -9
Net change in cash 8 -7 -4 9 2
Source: Company data, DM BZ WBK estimates
Polish Equity Research
24
This page has been left intentionally blank.
Polish Equity Research
25
Poland Industrials
NOVEMBER 12, 2014
AMICA RECOMMENDATION
BUY (INITIATION)
Hot investment CURRENT PRICE: PLN109
TARGET PRICE: PLN149
Equity Story. Following the 2010 plans sale to Samsung, we estimate
that 2014 will be the fourth year in a row with EBITDA growth exceeding
20%. This year could mark, however, a turnaround for Amica and be the
first year of strong growth without a contribution from the Russian market
that used to be the main driver in the past. Amica is doing extraordinarily
well on the Polish market, taking full advantage of the good market
environment, Mastercook’s bankruptcy, and combining these two factors
with a successful marketing campaign. It has also started to grow
dynamically on some of the Western markets (Germany and UK above
all). We believe that exports, mainly to the Western markets, and growth
in the non-heating segment in Poland should in the coming years be
offsetting the likely further slowdown on the Russian market and problems
with retaining a very high (ca. 60%) market share in free-standing heating
equipment in Poland. We believe that Amica is a company that doesn’t
bite off more than it can chew – it picks new markets wisely and enters
them cautiously, yet effectively. It does so without taking too much risk –
either by entering big distribution channels without huge marketing
expenditures or by making opportunistic acquisitions. What is more,
Amica has strong balance sheet, with its net debt*/EBITDA at 0.9x –
much lower than its peers.
Financials. We estimate Amica’s 2014 y/y sales growth at 17.3%
(domestic market up by 26% y/y, and the Russian, PLN-denominated
sales down 4% y/y), which implies an EBITDA of PLN155mn (+23.8% y/y)
and a net profit of PLN80.6mn. We estimate the 2015 and 2016 sales
growth at 5.8% and 3.7%, respectively, which translates into an EPS 14-
16 CAGR of 9.3%.
Triggers/Risks. The Russian market remains the key risk for Amica – the
Russian economy is deteriorating and further RUB depreciation could be
at some point impossible to be passed onto the final consumer. The
situation with Fagor’s assets in Poland could be an additional risk but we
don’t believe Mastercook brand will be able to make a comeback.
Valuation & recommendation. Based on our DCF model, we arrived at
the 12 month TP at PLN149 per share, which implies a 37% upside
potential. Amica is currently trading with a P/E’14 of 10.5x (please also
note that the company’s PnL and cash tax rates differ significantly) and
the EV/EBITDA’14 at 6.4x, i.e. with significant discounts to its international
peers. The comparative valuation yields a similar result and points to
PLN150.
STOCK PERFORMANCE
AMC
WIG Relative
10
30
50
70
90
110
130
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
COMPANY DESCRIPTION
Amica is a producer of household appliances. Company specializes in heating equipment and is a clear leader on the Polish market in free-standing segment.
Main shareholders % of votes
Holding Wronki 56.3%
ING pension fund 8.4%
ANALYST
Tomasz Kucinski +48 22 534 16 10
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes AMCP.WA / AMC PW
Sales 1,656 1,942 2,055 2,131 Market capitalisation (PLNmn) 891.4
EBITDA 125 155 160 172 Number of shares (mn) 7.8
EBIT 96 123 128 133 Free float (%) 35.8%
Net income 89 81 93 96 Avg. daily turnover 3M (PLNm) 1.3
P/E (x) 9.5 10.5 9.1 8.8 Price performance
1M 3M YTD
EV/EBITDA (x)* 8.2 6.4 6.1 5.5 3.8% 23.9% 2.4% Source: Company data, DM BZ WBK estimates
*taking into account factoring of PLN100mn in 2014 (growing accordingly to sales growth afterwards)
Polish Equity Research
26
Fig. 1. Amica: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Revenues 1,941.9 2,054.8 2,130.8 2,167.5 2,217.3 2,268.3 2,320.6 2,363.4 2,407.1 2,451.7
EBIT 122.7 127.6 132.8 137.2 140.4 143.6 147.0 149.8 145.3 148.1
Cash taxes on EBIT 8.3 9.3 22.2 23.1 5.0 5.6 6.3 25.5 24.6 25.1
NOPAT 114.4 118.4 110.5 114.1 135.4 138.0 140.7 124.3 120.7 122.9
Depreciation 32.2 32.8 39.3 39.8 40.3 40.8 41.3 46.8 52.4 53.1
Change in operating WC 32.0 16.5 11.2 5.4 7.3 7.5 7.7 6.3 6.4 6.5
Capital expenditures 40.0 85.0 43.2 43.8 44.3 44.9 85.5 91.5 57.7 58.4
Net investment 39.8 68.8 15.1 9.4 11.3 11.6 51.8 51.0 11.7 11.8
Free cash flow 74.6 49.6 95.4 104.7 124.0 126.4 88.9 73.3 109.1 111.1
WACC 9.1%
PV FCF 2014-2023 573.8
Terminal growth 1.0%
Terminal value (TV) 1,388.6
PV TV 635.2
Total EV 1,208.9
Net debt 143.6
Equity value 1,065.4
Number of shares (mn) 7.8
Value per share (PLN, 31 Dec 2014) 137.0
Month 11.0
Current value per share (PLN) 136.0
12M target price 149.0
Source: Company data, DM BZ WBK estimates
Fig. 2. Amica: Comparable valuation
Price
Mkt cap (EURmn)
P/E EV/EBITDA
2014E 2015E 2016E 2014E 2015E 2016E
Amica Wronki 108 199 10.5 9.2 8.8 6.4 6.1 5.5
Indesit 11.0 1,253 33.1 19.5 16.1 8.6 7.4 6.6
Arcelik 13.2 3,162 13.1 11.7 10.1 n.a. n.a. n.a.
Electrolux 206.7 6,925 19.6 14.5 12.2 9.1 7.0 6.1
Whirlpool 175.8 11,011 15.1 12.4 10.8 8.2 6.3 5.2
Gorenje 6.6 161 19.6 10.7 5.6 6.3 5.7 5.1
De' Longhi 15.2 2,275 18.3 15.6 14.0 9.3 8.4 7.7
Median 18.9 13.4 11.5 8.6 7.0 6.1
Premium/discount vs. median -44.6% -31.4% -23.6% -25.9% -12.4% -9.2%
Source: BZ WBK Brokerage research, company data
Polish Equity Research
27
Fig. 3. Amica: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Sales 404.3 437.6 360.5 329.5 427.0 447.9 346.7 364.3 445.6 497.1 427.6 449.9 521.4 17.0% 15.9%
EBITDA 22.9 25.2 18.7 14.8 38.9 28.1 25.3 18.2 33.6 46.0 34.0 38.7 41.6 23.8% 7.6%
EBITDA margin 5.7% 5.8% 5.2% 4.5% 9.1% 6.3% 7.3% 5.0% 7.5% 9.3% 7.9% 8.6% 8.0% 0.4 -0.6
EBIT 17.7 19.3 12.8 8.7 32.8 21.2 18.7 10.4 26.4 38.6 25.5 31.0 33.6 27.2% 8.7%
EBIT margin 4.4% 4.4% 3.6% 2.7% 7.7% 4.7% 5.4% 2.9% 5.9% 7.8% 6.0% 6.9% 6.5% 0.5 -0.4
Net profit 20.6 60.5 12.3 0.3 17.6 16.2 12.9 5.4 41.4 29.6 13.1 20.6 23.9 -42.3% 16.0%
Net margin 5.1% 13.8% 3.4% 0.1% 4.1% 3.6% 3.7% 1.5% 9.3% 6.0% 3.1% 4.6% 4.6% -4.7 0.0
Source: Company data, DM BZ WBK estimates
Fig. 4. Amica: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 1942 n.a. n.a. 2055 n.a. n.a. 2131 n.a. n.a.
EBITDA 155 n.a. n.a. 160 n.a. n.a. 172 n.a. n.a.
EBIT 123 n.a. n.a. 128 n.a. n.a. 133 n.a. n.a.
Net profit 81 n.a. n.a. 93 n.a. n.a. 96 n.a. n.a.
Source: Company data, DM BZ WBK estimates
Fig. 5. Amica: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 149 n.a. n.a.
Comparable valuation (based on 2014-2016E) 150 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. Amica: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 1565 1656 1942 2055 2131
COGS 1129.6 1141.4 1324.1 1403.2 1454.7
Gross profit 435.4 514.6 617.8 651.6 676.1
SG&A 363.8 422.0 493.5 524.0 543.4
Other operating income, net 2.7 3.6 -1.7 0.0 0.0
EBITDA 99.2 125.2 154.9 160.4 172.1
Operating profit 74.3 96.3 122.7 127.6 132.8
Net financial income (costs) 11.8 15.2 23.2 13.2 13.9
Profit before tax 62.5 81.0 99.5 114.5 118.8
Income tax 16.5 -8.0 18.9 21.7 22.6
Net profit 46.4 89.4 80.6 92.7 96.3
Gross margin 27.8% 31.1% 31.8% 31.7% 31.7%
EBITDA margin 6.3% 7.6% 8.0% 7.8% 8.1%
Operating margin 4.7% 5.8% 6.3% 6.2% 6.2%
Net profit margin 3.0% 5.4% 4.1% 4.5% 4.5%
Source: Company data, DM BZ WBK estimates
Fig. 7. Amica: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 485.4 535.3 621.8 653.9 702.9
Fixed assets 353.5 397.8 391.0 428.2 429.2
Total assets 838.8 933.1 1012.8 1082.1 1132.0
Current liabilities 368.7 410.3 438.2 445.9 455.4
bank debt 81.5 60.7 69.1 62.1 61.9
Long-term liabilities 49.2 51.6 49.0 42.0 41.9
bank debt 35.0 37.8 35.2 28.2 28.1
Equity 421.6 472.2 525.6 594.1 634.8
share capital 406.1 456.7 510.0 578.6 619.2
Minority Interest -0.7 -1.0 0.0 0.0 0.0
Total liabilities 838.8 933.1 1012.8 1082.1 1132.0
Net debt 41 73 44 29 0
Source: Company data, DM BZ WBK estimates
Fig.8. Amica: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 95 81 81 109 124
CF from investment -69 -74 -25 -70 -40
CF from financing 26 -57 -20 -38 -56
Net change in cash 52 -50 35 1 28
Source: Company data, DM BZ WBK estimates
Polish Equity Research
28
This page has been left intentionally blank.
Polish Equity Research
29
Poland Industrials
NOVEMBER 12, 2014
APATOR RECOMMENDATION
HOLD (INITIATION)
Obstacles for growth? CURRENT PRICE: PLN38.0
TARGET PRICE: PLN42.4
Equity Story. Apator has a long track record of growth, attributable to
successful acquisitions and growth of the traditional meters’ market. Now
that the markets seem either mature or declining, its products’ offer is
comprehensive and market share high, the company needs to come up
with something new. Apator sees significant opportunities in the smart
meter market (hence the idea of the Elkomtech acquisition). According to
EU guidelines, each country should replace 80% of all the electricity
meters with a smart version by 2020. Only 16 EU countries decided,
however, to do so (five EU countries also decided to implement intelligent
gas meters) and others (including most of Poland’s neighbours) decided
against a massive rollout, claiming that it is, at least to a significant extent,
poor value for money. So far, based on the first tenders, it does not look
like this will be a producer’s market – competition is high and pricing, the
most important criterion, aggressive. The situation on the export markets
does not look much different either. Apator just signed its first electricity
smart metering contract, but it looks like conquering this potentially
attractive market will not be a piece of cake, even for such an experienced
company.
Financials. We are of the opinion that Apator will not reach its
management’s sales forecast, likely reporting PLN711mn. It will, however,
in our opinion exceed the net profit forecast of PLN75-78mn (+22.8% y/y,
roughly flat, however, if adjusting for Elkomtech and other operating
income). The upcoming years will bring slow growth (EPS14-16 CAGR
assumed at 5.1%), with only 2019-2020 finally offering a pickup in the
company’s results due to the smart metering project’s reaching its final
and most valuable stages.
Triggers/Risks. The main risk for Apator’s future is the shape of the
smart metering market, mainly in Poland but also on the company’s export
markets, and, more specifically, the factors that will drive this market.
Please note also that Apator has quite a significant exposure to the
Russian market – 9.2% of its consolidated sales in 1H14
Valuation & recommendation. We are initiating coverage with a
Hold recommendation and a TP of PLN42.4 (adding back the interim
dividend that will be paid in December). The comparative valuation points
to PLN41.1, treating the treasury shares as a cash equivalent (without the
possible tax impact, however) or PLN43.7, assuming the treasury shares
get cancelled.
STOCK PERFORMANCE
APT WIG Relative
10
15
20
25
30
35
40
45
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
COMPANY DESCRIPTION
Apator is a polish leading Polish supplier of metering systems for all the utility services and also low voltage switchgear.
Main shareholders % of votes
Mariusz Lewicki 9.8%
Tadeusz Sosgórnik 8.7%
Danuta Guzowska 7.8%
Zbigniew Jaworski 6.4%
Apator Mining 6.4%
Janusz Marzyglinski 6.2%
ANALYST
Tomasz Kucinski +48 22 534 16 10
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes APTP.WA / APT PW
Sales 684.0 710.9 744.6 777.7 Market capitalisation (PLNmn) 1,257.4
EBITDA 107.2 130.3 136.6 141.3 Number of shares (mn) 33.1
EBIT 86.5 108.1 112.0 116.7 Free float (%) 51.5%
Net income 68.1 83.7 88.1 92.4 Avg. daily turnover 3M (PLNm) 0.3
P/E (x) 18.5 15.0/13.4 14.3/12.8 13.6/12.1 Price performance
1M 3M YTD
EV/EBITDA (x) 10.9 9.2 8.5 8.1 1.3% 10.1% 3.7% Source: Company data, DM BZ WBK estimates
Polish Equity Research
30
Fig. 1. Apator: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Revenues 710.9 744.6 777.7 782.9 810.4 836.4 849.6 759.4 766.0 772.7
EBIT 108.1 112.0 116.7 117.8 121.8 125.9 128.3 116.6 117.5 118.3
Cash taxes on EBIT 15.8 16.6 17.5 17.7 18.4 23.9 21.1 18.8 19.0 22.5
NOPAT 92.2 95.4 99.2 100.1 103.3 101.9 107.3 97.8 98.5 95.9
Depreciation 22.2 24.6 24.6 24.6 24.6 24.6 24.6 24.6 24.6 24.6
Change in operating WC 11.2 7.8 7.9 1.2 6.5 6.2 3.1 -21.6 1.6 1.6
Capital expenditures 134.9 24.6 24.6 24.6 24.6 24.6 24.6 24.6 24.6 24.6
Net investment 123.9 7.8 7.9 1.2 6.5 6.2 3.1 -21.6 1.6 1.6
Free cash flow -31.7 87.6 91.3 98.9 96.8 95.8 104.2 119.4 96.9 94.3
WACC 8.4%
PV FCF 2014-2023 598.0
Terminal growth 1.0%
Terminal value (TV) 1,281.1
PV TV 618.3
Total EV 1,216.4
Net debt -58.6
Minority interests 1.5
Equity value 1,273.5
Number of shares (mn) 33.1
Value per share (PLN, 31 Dec 2014) 38.5
Month 11.0
Curent value per share (PLN) 38.2
interim dividend per share 0.3
12M target price 42.4
Source: Company data, DM BZ WBK estimates
Fig. 2. Apator: Comparable valuation
Price Currency P/E EV/EBITDA
2014E 2015E 2016E 2014E 2015E 2016E
Apator SA 38.28 300 15.0 14.4 14.1 9.2 8.7 8.4
Aplisens SA 13.2 42 12.0 n.a. n.a. 7.3 n.a. n.a.
Schneider Electric SE 61.75 36,037 16.3 14.5 13.0 11.1 10.1 9.3
Osaki Electric Co Ltd 707 191 19.8 13.4 11.7 8.8 7.1 6.7
Vaisala OYJ 22.09 403 21.3 16.7 13.3 3.9 3.7 6.7
Badger Meter Inc 57.1 664 27.2 22.7 20.2 14.5 12.3 n.a.
Itron Inc 41.28 1,297 25.2 18.9 15.5 10.8 9.3 8.0
Median 20.6 16.7 13.3 9.8 9.3 7.3
Premium/discount vs. median -27.1% -14.0% 6.0% -6.1% -6.0% 14.5%
Source: BZ WBK Brokerage research, company data
Polish Equity Research
31
Fig. 3. Apator: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Sales 145.1 164.8 163.1 146.9 188.8 170.0 167.4 173.5 162.7 175.5 152.9 181.9 179.8 10.5% -1.1%
EBITDA 29.2 24.9 26.1 22.9 48.1 18.7 22.4 28.2 32.8 24.8 26.9 33.3 33.6 2.6% 0.9%
EBITDA margin 20.1% 15.1% 16.0% 15.6% 25.5% 11.0% 13.4% 16.2% 20.1% 14.1% 17.6% 18.3% 18.7% -1.4 0.4
EBIT 25.0 20.7 21.9 18.4 43.5 13.7 17.3 23.0 27.5 19.6 21.8 27.6 27.9 1.5% 1.0%
EBIT margin 17.2% 12.5% 13.4% 12.5% 23.0% 8.0% 10.3% 13.3% 16.9% 11.2% 14.3% 15.2% 15.5% -1.4 0.3
Net profit 16.8 15.5 16.3 33.5 34.3 10.8 12.9 16.9 21.7 16.8 16.1 21.9 21.7 -0.4% -1.2%
Net margin 11.6% 9.4% 10.0% 22.8% 18.2% 6.3% 7.7% 9.8% 13.4% 9.6% 10.5% 12.1% 12.0% -1.3 0.0
Source: Company data, DM BZ WBK estimates
Fig. 4. Apator: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 710.9 n.a. n.a. 736.6 n.a. n.a. 751.3 n.a. n.a.
EBITDA 130.3 n.a. n.a. 135.6 n.a. n.a. 137.9 n.a. n.a.
EBIT 108.1 n.a. n.a. 110.9 n.a. n.a. 113.3 n.a. n.a.
Net profit 83.7 n.a. n.a. 87.2 n.a. n.a. 89.5 n.a. n.a.
Source: Company data, DM BZ WBK estimates
Fig. 5. Apator: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 42.4 n.a. n.a.
Comparable valuation (based on 2014-2016E) 41.1 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. Apator: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 669 684 711 745 778
COGS 484 482 489 510 532
Gross profit 185 202 222 235 245
SG&A 107 113 118 123 129
Other operating income, net 20 -2 5 2 2
EBITDA 116 107 130 137 141
Operating profit 98 87 108 112 117
Net financial income (costs) 6 3 5 3 3
Profit before tax 92 83 103 109 114
Income tax -4 14 20 21 22
Net profit 95 68 84 88 92
Gross margin 27.6% 29.5% 31.3% 31.0% 31.0%
EBITDA margin 17.4% 15.7% 18.3% 18.3% 18.2%
Operating margin 14.7% 12.6% 15.2% 15.0% 15.0%
Net profit margin 14.2% 10.0% 11.8% 11.8% 11.9%
Source: Company data, DM BZ WBK estimates
Fig. 7. Apator: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 255 261 337 360 373
Fixed assets 249 258 346 341 337
Total assets 504 519 683 701 710
Current liabilities 159 168 169 172 174
bank debt 44 51 51 51 51
Long-term liabilities 45 29 129 109 89
bank debt 15 11 111 91 71
Equity 298 325 388 424 450
share capital 18 18 18 18 18
Minority Interest 0 0 0 0 0
Total liabilities 503 519 683 701 710
Net debt 15 42 78 46 23
Source: Company data, DM BZ WBK estimates
Fig. 8. Apator: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 139 64 95 105 109
CF from investment -64 -42 -111 -20 -20
CF from financing -56 -47 80 -73 -86
Net change in cash 20 -24 64 12 3
Source: Company data, DM BZ WBK estimates
Polish Equity Research
32
This page has been left intentionally blank.
Polish Equity Research
33
Poland IT
NOVEMBER 12, 2014
ASSECO SEE RECOMMENDATION
BUY (INITIATION)
Overcoming headwinds CURRENT PRICE: PLN7.51
TARGET PRICE: PLN10.30
Equity Story. Asseco South Eastern Europe (ASE) operates in
11 Balkan countries and in three segments – banking systems,
payments and integration. The company is a regional leader and,
in countries like Serbia, has a market position as strong as
Asseco Poland on the Polish market. ASE was created from a
merger of many smaller local companies and it remains active on
the M&A field. It has a relatively good track record in acquisitions
and has a transparent capital group structure. It successfully
carried out buyouts of minority stakes at the acquired companies,
something that Asseco Poland seems unable to do. ASE
operates on markets that are less developed than in Poland and
which should yield higher growth rates in the long-term. But the
poor macro environment has so far not allowed the positive
scenario to materialise.
Financials. From the beginning of 2014, the company has been
switching its payments business into a full outsourcing model.
This leads to higher CAPEX on payment terminals, which is
mostly financed by bank debt. The P&L impact is a higher top-line
and EBITDA, flat EBIT. In our opinion, the mix of organic growth
and acquisitions will allow ASE to continue the recovery that
started in 2014. The payments business unit should report the
fastest pace of growth, while the share of the least marginable
integration segment in revenues should shrink. We expect ASE to
report a net profit of PLN36.4mn and PLN37.7mn in 2014E and
2015E, respectively, which implies the 2014E P/E at 11.1x and
2015E P/E 10.4x. We expect the dividend pay-out at 60% of the
net profit, which gives an attractive DY close to 6%. At our TP,
Asseco SEE still offers an attractive 4% DY.
Triggers/Risks. The company is a play for the macro recovery in
the SEE region. It has had troubles coping with the difficult market
conditions in the last couple of years. The macro rebound should,
however, be very positive to ASE’s business. We have not
factored in any solid recovery into our model and are, therefore,
leaving it as a pure upside for the company’s shareholders.
Valuation & recommendation. Based on our DCF model, we
arrived at a 12 month TP of PLN10.30 per share, which implies a
37% upside potential. In our model, we applied a beta of 1.2 due
to the presence on the less developed Balkan markets. The
comparative valuation points to PLN8.9 per share.
STOCK PERFORMANCE
ASE
WIG Relative
6
7
8
9
10
11
12
13
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
COMPANY DESCRIPTION
Asseco South Eastern Europe is a developer of IT solutions for business.
MAIN SHAREHOLDERS
% of votes
Asseco Poland 51.1%
EBRD 9.3%
Liatris 7.4%
Aviva pension fund 7.4%
ANALYST
Lukasz Kosiarski (+48) 22 586 82 25
Company Data
PLNmn 2013 2014E 2015E 2016E Reuters/Bloomberg codes ASEP.WA / ASE PW
Sales 471.7 475.5 503.7 529.1 Market capitalisation (PLNm) 390
EBITDA 56.1 66.3 76.7 81.9 Number of shares (m) 51.9
EBIT 42.1 44.2 47.9 51.7 Free float (%) 32.3%
Net income 35.9 37.7 38.9 41.9 Avg. daily turnover 3M (PLNm) 0.0
P/E (x) 10.9 10.4 10.1 9.4 Price performance
1M 3M YTD
EV/EBITDA (x) 5.0 4.4 3.8 3.5 -3.7% -1.1% -19.1% Source: Company data, DM BZ WBK estimates
Polish Equity Research
34
Fig. 1. Asseco South Eastern Europe: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Net sales 475.5 503.7 529.1 549.1 567.5 583.4 595.9 609.0 622.9 637.5
EBIT 44.2 47.9 51.7 54.2 55.8 56.5 56.4 56.1 55.9 55.6
Cash taxes on EBIT 7.1 9.1 9.8 10.3 10.6 10.7 10.7 10.7 10.6 10.6
NOPAT 37.1 38.8 41.9 43.9 45.2 45.8 45.6 45.5 45.3 45.1
Depreciation 22.2 28.8 30.2 31.8 33.3 35.0 36.8 38.6 40.5 42.6
Change in operating WC 0.3 3.6 3.3 2.6 2.3 2.0 1.5 1.6 1.7 1.8
Capital expenditure 50.8 42.2 42.4 41.4 37.3 39.1 40.9 42.9 44.9 47.1
Free cashflow 8.1 21.7 26.4 31.7 38.9 39.8 40.0 39.6 39.2 38.7
WACC (2014-23) 9.0%
PV FCF 2014-23 193.6
Terminal growth 1.0%
Terminal Value (TV) 541.0
PV TV 228.5
Total EV 422.2
Net debt -54.7
Equity value 460.1
Number of shares (m) 51.89
Value per share (PLN, 1 Jan 2014/15) 8.87
Month 11
Current value per share (PLN) 9.53
12-month target price (PLN) 10.30
Source: Company data, DM BZ WBK estimates
Fig. 2. Asseco South Eastern Europe: Comparable valuation
Market
Cap P/E EV/EBITDA
Company Price Currency (EURmn) 2014E 2015E 2016E 2014E 2015E 2016E
Asseco South Eastern Europe 7.51 PLN 92 10.3 10.0 9.3 5.2 4.5 4.1
Peers
Asseco Poland 49.71 PLN 976 11.7 13.3 12.4 4.3 4.2 3.8
Asseco Business Solutions 12.30 PLN 97 13.8 13.6 13.0 7.5 7.4 7.0
Asseco Central Europe 16.05 PLN 81 7.6 6.8 n.a. n.a. n.a. n.a.
Comp 60.30 PLN 84 9.9 10.6 14.4 6.3 5.4 6.4
Sygnity 17 PLN 47 10.7 8.5 8.0 5.1 4.1 3.5
GFI Informatique 5.06 EUR 276 12.5 10.4 9.5 5.7 5.1 4.7
Neurones 14 EUR 330 17.5 17.0 17.3 5.9 5.4 5.0
Reply 56.70 EUR 530 12.6 10.9 8.8 6.3 5.5 4.9
Cap Gemini 52 EUR 8,302 14.6 13.1 11.8 7.0 6.1 5.3
Computacenter 622.00 GBp 1,106 13.2 12.5 11.7 6.2 5.6 5.1
SAP 54 EUR 66,216 15.6 14.5 13.3 10.9 9.5 8.2
Indra Sistemas 8 EUR 1,329 11.2 9.8 8.8 7.1 6.4 5.9
Median 12.6 10.7 11.7 6.3 5.5 5.1
Implied share price vs. peers (PLN) 9.1 8.0 9.4 8.9 9.1 9.0
Implied price (PLN) 8.9
Source: BZ WBK Brokerage research, company data
Polish Equity Research
35
Fig. 3. Asseco South Eastern Europe: 3Q14 results review PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q
Sales 116.1 146.3 105.3 116.5 103.4 137.3 100.6 113.0 107.3 150.8 99.3 121.0 115.2 7.3% -4.8%
EBITDA 17.2 21.3 14.8 14.7 14.5 19.3 13.1 12.5 13.2 17.2 12.6 16.2 18.1 37.0% 11.8%
EBITDA margin 14.8% 14.5% 14.1% 12.7% 14.0% 14.1% 13.0% 11.1% 12.3% 11.4% 12.7% 13.4% 15.7% 3.4 2.3
EBIT 15.0 18.8 12.3 12.1 11.9 16.3 9.9 9.0 9.8 13.5 8.0 10.5 11.9 22.0% 12.9%
EBIT margin 12.9% 12.8% 11.7% 10.4% 11.5% 11.8% 9.8% 8.0% 9.1% 8.9% 8.1% 8.7% 10.3% 1.2 1.6
Net profit 13.3 18.3 12.7 11.0 11.0 15.0 7.8 7.4 8.6 12.2 7.0 9.1 9.2 7.3% 1.4%
Net margin 11.4% 12.5% 12.1% 9.4% 10.6% 10.9% 7.8% 6.5% 8.0% 8.1% 7.1% 7.5% 8.0% 0.0 0.5
Source: Company data, DM BZ WBK estimates
Fig. 4. Asseco South Eastern Europe: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 475.5 n.a. n.a. 503.7 n.a. n.a. 529.1 n.a. n.a.
EBITDA 66.3 n.a. n.a. 76.7 n.a. n.a. 81.9 n.a. n.a.
EBIT 44.2 n.a. n.a. 47.9 n.a. n.a. 51.7 n.a. n.a.
Net profit 37.7 n.a. n.a. 38.9 n.a. n.a. 41.9 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 5. Asseco South Eastern Europe: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 10.3 n.a. n.a.
Comparable valuation (based on 2014-2016E) 8.9 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. Asseco SEE: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 462.5 471.7 475.5 503.7 529.1
COGS 337.9 354.2 359.4 381.1 400.0
Gross profit 124.6 117.5 116.1 122.6 129.0
SG&A 72.6 75.6 71.9 74.7 77.3
Other operating income, net 0.7 0.2 0.0 0.0 0.0
EBITDA 63.4 56.1 66.3 76.7 81.9
Operating profit 52.6 42.1 44.2 47.9 51.7
Net financial income (costs) 2.0 1.3 0.8 0.1 0.0
Profit before tax 54.6 43.4 44.9 48.0 51.7
Income tax 5.1 7.4 7.2 9.1 9.8
Net profit 49.6 35.9 37.7 38.9 41.9
Gross margin 26.9% 24.9% 24.4% 24.3% 24.4%
EBITDA margin 13.7% 11.9% 13.9% 15.2% 15.5%
Operating margin 11.4% 8.9% 9.3% 9.5% 9.8%
Net profit margin 10.7% 7.6% 7.9% 7.7% 7.9%
Source: Company data, DM BZ WBK estimates
Fig. 7. Asseco SEE: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 218.7 214.0 230.2 252.9 265.2
Fixed assets 541.1 563.4 592.1 605.7 618.0
Total assets 759.8 777.4 822.3 858.5 883.2
Current liabilities 89.1 116.0 124.3 137.6 143.5
bank debt 0.5 6.3 13.3 20.0 20.0
Long-term liabilities 5.8 12.4 28.2 34.8 35.0
bank debt 0.8 7.9 23.6 30.0 30.0
Equity 664.7 648.8 669.9 686.1 704.7
share capital 518.9 518.9 518.9 518.9 518.9
Minority Interest 0.2 0.2 0.0 0.0 0.0
Total liabilities 759.8 777.4 822.3 858.5 883.2
Net debt -82.3 -54.7 -46.9 -47.7 -52.3
Source: Company data, DM BZ WBK estimates
Fig. 8. Asseco SEE: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 54.2 40.5 59.8 65.9 70.4
CF from investment -54.9 -25.6 -50.9 -42.4 -42.6
CF from financing -28.2 -30.0 6.0 -9.6 -23.3
Net change in cash -28.9 -15.0 14.9 13.9 4.5
Source: Company data, DM BZ WBK estimates
Polish Equity Research
36
This page has been left intentionally blank.
Polish Equity Research
37
Poland IT
NOVEMBER 12, 2014
ASSECO BUSINESS SOLUTIONS RECOMMENDATION
BUY (INITIATION)
Programmed to generate cash CURRENT PRICE: PLN12.30
TARGET PRICE: PLN16.40
Equity Story. Asseco Business Solutions (ABS) is a unique
company in the Asseco group. It is a product company, not a
simple software integrator, and this is why it is able to generate
one of the highest margins in the Asseco group. The company
operates in two segments – ERP systems and FMCG-dedicated
mobile applications – that both have a similar share in the
revenues. ABS is one of market leaders in the saturated FMCG
mobile applications market in Poland. To maintain growth in this
segment, ABS decided this year to start selling its Mobile Touch
product abroad. The company is a typical cash cow. It has low
CAPEX and working capital requirements, it generates stable and
high FCFs. It also has a strong balance sheet despite its dividend
payouts of 100% of the net profit for the last couple of years.
Financials. In our opinion 1) the supportive ERP market, which is
correlated with the overall macro situation in Poland and 2) the
company’s foreign expansion with the FMCG application should
allow it to sustain mid-single digit y/y growth pace for the next
three-four years. Asseco BS trades at 2014E P/E 13.9x and
2015E P/E 13.5x, with a premium vs. the parent company, for
example, but offers an attractive DY at above 7%. At our TP,
Asseco BS still offers a decent 5% DY.
Triggers/Risks. In our opinion, the foreign expansion with the
FMCG-dedicated products is the major valuation driver for
Asseco BS. It aims to sustain growth in the segment now that the
local market is already saturated. Asseco BS is planning to
expand in two directions and in cooperation with other companies
in the Asseco group – Western Europe with Asseco Solutions and
Russia with R-Style. The company has already signed its first
large contract in this regard. That said, we also see a potential
upside from further distribution of the cash surplus to its
shareholders – in addition to the 100% dividend, the company
can easily afford to launch a share buyback program.
Valuation & recommendation. Based on our DCF model, we
arrived at a 12 month TP of PLN16.40 per share, which implies a
33% upside potential. In our opinion, due to the attractive product
mix, high DY and strong balance sheet, ABS fully deserves the
premium vs. its peers. The comparative valuation points to
PLN10.3 per share.
STOCK PERFORMANCE
ABS
WIG Relative
6
7
8
9
10
11
12
13
14
15
16
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
COMPANY DESCRIPTION
Asseco Business Solutions is a developer of IT solutions for business.
MAIN SHAREHOLDERS
% of votes
Asseco Poland 46.5%
Metlife pension fund 10.5%
Aviva pension fund 9.8%
ANALYST
Lukasz Kosiarski (+48) 22 586 82 25
Company Data
PLNmn 2013 2014E 2015E 2016E Reuters/Bloomberg codes ABSP.WA / ABS PW
Sales 146.0 155.2 164.0 173.4 Market capitalisation (PLNm) 411
EBITDA 43.4 47.3 48.3 50.8 Number of shares (m) 33.4
EBIT 31.8 35.1 35.5 37.4 Free float (%) 47.2%
Net income 26.8 29.8 30.1 31.7 Avg. daily turnover 3M (PLNm) 0.0
P/E (x) 15.2 13.7 13.6 12.9 Price performance
1M 3M YTD
EV/EBITDA (x) 6.9 6.3 6.2 5.9 0.6% 10.6% -5.4% Source: Company data, DM BZ WBK estimates
Polish Equity Research
38
Fig. 1. Asseco Business Solutions: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Net sales 155.2 164.0 173.4 180.1 187.0 192.6 198.3 204.1 210.2 216.4
EBIT 35.1 35.5 37.4 38.7 40.0 41.0 42.1 43.4 44.7 46.0
Cash taxes on EBIT 6.7 6.7 7.1 7.3 7.6 7.8 8.0 8.2 8.5 8.7
NOPAT 28.5 28.7 30.3 31.3 32.4 33.2 34.1 35.1 36.2 37.2
Depreciation 12.2 12.8 13.4 14.1 14.8 15.5 16.3 17.1 18.0 18.9
Change in operating WC 2.1 1.2 1.3 0.9 0.9 0.8 0.8 0.8 0.8 0.9
Capital expenditure 13.8 13.5 14.1 14.8 15.5 16.3 17.1 18.0 18.8 19.8
Free cashflow 24.8 26.9 28.3 29.7 30.7 31.7 32.5 33.5 34.5 35.5
WACC (2014-23) 8.0%
PV FCF 2014-23 201.9
Terminal growth 1.0%
Terminal Value (TV) 519.9
PV TV 240.8
Total EV 442.7
Net debt -54.7
Equity value 470.7
Number of shares (m) 33.42
Value per share (PLN, 1 Jan 2014/15) 14.08
Month 11
Current value per share (PLN) 15.14
12-month target price (PLN) 16.40
Source: Company data, DM BZ WBK estimates
Fig. 2. Asseco Business Solutions: Comparable valuation
Market
Cap P/E EV/EBITDA
Company Price Currency (EURmn) 2014E 2015E 2016E 2014E 2015E 2016E
Asseco Business Solutions 12.30 PLN 97 13.8 13.6 13.0 7.5 7.4 7.0
Peers
Asseco Poland 49.71 PLN 976 11.7 13.3 12.4 4.3 4.2 3.8
Asseco South Eastern Europe 7.51 PLN 92 10.3 10.0 9.3 5.2 4.5 4.1
Asseco Central Europe 16.05 PLN 81 7.6 6.8 n.a. n.a. n.a. n.a.
Comp 60.30 PLN 84 9.9 10.6 14.4 6.3 5.4 6.4
Sygnity 17 PLN 47 10.7 8.5 8.0 5.1 4.1 3.5
GFI Informatique 5.06 EUR 276 12.5 10.4 9.5 5.7 5.1 4.7
Neurones 14 EUR 330 17.5 17.0 17.3 5.9 5.4 5.0
Reply 56.70 EUR 530 12.6 10.9 8.8 6.3 5.5 4.9
Cap Gemini 52 EUR 8,302 14.6 13.1 11.8 7.0 6.1 5.3
Computacenter 622.00 GBp 1,106 13.2 12.5 11.7 6.2 5.6 5.1
SAP 54 EUR 66,216 15.6 14.5 13.3 10.9 9.5 8.2
Indra Sistemas 8 EUR 1,329 11.2 9.8 8.8 7.1 6.4 5.9
Median 12.6 10.7 11.7 6.3 5.5 5.1
Implied share price vs. peers (PLN) 11.2 9.7 11.1 10.6 9.7 9.4
Implied price (PLN) 10.3
Source: BZ WBK Brokerage research, company data
Polish Equity Research
39
Fig. 3. Asseco Business Solutions: 3Q14 results review PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q
Sales 31.5 45.8 37.3 33.0 32.1 36.9 33.7 32.6 31.3 48.5 39.1 31.2 32.6 4.2% 4.4%
EBITDA 9.0 12.4 10.4 7.7 9.8 13.0 10.6 8.4 10.0 14.4 12.0 9.4 10.2 2.2% 8.9%
EBITDA margin 28.5% 27.2% 28.0% 23.2% 30.5% 35.2% 31.4% 25.8% 32.0% 29.7% 30.8% 30.1% 31.4% -0.6 1.3
EBIT 6.5 10.4 7.7 5.0 7.3 10.6 7.7 5.5 7.1 11.5 9.2 6.3 7.3 2.2% 15.2%
EBIT margin 20.7% 22.8% 20.7% 15.3% 22.8% 28.7% 22.7% 17.0% 22.8% 23.7% 23.5% 20.3% 22.4% -0.4 2.1
Net profit 5.6 8.8 6.8 4.6 6.2 9.0 6.7 4.8 5.9 9.4 7.7 5.4 6.1 3.7% 13.6%
Net margin 17.8% 19.2% 18.1% 13.9% 19.4% 24.3% 19.9% 14.8% 18.8% 19.4% 19.7% 17.2% 18.7% -0.1 1.5
Source: Company data, DM BZ WBK estimates
Fig. 4. Asseco Business Solutions: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 155.2 n.a. n.a. 164.0 n.a. n.a. 173.4 n.a. n.a.
EBITDA 47.3 n.a. n.a. 48.3 n.a. n.a. 50.8 n.a. n.a.
EBIT 35.1 n.a. n.a. 35.5 n.a. n.a. 37.4 n.a. n.a.
Net profit 29.8 n.a. n.a. 30.1 n.a. n.a. 31.7 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 5. Asseco Business Solutions: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 16.4 n.a. n.a.
Comparable valuation (based on 2014-2016E) 10.3 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. Asseco BS: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 139.3 146.0 155.2 164.0 173.4
COGS 94.0 100.1 102.5 109.7 116.4
Gross profit 45.3 45.9 52.7 54.3 57.0
SG&A 15.0 13.9 18.0 18.8 19.6
Other operating income, net 0.4 -0.1 0.4 0.0 0.0
EBITDA 40.9 43.4 47.3 48.3 50.8
Operating profit 30.7 31.8 35.1 35.5 37.4
Net financial income (costs) 2.4 1.7 1.7 1.7 1.7
Profit before tax 33.1 33.5 36.8 37.2 39.1
Income tax 6.5 6.7 7.0 7.1 7.4
Net profit 26.5 26.8 29.8 30.1 31.7
Gross margin 32.5% 31.4% 34.0% 33.1% 32.9%
EBITDA margin 29.4% 29.7% 30.5% 29.4% 29.3%
Operating margin 22.0% 21.8% 22.6% 21.6% 21.6%
Net profit margin 19.0% 18.4% 19.2% 18.4% 18.3%
Source: Company data, DM BZ WBK estimates
Fig. 7. Asseco BS: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 80.4 96.9 98.6 100.0 102.6
Fixed assets 196.2 194.5 196.2 197.0 197.9
Total assets 276.6 291.4 294.8 297.0 300.4
Current liabilities 17.7 32.0 29.3 31.3 33.1
bank debt 0.0 0.0 0.0 0.0 0.0
Long-term liabilities 0.3 0.4 0.4 0.4 0.5
bank debt 0.0 0.0 0.0 0.0 0.0
Equity 258.6 259.0 265.0 265.3 266.9
share capital 167.1 167.1 167.1 167.1 167.1
Minority Interest 0.0 0.0 0.0 0.0 0.0
Total liabilities 276.6 291.4 294.8 297.0 300.4
Net debt -48.5 -54.7 -57.2 -56.2 -56.2
Source: Company data, DM BZ WBK estimates
Fig. 8. Asseco BS: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 31.4 42.5 40.1 42.4 44.4
CF from investment -7.8 -9.9 -13.9 -13.6 -14.3
CF from financing -32.1 -26.4 -23.8 -29.8 -30.1
Net change in cash -8.5 6.2 2.5 -1.0 0.0
Source: Company data, DM BZ WBK estimates
Polish Equity Research
40
This page has been left intentionally blank.
Polish Equity Research
41
Poland Construction & Real Estate
NOVEMBER 12, 2014
ATREM RECOMMENDATION
BUY (MAINTAINED)
Waiting for margin recovery CURRENT PRICE: PLN 4.9
TARGET PRICE: PLN 7.1 (MAINTAINED)
Equity story: The long-awaited margin rebound in the
construction niches where Atrem operates is not materialising and
it is unlikely to emerge any time soon. In our view, we will take a
little longer before better times arrive for Atrem in terms of
generating margins on contracts. On the other hand, we do not
change our overall view on Atrem. For us, Atrem operates in
attractive niches of the construction market (mainly automatics
and high-voltage power engineering), which offers an exposure to
the new round of EU funds’ flows, and is well-balanced, with an
estimated FY’14 net cash of PLN7mn. In this light, we believe
Atrem is well-prepared for a rebound in margins, which we expect
to finally materialise some time ahead.
3Q14 Results Preview. 3Q14 was another weak period for
Atrem. Despite the fact that its sales are still growing nicely, the
company continues to suffer from low margins, which makes it
impossible to make money from its core business. Sales should
be by 27%y/y higher at PLN25mn, with the gross margin at 9.0%
or PLN2.2mn in 3Q14. We expect the SG&A costs at PLN3.1mn
(12.4% vs. 12.6%) and PLN1.5mn of other operating gains in
3Q14 due to the release of provisions. Overall, we expect a
positive EBITDA of PLN1.4mn. On an adj. basis, EBITDA would
turn negative to a tiny loss of PLN0.1mn, compared to positive
PLN0.9mn last year. With no major changes in financials or taxes,
this should result in a bottom line of PLN0.5mn or a loss of
PLN0.7mn on an adj. basis. Outcome: NEGATIVE.
Change in valuation & recommendation. We maintain our Buy
recommendation. Our DCF-based valuation points to
PLN7.10/share. The comparative valuation points to
PLN5.20/share.
PUBLICATION DATE
NOVEMBER 14, 2014
3Q14 RESULTS PREVIEW
3Q14E y/y (%) q/q (%)
Sales 24.9 26.7 60.9
EBITDA 1.4 -0.1 3.4
EBIT 0.7 -0.8 2.7
Net profit 0.5 -1.0 1.8
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10/22/2014 4.8 7.1 2.9% 2.4
Hold 4/28/2014 6.3 7.6 -24.6% -27.9
Buy 1/30/2014 8.7 8.5 -27.1% -29.4
Buy 10/23/2013 6.6 8.8 31.2% 36.8
COMPANY DESCRIPTION
Atrem is an engineering company with a wide range of products and services related to industrial process automation, telemetrics, regulation, electronics and metrology.
ANALYST
Tomasz Sokolowski (+48) 22 586 82 36
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes ATRP.WA / ATR PW
Sales 106.9 126.5 126.5 142.3 Market capitalisation (PLNm) 45
EBITDA 5.4 6.9 5.1 7.5 Number of shares (m) 9.2
EBIT 2.6 3.8 1.9 4.3 Free float (%) 27.4
Net income 1.9 3.2 1.7 3.7 Avg. daily turnover 3M (PLNm) 0.0
P/E (x) 24.5 14.4 26.5 12.4 Price performance
1M 3M YTD
EV/EBITDA (x) 7.6 5.6 7.3 4.8 -4.1% 0.4% -28.9% Source: Company data, DM BZ WBK estimates
Polish Equity Research
42
Fig. 1. Atrem: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%)
Sales 26.7 60.9 41.2 27.6 27.5 33.1 20.1 23.5 26.5 36.8 20.1 35.0 24.9 -6.1% -28.8%
EBITDA -0.1 3.4 1.9 -4.4 -2.7 -5.1 0.9 0.7 1.2 2.5 1.4 1.8 1.4 8.9% -24.1%
EBITDA margin -0.4% 5.7% 4.6% -16.0% -9.9% -15.5% 4.6% 3.1% 4.7% 6.9% 7.2% 5.1% 5.4% 75 33
EBIT -0.8 2.7 1.1 -5.1 -3.5 -5.9 0.2 0.0 0.5 1.8 0.8 1.1 0.7 21.4% -40.9%
EBIT margin -3.1% 4.5% 2.8% -18.6% -12.6% -17.7% 1.1% 0.1% 2.0% 5.0% 3.8% 3.2% 2.6% 59 -54
Net profit -1.0 1.8 0.6 -4.7 -3.1 -4.9 0.1 0.1 0.3 1.3 0.6 0.7 0.5 99.6% -23.7%
Net margin -3.9% 2.9% 1.4% -16.9% -11.2% -14.8% 0.7% 0.5% 1.0% 3.6% 3.0% 2.0% 2.1% 112 14
Source: Company data, DM BZ WBK estimates
Fig. 2. Atrem: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 126.5 126.5 0.0% 126.5 126.5 0.0% 142.3 142.3 0.0%
EBITDA 6.9 6.9 0.0% 5.1 5.1 0.0% 7.5 7.5 0.0% EBIT 3.8 3.8 0.0% 1.9 1.9 0.0% 4.3 4.3 0.0% Net profit 3.2 3.2 0.0% 1.7 1.7 0.0% 3.7 3.7 0.0% Source: Company data, DM BZ WBK estimates
Fig. 3. Atrem: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 7.1 7.1 n.a.
Comparable valuation (based on 2013-2015E) 5.2 5.1 +1.9% Source: Company data, DM BZ WBK estimates
Fig. 4. Atrem: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 129.3 106.9 126.5 126.5 142.3
COGS 119.9 90.2 111.8 109.9 121.7
Gross profit 9.5 16.8 14.7 16.6 20.6
SG&A 16.1 14.1 14.7 14.7 16.4
Other operating income, net -6.7 0.0 3.8 0.0 0.0
EBITDA -10.4 5.4 6.9 5.1 7.5
Operating profit -13.3 2.6 3.8 1.9 4.3
Net financial income (costs) 1.4 0.0 -0.1 -0.2 -0.3
Profit before tax -14.7 2.7 3.9 2.1 4.5
Income tax -2.6 0.8 0.7 0.4 0.9
Net profit -12.1 1.9 3.2 1.7 3.7
Gross margin 7.3% 15.7% 11.6% 13.1% 14.5%
EBITDA margin -8.1% 5.1% 5.4% 4.0% 5.3%
Operating margin -10.3% 2.5% 3.0% 1.5% 3.0%
Net profit margin -9.3% 1.7% 2.5% 1.4% 2.6%
Source: Company data, DM BZ WBK estimates
Fig. 5. Atrem: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 64 66 69 66 74
Fixed assets 38 36 38 37 37
Total assets 109 107 113 110 118
Current liabilities 37 37 43 38 43
bank debt 2 0 0 0 0
Long-term liabilities 3 2 2 2 2
bank debt 2 0 0 0 0
Equity 60 61 64 66 70
share capital 5 5 5 5 5
Minority Interest 0 0 0 0 0
Total liabilities 109 107 113 110 118
Net debt -3 -4 -7 -9 -10
Source: Company data, DM BZ WBK estimates
Fig. 6. Atrem: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 15.4 0.8 8.9 3.8 4.5
CF from investment 0.9 1.0 -6.2 -2.4 -3.6
CF from financing -13.1 -3.5 0.1 0.0 0.0
Net change in cash 3.2 -1.8 2.9 1.4 1.0
Source: Company data, DM BZ WBK estimates
Polish Equity Research
43
Poland FINANCIALS
NOVEMBER 12, 2014
BANK BPH RECOMMENDATION
BUY (INITIATION)
Who’s going to buy? CURRENT PRICE: PLN 51.77
TARGET PRICE: PLN 59.80
Equity story. We are initiating our coverage of Bank BPH with a Buy rating and a TP of PLN 59.75 (15% upside potential). The bank is not a technology leader and does not offer strong growth prospects, but it is officially up for sale by GE. Our calculations show that banks in Poland were generally sold between P/BV 1.11x (BGZ) and 1.77x (Santander CB), while BPH is currently trading at P/BV 0.7x, which implies PLN72-115. Our TP is based equally on weight valuation for a strategic investor (PLN78.11) and for a financial investor (PLN41.39).
Earnings outlook. Following the 43% fall in earnings in 2014E, we expect earnings to drop further to PLN25mn (down 80% y/y) in 2015E and to improve to PLN103mn in 2016E. We expect the drop in 2014 to be mainly caused by a lower NII due to interest rate cuts in Poland. Our estimates show that the bank has around PLN4bn in cash loans and most of these are at 16%. BPH’s CFO Andras Bende said, when commenting on the bank’s 2Q14 results, that if interest rates fell by 25 bp, with both loans and deposits repriced by 25bp ceteris paribus, the NII would fall by more than PLN25mn. We assume that the bank will continue its restructuring process, leading to a probable fall in the cost of risk (BPH shows very good results in AQR tests).
Dividend prospects. We expect no dividends in the 2013-15 period.
Valuation. Based on our 2014E estimates, BPH trades at 35.6x earnings and P/Book of 0.77x, while offering a 2% ROE. These multiples may seem very expensive for a financial investor (high P/E) and very cheap for a strategic investor (P/BV). When calculating the valuation for a strategic investor, we used a regression model of ROE and P/BV of the recent M&A bank transactions. Assuming the ROE at 4%, the valuation should be at around P/BV 1.2x. We used a residual income model for the financial investor.
Price target and recommendation. We set our TP at PLN59.75 (15.4% upside potential), deriving it from a 50/50 blend of two methodologies – regression of P/BV and ROE from the recent M&A, from which we get fair P/BV 1.2x and PLN78.11 (53% upside potential), as well as a residual income model. We used a RFR of 3.0% (3-month average), Beta of 0.9, risk premium of 5% and g of 1.0% and got PLN 41.40 (19% downside potential).
Triggers/Risks. BPH has been in a state of permanent restructuring ever since its takeover by GE but with no positive result. The bank’s C/I is currently one of the highest in the sector (80%+) and its loans’ portfolio is shrinking pretty much every quarter. We suspect that BPH might be a good bridge for a foreign bank that wants to enter the Polish market and we expect that the transaction could be closed by the end of next year, offering a trigger for the stock’s price. If GE changed its mind and did not sell it, BPH’s share price would stand at around PLN41.
STOCK PERFORMANCE
BPH
WIG Relative
0
10
20
30
40
50
60
70
80
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
n.a. n.a. n.a. n.a. n.a. n.a.
COMPANY DESCRIPTION
BPH is Poland 12th largest bank by assets. The bank was
established in its current shape back in 2009 when a slimmed-down BPH was merger with GE Money Bank..
Main shareholders % of votes
GE capital group 89.1%
ANALYSTS
Andrzej Bieniek Securities broker, Investment advisor (+48) 22 586 85 21 [email protected] Dariusz Górski (+48) 22 586 81 00 [email protected]
Company Data
PLNmn 2013 2014E 2015E 2016E Reuters/Bloomberg codes BPH.WA /BPHR PW
NII 980 878 703 794 Market capitalisation (PLNm) 3,910
Total income 1,536 1,333 1,164 1,260 Number of shares (m) 76.7
Provisions -139 -63 -37 -57 Free float (%) 10.9%
Net profit 192 110 25 103 Avg. daily turnover 3M (PLNm) 0.34
P/E (x) 20.3 35.6 156.2 38.1 Price performance
1M 3M YTD
P/BV (x) 0.79 0.77 0.77 0.75 16.7% 23.6% -6.4% Source: Company data, DM BZ WBK estimates
Polish Equity Research
44
Fig. 5. Bank BPH: Residual Income valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E
Net profit 110 25 103
Equity (YE) 5,070 5,095 5,198
ROE 2.2% 0.5% 2.0%
COE 7.5% 7.5% 7.5%
Excess return -5.3% -7.0% -5.5%
Residual income -266 -356 -283
PV of residual income (2014-16E) -784
Growth (CAGR) ROE (avg.) Pay-out (avg.) Total value PV
Transition period (2017-2023E) 18.8% 4.7% 91% -1,094 -701
Perpetuity 1.0% 5.7% 95% -1,612 -728
Total intrinsic value -2,212
# of shares (m) 77
Value per share -28.9
Last reported BVPS 65.1
Fair value (Jan'14) 36.2
Month 10
Fair value (current) 38.5
Upside potential 41.4
Upside potential -19%
Source: Company data, DM BZ WBK estimates
Fig. 6. Bank BPH: Peers for M&A transactions
P/BV P/E
Polbank 1.68 n.a.
Kredyt Bank 1.38 13.7
Nordea 1.31 20.1
Santander CB 1.77 6.8
BGZ 1.11 28.2
Meritum 1.35 29.3
Median 1.36 20.1
avg. 1.44 19.6
Market cap weight 1.42 15.2
Implied BPH price from Median 88.78 50.43
Implied BPH price from average 93.43 49.25
Implied BPH price from market cap weight 92.76 38.10
Implied BPH price from ROE regression 78.11 n.a.
Upside potential 53%
Source: BZ WBK Brokerage research, company data
Fig. 7. Bank BPH: Regression of P/BV and ROE for banks M&A transactions
R² = 0.9186
0%
5%
10%
15%
20%
25%
1.0 1.2 1.4 1.6 1.8 2.0
ROE (Y-1)
P/BV
BGZ
Bank BPH
Nordea
Meritum
Kredyt Bank
Santander CB
R² = 0.3936
0%
5%
10%
15%
20%
25%
1.0 1.2 1.4 1.6 1.8 2.0
ROE (current)
P/BV
Kredyt Bank
Nordea
BPH
BGZ
Meritum
Santander CB
Source: BZ WBK Brokerage research, company data
Polish Equity Research
45
Fig. 8. Bank BPH: Sensitivity analysis to P/BV multiple
P/BV 0.70 0.80 0.90 1.00 1.10 1.20 1.30 1.40 1.50 1.60 1.70
Price 45.6 52.1 58.6 65.1 71.6 78.1 84.6 91.1 97.6 104.2 110.7
Source: BZ WBK Brokerage research, company data Fig. 9. Bank BPH: 3Q14 results preview PLN in millions, unless otherwise stated
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q
NII 320 321 315 296 261 244 234 241 235 232 233 0% 1%
F&C 139 128 98 111 99 94 94 142 92 88 78 -18% -12%
Other income 4 12 22 30 25 26 60 16 16 24 29 -51% 24%
Revenues 463 461 435 437 385 364 388 399 343 343 340 -12% -1%
Operating costs -352 -372 -312 -298 -305 -269 -290 -267 -292 -276 -261 -10% -5%
Operating profit 111 89 123 138 80 95 98 131 51 68 79 -20% 16%
Provisions -30 -39 -3 -47 -22 -34 -16 -67 -11 -20 -22 40% 12%
Net profit 61 36 93 69 42 45 63 43 28 34 40 -37% 18% Source: Company data, DM BZ WBK estimates
Fig. 10. Bank BPH: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
NII 878 n.a. 0% 703 n.a. 0% 794 n.a. 0%
F&C 359 n.a. 0% 366 n.a. 0% 371 n.a. 0%
Other income 96 n.a. 0% 95 n.a. 0% 95 n.a. 0%
Total income 1,333 n.a. 0% 1,164 n.a. 0% 1,260 n.a. 0%
Opex -1,117 n.a. 0% -1,087 n.a. 0% -1,067 n.a. 0%
Provisions -63 n.a. 0% -37 n.a. 0% -57 n.a. 0%
Net profit 110 n.a. 0% 25 n.a. 0% 103 n.a. 0% Source: Company data, DM BZ WBK estimates
Fig. 11. Bank BPH: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
Residual income 41.4 n.a. 0%
M&A peers transaction 78.1 n.a. 0%
Blended average target price 59.8 n.a. 0% Source: Company data, DM BZ WBK estimates
Fig. 12. Bank BPH: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
NII 1,252 980 878 703 794
F&C 430 429 359 366 371
Other income 114 127 96 95 95
Total income 1,797 1,536 1,333 1,164 1,260
Total opex -1,335 -1,132 -1,117 -1,087 -1,067
EBIT (pre-prov.) 462 404 216 77 193
Net provisions -120 -139 -63 -37 -57
Other 0 0 0 0 0
Pre-tax 342 265 153 41 136
Income tax -73 -60 -35 -8 -26
Net profit 259 192 110 25 103
Key ratios (%)
NIM (IEA) 4.0 3.2 2.9 2.4 2.8
Risk adjusted NIM (IEA) 3.6 2.8 2.7 2.3 2.6
Non-interest income/assets 1.5 1.6 1.4 1.5 1.5
Total income/assets 5.0 4.6 4.1 3.7 4.1
Cost/income ratio 74 74 84 93 85
Cost/assets 3.7 3.4 3.4 3.4 3.5
Cost of risk (bps) 41 53 26 63 64
Effective tax rate -21.2 -22.7 -23.1 -19.0 -19.0
Source: Company data, DM BZ WBK estimates
Fig. 13. Bank BPH: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Cash/interbank 5,377 1,073 1,021 970 966
Customer loans 25,376 22,862 21,264 21,331 21,118
Debt securities 5,085 6,841 7,598 6,157 5,690
Total assets 34,416 33,004 32,440 31,039 30,384
Due to banks 377 315 217 212 208
Customer deposits 13,015 13,361 13,290 12,622 12,570
Equity 4,767 4,960 5,070 5,095 5,198
Loans (yoy, %) -9% -10% -7% 0% -1%
Deposits (yoy, %) -4% 3% -1% -5% 0%
Assets (yoy, %) -7% -4% -2% -4% -2%
L/D 195 171 160 169 168
Source: Company data, DM BZ WBK estimates
Fig. 10. Bank BPH: Key ratios PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
NPLs 11 11 12 12 12
Coverage 83 80 79 78 77
ROE 5.5 4.0 2.2 0.5 2.0
ROA 0.7 0.6 0.3 0.1 0.3
Source: Company data, DM BZ WBK estimates
Polish Equity Research
46
This page has been left intentionally blank.
Polish Equity Research
47
Poland Other
NOVEMBER 12, 2014
BENEFIT SYSTEMS RECOMMENDATION
BUY (MAINTAINED)
Strong momentum CURRENT PRICE: PLN300
TARGET PRICE: PLN391 (MAINTAINED)
3Q14 Results Review. Benefit Systems reported 3Q14
results visibly above expectations. Revenues stood at
PLN109.8mn vs. expectations of PLN107-108mn;
company maintained sales y/y growth pace at 22%, which
is slightly higher than in previous quarters. Number of
active sport cards at the end of 3Q14 increased by 71.4k
y/y to 489.0k, 4.7k lower q/q, but seasonality effect was
lower than we expected. Gross margin came at record high
31.9% vs. our expectation of 30.1% and 30.6% in 3Q13; in
sport cards segment gross margin reached 33.5% vs.
31.5% in 3Q13, over 1.3pp higher than our assumptions.
Sport cards segment generated PLN105.3mn revenues
and PLN27.3mn EBIT; contribution of new products was
sales of PLN3.1mn and EBIT loss PLN4.6mn. EBITDA
stood at PLN23.6mn, +34% y/y, above our expectations
and market consensus, while net result came at
PLN17.7mn, also above expectations.
Recent developments. The company issued 68.72k new
shares of the C series as part of a motivational scheme.
Insiders sold 32.35k shares between Sept.29 and Oct. 2.
Benefit Systems hired Grzegorz Haftarczyk as its
management’s foreign expansion advisor.
Expansion of the fitness club chain. Affiliated fitness
club chains recently opened several new locations.
Calypso Fitness now operates 20 fitness clubs (new clubs
in Siedlce and Pila), Fabryka Formy – 10 clubs (new clubs
in Torun and Zielona Gora), Fitness Academy – 5 clubs
(unchanged). The newest chain in the BFT group – Zdrofit
- operates in 9 locations.
Change in Forecasts. We apply no changes to our model.
Change in Valuation & Recommendation. We keep our
12-month Target Price for Benefit Systems at PLN391 and
maintain our Buy rating for the stock. The comparative
valuation points to PLN299.2 per share.
STOCK PERFORMANCE
BFT
TP
WIG Relative
100
150
200
250
300
350
400
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 7-9-2014 279.0 391.0 7.5% 1.9
Buy 4-28-2014 261.8 383.0 6.6% 8.2
Buy 1-30-2014 314.0 383.0 -16.6% -18.9
MAIN SHAREHOLDERS
% of votes
Mr. James Van Bergh 24.2%
Benefit Invest 23.2%
Metlife pension fund 12.9%
Mr. Marek Kamola 10.5%
ING pension fund 8.2%
COMPANY DESCRIPTION
The Company provides fringe benefit system solutions including flagship MultiSport Scheme.
ANALYST
Lukasz Kosiarski (+48) 22 586 82 25
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes BFT.WA / BFT PW
Sales 383.4 441.0 489.7 529.8 Market capitalisation (PLNm) 766
EBITDA 37.8 48.3 58.4 66.7 Number of shares (m) 2.6
EBIT 33.1 43.3 53.4 61.6 Free float (%) 42.1%
Net income 28.5 36.2 44.8 51.9 Avg. daily turnover 3M (PLNm) 0.4
P/E (x) 24.4 19.3 15.8 13.9 Price performance
1M 3M YTD
EV/EBITDA (x) 13.0 11.3 9.2 7.8 7.5% 18.0% -4.8% Source: Company data, DM BZ WBK estimates
Polish Equity Research
48
Fig. 1. Benefit Systems: 3Q14 results review PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q
Sales 60.1 67.5 74.3 81.6 77.7 86.4 90.0 98.5 91.7 103.0 108.6 114.5 109.8 22.0% -4.1%
EBITDA 11.5 7.1 3.6 11.9 16.3 8.1 4.3 8.9 17.5 7.0 4.3 13.2 23.6 33.8% 79.0%
EBITDA margin 19.1% 10.5% 4.8% 14.6% 21.0% 9.4% 4.7% 9.0% 19.1% 6.8% 4.0% 11.5% 21.5% 1.9 10.0
EBIT 10.8 6.4 2.8 11.0 15.4 7.0 3.2 7.8 16.4 5.7 2.9 11.9 22.3 35.9% 87.6%
EBIT margin 17.9% 9.5% 3.7% 13.4% 19.8% 8.0% 3.5% 7.9% 17.9% 5.6% 2.6% 10.4% 20.3% 2.1 9.9
Net profit 8.9 17.2 2.4 9.8 12.2 5.0 2.9 6.2 12.6 4.5 2.7 9.2 17.7 39.7% 92.5%
Net margin 14.9% 25.5% 3.2% 12.0% 15.7% 5.8% 3.2% 6.3% 13.8% 4.4% 2.5% 8.0% 16.1% 2.0 8.1
Source: Company data, DM BZ WBK estimates
Fig. 2. Benefit Systems: Forecasts changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 441.0 441.0 0.0% 489.7 489.7 0.0% 529.8 529.8 0.0%
EBITDA 49.6 49.6 0.0% 60.5 60.5 0.0% 68.5 68.5 0.0%
EBIT 44.2 44.2 0.0% 54.2 54.2 0.0% 62.4 62.4 0.0%
Net profit 36.8 36.8 0.0% 45.3 45.3 0.0% 52.5 52.5 0.0% Source: Company data, DM BZ WBK estimates
Fig. 3. Benefit Systems: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 391.0 391.0 0.0%
Comparable valuation (based on 2014-2016E) 299.2 299.2 0.0% Source: Company data, DM BZ WBK estimates
Fig. 4. Benefit Systems: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 320.0 383.4 441.0 489.7 529.8
COGS 248.9 298.7 345.3 380.4 409.3
Gross profit 71.1 84.7 95.7 109.2 120.5
SG&A 36.5 52.6 52.4 55.9 58.9
Other operating income, net 1.4 0.9 0.0 0.0 0.0
EBITDA reported 39.9 37.8 48.3 58.4 66.7
EBITDA exc. SOP 42.9 46.2 51.6 61.7 70.0
Operating profit reported 36.1 33.1 43.3 53.4 61.6
Operating profit exc. SOP 39.1 41.5 46.6 56.7 64.9
Net financial income (costs) 2.7 3.2 1.4 1.9 2.5
Profit before tax 38.8 36.2 44.7 55.3 64.1
Income tax 9.3 8.4 8.5 10.5 12.2
Net profit 29.8 28.5 36.2 44.8 51.9
Gross margin 22.2% 22.1% 21.7% 22.3% 22.7%
EBITDA margin 12.5% 9.8% 10.9% 11.9% 12.6%
Operating margin 11.3% 8.6% 9.8% 10.9% 11.6%
Net profit margin 9.3% 7.4% 8.2% 9.1% 9.8%
Source: Company data, DM BZ WBK estimates
Fig. 5. Benefit Systems: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 49.1 60.1 62.5 90.9 120.6
Fixed assets 86.1 129.3 133.3 136.8 140.1
Total assets 135.3 189.5 195.8 227.7 260.8
Current liabilities 36.6 64.6 53.3 59.2 64.0
bank debt 0.1 23.1 0.1 0.1 0.1
Long-term liabilities 0.5 2.4 1.7 1.7 1.8
bank debt 0.1 1.4 1.4 1.4 1.4
Equity 98.2 122.5 140.8 166.8 195.0
share capital 2.4 2.5 2.5 2.5 2.5
Minority Interest -0.1 -0.6 -0.6 -0.6 -0.6
Total liabilities 135.3 189.5 195.8 227.7 260.8
Net debt -77.7 -94.4 -120.9 -150.3 -181.6
Source: Company data, DM BZ WBK estimates
Fig. 6. Benefit Systems: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 33.9 35.2 48.4 51.6 58.4
CF from investment -36.5 -54.1 -9.0 -8.5 -8.4
CF from financing -13.3 8.7 -40.7 -18.8 -23.7
Net change in cash -15.9 -10.2 -1.4 24.3 26.3
Source: Company data, DM BZ WBK estimates
Polish Equity Research
49
Poland FINANCIALS
NOVEMBER 12, 2014
BOS BANK RECOMMENDATION
BUY (INITIATION)
Is ecology trendy enough? CURRENT PRICE: PLN 41.5
TARGET PRICE: PLN 49.1
Equity story. We are initiating our coverage of BOS with a Buy rating and TP of PLN49.1 (18% upside potential). The bank has been transformed by its new management that took over in 2008. The share of the brokerage house’s net profit fell to 17% in the group’s earnings from 50% in 2009. The new management realised it would be hard to earn like a universal bank and began to specialise in ecological products and ecological investments. BOS is also relatively insensitive to interest rate changes. It loses its margin when interest rates are volatile but stabilises when interest rates are calm. The management expects the ecological awareness to grow in Poland in the years ahead, with ecological heating and electricity becoming more popular. It plans to offer comprehensive services for ecological projects (both retail and corporate). For this reason, the group has launched companies that will supply ecological products (solar, wind power etc.), install and service them. Media also speculate that the bank plans to buy FM bank, which, in our opinion, would be positive. FM Bank could increase the scale of operations, add know-how in the SME and smart bank (mobile technology) segments, while BOS could reprice deposits lower.
Earnings outlook. We expect a 17% CAGR in the 2014E-16E earnings, mainly driven by ecological products. In 2013, the National Fund for Environmental Protection and Water Management (NFOSiGW) did not subsidise retail clients in their installations of ecological equipment at home. This slowed down the entire retail ecological market and we expect that this programme will start next year, adding PLN20mn in 2015E and PLN15mn in 2016E in fees. In the core revenues, we expect improvement in NIM to 176bp and 195bp in 2015E-16E. In 2016E, we expect to see the biggest improvement in the funds’ costs, when the bank will be paying off its high-yield bond. The F&C should increase with a 2% CAGR 2014E-16E. Opex should increase by a mere 2% CAGR 2014-16E, mainly due to cost optimisation projects that are in progress (back office centralisation, change of the sales model in branches). The cost of risk used to be at very low levels (17-46bp), but it should rise to 60bp in 2016. This, however, would still be a very low level relative to other banks.
Dividend prospects. We expect no dividends in the 2014-16E period.
Triggers/Risks. We assume that the market of green power for retail will move on and add PLN20mn in 2015 and PLN15mn in 2016. If the market remains frozen, the bank will trade at P/E 12.6 for 2015 and P/E 9.8x for 2016.
Valuation. Based on our sub-consensus 2014E estimates, BOS trades at 11.4x P/E and P/Book of 0.6x, which is below the sector’s average. The subsequent years should bring a drop in the multiples, with P/E falling to a single digit territory and ROE rising to 6% from 4% in 2013.
Price target and recommendation. We set our TP at PLN49.10 (18% upside potential, Buy), deriving it from a 50/50 blend of two methodologies – residual income and warranted equity value. We used a RFR of 3.00% (3-month average), Beta of 1.0, risk premium of 5% and g of 2.0%.
STOCK PERFORMANCE
BOS
WIG Relative
0
10
20
30
40
50
60
70
80
90
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
n.a. n.a. n.a. n.a. n.a. n.a.
COMPANY DESCRIPTION
BOS is Poland 18th largest bank by assets. Bank is creating
innovative banking products in environmental protection field. It also finance corporates in environmental investments and support their business development.
Main shareholders % of votes
NFOSiGW 56.6%
ING OFE 5.2%
ANALYSTS
Andrzej Bieniek Securities broker, Investment advisor (+48) 22 586 85 21 [email protected] Dariusz Górski (+48) 22 586 81 00 [email protected]
Company Data
PLNmn 2013 2014E 2015E 2016E Reuters/Bloomberg codes BOS.WA / BOS PW
NII 278 286 328 369 Market capitalisation (PLNm) 938
Total income 501 522 564 599 Number of shares (m) 22.9
Provisions -60 -44 -71 -79 Free float (%) 53.4%
Net profit 66 81 90 107 Avg. daily turnover 3M (PLNm) 1.2
P/E (x) 14.1 11.4 10.3 8.7 Price performance
1M 3M YTD
P/BV (x) 0.6 0.6 0.6 0.5 -5.0% -4.3% -12.8% Source: Company data, DM BZ WBK estimates
Polish Equity Research
50
Fig. 14. BOS Bank: Residual Income model PLN in millions, unless otherwise stated
2013 2014E 2015E 2016E
Net profit 66 81 90 107
Equity (YE) 1,481 1,566 1,656 1,763
ROE 4.5% 5.2% 5.4% 6.0%
COE 8.0% 8.0% 8.0% 8.0%
Excess return -3.5% -2.8% -2.6% -2.0%
Residual income -52 -43 -42 -33
PV of residual income (2014-16E) -102
Growth (CAGR) ROE (avg.) Pay-out (avg.) Total value PV
Transition period (2017-2023E) 6.5% 6.6% 21% -224 -130
Perpetuity 2.0% 6.5% 50% -660 -283
Total intrinsic value -515
# of shares (m) 23
Value per share -22.5
Last reported BVPS 66.4
Fair value (Jan'14) 43.9
Month 10
Fair value (current) 46.8
12-month target price 50.6
Upside potential 25%
Source: Company data, DM BZ WBK estimates
Fig. 15. BOS Bank: Warranted Equity Valuation PLN in millions, unless otherwise stated
2016E ROE (%) 6.0
COE (%) 8.0
g (%) 2.0
Implied fair P/B (x) 0.7
YE16E BVPS 77.1
Fair value (YE16) 52.0
PV of fair value 41.3
DPS14E 0.0
DPS15E 0.0
DPS16E 0.0
PV of 2014-16E DPS 0.0
PV of equity + DPS (Jan'14) 41.3
Month 10
PV (current) 44.0
12-month price target 47.6
Upside potential 18%
Source: Company data, DM BZ WBK estimates
Fig. 16. BOS Bank: COE calculation PLN in millions, unless otherwise stated
RFR* (%) 3.0
Risk premium (%) 5.0
Beta 1.0
COE (%) 8.0
Source: Company data, DM BZ WBK estimates
Polish Equity Research
51
Fig. 17. BOS Bank: 3Q14 results review PLN in millions, unless otherwise stated
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q
Net interest income 68 70 74 71 66 66 69 77 75 76 71 2% -7%
Fee income 26 25 26 30 25 26 28 31 27 24 26 -5% 7%
Other income 13 30 15 22 21 35 19 38 17 37 39 90% 6%
Revenues 107 126 115 122 112 128 116 146 118 137 135 16% -1%
Operating costs -88 -94 -91 -101 -83 -93 -91 -99 -91 -96 -91 4% -5%
Operating profit 20 32 24 21 29 35 25 47 27 41 44 52% 8%
Provisions -5 -20 -13 -17 -8 -5 -28 -20 -11 -14 -14 -48% 1%
Net profit 12 11 7 6 17 23 16 30 12 23 23 2076% 1%
Source: Company data, DM BZ WBK estimates
Fig. 18. BOS Bank: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
NII 286 n.a. 0% 328 n.a. 0% 369 n.a. 0%
F&C 106 n.a. 0% 112 n.a. 0% 118 n.a. 0%
Other income 130 n.a. 0% 125 n.a. 0% 112 n.a. 0%
Total income 522 n.a. 0% 564 n.a. 0% 599 n.a. 0%
Opex -381 n.a. 0% -383 n.a. 0% -388 n.a. 0%
Provisions -44 n.a. 0% -71 n.a. 0% -79 n.a. 0%
Net profit 81 n.a. 0% 90 n.a. 0% 107 n.a. 0%
Source: Company data, DM BZ WBK estimates
Fig. 19. BOS Bank: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
Residual income 50.6 n.a. 0%
WEV 47.6 n.a. 0%
Blended average target price 49.1 n.a. 0% Source: Company data, DM BZ WBK estimates
Fig. 20. BOS Bank: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
NII 284 278 286 328 369
F&C 106 110 106 112 118
Other income 76 113 130 125 112
Total income 466 501 522 564 599
Total opex -374 -366 -381 -383 -388
EBIT (pre-prov.) 93 135 142 181 211
Net provisions -52 -60 -44 -71 -79
Pre-tax 40 75 98 111 132
Income tax -5 -9 -17 -21 -25
Net profit 35 66 81 90 107
Key ratios (%)
NIM (IEA) 1.9 1.7 1.6 1.8 2.0
Risk adjusted NIM (IEA) 1.5 1.3 1.4 1.4 1.5
Non-interest income/assets 1.1 1.2 1.2 1.2 1.1
Total income/assets 2.7 2.7 2.7 2.9 3.0
Cost/income ratio 80 73 73 68 65
Cost/assets 3.7 4.7 5.7 6.7 7.7
Cost of risk (bps) 45 51 35 55 60
Effective tax rate -12.3 -11.7 -17.1 -19.0 -19.0
Source: Company data, DM BZ WBK estimates
Fig. 21. BOS Bank: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Cash/interbank 1,050 893 776 776 776
Customer loans 11,122 12,055 12,440 12,725 12,892
Debt securities 3,937 4,670 5,700 5,700 5,700
Total assets 18,867 18,417 19,646 19,931 20,097
Due to banks 466 443 300 500 700
Customer deposits 11,816 13,196 14,774 14,627 14,324
Equity 1,442 1,481 1,566 1,656 1,763
Loans (yoy, %) -2% 8% 3% 2% 1%
Deposits (yoy, %) 4% 12% 12% -1% -2%
Assets (yoy, %) 21% -2% 7% 1% 1%
L/D 94 91 84 87 90
Source: Company data, DM BZ WBK estimates
Fig. 22. BOS Bank: Key ratios (%) PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
NPLs 7.8 6.7 6.7 6.7 6.6
Coverage 33 37 37 37 37
ROE 2.5 4.5 5.2 5.4 6.0
ROA 0.21 0.35 0.43 0.45 0.53
Source: Company data, DM BZ WBK estimates
Polish Equity Research
52
This page has been left intentionally blank.
Polish Equity Research
53
Poland Construction & Real Estate
November 12, 2014
BUDIMEX RECOMMENDATION
HOLD (MAINTAINED)
‘First choice’ contractor CURRENT PRICE: PLN134.9
TARGET PRICE: PLN153 (MAINTAINED)
Equity story. Budimex is the rare example of a WSE-listed
general contractor, which managed to make money on large road
contracts over the last few years. GDDKiA, the sector’s key
investor, is now starting to distribute motorway and express road
contracts co- financed by EU 2014-2020 funds and this should
shortly translate into spending growth. As in the past, we think
Budimex should be able to take full advantage of the rising road
expenditures and gradually boost its profits from 2016, when
growth in road expenditures should accelerate. 2016 is also when
the Turow power contract should start contributing. The rise in
earnings should also be accompanied by cash generation and
dividend payments. Overall, as the largest and the most liquid
WSE-listed construction company, Budimex should remain the
‘first choice’ company in the sector, in our view. However, in light
of the <15% fundamental upside, we maintain our
recommendation at Hold.
Change in forecasts. We maintain our financial forecast intact.
We expect flattish y/y earnings in 2015, and earnings growth in
2016, in which we project accumulation in construction works.
Triggers & risks. Triggers include: 1) backlog q/q growth in 4Q
since Budimex won a few tenders by offering the cheapest offers
(likely the signing of the PLN1.32bn contract for Ostroleka road
bypass construction), 2) we expect GDDKiA to continue to
distribute contracts that are co-financed by EU2014-20 funds,
which should secure further backlog growth in 2015 and result in
strong profits momentum in 2016E, 3) the housing boom opens
room for gradual growth in flats’ sale volumes by the Budimex
Nieruchomosci subsidiary, 4) probable high dividend payout next
year. Risks include: 1) growth in construction costs (probable
result of accumulation in construction works in Poland) may put
pressure on margins, 2) new regulations prioritising
subcontractors may have a slightly negative effect on the
company’s cash position in 2015 and beyond.
Change in Valuation & Recommendation. We maintain our
Target Price based on a DCF valuation at PLN153. We also
maintain Hold recommendation.
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Hold 10-22-2014 136.5 153.0 -1.2% -1.7
Hold 7-9-2014 117.1 130.0 16.6% 11.5
Hold 4-28-2014 139.8 144.0 -16.3% -14.6
Hold 1-30-2014 133.0 129.0 5.1% 2.8
Hold 10-23-2013 126.8 121.0 4.9% 10.5
COMPANY DESCRIPTION
Budimex is a general contractor, residential project developer and timber frame houses producer. It has a leading position among contractors specialising in comprehensive general construction works in Poland, with a focus on road building.
Main shareholders % of votes
Valivala Holdings BV 59.1%
Aviva pension fund 7.1%
ANALYST
Adrian Kyrcz (+48) 22 586 81 59
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes BDXP.WA / BDX PW
Sales 4 749.5 4 734.1 4 749.8 5 645.7 Market capitalisation (PLNm) 3 444
EBITDA 362.2 225.3 240.0 315.0 Number of shares (m) 25.5
EBIT 333.3 193.2 208.0 283.0 Free float (%) 40.9%
Net income 300.5 169.2 176.5 238.0 Avg. daily turnover 3M (PLNm) 1.1
P/E (x) 11.5 20.4 19.5 14.5 Price performance
1M 3M YTD
EV/EBITDA (x) 5.1 10.4 9.5 6.5 -1.1% 15.8% 2.2% Source: Company data, DM BZ WBK estimates
Polish Equity Research
54
Fig. 1. Budimex: 3Q14 results review PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y (%) q/q (%)
Sales 1 574 1 694 1 083 1 800 1 697 1 497 853 1 235 1 368 1 294 834 1 319 1 559.6 14.0% 18.2%
EBITDA 99 -93 50 34 65 83 50 54 62 196 59 63 72.0 15.6% 14.1%
EBITDA margin 6.3% -5.5% 4.7% 1.9% 3.8% 5.6% 5.8% 4.4% 4.6% 15.2% 7.0% 4.8% 4.6% 0.0 0.0
EBIT 92 -102 37 19 53 73 43 46 55 190 53 57 66.3 20.3% 15.3%
EBIT margin 5.8% -6.0% 3.4% 1.1% 3.1% 4.9% 5.0% 3.7% 4.0% 14.6% 6.3% 4.4% 4.3% 0.1 0.0
Net profit 74 -118 37 -15 55 109 35 33 43 189 43 44 47.9 10.9% 8.5%
Net margin 4.7% -7.0% 3.4% -0.8% 3.2% 7.3% 4.1% 2.7% 3.2% 14.6% 5.1% 3.3% 3.1% 0.0 -0.1
Source: Company data, DM BZ WBK estimates
Fig. 2. Budimex: Forecasts changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 4734 4734 0% 4750 4750 0% 5646 5646 0%
EBITDA 225 225 0% 240 240 0% 315 315 0%
EBIT 193 193 0% 208 208 0% 283 283 0%
Net profit 169 169 0% 177 177 0% 238 238 0% Source: Company data, DM BZ WBK estimates
Fig. 3. Budimex: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 153 153 0%
Comparable valuation 106 106 0% Source: Company data, DM BZ WBK estimates
Fig. 4. Budimex: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 6078 4749 4734 4750 5646
COGS 5618 4354 4350 4350 5167
Gross profit 460 395 384 400 479
SG&A 218 191 191 192 196
Other operating income, net -60 129 0 0 0
EBITDA 233 362 225 240 315
Operating profit 182 333 193 208 283
Net financial income (costs) 20 -2 16 10 11
Profit before tax 203 331 209 218 294
Income tax -17 -30 -40 -41 -56
Net profit 186 300 169 177 238
Gross margin 7.6% 8.3% 8.1% 8.4% 8.5%
EBITDA margin 3.8% 7.6% 4.8% 5.1% 5.6%
Operating margin 3.0% 7.0% 4.1% 4.4% 5.0%
Net profit margin 3.1% 6.3% 3.6% 3.7% 4.2%
Source: Company data, DM BZ WBK estimates
Fig. 5. Budimex: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 2888 3065 2565 2609 3112
Fixed assets 560 622 619 619 619
Total assets 3448 3687 3184 3228 3732
Current liabilities 2517 2574 2191 2193 2515
bank debt 18 20 20 20 20
Long-term liabilities 498 468 481 483 566
bank debt 76 34 34 34 34
Equity 433 645 512 553 650
Total liabilities 3448 3687 3184 3228 3732
Net debt -1224 -1605 -1112 -1154 -1394
Source: Company data, DM BZ WBK estimates
Fig. 6. Budimex: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations -44 315 -179 198 401
CF from investment -99 158 7 -2 1
CF from financing -291 -154 -320 -153 -162
Net change in cash -434 319 -493 42 240
Source: Company data, DM BZ WBK estimates
Polish Equity Research
55
Poland Retail
NOVEMBER 12, 2014
BYTOM RECOMMENDATION
BUY (INITIATION)
FRUITS OF RESTRUCTURING CURRENT PRICE: PLN1.4
TARGET PRICE: PLN2.0
Equity Story. Following the gung-ho management’s turn-around
of the troubled company through a manufacturing site spin-off and
closing of the loss-making subsidiaries, Bytom became a clean
retailer of men’s formal clothing, which expects to operate 79
stores in its retail chain or 8,053 sqm selling area in 2014E. The
coming years should also bring further growth of the retail chain
to reach a long-term target of 10,000k sqm. We think that Bytom,
with the restructured balance sheet (net cash of PLN2mn), as well
as the redesigned store interior and collection, is on the right
track to achieve its target. Apart from its organic growth, Bytom
mulls takeovers to speed up its growth. The company looks for a
brand that offers men’s fashion at a rather low price, something
that would be more affordable for a wider audience. We view this
to be a rational move and the potential success should create a
great opportunity for growth on another mass market for the
company.
Financials. We expect Bytom to add 910/1,040/1,000 sqm in
2014-16E, respectively. We expect the LfL at 10%, 4% and 4% in
2014-16E, respectively. Based on these assumptions, we expect
Bytom to report sales of PLN101mn/PLN114mn and PLN130mn
in 2014-16E. We expect the gross margin to grow to 62.7%
(+207bps), 53.3% (+52bps) and 53.1% (down 12bps) in 2014-
16E. In regards to SG&A, we expect the SG&A/avg. sqm at
PLN6,070 (+2.0% y/y), PLN5,952 (-1.9% y/y) and PLN5,977
(+0.4% y/y). Overall, we expect Bytom to earn an EBITDA of
PLN10.2mn, PLN12.7mn and PLN14.8mn, while its net profit
should come in at PLN7.2mn, PLN9.7mn and PLN9.4mn in 2014-
16E, respectively.
Valuation & recommendation. Bytom is currently trading with a
PE of 14x and 11x in 2014-15E. Taking into account its growth,
the high ROE (29%-30%) and the clean balance sheet, we
believe that PE at c.15-16x would be more fair, in our view.
Assuming that we are correct with our FY’14-15 forecasts, the
FY15 still leaves a nearly 30% upside to these levels. Based on
our DCF model, we arrived at a 12 month TP of PLN2.0 per
share, which implies a 33% upside potential. We initiate coverage
with a Buy rating.
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
COMPANY DESCRIPTION
Bytom is a retail company selling mens’ formalwear. The company operates 79 stores retail chain.
Main shareholders % of votes
Forum mutual fund 18.4%
Investors mutual fund 13.1%
Mr. Jan Pilch 11.2%
Mr. Michal Wojcik 2.6%
Free float 54.7%
ANALYST
Tomasz Sokolowski (+48) 22 586 82 36
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes BTM.WA / BTM PW
Sales 85.3 101.4 114.0 129.6 Market capitalisation (PLNm) 99.8
EBITDA 4.1 10.2 12.7 14.8 Number of shares (m) 71.3
EBIT 1.3 7.2 9.5 11.3 Free float (%) 72.3%
Net income 1.0 7.2 9.7 9.4 Avg. daily turnover 3M (PLNm) 0.3
P/E (x) 99.9 13.9 10.5 10.9 Price performance
1M 3M YTD
EV/EBITDA (x) 23.8 9.3 7.4 6.4 9.4% 27.3% 1.4% Source: Company data, DM BZ WBK estimates
Polish Equity Research
56
Fig. 1. Bytom: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Revenues 101.4 114.0 129.6 131.3 131.3 132.6 135.7 138.9 141.5 144.2
EBIT 10.2 12.7 14.8 12.5 12.1 12.4 13.6 14.7 15.5 15.9
Cash taxes on EBIT 7.2 9.5 11.3 8.9 8.3 8.4 9.5 10.5 11.1 11.3
NOPAT 0.0 0.0 2.1 1.7 1.6 1.6 1.8 2.0 2.1 2.1
Depreciation 7.2 9.5 9.2 7.2 6.7 6.8 7.7 8.5 9.0 9.1
Change in operating WC 3.0 3.2 3.5 3.7 3.8 3.9 4.1 4.3 4.4 4.6
Capital expenditure 3.1 0.8 1.0 0.1 0.0 0.1 0.2 0.2 0.2 0.2
Net investment 3.2 4.6 5.0 3.5 4.3 4.4 4.5 4.6 4.7 4.8
Free cash flow 3.9 7.3 6.6 7.3 6.2 6.3 7.1 7.9 8.6 8.8
WACC (2014-2023, %) 8.0%
PV FCF 2013-2023 45
Terminal growth (%) 2.5%
Terminal Value (TV) 167
PV TV 78
Total EV 123
Net debt -6
Equity value 128
Number of shares (m) 73.1
Value per share (PLN, 1 Jan 2014) 1.8
Month 11
Current value per share (PLN) 1.9
12 month target price (PLN) 2.0
Source: Company data, DM BZ WBK estimates
Fig. 2. Bytom: Comparable valuation
P/E EV/EBITDA PEG ROE DY
Name 2014E 2015E 2016E 2014E 2015E 2016E 1Y 2Y 2014E 2015E 2016E 2014E 2015E 2016E
LPP 33.1 28.7 22.2 20.3 17.7 13.8 1.5 0.7 30.2% 28.9% 30.6% 1.0% 1.2% 1.4%
Monnari 11.0 11.9 13.8 8.4 7.4 6.8 0.8 2.6 26.4% 19.3% 14.9% 0.0% 0.0% 5.0%
Bytom 13.9 10.5 10.9 9.3 7.4 6.4 0.02 0.01 29.3% 32.0% 27.5% 0.0% 4.9% 6.7%
average 19.3 17.1 15.6 12.7 10.8 9.0 0.8 1.1 28.6% 26.8% 24.4% 0.3% 2.0% 4.4%
CCC 26.2 19.9 16.9 18.1 14.1 12.2 0.9 0.4 28.7% 31.2% 1.2% 1.9% 2.5% 0.0%
Wojas 10.1 10.6 10.1 6.1 5.9 5.5 14.5 -2.5 14.8% 12.3% 11.4% 1.3% 1.9% 0.0%
Gino Rossi 20.5 13.4 12.3 8.4 7.2 6.6 0.1 0.0 10.5% 14.2% 13.5% 0.0% 0.0% 0.0%
average 18.9 14.6 13.1 10.9 9.1 8.1 5.1 -0.7 18.0% 19.2% 8.7% 1.1% 1.5% 0.0%
Total - average 19.1 15.9 14.4 11.8 10.0 8.5 3.0 0.2 23.3% 23.0% 16.5% 0.7% 1.7% 2.2%
Source: BZ WBK Brokerage research, company data
Polish Equity Research
57
Fig. 3. Bytom: 3Q14 results review PLN in millions, unless otherwise stated
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13E 1Q14 2Q14 3Q14 y/y q/q
Sales 15.9 18.9 17.4 19.7 16.7 21.4 22.1 25.1 21.0 25.0 26.7 21.2% 7.1%
EBITDA -1.5 -0.6 -0.6 -0.6 -0.9 2.2 1.0 1.9 -0.1 2.8 2.6 159.2% -7.3%
EBITDA margin -9.4% -3.1% -3.3% -3.2% -5.7% 10.1% 4.5% 7.6% -0.3% 11.1% 9.6% 513 -149
EBIT -2.2 -1.3 -1.2 -1.4 -1.6 1.5 0.4 1.0 -0.7 2.1 1.9 398.7% -9.6%
EBIT margin -13.8% -6.9% -7.0% -7.2% -9.5% 6.9% 1.7% 4.0% -3.4% 8.2% 7.0% 527 -128
Net profit -2.0 -1.5 -1.1 -0.7 -2.0 0.7 0.3 2.0 -0.9 2.1 1.5 447.5% -29.7%
Net margin -12.9% -8.2% -6.4% -3.3% -11.9% 3.4% 1.2% 7.9% -4.5% 8.3% 5.4% 423 -284
Source: Company data, DM BZ WBK estimates
Fig. 4. Bytom: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 101 n.a. n.a. 114 n.a. n.a. 130 n.a. n.a.
EBITDA 10 n.a. n.a. 12 n.a. n.a. 14 n.a. n.a.
EBIT 7 n.a. n.a. 9 n.a. n.a. 10 n.a. n.a.
Net profit 7 n.a. n.a. 9 n.a. n.a. 9 n.a. n.a.
Source: Company data, DM BZ WBK estimates
Fig. 5. Bytom: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 2.0 n.a. n.a.
Comparable valuation (based on 2014-2016E) 1.9 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. Bytom: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 72 85 101 114 130
COGS 37 42 48 53 61
Gross profit 35 43 53 61 69
SG&A 39 42 46 51 57
Other operating income, net -2 0 0 0 0
EBITDA -3 4 10 13 15
Operating profit -6 1 7 9 11
Net financial income (costs) 1 -1 0 0 0
Profit before tax -5 0 7 10 12
Income tax 0 -1 0 0 2
Net profit -5 1 7 10 9
Gross margin 48.4% 50.7% 52.7% 53.3% 53.1%
EBITDA margin -4.6% 4.8% 10.0% 11.2% 11.4%
Operating margin -8.5% 1.5% 7.1% 8.3% 8.7%
Net profit margin -7.5% 1.2% 7.1% 8.5% 7.2%
Source: Company data, DM BZ WBK estimates
Fig. 7. Bytom: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 28 32 39 45 50
Fixed assets 23 17 17 19 20
Total assets 51 49 56 64 70
Current liabilities 27 26 26 29 33
bank debt 6 0 0 0 0
Long-term liabilities 3 2 2 2 2
bank debt 1 0 0 0 0
Equity 20 21 28 33 35
share capital 72 72 72 72 72
Minority Interest 0 0 0 0 0
Total liabilities 51 49 56 64 70
Net debt 6 -2 -6 -8 -8
Source: Company data, DM BZ WBK estimates
Fig. 8. Bytom: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 3 6 7 12 12
CF from investment -4 1 -3 -5 -5
CF from financing 0 -6 0 -5 -7
Net change in cash 0 1 4 3 0
Source: Company data, DM BZ WBK estimates
Polish Equity Research
58
This page has been left intentionally blank.
Polish Equity Research
59
Poland TMT
NOVEMBER 12, 2014
CD PROJEKT RECOMMENDATION
BUY (MAINTAINED)
Counting down to Witcher 3 release CURRENT PRICE: PLN16.73
TARGET PRICE: PLN18.0 (MAINTAINED)
3Q14 Results Preview. We expect CD Projekt to report weak quarterly results for several reasons: seasonally low sales in all segments, costs connected with the launch of The Witcher 3 (like participating in video game exhibitions) and costs of new features at GOG (Galaxy and movie distribution). In digital distribution we expect a c. 10% sales increase y/y, the gross margin at 35.0% vs. 27.2% in 3Q13 and the SG&A costs at PLN3.5mn vs. PLN1.5mn year ago. We expect the game development segment to report PLN4.0mn in revenues, which is unlikely to cover the rise in SG&A. The segment’s net loss, the first since 1Q11, should equal to PLN2.2mn. The retail distribution segment should suffer a 33% fall in sales (weaker catalogue). Overall, we see the 3Q14 revenues at PLN30.1mn, an EBITDA of PLN-1.3mn, an EBIT of PLN-2.1mn and a net loss of PLN1.4mn. Outcome: NEGATIVE.
The Witcher 3 remains high across all the pre-order rankings. According to VGChartz, more than 166k customers in the US alone have pre-ordered the game so far across all the three platforms.
Recent Developments. The Company appealed against the court’s verdict in the Optimus case. The court decided that CD Projekt will get PLN1.1mn and PLN1.2mn in interest, much below the demanded PLN35.7mn plus interest. The Company also performed an intra-group transaction for The Witcher brand, which should lead to several PLNmn in tax savings in next five years.
4Q14 outlook. Two smaller projects are due for release in 4Q14 – a board game - The Witcher The Adventure Game - and a mobile MOBA game – The Witcher Battle Arena. We expect their contribution in 4Q14 to sit at a low, single-digit PLNmn.
Change in Forecasts. We apply no changes to our model.
Change in Valuation & Recommendation. We keep our 12-month Target Price for CD Projekt at PLN18.0 and maintain our Buy rating for the stock. The comparative valuation points to PLN11.45 per share.
STOCK PERFORMANCE
CDR
TP
WIG Relative
0
2
4
6
8
10
12
14
16
18
20
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10-20-2014 16.3 18.0 2.9% 0.7
Buy 7-9-2014 15.2 17.7 6.8% 3.3
Hold 4-28-2014 14.9 16.7 2.2% 3.9
Hold 3-31-2014 15.3 16.7 -2.7% -1.2
U.R. 3-12-2014 15.0 n.a. 2.1% -1.5
Hold 1-30-2014 18.2 19.0 -17.7% -17.9
MAIN SHAREHOLDERS
% of votes
Shareholders’ agreement 35.8%
PKO mutual fund 9.5%
Metlife pension fund 6.3%
Aviva pension fund 5.2%
COMPANY DESCRIPTION
CD Projekt is a game developer and distributor.
ANALYST
Lukasz Kosiarski (+48) 22 586 82 25
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes CDR.WA / CDR PW
Sales 142.2 150.8 330.1 375.9 Market capitalisation (PLNm) 1,589
EBITDA 18.0 10.7 123.1 125.8 Number of shares (m) 95.0
EBIT 14.9 6.0 118.4 121.1 Free float (%) 60.9%
Net income 14.9 6.0 101.5 107.3 Avg. daily turnover 3M (PLNm) 1.2
P/E (x) 99.2 245.8 14.6 13.9 Price performance
1M 3M YTD
EV/EBITDA (x) 79.8 135.2 11.0 10.1 -1.3% 10.9% -4.6% Source: Company data, DM BZ WBK estimates
Polish Equity Research
60
Fig. 1. CD Projekt: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Sales 25.9 29.7 17.7 53.8 42.1 50.9 27.8 35.2 40.2 38.9 30.8 43.8 30.1 -25.2% -31.2%
EBITDA 5.6 -0.5 0.7 14.2 6.5 9.6 3.3 5.2 5.8 3.7 1.4 5.2 -1.3 -122.8% -125.2%
EBITDA margin 21.8% -1.7% 4.0% 26.5% 15.4% 18.8% 12.0% 14.7% 14.3% 9.6% 4.7% 11.9% -4.4% -18.7 -16.3
EBIT 5.2 -1.0 0.2 13.6 5.8 8.8 2.6 4.4 4.9 2.9 0.6 3.4 -2.1 -143.2% -163.1%
EBIT margin 20.1% -3.4% 0.9% 25.4% 13.7% 17.3% 9.4% 12.4% 12.3% 7.6% 2.0% 7.7% -7.1% -19.4 -14.8
Net profit 4.8 -1.3 0.5 13.3 5.8 8.5 4.1 3.6 4.4 2.8 1.5 3.0 -1.4 -132.2% -146.8%
Net margin 18.4% -4.2% 2.7% 24.8% 13.7% 16.8% 14.6% 10.3% 11.0% 7.1% 4.9% 7.0% -4.7% -15.7 -11.7
Source: Company data, DM BZ WBK estimates
Fig. 2. CD Projekt: Forecasts changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 150.8 150.8 0.0% 330.1 330.1 0.0% 375.9 375.9 0.0%
EBITDA 10.7 10.7 0.0% 123.1 123.1 0.0% 125.8 125.8 0.0%
EBIT 6.0 6.0 0.0% 118.4 118.4 0.0% 121.1 121.1 0.0%
Net profit 6.0 6.0 0.0% 101.5 101.5 0.0% 107.3 107.3 0.0% Source: Company data, DM BZ WBK estimates
Fig. 3. CD Projekt: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 18.00 18.00 0.0%
Comparable valuation (based on 2014-2016E) 11.45 11.45 0.0% Source: Company data, DM BZ WBK estimates
Fig. 4. CD Projekt: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 164.0 142.2 150.8 330.1 375.9
COGS 89.6 88.8 101.0 162.7 199.4
Gross profit 74.4 53.3 49.8 167.4 176.5
SG&A 38.3 35.2 46.6 51.8 58.2
Other operating income, net -7.7 -3.2 2.8 2.8 2.8
EBITDA 31.0 18.0 10.7 123.1 125.8
Operating profit 28.4 14.9 6.0 118.4 121.1
Net financial income (costs) -0.1 2.3 2.1 2.7 6.3
Profit before tax 28.3 17.2 8.1 121.0 127.5
Income tax 0.2 2.3 1.8 19.5 20.2
Net profit 28.1 14.9 6.0 101.5 107.3
Gross margin 45.4% 37.5% 33.0% 50.7% 47.0%
EBITDA margin 18.9% 12.7% 7.1% 37.3% 33.5%
Operating margin 17.3% 10.5% 4.0% 35.9% 32.2%
Net profit margin 17.1% 10.5% 4.0% 30.7% 28.5%
Source: Company data, DM BZ WBK estimates
Fig. 5. CD Projekt: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 108.7 122.6 131.5 251.4 362.3
Fixed assets 94.2 95.0 95.0 95.0 95.0
Total assets 202.9 217.6 226.5 346.4 457.2
Current liabilities 43.8 45.0 48.1 66.4 70.0
bank debt 4.7 0.3 0.0 0.0 0.0
Long-term liabilities 7.6 5.3 5.1 5.1 5.1
bank debt 7.6 5.1 5.1 5.1 5.1
Equity 151.5 167.4 173.4 274.9 382.1
share capital 95.0 95.0 95.0 95.0 95.0
Minority Interest 0.0 0.9 0.9 0.9 0.9
Total liabilities 202.9 217.6 226.5 346.4 457.2
Net debt -23.0 -39.2 -30.6 -121.0 -239.7
Source: Company data, DM BZ WBK estimates
Fig. 6. CD Projekt: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 28.4 21.8 -4.0 95.1 123.4
CF from investment -6.0 -6.5 -4.7 -4.7 -4.7
CF from financing -8.7 -3.3 -0.5 0.0 0.0
Net change in cash 13.7 12.0 -9.1 90.4 118.7
Source: Company data, DM BZ WBK estimates
Polish Equity Research
61
Poland Chemicals
NOVEMBER 12, 2014
CIECH RECOMMENDATION
BUY (MAINTAINED)
3Q14: not that bad, upward trend ahead CURRENT PRICE: PLN42.3
TARGET PRICE: PLN51.4 (MAINTAINED)
3Q14 Results Preview. We expect Ciech to report revenues at
PLN702mn (-14% q/q and -15% y/y). The y/y drop in revenues is caused
by 2% lower soda ash volumes (due to maintenance stoppages),
discontinued operations in organic/agro segments and contract end in
sulphur trading with Siarkopol. Despite the drop in revenues y/y,
improvement in restructuring and profitability in the soda business should
lift the EBITDA margin to 16% (up 3p.p. y/y). We, therefore, expect the
EBITDA to reach PLN113mn (+4% y/y), the normalised EBITDA at
PLN116mn (-10% y/y). All in all, we expect the EBIT at PLN59mn (-29%
q/q and +7% y/y). We also assume a negative net financial result of
PLN28mn, the effective tax rate at 19%, and the net profit in 3Q14 at
PLN25mn. Outlook: NEUTRAL.
EBITDA from the segment’s point of view: We expect the soda
segment to deliver the reported EBITDA at PLN 97m (-18% q/q, -7%
y/y). We also assume soda ash/baking soda volumes at 463kt/30kt, -2%/-
3% y/y. The y/y drop in soda volumes is due to small production
stoppages in 3Q14, observed in the German and Romanian plants. On
the other hand, we assume that average soda prices were 4% higher y/y.
We expect the organic segment to report the EBITDA at PLN11mn
compared to PLN8mn in 3Q14. The Agro&silicate segment is set to
report a lower EBITDA y/y of PLN6mn (vs. PLN9mn in 3Q13). Other
products &eliminations should consume PLN1mn.
Strategy update for 2014-2019. Company’s strategy assumes the avg.
annual normalized EBITDA at PLN660mn (margin at 17%), substantial
debt reduction (net debt / EBITDA ratio at below 1.0x in 2019) and avg.
DY at 3%. The strategy targets are to be achieved by development of the
soda ash and crop protection plant segments. The strategy is also based
on the assumption that the impact of the trona supply from Turkey to
Europe is not material. The strategy goals are ambitious, however not
unrealistic given bullish soda ash market outlook.
Change in forecasts. We made no changes to our forecasts for 2014E
and beyond. We leave our financial forecasts unchanged.
Change in Valuation & Recommendation. We keep our DCF-based
Target Price unchanged at PLN51.4 per share (21.5% upside potential).
That said, we uphold our BUY recommendation for Ciech.
PUBLICATION DATE
NOVEMBER 14, 2014
3Q14 RESULTS PREVIEW
3Q14E y/y q/q
Sales 702 -15% -14%
EBITDA 113 4% -15%
EBIT 59 7% -29%
Net profit 25 293% 20%
STOCK PERFORMANCE
CIE
TP
WIG Relative
10
15
20
25
30
35
40
45
50
55
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10/27/2014 40.1 51.4 5.5% 5.3
Buy 9/23/2014 39.1 51.0 2.6% 4.6
COMPANY DESCRIPTION
Ciech is the second largest soda ash producer in Europe.
ANALYST
Tomasz Kasowicz (+48) 22 586 81 55
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes CECH.WA / CIE PW
Sales 3,501 3,050 3,046 3,204 Market capitalisation (PLNm) 2,160
EBITDA 356 472 520 590 Number of shares (m) 52.7
EBIT 140 263 297 362 Free float (%) 48.8%
Net income 49 72 143 200 Avg. daily turnover 3M (PLNm) 1.3
P/E (x) 45.1 31.1 15.5 11.1 Price performance
1M 3M YTD
EV/EBITDA (x) 10.2 7.7 7.0 6.1 +1.2% +7.3% +32.0% Source: Company data, Bloomberg, BZ WBK Brokerage
Polish Equity Research
62
Fig. 1. Ciech: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y chg. q/q chg.
Sales 1,018 1,019 1,173 1,120 1,065 1,020 993 889 823 795 845 814 702 -15% -14%
EBITDA 89 74 134 -242 79 82 124 93 109 22 118 133 113 4% -15%
EBITDA margin 8.7% 7.3% 11.4% -21.6% 7.4% 8.0% 12.4% 10.5% 13.2% 2.8% 14.0% 16.4% 16.1% 2.9 -0.3
EBIT 33 16 72 -303 23 24 71 41 55 -36 68 83 59 7% -29%
EBIT margin 3.2% 1.6% 6.1% -27.1% 2.2% 2.4% 7.2% 4.6% 6.7% -4.5% 8.0% 10.2% 8.4% 1.7 -1.8
Net profit 8 -9 11 -348 -25 -89 38 15 6 -22 6 21 25 293% 20%
Net margin 0.8% -0.9% 0.9% -31.1% -2.3% -8.7% 3.8% 1.7% 0.8% -2.8% 0.8% 2.5% 3.5% 2.8 1.0
Source: Company data, BZ WBK Brokerage
Fig. 2. Ciech: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 3,050 3,050 0% 3,046 3,046 0% 3,204 3,204 0%
EBITDA 472 472 0% 520 520 0% 590 590 0%
EBIT 263 263 0% 297 297 0% 362 362 0%
Net profit 72 72 0% 143 143 0% 200 200 0% Source: Company data, BZ WBK Brokerage
Fig. 3. Ciech: Valuation changes In PLN per share, unless otherwise stated
New Previous Change Weight
DCF valuation 51.4 51.4 0% 100%
Comparable valuation (based on 2014-2015E) 36.0 36.0 0% 0% Source: Company data, BZ WBK Brokerage
Fig. 4. Ciech: Income statement forecast PLN in millions, unless otherwise stated
2012 2013E 2014E 2015E 2016E
Net sales 4,378 3,501 3,050 3,046 3,204
COGS -3,781 -2,894 -2,398 -2,352 -2,435
Gross profit 596 607 652 694 769
SG&A -479 -387 -363 -383 -394
Other operating income, net -314 -81 -26 -14 -13
EBITDA 40 356 472 520 590
Operating profit -196 140 263 297 362
Net financial income (costs) -262 -146 -158 -120 -114
Profit before tax -457 -6 105 177 247
Income tax 22 46 34 34 47
Net profit after minorities -431 49 72 143 200
Gross margin 13.6% 17.3% 21.4% 22.8% 24.0%
EBITDA margin 0.9% 10.2% 15.5% 17.1% 18.4%
Operating margin -4.5% 4.0% 8.6% 9.8% 11.3%
Net profit margin -9.8% 1.4% 2.4% 4.7% 6.3%
Source: Company data, BZ WBK Brokerage
Fig. 5. Ciech: Balance sheet forecast PLN in millions, unless otherwise stated
2012 2013E 2014E 2015E 2016E
Current assets 1,182 910 814 809 848
Fixed assets 2,546 2,300 2,394 2,515 2,577
Total assets 3,728 3,211 3,209 3,324 3,425
Current liabilities 1,028 697 2,037 2,009 1,911
bank debt 63 11 1,478 1,456 1,336
Long-term liabilities 1,786 1,617 263 263 262
bank debt 1,499 1,308 7 7 7
Equity 886 911 924 1,067 1,267
share capital 288 288 288 288 288
Minority Interest -6 -14 -15 -15 -15
Total liabilities 3,728 3,211 3,209 3,324 3,425
Net debt 1,480 1,213 1,393 1,371 1,246
Source: Company data, BZ WBK Brokerage
Fig. 6. Ciech: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013E 2014E 2015E 2016E
CF from operations 98 291 329 485 525
CF from investment -287 -25 -291 -343 -286
CF from financing, incl. 124 -252 -52 -143 -234
Net change in cash -65 14 -14 0 5
Source: Company data, BZ WBK Brokerage
Polish Equity Research
63
Poland Construction & Real Estate
November 12, 2014
DOM DEVELOPMENT RECOMMENDATION
HOLD (MAINTAINED)
All priced in CURRENT PRICE: PLN44.91
TARGET PRICE: PLN45.1 (MAINTAINED)
Equity story. We are positive on the Polish residential sector.
The sale volumes of housing developers have been rising since
the beginning of 2009 and we expect the trend to continue in
2015. Low interest rates should be supportive here (as the past
correlation suggests), as is the case with the expected rise in
mortgage originations and the likely rise in price limits in the MdM
scheme. Nevertheless, we believe that this outlook is already
reflected in the current valuation of DOM. Note, for example, that
the company is trading at a P/BV of 1.36x, at a premium
compared with the sector’s median and estimated fair P/BV of
Dom that we currently see at 1.25x (on the basis of the estimated
2015E ROE at c. 9.3%). With our TP close to current share
market price, we maintain our neutral view on DOM.
Residential market continued recovery in 3Q14. The eight
reviewed developers sold a total of 2,511 flats, up 21% y/y and
12% q/q. In 9M14, they improved the volume by 36% y/y and they
also all reported a double-digit y/y volume growth, with the growth
rate ranging between 19% (Dom Development) and 109%
(Budimex). The aggregate volume of the reviewed developers is
also 39% higher y/y, taking into account the last four quarters.
The annualised 9M14 aggregate sales volume implies a healthy
24% y/y growth in FY14.
Sale volume of DOM relatively weak. The company announced
that it had sold 495 housing units in 3Q14 (+7% q/q, +20% y/y),
the most since the start of 2010. In 9M14 overall, the company
sold 1,358 units in total, up 19% y/y, which, on the other hand, is
a relatively weak result (the aggregate volume of the WSE
developers rose 36% y/y). The annualised 9M14 aggregate
volume of sales implies a 24% y/y rise in FY14, with the pace at
Dom at a meagre 13%. In the long term, we expect the company
to sell/hand over 2.0-2.1k units annually, which is above the
implied FY14 sales volume and slightly above the 3Q annualised
sale volume.
Change in forecasts. We slightly decline our 2015-2017 profits
forecast, as we assume slightly lower margin at residential
projects. We assume notary sales in 2014 at 1,950. We expect
Dom to sell/hand over c. 2.0-2.1k apartments annually after 2014.
Change in Valuation & Recommendation. We maintain our
Target Price for DOM intact at PLN45.1. We also maintain our
Hold recommendation intact.
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Hold 10-22-2014 44.9 45.1 1.1% 0.5
Sell 7-9-2014 43.6 45.1 3.0% -2.1
Sell 4-28-2014 48.0 45.1 -9.2% -7.5
Sell 1-30-2014 53.8 45.1 -10.8% -13.1
Sell 10-23-2013 41.5 38.7 29.6% 35.2
COMPANY DESCRIPTION
Dom Development is a residential developer, focussing on Warsaw market.
Main shareholders % of votes
Dom Development BV 59.5%
Aviva pension fund 6.8%
Mr. Jaroslaw Szanajca 6.2%
Mr. Grzegorz Kielpsz 5.2%
ANALYST
Adrian Kyrcz (+48) 22 586 81 59
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes DOMP.WA / DOM PW
Sales 676.4 818.4 870.0 870.0 Market capitalisation (PLNm) 1124
EBITDA 76.5 73.8 108.2 107.5 Number of shares (m) 24.8
EBIT 73.3 70.6 105.1 104.4 Free float (%) 27.2%
Net income 54.5 54.1 83.8 83.9 Avg. daily turnover 3M (PLNm) 0.0
P/E (x) 20.5 20.7 13.3 13.3 Price performance
1M 3M YTD
EV/EBITDA (x) 16.2 16.9 10.2 10.3 3.2% 8.0% -11.0% Source: Company data, DM BZ WBK estimates
Polish Equity Research
64
Fig. 1. Dom Development: 3Q14 results review PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y (%) q/q (%)
Sales 201.5 211.0 141.9 164.0 305.1 238.3 220.3 119.9 123.6 212.6 198.7 163.0 159.9 29.4% -1.9%
EBITDA 47.4 47.9 19.3 19.8 44.4 32.8 33.8 2.7 3.6 36.4 9.6 3.7 21.1 482.9% 463.4%
EBITDA margin 23.5% 22.7% 13.6% 12.1% 14.5% 13.8% 15.3% 2.2% 2.9% 17.1% 4.8% 2.3% 13.2% 3.5 4.7
EBIT 46.9 47.2 18.5 19.1 43.9 32.1 33.0 1.9 2.8 35.7 8.9 3.0 20.3 619.9% 579.8%
EBIT margin 23.3% 22.4% 13.1% 11.6% 14.4% 13.5% 15.0% 1.6% 2.3% 16.8% 4.5% 1.8% 12.7% 4.6 5.9
Net profit 36.6 39.0 14.6 15.7 35.5 25.5 26.3 1.1 1.1 25.9 9.3 1.6 15.3 n.m. 840.4%
Net margin 18.1% 18.5% 10.3% 9.5% 11.6% 10.7% 11.9% 0.9% 0.9% 12.2% 4.7% 1.0% 9.6% 9.5 8.6
Source: Company data, DM BZ WBK estimates
Fig. 2. Dom Development: Forecasts changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 818 818 0% 870 870 0% 870 870 0%
EBITDA 74 74 0% 108 123 -12% 108 121 -11%
EBIT 71 71 0% 105 120 -12% 104 118 -12%
Net profit 54 54 0% 84 96 -12% 84 95 -12% Source: Company data, DM BZ WBK estimates
Fig. 3. Dom Development: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 45.1 45.1 0%
Comparable valuation (based on P/BV) 33.8 33.8 0% Source: Company data, DM BZ WBK estimates
Fig. 4. Dom Development: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 851.4 676.4 818.4 870.0 870.0
COGS 647.4 519.3 661.7 669.9 669.9
Gross profit 204.0 157.1 156.8 200.1 200.1
SG&A 85.2 82.5 86.1 95.0 95.7
Other operating income. net -5.2 -1.2 0.0 0.0 0.0
EBITDA 116.5 76.5 73.8 108.2 107.5
Operating profit 113.5 73.3 70.6 105.1 104.4
Net financial income (costs) 0.0 -3.6 -3.9 -1.7 -0.8
Profit before tax 113.5 69.7 66.8 103.4 103.6
Income tax -22.3 -15.2 -12.7 -19.6 -19.7
Net profit 91.2 54.5 54.1 83.8 83.9
Gross margin 24.0% 23.2% 19.2% 23.0% 23.0%
EBITDA margin 13.7% 11.3% 9.0% 12.4% 12.4%
Operating margin 13.3% 10.8% 8.6% 12.1% 12.0%
Net profit margin 10.7% 8.1% 6.6% 9.6% 9.6%
Source: Company data, DM BZ WBK estimates
Fig. 5. Dom Development: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 1751.5 1721.4 1373.7 1477.0 1496.2
Fixed assets 8.2 7.5 7.4 7.2 7.1
Total assets 1759.7 1728.9 1381.0 1484.2 1503.3
Current liabilities 414.6 383.7 330.3 442.9 445.1
bank debt 37.3 3.8 3.8 3.8 3.8
Long-term liabilities 452.7 488.6 194.6 144.6 144.6
bank debt 397.0 444.0 150.0 100.0 100.0
Equity 892.4 856.5 856.1 896.6 913.5
Total liabilities 1759.7 1728.9 1381.0 1484.2 1503.3
Net debt 23.6 120.4 124.9 -15.1 -6.5
Source: Company data, DM BZ WBK estimates
Fig. 6. Dom Development: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 125.6 -8.7 62.5 190.4 64.1
CF from investment -238.2 231.5 -1.2 -2.3 -1.9
CF from financing -91.8 -76.5 -359.8 -98.1 -70.9
Net change in cash -204.3 146.3 -298.5 90.1 -8.6
Source: Company data, DM BZ WBK estimates
Polish Equity Research
65
Poland Construction & Real Estate
November 12, 2014
ECHO INVESTMENT RECOMMENDATION
BUY (MAINTAINED)
FX rates to support 3Q profits CURRENT PRICE: PLN6.47
TARGET PRICE: PLN7.65 (MAINTAINED)
3Q14 Results Preview. We expect Echo to post quite a good set
of results in 3Q14. We expect a flat q/q profit from rental activities and assume no completion of new project or changes in rent
levels. We do, however, expect as much as PLN11.6mn in profit from selling flats on high notary sales volume. And so we project
18% q/q gross profit growth to PLN78.6mn. We also expect a revaluation gain of approx. PLN13.8mn, purely caused by the
EUR/PLN q/q appreciation (+0.4% q/q). For the very same reason, we expect Echo to recognise a loss of PLN6.6mn in its
financial activity (some loans are EUR denominated). All in all, we forecast Echo to earn PLN26.6mn, much more than in 2Q14
(PLN16.5mn) and 3Q13 (5.4mn). The forecasted profit growth would, however, only increase Echo’s NAV by 1% q/q, which is why we expect market reaction to be neutral. Outcome: NEUTRAL.
Financial forecasts. We maintain our financial forecasts. We
expect 4Q14 and the 2015-2016 results outlook to be quite positive. In 4Q14, we expect Echo to recognise the first
revaluation gains from the nearly completed Katowice Business Park and the Wroclaw West Gate office projects. In 2015, we
expect Echo to recognise approx. PLN200mn in positive revaluation from the continuation of the two aforementioned
projects, extra gains from the Gdansk Tryton office project and gains from the scheduled enlargement of a shopping mall in
Jelenia Gora. For 2016, we forecast revaluations of approx. PLN160mn, solely from the Q22 office building in Warsaw.
Change in Valuation & Recommendation. We maintain our
Target Price for Echo at PLN7.65 (weighted average of discounted 2016E NAV and peer comparison) and maintain our
Buy recommendation on fundamental upside. The company trades at P/BV of 0.84x, which is close to its WSE peer GTC
(0.80x P/BV), though it used to be traded at a more significant premium in the past. We also think that the premium over GTC is
justified because GTC may decide again to issue new shares (for acquisitions), which we would view negatively with respect to the
uncertainty regarding the number, size and operating data of the potential acquisition targets. We forecast Echo to rise its BVPS by
17% to PLN9.01 in 2016E from PLN7.7 in 2Q14. The discounted 2016E NAV (12M forward) sits at PLN7.96, which offers an
upside to the current share price. At the top of that the spread between Warsaw prime office yields and T-bond 2Y yields
significantly widened recently, which might be supportive for the share market price of Echo (as in the past).
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10-22-2014 6.2 7.7 3.9% 3.3
Buy 7-9-2014 6.6 7.7 -4.9% -10.0
Buy 4-28-2014 5.8 7.7 13.5% 15.2
Buy 1-30-2014 6.2 8.1 -6.9% -9.2
Buy 10-23-2013 7.2 8.3 -14.1% -8.6
COMPANY DESCRIPTION
Echo is a real estate and residential developer with focus on Polish market. Office and retail buildings constitute majority of assets.
Main shareholders % of votes
Mr. Michal Solowow 45.9%
Aviva pension fund 10.0%
ING pension fund 9.4%
PZU pension fund 5.4%
ANALYST
Adrian Kyrcz (+48) 22 586 81 59
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes ECH.WA / ECH PW
Sales 528 488 640 689 Market capitalisation (PLNm) 2 670
EBIT 497 677 452 445 Number of shares (m) 412.7
Adj. EBIT 224 197 252 283 Free float (%) 53.9%
Net income 331 489 255 222 Avg. daily turnover 3M (PLNm) 0.6
BV 2765 3240 3496 3717 Price performance
1M 3M YTD
P/BV (x) 0.97 0.82 0.76 0.72 3.9% 3.2% -3.4% Source: Company data, DM BZ WBK estimates, *adjusted for revaluation gains/losses
Polish Equity Research
66
Fig. 1. Echo Investment: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%)
Sales 109.4 115.2 153.8 122.9 158.7 148.2 140.5 125.4 140.7 122.2 111.8 111.5 155.0 10.2% 39.0%
EBITDA 324.7 49.8 -27.3 103.2 -39.4 158.0 236.1 255.8 -3.7 11.7 491.8 38.1 72.5 n.m. 90.4%
EBITDA margin 296.7% 43.2% -17.7% 84.0% -24.8% 106.6% 168.1% 204.0% -2.6% 9.6% 439.8% 34.1% 46.8% -18.7 0.4
EBIT 323.6 48.6 -32.0 104.9 -40.5 156.8 235.1 254.1 -5.4 10.0 490.1 36.9 71.3 n.m. 93.2%
EBIT margin 295.7% 42.2% -20.8% 85.3% -25.5% 105.9% 167.3% 202.7% -3.9% 8.2% 438.2% 33.1% 46.0% -12.9 0.4
Net profit 72.2 29.2 30.7 67.3 -19.5 332.3 156.1 146.0 5.4 1.7 408.3 16.5 26.6 n.m. 61.3%
Net margin 66.0% 25.3% 19.9% 54.8% -12.3% 224.3% 111.1% 116.5% 3.8% 1.4% 365.1% 14.8% 17.1% 3.5 0.2
Source: Company data, DM BZ WBK estimates
Fig. 2. Echo Investment: Forecasts changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 488 488 0% 640 640 0% 689 689 0%
EBITDA 682 682 0% 457 457 0% 451 451 0%
EBIT 677 677 0% 452 452 0% 445 445 0%
Adj EBIT 177 177 0% 252 252 0% 283 283 0%
Net profit 489 489 0% 255 255 0% 222 222 0% Source: Company data, DM BZ WBK estimates, *adjusted for revaluation gains/losses
Fig. 3. Echo Investment: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
SOTP valuation 7.65 7.65 0%
Comparable valuation 6.0 6.0 0% Source: Company data, DM BZ WBK estimates
Fig. 4. Echo Investment: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 583 528 488 640 689
COGS 277 236 208 298 314
Gross profit 305 292 280 342 375
SG&A 83 82 89 91 92
Other operating income, net -33 327 500 201 163
EBITDA 195 502 682 457 451
Operating profit 189 497 677 452 445
Net financial income (costs) -6 -177 -141 -137 -172
Profit before tax 184 319 536 315 274
Income tax 190 12 -47 -60 -52
Net profit 374 331 489 255 222
Gross margin 52.4% 55.4% 57.3% 53.5% 54.4%
EBITDA margin 33.5% 95.1% 139.7% 71.4% 65.4%
Operating margin 32.5% 94.1% 138.6% 70.6% 64.7%
Net profit margin 64.2% 62.7% 100.2% 39.9% 32.2%
Source: Company data, DM BZ WBK estimates
Fig. 5. Echo Investment: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 1029 1534 1604 1351 1266
Fixed assets 4174 4596 5281 5829 6167
Total assets 5453 6224 6885 7180 7433
Current liabilities 704 1231 1231 1231 1231
bank debt 550 562 562 562 562
Long-term liabilities 2286 2194 2345 2347 2347
bank debt 2223 2149 2300 2300 2300
Equity 2432 2765 3240 3496 3717
Total liabilities 5453 6224 6885 7180 7433
Net debt 2397 2289 2328 2582 2666
Source: Company data, DM BZ WBK estimates
Fig. 6. Echo Investment: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 212 228 226 237 267
CF from investment -468 65 -134 -355 -180
CF from financing 79 -250 20 -135 -172
Net change in cash -176 43 112 -254 -85
Source: Company data, DM BZ WBK estimates
Polish Equity Research
67
Poland Industrials
NOVEMBER 12, 2014
ELEMENTAL HOLDING RECOMMENDATION
BUY (INITIATION)
Building recycling tycoon CURRENT PRICE: PLN2.88
TARGET PRICE: PLN3.9
Equity Story. Elemental Holding is a company that operates through its
three Polish subsidiaries – Syntom (non-ferrous metal trading), Tesla
Recycling (PCB recycling) and Terra Recycling (WEEE recycling) and
started from scratch just in 2009. The company is a clever mix of low
volumes - high margin recycling (PCB, WEEE) and high volumes-low
margin trading, which creates synergies for the whole group (bargaining
power, supply of raw materials). WEEE recycling is heavily regulated by
the EU, with the WEEE Directive setting the collection, recycling and
recovery targets for different electro-waste groups. The Polish law,
compliant with EU regulations, sets a collection target of 65% in 2021 of
waste put one the market (vs. 35.3% in 2013 or 4.2kg per resident). But
there are still markets that are far behind the current collection levels in
Poland. Turkey, even if not an EU member, still regulates its market
similarly and collects only 0.5kg per resident at the moment (target of 4kg
in 2018). Elemental’s current strategy stipulates acquisitions of recycling
companies on underdeveloped markets in order to create a major CEE
player. The company finalised two deals this year - catalytic converters
and WEEE recycler from Lithuania – EMP and metal trading company
from Slovakia – Metal Holding, is finalizing third (Turkish Evciler) and
looking at the levels of financing that it had obtained, especially the new
PLN50mn bond issue, it will probably not stop at the three.
Financials. We expect the company’s results to grow rapidly next year,
mainly due to acquisitions (revenues up by 36.9% y/y, EBITDA up by
36.6%). A further increase of the high margin recycling should also
gradually improve margins on the domestic market in the longer term.
Triggers/Risks. The WEEE recycling markets, as many other recycling
markets, are heavily afflicted by the grey market. There are, however,
actions that could improve this, such as a distinction of refrigerators
instead of just MDA in the product groups. The company will cumulatively
acquire several companies in 2014, and aside from the obvious risks like
overpaying, it may take some time to put all these puzzles together
Valuation & recommendation. Using the DCF model, we set the
company’s TP at PLN3.9 (37% upside) and issued a Buy
recommendation.
STOCK PERFORMANCE
EMT WIG Relative
0
1
1
2
2
3
3
4
4
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
COMPANY DESCRIPTION
Elemental Holding specializes in non-ferrous metal collecting and trading as well as PCB, WEEE and catalytic converter recycling. Company is currently gaining access to foreign markets through M&A’s.
Main shareholders % of votes
Moearth Holdings Limited 23.8%
Ibah Holdings Limited 18.2%
Glaholm Investments Limited 15.0%
EVF I Investments S.a.r.l 10.1%
ING pension fund 5.8%
ANALYST
Tomasz Kucinski +48 22 534 16 10
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes EMPT.WA / EMT PW
Sales 858.7 739.7 1013.0 1075.3 Market capitalisation (PLNmn) 442.8
EBITDA 27.0 46.7 63.8 68.7 Number of shares (mn) 154.8
EBIT 24.1 40.9 53.2 58.1 Free float (%) 25.8%
Net income 24.4 35.2 40.9 40.9 Avg. daily turnover 3M (PLNm) 0.5
P/E (x) 18.2 12.7 10.9 10.9 Price performance
1M 3M YTD
EV/EBITDA (x) 17.6 9.5 6.6 5.9 -2.4% 31.2% 9.2% Source: Company data, DM BZ WBK estimates
Fig.1. Elemental: DCF valuation
Polish Equity Research
68
PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Revenues 739.7 1,013.0 1,075.3 1,134.8 1,190.5 1,223.0 1,253.2 1,284.2 1,307.9 1,332.2
EBIT 40.9 53.2 58.1 62.2 66.5 69.7 72.8 75.9 77.5 79.1
Cash taxes on EBIT 2.1 6.0 11.0 11.8 12.6 13.2 13.8 14.4 14.7 15.0
NOPAT 38.8 47.3 47.1 50.4 53.9 56.5 58.9 61.5 62.8 64.1
Depreciation 5.8 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6
Change in operating WC -6.8 7.4 11.0 11.2 11.2 8.8 8.8 9.1 8.4 3.3
Capital expenditures 70.5 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6
Net investment 57.9 7.4 11.0 11.2 11.2 8.8 8.8 9.1 8.4 3.3
Free cash flow -19.2 39.9 36.1 39.2 42.7 47.7 50.2 52.4 54.4 60.8
WACC 9.0%
PV FCF 2014-2023 272.0
Terminal growth 1.0%
Terminal value (TV) 765.2
PV TV 351.7
Total EV 623.7
Net debt -4.0
Minority interests 56.1
Equity value 571.6
Number of shares (mn) 158.9
Value per share (PLN, 31 Dec 2014) 3.6
Month 11.0
Curent value per share (PLN) 3.6
12M target price 3.9
Source: Company data, DM BZ WBK estimates
Fig. 2. Elemental: Comparable valuation
Price Mkt. cap (EURmn)
P/E EV/EBITDA
2014E 2015E 2016E 2014E 2015E 2016E
Elemental Holding SA 2.91 107 12.7 10.9 10.9 9.5 6.6 5.9
Krynicki Recykling SA 8.8 35 18.3 12.7 14.9 10.2 7.3 5.8
Aurubis AG 41.845 1,881 21.0 11.1 9.9 8.1 5.9 5.4
Waste Management Inc 49.45 18,213 20.6 19.4 17.7 9.3 9.2 8.8
Republic Services Inc 39.13 11,190 20.2 19.1 17.0 8.5 8.1 7.7
Waste Connections Inc 49.71 4,963 24.5 21.7 19.1 11.4 10.5 9.7
Jianxin Mining Co Ltd 7.08 1,058 23.6 19.1 15.4 17.8 14.1 11.3
Median 20.8 19.1 16.2 9.8 8.6 8.2
Premium/discount vs. median -47.2% -40.3% -32.8% -22.3% -15.6% -15.0%
Source: BZ WBK Brokerage research, company data
Polish Equity Research
69
Fig. 3. Elemental: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Sales n.a. n.a. n.a. n.a. 220.2 226.5 221.8 200.4 196.9 239.4 174.2 161.7 184.0 -6.6% 13.7%
EBITDA n.a. n.a. n.a. n.a. 7.5 8.9 6.6 6.0 7.6 7.4 10.5 9.5 12.0 57.3% 25.7%
EBITDA margin n.a. n.a. n.a. n.a. 3.4% 3.9% 3.0% 3.0% 3.9% 3.1% 6.0% 5.9% 6.5% 2.6 0.6
EBIT n.a. n.a. n.a. n.a. 6.9 8.2 6.0 5.4 6.8 6.5 9.6 8.1 10.5 53.8% 29.4%
EBIT margin n.a. n.a. n.a. n.a. 3.1% 3.6% 2.7% 2.7% 3.5% 2.7% 5.5% 5.0% 5.7% 2.2 0.7
Net profit n.a. n.a. n.a. n.a. 4.7 5.7 5.5 7.4 7.1 4.5 9.2 7.7 9.0 27.0% 17.1%
Net margin n.a. n.a. n.a. n.a. 2.1% 2.5% 2.5% 3.7% 3.6% 1.9% 5.3% 4.7% 4.9% 1.3 0.1
Source: Company data, DM BZ WBK estimates
Fig. 4. Elemental: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 739.7 n.a. n.a. 1013.0 n.a. n.a. 1075.3 n.a. n.a.
EBITDA 46.7 n.a. n.a. 63.8 n.a. n.a. 68.7 n.a. n.a.
EBIT 40.9 n.a. n.a. 53.2 n.a. n.a. 58.1 n.a. n.a.
Net profit 35.2 n.a. n.a. 40.9 n.a. n.a. 40.9 n.a. n.a.
Source: Company data, DM BZ WBK estimates
Fig. 5. Elemental: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 3.9 n.a. n.a.
Comparable valuation (based on 2014-2016E) 4.1 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. Elemental: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Sales 895 859 740 1013 1075
operating costs 868 835 699 1013 1075
EBITDA 29 27 47 64 69
Operating profit 27 24 41 53 58
Net financial income (costs) 4 -1 4 2 2
Profit before tax 23 25 37 51 57
Income tax 3 1 2 6 11
Net profit 18 24 35 41 41
EBITDA margin 3.2% 3.1% 6.3% 6.3% 6.4%
Operating margin 3.0% 2.8% 5.5% 5.3% 5.4%
Net profit margin 2.1% 2.8% 4.8% 4.0% 3.8%
Source: Company data, DM BZ WBK estimates
Fig. 7. Elemental: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 106 205 297 317 335
Fixed assets 91 160 225 225 225
Total assets 197 366 523 542 560
Current liabilities 58 68 84 76 68
bank debt 34 36 55 44 35
Long-term liabilities 14 40 89 89 89
bank debt 11 14 63 63 63
Equity 125 258 305 328 348
share capital 103 155 167 167 167
Minority Interest 0 0 45 50 55
Total liabilities 197 366 523 542 560
Net debt 40 29 -4 -24 -39
Source: Company data, DM BZ WBK estimates
Fig. 8. Elemental: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 0. 12 47 44 40
CF from investment -17 -32 -71 -11 -11
CF from financing 19 37 125 -24 -24
Net change in cash 2 16 101 9 6
Source: Company data, DM BZ WBK estimates
Polish Equity Research
70
This page has been left intentionally blank.
Polish Equity Research
71
Poland FMCG
NOVEMBER 12, 2014
EMPERIA RECOMMENDATION
BUY (MAINTAINED)
Still slow CURRENT PRICE: PLN 49
TARGET PRICE: PLN 81 (MAINTAINED)
Equity Story: In our view, Emperia’s current market price values
Stokrotka at c.1.3x monthly sales, which we believe to be too low when
compared with the recent M&A transactions on the FMCG market. This
limits any downside. On the other hand, in order to cash in the potential
valuation gap, a positive decision of the management to put Emperia up
for sale is needed. This is the largest risk to our investment story.
3Q14 Results Preview. 3Q14 failed to bring about much change on the
FMCG market, which remained very slow. Emperia was not different from
this bleak picture. As far as its retail arm is concerned, we expected
Stokrotka’s LfL at negative 1%. But new space contribution pushed total
sales to +7% y/y to PLN494mn in 3Q14. We expect the gross margin at
25.5% and the SG&A costs at PLN130mn (26.3% of sales). The results
will be adversely hit by inventory shrinkage at PLN2.0mn, which will lead
to an EBITDA of PLN2.7mn vs. the previous year’s negative EBITDA of
PLN13mn. It must be remembered that 3Q13 was severely affected by a
shifts in the business model towards own logistics in exchange for
deliveries from Tradis. For the remaining segments, we assumed similar
EBITDA results to 2Q14 (real estate - EBITDA at PLN10mn, IT - EBITDA
at PLN3.4mn and other - EBITDA at PLN2.0mn). As far as the entire
Emperia Group is concerned, we expect the EBITDA to reach PLN15mn
(vs. the previous year’s loss of PLN1mn) and we expect the bottom line at
PLN4mn (vs. the previous year’s loss of PLN1mn) in 2Q14E. On cash
flow, we expect the OCF at c. ‘0’ and the buyback (PLN10mn) will
diminish the net cash position to c.PLN106mn vs. PLN94mn in 3Q14.
Outcome: NEUTRAL.
Change in valuation & recommendation. We maintain our investment
story and our SOTP valuation for Emperia, which assumes cash account
at PLN106mn in 2Q14 (vs. the previous PLN120mn), PLN690mn for
Stokrotka (3.9x 2014E sales of PLN2.097mn) and PLN368mn for real
estate. A comparable valuation points to PLN56.00/ share.
3Q14 RESULTS PREVIEW
3Q14E y/y (%) q/q (%)
Sales 522.6 10.5% 4.0%
EBITDA 15.5 n.a. -45.3%
EBIT 3.2 n.a. -80.1%
Net profit 3.6 n.a. -74.2%
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10/23/2014 47.8 81.0 2.7% 2.2
Buy 9/7/2014 55.0 82.0 -13.2% -11.2
Buy 4/28/2014 68.0 87.0 -19.1% -24.6
Buy 1/30/2014 70.0 90.7 -2.8% -5.1
COMPANY DESCRIPTION
Emperia has wholesale and retail operations in the FMCG segment. These are backed by a commercial real estate portfolio.
ANALYST
Tomasz Sokolowski (+48) 22 586 82 36
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes EMP.WA / EMP PW
Sales 1,967 2,202 2,489 2,665 Market capitalisation (PLNm) 744
EBITDA 62 79 80 78 Number of shares (m) 15.2
EBIT 15 32 30 26 Free float (%) 86.6%
Net income 15 29 30 26 Avg. daily turnover 3M (PLNm) 0.5
P/E (x) 46.2 24.4 23.9 27.0 Price performance
1M 3M YTD
EV/EBITDA (x) 8.3 5.3 4.5 3.7 -4.6% -17.0% -34.7% Source: Company data, DM BZ WBK estimates
Polish Equity Research
72
Fig. 1. Emperia: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Sales 464.1 517.1 491.4 487.5 463.0 506.9 493.0 489.7 473.0 511.7 479.4 502.4 522.6 10.5% 4.0%
EBITDA 28.6 28.8 22.8 9.8 -27.3 20.4 23.7 19.1 -0.8 13.9 17.9 28.3 15.5 n.a. -45.3%
EBITDA margin 6.2% 5.6% 4.6% 2.0% -5.9% 4.0% 4.8% 3.9% -0.2% 2.7% 3.7% 5.6% 3.0% 313 -267
EBIT 11.6 11.9 11.6 -0.8 -37.7 11.1 13.5 10.4 -11.1 2.6 5.6 16.0 3.2 n.a. -80.1%
EBIT margin 2.5% 2.3% 2.4% -0.2% -8.1% 2.2% 2.7% 2.1% -2.3% 0.5% 1.2% 3.2% 0.6% 296 -258
Net profit 39.9 19.9 26.2 10.4 -28.4 11.6 13.7 10.9 -11.0 1.6 3.2 14.1 3.6 n.a. -74.2%
Net margin 8.6% 3.8% 5.3% 2.1% -6.1% 2.3% 2.8% 2.2% -2.3% 0.3% 0.7% 2.8% 0.7% 302 -211
Source: Company data, DM BZ WBK estimates,
Fig. 2. Emperia: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 2,202 2,202 0.0% 2,489 2,489 0.0% 2,665 2,665 0.0%
EBITDA 79 79 0.0% 80 80 0.0% 78 78 0.0%
EBIT 32 32 0.0% 30 30 0.0% 26 26 0.0%
Net profit 29 29 0.0% 30 30 0.0% 26 26 0.0%
Source: Company data, DM BZ WBK estimates
Fig. 3. Emperia: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
SOTP 81 81 n.a.
Comparable valuation (based on 2014-2016E) 56 57 -1.8% Source: Company data, DM BZ WBK estimates,
Fig. 4. Emperia: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2015E
Net sales 1,949 1,967 2,202 2,489 2,665
COGS 1,478 1,539 1,634 1,857 1,998
Gross profit 471 428 567 631 667
SG&A 482 478 535 601 641
Other operating income, net -5 3 0 0 0
EBITDA 28 62 79 80 78
Operating profit -16 -46 32 30 26
Net financial income (costs) -27 -5 -7 -9 -8
Profit before tax 11 -41 38 39 35
Income tax -10 5 9 10 9
Net profit 21 -46 29 30 26
Gross margin 24.2% 21.8% 25.8% 25.4% 25.0%
EBITDA margin 1.4% 3.1% 3.6% 3.2% 2.9%
Operating margin -0.8% -2.4% 1.4% 1.2% 1.0%
Net profit margin 1.1% -2.4% 1.3% 1.2% 1.0%
Source: Company data, DM BZ WBK estimates
Fig. 5. Emperia: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2015E
Current assets 390 478 481 565 656
Fixed assets 589 587 573 563 521
Total assets 978 1,065 1,055 1,128 1,177
Current liabilities 234 359 262 299 322
bank debt 0 1 0 0 0
Long-term liabilities 57 58 61 69 69
bank debt 0 3 0 0 0
Equity 688 648 731 761 787
share capital 15 14 14 14 14
Minority Interest 0 0 0 0 0
Total liabilities 978 1,065 1,055 1,128 1,177
Net debt -215 -191 -288 -345 -419
Source: Company data, DM BZ WBK estimates
Fig. 6. Emperia: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2015E
CF from operations 383 75 76 97 84
CF from investment -307 -45 -34 -40 -10
CF from financing -912 -51 50 0 0
Net change in cash -836 -20 92 58 74
Source: Company data, DM BZ WBK estimates
Polish Equity Research
73
Poland Construction & Real Estate
November 12, 2014
ERBUD RECOMMENDATION
HOLD (INITIATION)
High reliance on developers CURRENT PRICE: PLN 26.49
TARGET PRICE: PLN 29.6
Equity Story. Erbud offers exposition to the general construction
market in Poland, which we expect to recover thanks to some economic growth acceleration and the flow of EU funds in the 2014-2020 period that should support public investments. The company is, however, highly dependent on commercial developers and here we see limited room for growth due to the high market saturation in office and retail space (such deals constitute as much as 40% of the company’s current backlog). On the other hand, Erbud is present in the power segment (service works), where prospects for growth look strong in the short to mid-term (the company has recently secured key employees, which should support this segment’s development). We also like the company’s plan to start its first residential project in Warsaw (so far it has only been present in Bydgoszcz and Torun), probably the most attractive city for residential developers at the moment. All in all, we are quite positive on the results’ outlook for Erbud, though we also believe its valuation to be demanding.
Financials. We expect the net profit at a CAGR of 12% in 2014E-
2017E, supported by a gradual growth in sales from the road and power businesses. Following the expected gross margin compression in 2014E (-0,5pp to 6.9%), we forecast a margin recovery in 2015-2017 and its stabilisation afterwards (at 7.7%). Growth in the margin should be supported by further growth in the construction capacity utilisation (data reported by the statistics office GUS) and rising investments thanks to the 2014-2020 EU funds.
Triggers/Risks. The key risks include: 1) a potential payment of
c. PLN24mn in compensation (PLN2.7/shr) for the investor of the Modlin airport, and 2) potential provisions related to the Modlin contract. That said, a trigger for Erbud’s share price could be the completion of the Deptak retail/office scheduled for 2015, which might be value-accretive (Erbud holds a 50% stake in JV) and asset disposal (if any). The company’s claim for c. PLN20mn in compensation from its subcontractors of the Modlin contract (PLN1.6/shr) and any positive outcome in this regard could also be a trigger.
Valuation & recommendation. We issue a Hold
recommendation for Erbud. Based on our DCF model, we arrived at a 12 month TP of PLN29.6 per share. In the TP calculation, we included a value assessment of the 50% stake in the retail/office Deptak project (value net of CAPEX at PLN22mn or PLN1.7/shr). The company is trading close to the peer median at the P/E 2015E multiple.
STOCK PERFORMANCE
ERBWIG Relative
0
5
10
15
20
25
30
35
40
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
n.a. n.a. n.a. n.a. n.a. n.a.
COMPANY DESCRIPTION
Erbud is a general contractor and residential projects developer. Company is focusing on general construction works, roads construction, engineering works, and servicing power sector.
Main shareholders % of
votes
Wollf&Mueller Baubeteiligungen GmbH & Co. KG 32.7%
Juladal Investment Limited 22.2%
ING pension fund 9.96%
AVIVA pension fund 9.3%
Mr. Dariusz Grzeszkak 5.9%
ANALYST
Adrian Kyrcz (+48) 22 586 81 59
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes UERB.WA / ERB PW
Sales 1 223.6 1 366.3 1 411.1 1 416.1 Market capitalisation (PLNm) 325.4
EBITDA 40.5 42.4 46.8 51.2 Number of shares (m) 12.7
EBIT 32.8 34.5 38.8 43.2 Free float (%) 36.3%
Net income 18.1 21.2 24.2 27.8 Avg. daily turnover 3M (PLNm) 0.1
P/E (x) 18.1 15.5 13.5 11.8 Price performance
3M 3M YTD
EV/EBITDA (x) 9.1 8.4 7.3 6.1 -4.6% 4.4% -24.7% Source: Company data, DM BZ WBK estimates
Polish Equity Research
74
Fig. 1. Erbud: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Net sales* 1366 1407 1407 1389 1359 1359 1359 1359 1359 1359
EBIT* 34 36 36 36 35 35 35 35 35 35
Cash taxes on EBIT 7 7 7 7 7 7 7 7 7 7
NOPAT* 28 29 29 29 29 28 28 28 28 28
Depreciation 8 8 8 8 8 8 8 8 8 8
Change in operating WC -86 -17 -9 -3 7 0 0 0 0 0
Capital expenditure -5 -5 -8 -8 -8 -8 -8 -8 -8 -8
Free cash flow -55 15 20 26 35 28 28 28 28 28
Sum of FCFFs PVs 98.1
Risk free rate 3.0%
WACC 8.0%
Residual growth of FCFFs 1.0%
Residual value 406
Present value of the residual value 188
Erbud's EV 286
Cash and equivalents (2014 bop) 125
Interest-bearing debt (2014 bop) 94
Dividends 8,9
Equity value 307
No. of shares (m) 12.8
Equity value of Erbud per share (PLN) 24.0
Month 11.0 Current equity value of Erbud per share (PLN) 25.9
12M equity value per share (PLN) 27.9
Real estate per share (PLN)** 1.7
12M TP inc. Real Estate (PLN) 29.6
Source: Company data, DM BZ WBK estimates, * excluding contribution of Deptak office/retail building,**see table below for details Fig. 2. Erbud: Real estate value calculation PLN in millions, unless otherwise stated
Property name
GLA (ths
sqm) NOI yield Estimated
value
CAPEX total without
land Net CAPEX
Estimated value net of
CAPEX Stake
Net per share (PLN)
Deptak retail/office 9.2 8.0 7.5% 106.0 74 62.9 43.1 50% 1.7
Source: Company data, DM BZ WBK estimates
Fig. 3. Erbud: Comparable valuation
P/E EV/EBITDA
Name 2014E 2015E 2016E 2014E 2015E 2016E
Acciona 51.2 27.0 18.6 8.8 8.4 8.1
Astaldi 5.8 4.9 4.3 5.6 5.2 4.9
Bilfinger Berger 12.7 9.9 8.7 6.0 4.9 4.4
Eiffage 12.7 10.6 8.9 7.8 7.6 7.3
Ferrovial 33.7 30.0 25.9 20.1 19.2 18.3
Skanska 17.2 15.0 13.9 11.3 10.2 9.7
Strabag 13.0 11.2 9.8 3.6 3.4 3.3
Vinci 12.6 12.4 11.6 7.5 7.4 7.2
Hochtief 17.5 14.3 11.8 4.3 4.1 3.9
Median - Western peers 13.0 12.4 11.6 7.5 7.4 7.2
Atrem 13.1 24.1 11.3 5.0 6.5 4.3
Tesgas - 12.6 7.9 6.1 4.8 2.8
Unibep 13.3 11.2 12.1 8.9 7.4 7.5
Trakcja 11.4 15.8 12.4 7.7 8.9 7.2
Budimex 20.7 19.8 14.7 10.6 9.8 6.7
Elektrobudowa 15.3 10.1 8.5 6.3 4.7 4.2
Median - Polish peers 13.3 14.2 11.7 7.0 7.0 5.5
Average implied share price of Erbud in PLN (Polish peers) 22.0 26.8 25.4 20.8 24.5 23.0
Average implied share price of Erbud in PLN (Western peers) 21.4 23.4 25.2 25.6 25.6 25.6
Average implied share price of Erbud (PLN) 24.1
Source: Bloomberg, BZ WBK research, company data
Polish Equity Research
75
Fig. 4. Erbud: 3Q14 results review PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q
Sales 424.9 388.2 234.4 369.0 362.4 418.7 206.4 319.5 298.7 400.5 283.6 425.5 428.3 43.4% 0.7%
EBITDA 8.5 10.5 8.7 9.2 10.9 8.2 3.6 8.2 14.2 14.1 7.6 13.1 11.4 -19.7% -13.0%
EBITDA margin 2.0% 2.7% 3.7% 2.5% 3.0% 1.9% 1.8% 2.6% 4.8% 3.5% 2.7% 3.1% 2.7% -0.4 -0.1
EBIT 6.8 8.4 7.5 6.7 9.4 5.9 2.3 5.8 12.5 11.8 6.1 10.5 9.6 -23.3% -8.3%
EBIT margin 1.6% 2.2% 3.2% 1.8% 2.6% 1.4% 1.1% 1.8% 4.2% 2.9% 2.2% 2.5% 2.2% -0.5 -0.1
Net profit 4.0 3.2 3.2 4.7 4.1 5.2 0.4 2.0 7.7 7.4 1.3 6.7 7.0 -8.7% 3.9%
Net margin 0.9% 0.8% 1.4% 1.3% 1.1% 1.2% 0.2% 0.6% 2.6% 1.9% 0.5% 1.6% 1.6% -0.4 0.0
Source: Company data, DM BZ WBK estimates
Fig. 5. Erbud: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 1366 n.a n.a 1411 n.a n.a 1416 n.a n.a
EBITDA 42 n.a n.a 47 n.a n.a 51 n.a n.a
EBIT 34 n.a n.a 39 n.a n.a 43 n.a n.a
Net profit 21 n.a n.a 24 n.a n.a 28 n.a n.a
Source: Company data, DM BZ WBK estimates
Fig. 6. Erbud: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 29.6 - -
Comparable valuation (based on 2014-2016E) 24.1 - - Source: Company data, DM BZ WBK estimates
Fig. 7. Erbud: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 1264 1224 1366 1411 1416
COGS 1180 1133 1271 1309 1309
Gross profit 84 91 95 102 107
SG&A 50 58 60 63 63
Other operating income, net -4 0 0 0 0
EBITDA 37 41 42 47 51
Operating profit 29 33 34 39 43
Net financial income (costs) -6 -8 -8 -9 -9
Profit before tax 23 25 26 30 34
Income tax -5 -8 -5 -6 -7
Net profit 20 18 21 24 28
Gross margin 6.7% 7.4% 6.9% 7.2% 7.5%
EBITDA margin 2.9% 3.3% 3.1% 3.3% 3.6%
Operating margin 2.3% 2.7% 2.5% 2.7% 3.1%
Net profit margin 1.6% 1.5% 1.6% 1.7% 2.0%
Source: Company data, DM BZ WBK estimates
Fig. 8. Erbud: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 696 678 753 793 821
Fixed assets 124 118 115 112 112
Total assets 820 796 868 904 933
Current liabilities 442 445 496 509 509
bank debt 38 74 74 74 74
Long-term liabilities 126 83 83 83 83
bank debt 65 20 20 20 20
Equity 251 267 288 312 340
Total liabilities 820 796 868 904 933
Net debt -98 -30 49 40 21
Source: Company data, DM BZ WBK estimates
Fig. 9. Erbud: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 89 -55 -57 24 36
CF from investment -5 0 -4 -4 -6
CF from financing -43 -23 -18 -10 -11
Net change in cash 40 -77 -80 10 19
Source: Company data, DM BZ WBK estimates
Polish Equity Research
76
This page has been left intentionally blank.
Polish Equity Research
77
Poland FINANCIALS
NOVEMBER 12, 2014
EUCO RECOMMENDATION
BUY (MAINTAINED)
Momentum remains strong CURRENT PRICE: PLN 26.5
TARGET PRICE: PLN 31.7 (PREV. 30.9)
Equity Story. A leading provider of personal injury claim services. EuCO
provides a wide range of services related to obtaining compensation for
its clients from insurance companies. Claiming compensation for personal
injuries for victims of road accidents represents most of its business. The
bulk of cases are settled directly with insurers, who typically agree to pay
approximately twice the amount they would pay claimants. Most cases are
settled by EuCO’s law firm through the courts, allowing EuCO to earn
approximately 30% of the settlement value. EuCO’s success to date has
been largely driven by a combination of an efficient claim processing
centre and an extensive, well-motivated and low-cost (fee-based) network
of agents. EuCO currently operates through over 25k agents. It is among
the two largest companies of its kind in Poland and is developing a
subsidiary in Romania.
Financials. Strong growth looks set to stay. Inflows from insurance
companies to the law firm increased to PLN64mn in 2013 from PLN2mn in
2009 (when it started up). We expect this to increase further to
PLN140mn in 2016E. Revenues at EuCO’s parent should stay stable at
above PLN20mn, while its business in the Czech Republic, Slovakia and
Hungary should stay stable. Romania, its new market, should be
consolidated in 2014E and add around PLN0.2-0.5mn to net profit.
However, we are not yet including this in our forecasts. We conservatively
assume a more modest growth rate ahead, resulting in annual average
revenue growth of 11%. This, coupled with stable margins, should
translate into 17% CAGR in the period. Strong cash generation should
allow EuCO to pay substantial dividends (payout ratio of 60%+, DY 5%+)
and, unless it embarks on major acquisitions or broader geographical
expansion, its dividend yield could be as high as 8.9% in 2016E vs. 3.7%
in 2013. ROE could be over 30% by 2016.
Triggers/Risks. Apart from the usual risk of forecasting errors, we would
highlight the gap between reported revenues and the claims actually
received in cash in last years, as the company opted to recognise cases it
had won or was very likely to win in revenues before receiving a payment.
Reputation/perception risks are common in this sector. We also note that
the sector is seriously under-regulated. Insurers, while generally co-
operative, may become more obstructive as the recent increase in the
share of court-settled claims indicates.
Valuation & recommendation. We set a 12-month target price of PLN
31.70/share using a blend of DCF and comparable company multiples.
The implied 20% upside may seem steep, but, at our target price, EuCO’s
multiples (13.4x 2014E earnings and 11.2x EV/EBITDA) would be only
marginally above the current median for comparable companies. We think
the TP is justified by EuCO’s superior ROE (36% in 2014E) and net profit
margin (25%). At the current price, the company trades at 9.5x 2015E P/E
and an EV/EBITDA of 8.1x. Which we perceive as attractive level.
STOCK PERFORMANCE
EUC
TP
WIG Relative
0
5
10
15
20
25
30
35
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 7-23-2014 21.4 30.9 23.7% 19.7
Hold 7-9-2014 20.3 22.0 5.6% 3.9
Buy 4-28-2014 19.8 22.0 2.4% 4.0
Buy 1-30-2014 13.2 22.0 50.0% 47.7
COMPANY DESCRIPTION
EuCO specialises in servicing personal injury claims, typically on behalf of victims of motor accidents. It is one of the leading players in Poland and the Czech Republic. Its in-house legal practice pursues more complex cases in the courts.
Main shareholders % of votes
Spexar Ltd 31.1%
Corpor Capital Ltd 31.1%
ING Pension Fund 12.2%
ANALYST
Andrzej Bieniek Securities Broker, Investment Advisor (+48) 22 586 85 21; [email protected]
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes EUC.WA / EUC PW
Sales 49.3 55.6 63.5 67.0 Market capitalisation (PLNm) 148
EBITDA 12.1 14.5 17.3 19.6 Number of shares (m) 5.6
EBIT 11.3 13.8 16.6 18.8 Free float (%) 38%
Net income 10.2 12.8 15.4 16.6 Avg. daily turnover 3M (PLNm) 0.1
P/E (x) 14.5 11.2 9.5 8.8 Price performance
1M 3M YTD
EV/EBITDA (x) 11.7 9.3 8.1 7.2 1.8% 3.2% 83.2% Source: Company data, DM BZ WBK estimates
Polish Equity Research
78
Fig. 23. EuCO: 3Q14 results preview PLN in millions, unless otherwise stated
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Revenues 8.5 9.6 10.5 16.9 12.1 11.1 11.3 14.8 12.1 14.1 14.0 24% -1%
Gross profit 3.7 3.0 3.6 6.9 4.2 3.4 4.1 7.2 4.3 4.7 5.3 28% 12%
EBITDA 2.0 2.0 2.4 3.2 2.4 1.7 2.6 5.5 2.7 3.1 3.4 32% 11%
EBIT 1.8 1.8 2.2 3.0 2.2 1.5 2.4 5.3 2.5 2.9 3.2 34% 12%
Net profit 1.6 5.0 1.8 2.8 1.7 1.6 2.2 4.8 2.3 2.6 3.0 35% 17%
Gross profit margin 44% 31% 34% 41% 35% 31% 37% 49% 36% 34% 38%
EBITDA margin 24% 21% 23% 19% 20% 15% 23% 37% 22% 22% 24%
EBIT margin 22% 19% 21% 18% 18% 13% 21% 36% 21% 20% 23%
Net profit margin 19% 52% 17% 16% 14% 14% 20% 32% 19% 18% 21% Source: Company data, DM BZ WBK estimates
Fig. 24. EuCO: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 55.6 55.6 0.0% 63.5 63.5 0.0% 67.0 67.0 0.0%
EBITDA 14.5 14.5 0.0% 17.3 17.3 0.0% 19.6 19.6 0.0%
EBIT 13.8 13.8 0.0% 16.6 16.6 0.0% 18.8 18.8 0.0%
Net profit 12.8 12.8 0.0% 15.4 15.4 0.0% 16.6 16.6 0.0%
Source: Company data, DM BZ WBK estimates
Fig. 25. EuCO: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 31.6 30.1 +5.0%
Comparable valuation (based on 2014-2016E) 31.9 31.7 +0.6%
Blended average target price 31.7 30.9 +2.5% Source: Company data, DM BZ WBK estimates
Fig. 26. EuCO: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 45.6 49.3 55.6 63.5 67.0
COGS -28.3 -30.3 -34.3 -38.0 -38.9
Gross profit 17.2 19.0 21.3 25.5 28.2
Sales costs -0.3 -0.1 -0.1 -0.1 -0.1
Management costs -7.9 -7.7 -6.9 -8.3 -8.6
Other operating income, net 0.7 0.2 -0.6 -0.6 -0.7
EBITDA 10.5 12.1 14.5 17.3 19.6
EBIT 9.7 11.3 13.8 16.6 18.8
Financial expenses/income -0.3 -0.2 -0.4 -0.4 -0.4 Profit on ordinary activities 9.5 11.2 13.4 16.2 18.4
Pre-tax profit 9.5 11.2 13.4 16.2 18.4
Income tax 1.7 -0.9 -0.6 -0.8 -1.8
Net profit 11.2 10.2 12.8 15.4 16.6
Margins
Gross margin 37.8% 38.5% 38.3% 40.2% 42.0%
EBITDA margin 23.0% 24.6% 26.1% 27.2% 29.2%
EBIT margin 21.4% 23.0% 24.8% 26.1% 28.1%
Pre-tax margin 20.8% 22.6% 24.1% 25.5% 27.5%
Effective tax rate 17.7% -8.2% -4.5% -5.0% -10.0%
Net profit margin 24.5% 20.8% 23.1% 24.2% 24.8%
Source: Company data, DM BZ WBK estimates
Fig. 27. EuCO: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 47.2 64.2 66.7 73.2 79.1
L-t assets 13.3 11.5 10.4 11.8 17.2
Total assets 60.5 75.7 77.1 85.0 96.3
Current liabilities 27.7 39.1 35.1 36.0 36.9
bank debt 2.4 6.1 6.1 6.1 6.1
Long-term liabilities 6.0 4.2 2.7 3.6 8.1
bank debt 1.7 0.2 0.0 0.0 0.0
Equity 26.8 32.4 39.3 45.4 51.2
share capital 0.6 0.6 0.6 0.6 0.6
Minority Interest 0.3 0.9 0.0 0.0 0.0
Total liabilities 60.5 75.7 77.1 85.0 96.3
Source: Company data, DM BZ WBK estimates
Fig. 28. EuCO: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 4.7 10.4 11.6 13.4 14.6
CF from investment -1.9 -6.3 -1.1 -1.2 -1.3
CF from financing -0.6 -0.4 -6.1 -9.2 -10.8
Net change in cash 2.2 3.7 4.5 3.0 2.6
Source: Company data, DM BZ WBK estimates
Polish Equity Research
79
Poland Pharma / Health Care
NOVEMBER 12, 2014
FARMACOL RECOMMENDATION
BUY (MAINTAINED)
Weaker quarter y/y expected CURRENT PRICE: PLN 50.2
TARGET PRICE: PLN 66.0 (MAINTAINDED)
3Q14 Results Preview. We expect Farmacol to report weaker
results y/y in 3Q14 due to lower gross margins on the refunded
drugs. We had assumed that Farmacol’s top line would rise by
4% y/y to PLN1,329mn. Due to the lower gross margins y/y and
lack of any visible cost savings initiatives, we expect the EBITDA
to come in at PLN21.9mn (-38% y/y, margin down by 110bps y/y
to 1.7%) and the profit on sales to drop by 28% y/y to PLN20mn
(margin down by 65bps to 1.5%). We had also assumed the other
operating losses at PLN3mn in 3Q14 and the net financial income
at PLN8mn. The expected 19% effective tax rate should yield a
net profit of PLN20mn (-35% y/y). Outcome: NEGATIVE.
Farmacol is trading with a 6%/11% premium on PE’14 and a
18% /34% premium on PE’15 to Pelion and Neuca, respectively.
On the other hand, when we take the Cash Adjusted PE into
account (which equals to 10.5x and 9.4x in 2014-15), Farmacol
offers double-digit discounts vs. its competitors and its fair PE
(11.6x). We believe this limits any downside in case of a negative
surprise from the results’ release and makes Farmacol an
attractively priced stock.
Change in valuation & recommendation. DCF-based valuation
points to PLN66/shr. A comparative valuation to its Polish peers
points to PLN52.1/share.
PUBLICATION DATE
NOVEMBER 12, 2014
3Q14 RESULTS PREVIEW
3Q14E y/y (%) q/q (%)
Sales 1,329 4.0% 13.5%
EBITDA 21.9 -38.3% 29.4%
EBIT 16.5 -43.5% 43.1%
Net profit 19.9 -35.0% 52.7%
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10/21/2014 51.2 66.0 -1.9% -2.6
Buy 9/7/2014 50.0 72.0 2.3% 4.5
Buy 4/28/2014 50.4 75.0 -0.9% -6.4
Buy 1/30/2014 58.2 77.0 -13.4% -15.7
COMPANY DESCRIPTION
One of the largest pharmaceutical distributors in Poland. With the acquisition of Cefarm Bialystok, Farmacol has significantly increased its exposure to the retail segment.
ANALYST
Tomasz Sokolowski (+48) 22 586 82 36
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes FCLP.WA / FCL PW
Sales 5,206 5,424 5,626 5,843 Market capitalisation (PLNm) 1,175
EBITDA 137 101 112 117 Number of shares (m) 23.4
EBIT 113 72 81 84 Free float (%) 42.3%
Net income 125 84 88 92 Avg. daily turnover 3M (PLNm) 0.2
P/E (x) 9.2 13.7 13.2 12.5 Price performance
1M 3M YTD
EV/EBITDA (x) 6.1 8.0 6.6 5.7 -5.1% 9.1% -25.9% Source: Company data, DM BZ WBK estimates
Polish Equity Research
80
Fig. 1. Farmacol: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%)
Sales 1,234 1,348 1,157 1,139 1,294 1,254 1,335 1,256 1,278 1,337 1,451 1,171 1,329 4.0% 13.5%
EBITDA 15.6 20.0 30.6 23.6 16.9 54.9 35.0 23.9 35.5 43.2 22.4 17.0 21.9 -38.3% 29.4%
EBITDA margin 1.3% 1.5% 2.6% 2.1% 1.3% 4.4% 2.6% 1.9% 2.8% 3.2% 1.5% 1.4% 1.7% -113 20
EBIT 11.6 16.4 26.4 20.0 13.2 51.1 28.0 17.8 29.2 37.9 16.5 11.6 16.5 -43.5% 43.1%
EBIT margin 0.9% 1.2% 2.3% 1.8% 1.0% 4.1% 2.1% 1.4% 2.3% 2.8% 1.1% 1.0% 1.2% -104 26
Net profit 8.4 15.2 26.4 18.5 14.8 52.8 30.6 20.3 30.6 43.9 18.3 13.0 19.9 -35.0% 52.7%
Net margin 0.7% 1.1% 2.3% 1.6% 1.1% 4.2% 2.3% 1.6% 2.4% 3.3% 1.3% 1.1% 1.5% -90 38
Source: Company data, DM BZ WBK estimates
Fig. 2. Farmacol: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 5,424 5,424 0.0% 5,626 5,626 0.0% 5,843 5,843 0.0%
EBITDA 101 101 0.0% 112 112 0.0% 117 117 0.0% EBIT 72 72 0.0% 81 81 0.0% 84 84 0.0% Net profit 84 84 0.0% 88 88 0.0% 92 92 0.0% Source: Company data, DM BZ WBK estimates
Fig. 3. Farmacol: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 66.0 66.1 n.a.
Comparable valuation (based on 2014-2016E) 52.1 51.1 +2.0% Source: Company data, DM BZ WBK estimates
Fig. 4. Farmacol: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 4,844 5,206 5,424 5,626 5,843
COGS 4,406 4,826 5,044 5,233 5,434
Gross profit 438 380 380 394 409
SG&A 294 262 293 304 316
Other operating income, net -33 -5 -15 -9 -9
EBITDA 117 137 101 112 117
Operating profit 111 113 72 81 84
Net financial income (costs) -32 -31 -33 -28 -30
Profit before tax 142 144 104 109 114
Income tax 28 19 20 21 22
Net profit 114 125 84 88 92
Gross margin 9.0% 7.3% 7.0% 7.0% 7.0%
EBITDA margin 2.4% 2.6% 1.9% 2.0% 2.0%
Operating margin 2.3% 2.2% 1.3% 1.4% 1.4%
Net profit margin 2.3% 2.4% 1.6% 1.6% 1.6%
Source: Company data, DM BZ WBK estimates
Fig. 5. Farmacol: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 1,518 1,729 1,814 1,938 2,069
Fixed assets 416 449 488 492 496
Total assets 1,934 2,178 2,302 2,430 2,565
Current liabilities 931 1,037 1,080 1,120 1,163
bank debt 9 9 9 9 9
Long-term liabilities 79 90 90 90 90
bank debt 14 14 14 14 14
Equity 918 1,047 1,128 1,216 1,308
share capital 23 23 23 23 23
Minority Interest 6 5 5 4 4
Total liabilities 1,934 2,178 2,302 2,430 2,565
Net debt -286 -321 -348 -419 -493
Source: Company data, DM BZ WBK estimates
Fig. 6. Farmacol: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 199 91 99 105 110
CF from investment 7 -58 -68 -35 -36
CF from financing -15 -2 -3 0 0
Net change in cash 190 32 28 70 74
Source: Company data, DM BZ WBK estimates
Polish Equity Research
81
Poland Industrials
November 12, 2014
FORTE RECOMMENDATION
BUY (INITIATION)
Strengthening abroad CURRENT PRICE: PLN57.00
TARGET PRICE: PLN67.60
Equity Story. The market environment for the Polish furniture industry remains supportive. The CSO (Central Statistical Office) indicates robust momentum in sold furniture production, both in terms of volume (16% y/y increase in 3Q14) and value (14% y/y upswing). The double-digit pace of growth might be difficult to maintain in the long term (taking into consideration the long-term average of c. 6.5%), but we see the production output here in an upward trend. Compared with the Polish furniture sector, Forte outperforms its competitors in terms of production efficiency. We even expect the company to be able to improve its financial figures in tougher market conditions. The recent readings of the sold furniture output indicate flat export prices and a minuscule decline of the domestic ones. As a consequence, it could turn out that there is little room left for margins’ expansion in the medium term. We assume, however, that prices of raw materials should remain stable, which, combined with the planned investments in the Polish production plants (instead of developing a brand new one abroad) with the estimated CAPEX expenditure at PLN30-40mn scheduled for 2014-16 should allow Forte to boost its sales with sound margins’ levels.
Financials. We expect Forte’s sales to total PLN827mn in 2014, up by 24% y/y. For 2015-17 we forecast an average sales momentum of 10% y/y (15% in 2015 vs. 5% in 2017). The EBITDA / EBIT margins should amount to 14.8% / 12.8%, respectively. Looking ahead, we expect the NP margin to fluctuate at around 10% (reaching a record of 10.6% in 2015). In the mid-term, we expect the margins to stabilise with short-lived positive or negative deviations from the aforementioned levels. Close to the end of our forecasting period, we make a conservative assumption of a slight margin deterioration (inflationary costs increase vs. high production capacities utilisation with no additional growth in the CAPEX planned in the end of the model’s horizon).
Triggers / Risks. We look at export as a significant catalyst for the stock. In our model, we estimate that exports to France will develop steadily to reach PLN200mn in 2017. Other significant European markets (Spain and UK) are treated as a growth option for the future, with varied potential stemming from the differences in the market structure, however. The biggest downside risk we associate with deterioration of demand for furniture and ability to deliver the declared capacities’ enhancement in line with the schedule. The EURPLN exchange rate poses a threat to the financial outcome only to a limited extent thanks to the symmetric, no-cost option corridors hedging the exposure to the currency exchange rate risk for two years ahead, in line with the company’s strategy. The high concentration of demand from the Steinhoff group constitutes an operational risk as well (at the same time the group remains the chief sales booster).
Valuation & recommendation. Based on our DCF model, we arrived at a 12M TP of PLN67.60, which implies a 19% upside potential. A comparative valuation puts Forte’s share price in a range from PLN43.02 to PLN58.28. Assigning equal weights to the P/E and EV/EBITDA ratios, we arrive at an average valuation of PLN49.27 per share. As a consequence of the upside potential of 19%, we are initiating coverage with a Buy recommendation.
STOCK PERFORMANCE
FTE WIG Relative
0
10
20
30
40
50
60
70
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
n.a. n.a. n.a. n.a. n.a. n.a.
COMPANY DESCRIPTION
Forte is one of the Polish leaders in the production of cabinet furniture for flats and offices. The recipients of the company’s products are chiefly foreign customers.
Main shareholders % of votes
MaForm Holding 29.53%
MetLife OFE 14.69%
ING OFE 6.32%
AVIVA OFE 5.58%
ANALYST
Michal Sopiel (+48) 22 586 82 33
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes FTEP.WA / FTE PW
Sales 666 827 950 1,043 Market capitalisation (PLNm) 1,354
EBITDA 89 122 142 155 Number of shares (m) 23.8
EBIT 72 106 123 135 Free float (%) 70.5%
Net income 58 87 101 109 Avg. daily turnover 3M (PLNm) 1.5
P/E (x) 23.4 15.5 13.5 12.4 Price performance
1M 3M YTD
EV/EBITDA (x) 15.1 11.2 9.6 8.7 +3.6% +29.8% +48.1% Source: Company data, DM BZ WBK estimates
Polish Equity Research
82
Fig. 1. Forte: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Net sales 827 950 1,043 1,093 1,118 1,140 1,160 1,180 1,201 1,222
EBIT 109 125 135 137 135 135 135 135 133 133
Cash taxes on EBIT 21 24 26 26 26 26 26 26 25 25
NOPAT 88 101 110 111 109 109 109 109 108 108
Depreciation 16 19 20 22 24 27 27 28 30 31
Change in operating WC 54 24 16 18 5 5 6 5 6 6
Capital expenditure 32 38 35 32 29 32 27 28 30 31
Free cashflow 70 43 31 28 10 10 6 5 6 6
WACC 7.9%
PV FCF 2014-2023 538
Terminal Value (TV) 1,775
PV TV 831
Total EV 1,369
Net debt -7
Equity value 1,376
Number of shares (m) 23.8
Value per share (PLN, 1 Jan 2014) 1,476
Month 10
Current value per share (PLN) 62.2
12-month Target Price 67.6
Source: Company data, DM BZ WBK estimates
Fig. 2. Forte: Comparable valuation
Company Price Currency P/E EV/EBITDA
2014E 2015E 2016E 2014E 2015E 2016E
Fabryki Mebli Forte SA 56.0 PLN 15.3 13.2 12.2 11.2 9.6 8.7
Polish Industrials
Grupa Kety SA 288.1 PLN 16.7 15.4 18.0 9.7 9.1 8.5
Inter Cars SA 206.5 PLN 16.4 14.9 13.8 12.6 11.4 10.7
Budimex SA 135.5 PLN 20.2 16.9 14.5 9.8 8.4 7.3
Elektrobudowa SA 77.5 PLN 15.4 10.2 8.6 n.a. n.a. n.a.
Paged SA 42.0 PLN 10.9 7.6 7.1 n.a. n.a. n.a.
Integer.pl SA 210.0 PLN 70.8 35.8 20.0 30.6 12.0 7.4
Pfleiderer Grajewo SA 31.0 PLN 13.8 12.7 11.7 8.5 7.8 7.2
Kopex SA 11.0 PLN 9.7 9.6 8.2 4.8 4.9 4.4
Pozbud T&R SA 5.0 PLN 10.2 9.0 9.7 n.a. n.a. n.a.
Famur SA 3.2 PLN 12.7 11.6 11.2 4.3 4.0 3.8
Rovese SA 1.5 PLN n.a. 45.5 18.3 9.0 7.9 7.2
Median 14.6 12.7 11.7 9.3 8.1 7.2
Foreign furniture sector representatives
Ekornes ASA 73.3 NOK 11.0 9.5 8.8 5.8 5.1 4.9
BoConcept Holding A/S 85.0 DKK 15.5 6.4 4.1 6.0 4.7 3.4
Steinhoff International Holdings Ltd 5,511.0 ZAr 11.4 10.0 9.0 10.5 9.4 8.9
Nobia AB 59.5 SEK 17.1 12.2 11.1 9.8 7.4 6.9
Herman Miller Inc 31.8 USD 16.3 13.7 12.0 9.0 8.0 7.2
Ethan Allen Interiors Inc 29.3 USD 17.1 14.5 12.1 8.3 7.3 6.4
Knoll Inc 19.7 USD 18.8 15.0 13.1 11.9 9.8 n.a.
Hooker Furniture Corp 15.2 USD 14.8 11.9 n.a. 6.6 5.6 n.a.
Median 15.9 12.0 11.1 8.6 7.4 6.7
Premium/discount vs. Polish peers median 4.7% 4.1% 4.5% 19.7% 17.8% 19.6%
Premium/discount vs. foreign peers median -3.9% 10.2% 10.4% 29.5% 29.9% 30.2%
Implied Forte price per share vs. Polish peers 53.49 53.77 53.58 46.80 47.54 46.81
Implied Forte price per share vs. foreign peers 58.28 50.83 50.73 43.25 43.10 43.02
Source: BZ WBK Brokerage research, Bloomberg
Polish Equity Research
83
Fig. 3. Forte: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Sales 143.3 155.6 147.0 116.3 137.3 159.9 156.5 146.8 166.5 196.5 212.0 190.7 201.0 20.7% 5.4%
EBITDA 15.4 14.3 15.3 8.4 15.6 18.0 22.0 17.5 22.0 27.5 32.0 25.6 30.1 36.8% 17.6%
EBITDA margin 10.8% 9.2% 10.4% 7.2% 11.3% 11.3% 14.1% 11.9% 13.2% 14.0% 15.1% 13.4% 15.0% 3.6 3.1
EBIT 11.8 10.8 11.4 4.7 11.6 14.0 18.0 13.3 17.8 23.3 27.9 21.4 26.0 46.2% 21.3%
EBIT margin 8.2% 6.9% 7.8% 4.0% 8.5% 8.8% 11.5% 9.1% 10.7% 11.9% 13.1% 11.2% 12.9% 4.5 3.8
Net profit 6.5 8.1 9.1 4.9 9.6 10.9 13.8 10.4 14.9 18.8 23.2 17.2 21.9 46.6% 27.6%
Net margin 4.6% 5.2% 6.2% 4.2% 7.0% 6.8% 8.8% 7.1% 9.0% 9.6% 11.0% 9.0% 10.9% 3.9 3.8
Source: Company data, DM BZ WBK estimates
Fig. 4. Forte: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 827 n.a. n.a. 950 n.a. n.a. 1,043 n.a. n.a.
EBITDA 122 n.a. n.a. 142 n.a. n.a. 155 n.a. n.a.
EBIT 106 n.a. n.a. 123 n.a. n.a. 135 n.a. n.a.
Net profit 87 n.a. n.a. 101 n.a. n.a. 109 n.a. n.a.
Source: Company data, DM BZ WBK estimates
Fig. 5. Forte: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 67.60 n.a. n.a.
Comparable valuation (based on 2014-2016E) 49.27 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. Forte: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 560.5 666.4 827.3 949.7 1,043.1
COGS 375.3 424.9 521.9 598.0 656.6
Gross profit 185.2 241.4 305.4 351.7 386.4
SG&A 137.8 162.1 198.9 228.6 250.9
Other operating income, net -2.3 -6.9 -0.6 0.2 -0.2
EBITDA 60.7 89.1 122.3 142.1 155.3
Operating profit 45.2 72.4 105.9 123.4 135.3
Net financial income (costs) 0.0 0.7 1.7 0.8 -0.7
Profit before tax 45.1 73.1 107.6 124.2 134.6
Income tax 6.6 15.2 20.4 23.6 25.6
Net profit 37.9 57.8 87.1 100.6 109.0
Gross margin 33.0% 36.2% 36.9% 37.0% 37.0%
EBITDA margin 10.8% 13.4% 14.8% 15.0% 14.9%
Operating margin 8.1% 10.9% 12.8% 13.0% 13.0%
Net profit margin 6.8% 8.7% 10.5% 10.6% 10.5%
Source: Company data, DM BZ WBK estimates
Fig. 7. Forte: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 231.2 300.8 341.7 380.3 417.5
Fixed assets 252.9 254.1 270.1 289.1 304.1
Total assets 484.1 554.9 611.7 669.4 721.5
Current liabilities 87.0 93.7 103.1 117.4 131.0
bank debt 30.8 10.0 10.0 10.0 10.0
Long-term liabilities 48.3 76.6 71.6 66.6 61.6
bank debt 31.8 60.3 55.3 50.3 45.3
Equity 345.2 380.9 433.3 481.7 525.3
share capital 23.8 23.8 23.8 23.8 23.8
Minority Interest 3.6 3.7 3.7 3.7 3.7
Total liabilities 484.1 554.9 611.7 669.4 721.5
Net debt 31.9 -6.5 10.9 5.5 -7.2
Source: Company data, DM BZ WBK estimates
Fig. 8. Forte: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 75.3 77.9 49.7 95.3 113.0
CF from investment -30.8 -17.4 -32.4 -37.7 -35.0
CF from financing, incl. -40.0 -14.3 -39.7 -57.3 -70.4
dividends -17.8 -22.6 -34.7 -52.3 -65.4
Net change in cash 4.5 46.1 -22.4 0.4 7.7
Source: Company data, DM BZ WBK estimates
Polish Equity Research
84
This page has been left intentionally blank.
Polish Equity Research
85
Poland FMCG
NOVEMBER 12, 2014
GINO ROSSI RECOMMENDATION
BUY (INITIATION)
A succesfull restructuring story CURRENT PRICE: PLN3.1
TARGET PRICE: PLN4.0
Equity Story. Gino Rossi’s story is similar to Bytom. Following a
successful restructuring process, the once troubled company is
now healing in both its segments: Gino Rossi and Simple. Gino
Rossi is now showing the first positive signs thanks to its
restructuring efforts of the previous years. Taking into account 1)
the increased share of its own production in Gino Rossi, as well
as 2) the deep optimisation in Simple, including a change in
management, that brought about shorter collections and lower
inventories, Gino Rossi will not only notably improve its financial
results in the coming years, but it is also set to regain its growing
profile to some extent, especially in Simple. And while the
company previously failed to see much space for opening new
stores, now that the necessary changes had been implemented,
the number of its Simple stores is likely to grow to 70 in the long-
term from the current 50. The number of its own Gino Rossi
stores is likely to grow to 99 in the long-term from the current 85.
Financials. We expect a noteworthy improvement of Gino
Rossi’s financial results in the coming years. We expect the net
profit at a CAGR’14-16 of 85%, the EBITDA at 26.3% and sales
at 12.8%. Our main assumptions are: 1) selling space growth
(incl. franchising) by 2k/2k/1.8k sqm in 2014-16E, respectively, 2)
LfL at 8.5%, 4% and 4% in 2014-16E, respectively, 3) the gross
margin at 49.6% (+430bps), 50.2% (+64bps) and 50.9%
(+69bps), 4) the SG&A/avg. sqm at PLN6,618 (+6.1% y/y),
PLN6,784 (+2.5% y/y) and PLN7,042 (+3.8% y/y) and 5) lower
interest on debt from 2015.
Valuation & recommendation. Gino Rossi is currently trading at
a PE of 20x and 13x in 2014-15E, which seems demanding. But
when we take into account the company’s good corporate
governance as well as its relatively high financial costs, the
premium seems justified. Based on our DCF model, we arrived at
a 12 month TP of PLN4.0 per share, which implies a 30% upside
potential. We are initiating our coverage with a Buy rating.
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
COMPANY DESCRIPTION
Gino Rossi is a retail company selling shoes under the brand Gino Rossi and women’s fashion under the brand Simple.
Main shareholders % of votes
Forum mutual fund 14.9%
Investors mutual fund 13.9%
Mr. J. Pilch 13.0%
Mr. K. Bajołek 9.7%
Pioneer mutual fund 6.7%
Nova Idea Farm sp. z o.o. SKA 6.3%
Free Float 35.6%
ANALYST
Tomasz Sokolowski (+48) 22 586 82 36
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes GRIP.WA / GRI PW
Sales 218.5 255.3 286.5 313.8 Market capitalisation (PLNm) 155.9
EBITDA 14.1 23.4 26.4 28.4 Number of shares (m) 50.1
EBIT 8.4 3.0 3.2 3.5 Free float (%) 87.0%
Net income 2.0 7.7 11.8 12.8 Avg. daily turnover 3M (PLNm) 0.2
P/E (x) 77.9 20.5 13.4 12.3 Price performance
1M 3M YTD
EV/EBITDA (x) 14.3 8.4 7.2 6.6 -6.0% 5.1% 20.5% Source: Company data, DM BZ WBK estimates
Polish Equity Research
86
Fig. 1. Gino Rossi: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Net sales 255 287 314 318 323 329 337 345 353 360
EBIT 17 20 21 15 12 16 22 22 21 20
Cash taxes on EBIT 2 4 4 3 2 3 4 4 4 4
NOPAT 15 16 17 12 10 13 18 18 17 16
Depreciation 7 7 7 8 8 9 9 10 10 11
Change in operating WC 7 6 5 1 1 1 2 2 2 1
Capital expenditure 7 6 11 9 9 8 8 9 9 12
Free cashflow 8 10 8 10 9 13 17 17 17 14
WACC (2014-23) 7.8%
PV FCF (2014-23) 78
Terminal growth 2.5%
Terminal Value (TV) 290
PV TV 137
Total EV 216
Net debt 44
Equity value 172
Number of shares (m) 51
Value per share (PLN, 1 Jan 2014) 3.4
Month 11
Current value per share (PLN) 3.6
Year-end target price (PLN) 4.0
Source: Company data, DM BZ WBK estimates
Fig. 2. Gino Rossi: Comparable valuation
P/E EV/EBITDA PEG ROE DY
Name 2014E 2015E 2016E 2014E 2015E 2016E 1Y 2Y 2014E 2015E 2016E 2014E 2015E 2016E
LPP 33.1 28.7 22.2 20.3 17.7 13.8 1.5 0.7 30.2% 28.9% 30.6% 1.0% 1.2% 1.4%
Monnari 11.0 11.9 13.8 8.4 7.4 6.8 0.8 2.6 26.4% 19.3% 14.9% 0.0% 0.0% 5.0%
Bytom 13.9 10.5 10.9 9.3 7.4 6.4 0.02 0.01 29.3% 32.0% 27.5% 0.0% 4.9% 6.7%
average 19.3 17.1 15.6 12.7 10.8 9.0 0.8 1.1 28.6% 26.8% 24.4% 0.3% 2.0% 4.4%
CCC 26.2 19.9 16.9 18.1 14.1 12.2 0.9 0.4 28.7% 31.2% 1.2% 1.9% 2.5% 0.0%
Wojas 10.1 10.6 10.1 6.1 5.9 5.5 14.5 -2.5 14.8% 12.3% 11.4% 1.3% 1.9% 0.0%
Gino Rossi 20.5 13.4 12.3 8.4 7.2 6.6 0.1 0.0 10.5% 14.2% 13.5% 0.0% 0.0% 0.0%
average 18.9 14.6 13.1 10.9 9.1 8.1 5.1 -0.7 18.0% 19.2% 8.7% 1.1% 1.5% 0.0%
Total - average 19.1 15.9 14.4 11.8 10.0 8.5 3.0 0.2 23.3% 23.0% 16.5% 0.7% 1.7% 2.2%
Source: BZ WBK Brokerage research, company data
Polish Equity Research
87
Fig. 3. Gino Rossi: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Sales 48.2 52.1 48.7 49.8 56.2 54.5 51.2 49.4 58.3 59.6 60.1 65.5 68.8 18.1% 5.1%
EBITDA 0.5 4.4 2.2 2.4 3.7 4.1 1.1 3.6 3.1 6.2 2.8 7.7 3.8 21.7% -50.7%
EBITDA margin 0.9% 8.4% 4.4% 4.9% 6.6% 7.6% 2.2% 7.3% 5.3% 10.4% 4.7% 11.7% 5.5% 17 -622
EBIT -1.1 2.8 0.6 0.9 2.4 2.4 -0.3 2.1 1.7 4.7 1.4 6.0 2.1 22.1% -65.7%
EBIT margin -2.2% 5.4% 1.3% 1.8% 4.3% 4.4% -0.5% 4.2% 2.9% 7.8% 2.3% 9.2% 3.0% 10 -622
Net profit -4.6 1.8 0.0 2.3 0.9 1.0 -1.4 1.5 0.3 1.3 0.2 2.2 0.1 -79.7% -97.2%
Net margin -9.5% 3.5% 0.0% 4.5% 1.7% 1.8% -2.7% 3.0% 0.5% 2.3% 0.3% 3.4% 0.1% -44 -331
Source: Company data, DM BZ WBK estimates
Fig. 4. Gino Rossi: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 255 n.a. n.a. 287 n.a. n.a. 314 n.a. n.a.
EBITDA 23 n.a. n.a. 26 n.a. n.a. 28 n.a. n.a.
EBIT 3 n.a. n.a. 3 n.a. n.a. 3 n.a. n.a.
Net profit 8 n.a. n.a. 12 n.a. n.a. 13 n.a. n.a.
Source: Company data, DM BZ WBK estimates
Fig. 5. Gino Rossi: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 4.0 n.a. 0.0%
Comparable valuation (based on 2014-2016E) 3.9 n.a. 0.0% Source: Company data, DM BZ WBK estimates
Fig. 6. Gino Rossi: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 209 219 255 287 314
COGS 121 120 129 143 154
Gross profit 89 99 127 144 160
SG&A 86 91 110 124 139
Other operating income, net 4 0 0 0 0
EBITDA 12 14 23 26 28
Operating profit 6 8 17 20 21
Net financial income (costs) 2 6 8 5 5
Profit before tax 5 2 9 15 16
Income tax 0 0 1 3 3
Net profit 4 2 8 12 13
Gross margin 42.3% 45.3% 49.6% 50.2% 50.9%
EBITDA margin 5.9% 6.5% 9.2% 9.2% 9.1%
Operating margin 3.0% 3.9% 6.6% 6.8% 6.7%
Net profit margin 2.0% 0.9% 3.0% 4.1% 4.1%
Source: Company data, DM BZ WBK estimates
Fig. 7. Gino Rossi: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 88 106 126 145 162
Fixed assets 73 80 77 76 79
Total assets 161 186 202 222 241
Current liabilities 75 73 82 89 96
bank debt 28 20 20 20 20
Long-term liabilities 18 43 43 43 43
bank debt 11 36 36 36 36
Equity 68 69 77 89 102
share capital 48 48 48 48 48
Minority Interest 0 0 0 0 0
Total liabilities 161 186 202 222 241
Net debt 35 44 40 33 29
Source: Company data, DM BZ WBK estimates
Fig. 8. Gino Rossi: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 81 4 7 13 15
CF from investment -46 -13 -3 -6 -11
CF from financing -3 17 0 0 0
Net change in cash 33 9 4 6 4
Source: Company data, DM BZ WBK estimates
Polish Equity Research
88
This page has been left intentionally blank.
Polish Equity Research
89
Poland Industrials
November 12, 2014
GRAJEWO RECOMMENDATION
BUY (INITIATION)
In full swing CURRENT PRICE: PLN30.66
TARGET PRICE: PLN35.50
Equity Story. The Polish wood-based boards producer benefits from the recently observed strong growth in furniture output of the domestic manufacturers. As we see no early signs of significant deterioration of the furniture market, we expect the company to extrude more value for its shareholders. The positive readings of the German particleboard price index (4% q/q uptick) remain supportive of the sales volumes in the particleboards segment. However, in the forecast horizon we are more conservative and expect prices to rise on average by 2% y/y. Additionally, high capacities’ utilisation has led to the development of an investment plan that aims at boosting efficiency (6% y/y in regards to wood-based panels this year). Production efficiency is expected to start improving from 3Q14 onward and achieve a target performance in the end of 2015 with regards to particleboards’ production (investment plan for the HDF segment regarding conversion of the production profile is scheduled for 2015-16). In the mid-term, Grajewo plans to seek a value increase through the development of a modern production line of kitchen countertops, expansion of its product mix and introduction of prefabricated products production (packed furniture). We also expect Silekol to be an important driver of the financial results’ improvement due to rising sales beyond the group (inter alia to the construction industry). According to the company, a strategic move regarding its engagement in a new production plant project should materialise no sooner than in 2017. On the cost side, we assumed inflationary growth of raw material prices (2% y/y till 2016 and 2.5% in the long term). We expect prices of glues and resins to increase a touch more slowly (c. 2%) due to favourable urea (thus melamine) prices.
Financials. We expect Grajewo to report a nearly c. 8.7% y/y sales growth in 2014 (PLN1.59bn). Our figures indicate hefty increases of its margins across all the P&L lines. We forecast the NP to stand at PLN106mn (6.7% margin). Looking forward, the adoption of measures aimed at operational performance improvement will lead to a margins’ uptick by 36bps in 2015 (in case of the EBITDA margin by 45bps, while the EBIT and NP should increase c. 37bps). We see the EBITDA growing to PLN212mn in 2015 and PLN228mn in 2017.
Triggers / Risks. We identified several risks to our model scenario. Firstly, there is the possible upswing in the supply of wood-based boards from the East, which might pose a risk for the total sales volumes in the short term. High utilisation rates, on the one hand, push the maintenance cost up and, on the other, makes production less flexible in the event of an unplanned stoppage. In the long term, the EURPLN exchange rate could affect the company’s financial results as well. However, the company hedges its currency position with forward contracts, which should give it a chance to adjust the price when needed.
Valuation & recommendation. Based on the DCF valuation, we have set a 12M TP of PLN35.50. A comparison with Grajewo’s peers indicates a valuation range from PLN22.75 to PLN37.93 per share. Since our valuation exceeds the current market price by 16%, we are initiating coverage of Grajewo with a Buy recommendation.
STOCK PERFORMANCE
GRJWIG Relative
0
5
10
15
20
25
30
35
40
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
n.a. n.a. n.a. n.a. n.a. n.a.
COMPANY DESCRIPTION
Grajewo is one of Poland’s leading producers of wood-based boards
Main shareholders % of votes
Pfleiderer Service GmBH 65.11%
AVIVA OFE 9.93%
ING OFE 5.32%
ANALYST
Michal Sopiel (+48) 22 586 82 33
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes GRJ.WA / GRJ PW
Sales 1,462 1,589.3 1,671.6 1,716.2 Market capitalisation (PLNm) 1,521
EBITDA 157 194.5 212.1 221.2 Number of shares (m) 49.6
EBIT 109 147.7 161.6 165.6 Free float (%) 34.9%
Net income 0 106.2 117.8 121.3 Avg. daily turnover 3M (PLNm) 0.2
P/E (x) 10.0 14.3 12.9 12.5 Price performance
1M 3M YTD
EV/EBITDA (x) 10.6 8.5 7.8 7.5 +2.2% -8.9% +17.9% Source: Company data, DM BZ WBK estimates
Polish Equity Research
90
Fig. 1. Grajewo: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Net sales 1,589 1,672 1,716 1,759 1,801 1,847 1,897 1,949 2,002 2,057
EBIT 148 162 166 169 169 171 172 174 177 176
Cash taxes on EBIT 29 32 32 33 33 33 34 34 34 34
NOPAT 119 130 133 136 136 138 138 140 142 142
Depreciation 47 51 56 60 62 64 66 68 69 73
Change in operating WC 19 0 7 13 6 10 11 10 12 12
Capital expenditure 117 131 111 71 74 76 80 81 83 88
Free cashflow 89 80 62 25 19 22 24 24 25 27
WACC 8.0%
PV FCF 2014-2023 615
Terminal Value (TV) 2,218
PV TV 1,025
Total EV 1,641
Net debt 138
Minority interest 0
Equity value 1,503
Number of shares (m) 49.6
Value per share (PLN, 1 Jan 2014) 1,618
Month 10
Current value per share (PLN) 32.5
12-month Target Price 35.5
Source: Company data, DM BZ WBK estimates
Fig. 2. Grajewo: Comparable valuation
Company Price Currency P/E EV/EBITDA
2014E 2015E 2016E 2014E 2015E 2016E
Pfleiderer Grajewo SA 31.01 PLN 14.5 13.1 12.7 8.5 7.8 7.6
Polish Industrials
Grupa Kety SA 288.05 PLN 16.7 15.4 18.0 9.7 9.1 8.5
Inter Cars SA 206.50 PLN 16.4 14.9 13.8 12.6 11.4 10.7
Budimex SA 135.45 PLN 20.2 16.9 14.5 9.8 8.4 7.3
Elektrobudowa SA 77.50 PLN 15.4 10.2 8.6 n.a. n.a. n.a.
Paged SA 42.00 PLN 10.9 7.6 7.1 n.a. n.a. n.a.
Integer.pl SA 210.00 PLN 70.8 35.8 20.0 30.6 12.0 7.4
Fabryki Mebli Forte SA 56.00 PLN 16.1 14.5 13.3 11.1 9.9 9.0
Kopex SA 10.99 PLN 9.7 9.6 8.2 4.8 4.9 4.4
Pozbud T&R SA 4.99 PLN 10.2 9.0 9.7 n.a. n.a. n.a.
Famur SA 3.20 PLN 12.7 11.6 11.2 4.3 4.0 3.8
Rovese SA 1.46 PLN n.a. 45.5 18.3 9.0 7.9 7.2
Median 15.7 14.5 13.3 9.7 8.7 7.3
Foreign wood-based boards sector representatives
Norbord Inc 22.87 CAD 61.3 20.0 9.9 15.2 8.5 5.5
Interface Inc 15.94 USD 28.9 18.0 15.9 12.6 9.6 7.5
Universal Forest Products Inc 50.18 USD 17.7 14.7 21.1 8.2 7.1 9.1
Surteco SE 23.58 EUR 16.5 11.9 9.0 6.7 6.2 5.4
Boise Cascade Co 37.43 USD 17.5 14.0 11.0 7.9 6.7 5.7
Greenply Industries Ltd 1150.65 INR 18.0 20.0 17.1 10.1 8.9 7.7
Canfor Corp 26.99 CAD 17.8 11.2 9.6 7.4 5.8 5.1
Duratex SA 8.22 BRL 12.2 10.3 8.8 6.7 6.0 5.3
Median 17.7 14.3 10.4 8.1 6.9 5.6
Premium/discount vs. Polish peers median -18.2% -8.6% 21.9% 5.5% 13.7% 36.3%
Premium/discount vs. foreign peers median -18.2% -8.6% 21.9% 5.5% 13.7% 36.3%
Implied Grajewo price per share vs. Polish peers 33.64 34.28 32.39 35.50 34.49 29.90
Implied Grajewo price per share vs. foreign peers 37.93 33.94 25.44 29.38 27.27 22.75
Source: BZ WBK Brokerage research, Bloomberg
Polish Equity Research
91
Fig. 3. Grajewo: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Sales 445.5 480.6 362.4 328.4 448.6 379.9 354.5 341.3 380.1 386.3 396.8 380.8 394.2 3.7% 3.5%
EBITDA 65.2 64.2 27.1 30.5 55.4 42.8 24.9 31.4 42.9 54.9 41.9 53.0 49.2 14.7% -7.2%
EBITDA margin 14.6% 13.4% 7.5% 9.3% 12.3% 11.3% 7.0% 9.2% 11.3% 14.2% 10.6% 13.9% 12.5% 0.1 3.3
EBIT 45.7 44.9 16.0 19.8 36.3 24.2 14.4 20.8 32.4 39.5 30.1 40.2 35.9 10.6% -10.7%
EBIT margin 10.2% 9.3% 4.4% 6.0% 8.1% 6.4% 4.1% 6.1% 8.5% 10.2% 7.6% 10.6% 9.1% 1.0 3.0
Net profit 6.6 22.9 12.7 5.2 14.1 17.8 13.3 5.9 17.5 24.9 20.3 29.6 27.9 59.6% -5.7%
Net margin 1.5% 4.8% 3.5% 1.6% 3.2% 4.7% 3.7% 1.7% 4.6% 6.5% 5.1% 7.8% 7.1% 3.9 5.4
Source: Company data, DM BZ WBK estimates
Fig. 4. Grajewo: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 1,589 n.a. n.a. 1,672 n.a. n.a. 1,716 n.a. n.a.
EBITDA 194 n.a. n.a. 212 n.a. n.a. 221 n.a. n.a.
EBIT 148 n.a. n.a. 162 n.a. n.a. 166 n.a. n.a.
Net profit 106 n.a. n.a. 118 n.a. n.a. 121 n.a. n.a.
Source: Company data, DM BZ WBK estimates
Fig. 5. Grajewo: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 35.50 n.a. n.a.
Comparable valuation (based on 2014-2016E) 31.40 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. Grajewo: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 1,432.3 1,462.1 1,589.3 1,671.6 1,716.2
COGS 1,204.9 1,200.1 1,278.1 1,339.1 1,374.9
Gross profit 227.4 262.1 311.2 332.5 341.4
SG&A 161.7 158.4 166.9 174.3 179.1
Other operating income, net 7.4 5.1 3.3 3.3 3.3
EBITDA 116.1 156.8 194.5 212.1 221.2
Operating profit 73.1 108.7 147.7 161.6 165.6
Net financial income (costs) -54.8 -28.8 -15.8 -15.2 -14.9
Profit before tax 18.3 80.0 131.9 146.4 150.7
Income tax 1.2 10.6 25.7 28.5 29.4
Net profit 49.8 151.8 106.2 117.8 121.3
Gross margin 15.9% 17.9% 19.6% 19.9% 19.9%
EBITDA margin 8.1% 10.7% 12.2% 12.7% 12.9%
Operating margin 5.1% 7.4% 9.3% 9.7% 9.6%
Net profit margin 3.5% 10.4% 6.7% 7.0% 7.1%
Source: Company data, DM BZ WBK estimates
Fig. 7. Grajewo: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 1,076.8 327.9 353.8 340.1 344.0
Fixed assets 730.2 790.9 860.1 941.4 997.1
Total assets 1,807.0 1,118.8 1,213.9 1,281.5 1,341.1
Current liabilities 995.9 331.9 324.3 335.8 343.0
bank debt 528.4 67.7 82.7 82.7 82.7
Long-term liabilities 226.0 134.6 131.2 128.0 124.0
bank debt 182.7 86.8 95.1 90.1 85.1
Equity 527.4 652.3 758.4 817.7 874.1
share capital 16.4 16.4 16.4 16.4 16.4
Minority Interest 57.8 0.0 0.0 0.0 0.0
Total liabilities 1,807.0 1,118.8 1,213.9 1,281.5 1,341.1
Net debt 129.0 137.9 132.5 143.4 156.7
Source: Company data, DM BZ WBK estimates
Fig. 8. Grajewo: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 241.3 122.5 118.0 171.4 161.9
CF from investment -25.6 535.8 -112.5 -124.0 -110.4
CF from financing, incl. -217.7 -659.3 23.3 -63.4 -69.7
dividends 0.0 0.0 0.0 -58.4 -64.7
Net change in cash -2.0 -1.0 28.7 -16.0 -18.2
Source: Company data, DM BZ WBK estimates
Polish Equity Research
92
This page has been left intentionally blank.
Polish Equity Research
93
Poland TELECOMS
November 12, 2014
HAWE RECOMMENDATION
BUY (INITIATION)
Dark Fibre for Sale CURRENT PRICE: PLN2.51
TARGET PRICE: PLN4.40
Equity Story. HAWE has built and now operates two parallel
4,000km dark fibre backbone rings in Poland, offering a unique high-speed connection capacity. On the one hand, these connect Poland’s key cities, on the other, they offer a direct line between Germany and Belarus. The sale or lease of the backbone network has been HAWE’s key EBITDA driver in the past (some 20k km sold) and we expect it to stay that way in the future - with the average contract profitability at above 90%. HAWE services all the main Polish telco players, both the mobile and fixed-liners, and its backbone network seems to be an ideal platform for the construction of Poland-wide FTTH connections. On top of that, HAWE won two substantial network construction contracts to be completed by 2015. While these support the 2014/15E EBITDA, the scale of the construction works distorts the mid-term top line trends and inflates the EBITDA margin by 2015.
Financials. Following the uninspiring 3Q14, we expect the
seasonally high sales of dark fibre to boost the 4Q14E results to reach a flat FY14E EBITDA y/y. The completion of the heavy margin-eroding construction works will keep the top line inflated in 2015E, while focus on the dark fibre lease or sale (own assumption of 4,000km p.a.) should result in the EBITDA’s stabilising at PLN58mn in 2016E. Assuming no dividend pay-out, we expect HAWE to become debt-free as of 2018E.
Triggers / Risks. Annual sales of more than 5,000km of optic fibre p.a. are a substantial upside (+PLN1.5 per share to TP for additional 1,000km p.a.). The company is also looking for a strategic investor, which could change the picture. HAWE’s key shareholder is facing some legal problems and we believe there future of Mr. Falenta’s stake is uncertain. Finally, FTTH involvement could result in HAWE’s increased investment outlays.
Valuation & recommendation. Based on our DCF model, we
arrived at a 12M TP of PLN4.40 per share, which implies a 75% upside potential. The price of acquiring the Italian dark fibre provider back in 2011 yields a HAWE per share price of PLN5.81, while a comparison with the Polish ATM on 2014E-16E EV/EBITDA ratio yields a share price of PLN5.92.
STOCK PERFORMANCE
HWE
WIG Relative
0
1
2
3
4
5
6
7
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
n.a. n.a. n.a. n.a. n.a. n.a.
COMPANY DESCRIPTION
HAWE operates most modern Polish backbone ring, consisting of two 3,800km-long fibre-optic main lines, with cross-border links with Russia, Belarus, Ukraine and Germany. It also provides network construction services.
Main shareholders % of votes
Trinitybay Investments Ltd. 26.1%
Marek Falenta 7.7%
ANALYST
Pawel Puchalski, CFA (+48) 22 586 80 95
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes HWE.WA / HWE PW
Sales 175 232 243 157 Market capitalisation (PLNm) 268.1
EBITDA 77 76 76 58 Number of shares (m) 107.2
EBIT 61 59 58 40 Free float (%) 63.6%
Net income 52 48 50 38 Avg. daily turnover 3M (PLNm) 1.0
P/E (x) 5.2 5.6 5.4 7.0 Price performance
1M 3M YTD
EV/EBITDA (x) 4.8 5.2 4.6 5.7 5.5% -15.3% -26.3% Source: Company data, DM BZ WBK estimates
Polish Equity Research
94
Fig. 1. HAWE: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Net sales 232 243 157 159 160 162 164 166 168 170
EBIT 70 71 54 55 57 58 59 60 61 61
Cash taxes on EBIT 11 12 9 10 10 11 11 11 12 12
NOPAT 59 59 45 45 46 47 48 48 49 50
Depreciation 18 18 18 18 18 19 19 19 19 19
Change in operating WC -19 16 -5 -2 -2 -2 -2 -2 -2 -2
Capital expenditure 13 13 8 8 8 8 8 8 8 8
Free cashflow 82 48 61 58 59 60 61 62 63 64
WACC 9.0%
PV FCF 2014-2023 398
Terminal Value (TV)* 657
PV TV 136
Total EV 534
Net debt** 132
Equity value 403
Number of shares (m) 107.2
Value per share (PLN, 1 Jan 2014) 3.8
Month 10
Current value per share (PLN) 4.0
12-month Target Price 4.4
Source: Company data, DM BZ WBK estimates. * Terminal Value equals PV FCF 2024-2030E, before value of Fixed Assets reaches nil
in 2030E; ** adjusted for 4.2mn own shares held, priced at market value.
Comparative Valuation: Past transactions
In 2011 an Italian dark fibre provider in the northern Italy was sold for EUR436mn. According to different sources it had
network length in the range from 5,200km to 6,600km, and 2010 EBITDA at EUR42mn. Transaction price implies
transactional EV/EBITDA at 10.3x, and EUR / km ranging from 66k to 84k. While we believe ratio of price per dark fibre
network kilometre should not be applied to Poland due to very different economics of two countries, we see transactional
EV/EBITDA at 10.3x as providing fair comparative approach, especially in light of current very low interest rates.
If we apply this ratio, on basis of our 2014E-16E estimates HAWE should be priced at PLN5.81 per share.
Fig. 29. HAWE: Comparable valuation
Price Currency P/E EV/EBITDA
2014E 2015E 2016E 2014E 2015E 2016E
HAWE 2.35 PLN 5.2 5.0 6.6 5.0 4.4 5.4
ATM 11.05 PLN 29.9 20.5 17.3 12.0 10.2 8.9
Implied HAWE price per share 13.37 9.54 6.12 7.28 6.45 4.01
Source: BZ WBK Brokerage research, Bloomberg. Own estimates for HAWE, market consensus for ATM.
Polish Equity Research
95
Fig. 30. HAWE: 3Q14 results review PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q
Sales 32.5 12.2 35.7 48.8 33.5 38.6 54.2 49.0 89.2 64.7 67.7% -27.5%
EBITDA 12.5 1.6 6.3 31.9 20.4 6.6 18.0 12.1 17.9 8.1 22.8% -54.5%
EBITDA margin 38.5% 12.8% 17.6% 65.5% 60.9% 17.1% 33.1% 24.7% 20.0% 12.6% -4.6 -7.5
EBIT 10.2 -0.7 4.1 29.3 15.2 2.7 13.9 7.9 13.6 3.9 46.4% -71.2%
EBIT margin 31.5% -5.9% 11.4% 60.1% 45.5% 7.0% 25.7% 16.1% 15.3% 6.1% -0.9 -9.2
Net profit 6.5 0.7 1.6 25.2 14.3 2.6 9.8 7.2 10.9 2.6 2.0% -76.0%
Net margin 36.3% 36.6% 16.4% 26.3% 32.1% 27.9% 29.6% 19.3% 13.2% 4.1% -23.9 -9.1
Source: Company data, DM BZ WBK estimates
Fig. 31. HAWE: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 232 n.a. n.a. 243 n.a. n.a. 157 n.a. n.a.
EBITDA 76 n.a. n.a. 76 n.a. n.a. 58 n.a. n.a.
EBIT 59 n.a. n.a. 58 n.a. n.a. 40 n.a. n.a.
Net profit 48 n.a. n.a. 50 n.a. n.a. 38 n.a. n.a.
Source: Company data, DM BZ WBK estimates
Fig. 32. HAWE: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 4.40 n.a. n.a.
Comparable valuation (based on 2014-2016E) 5.92 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 33. HAWE: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 108 175 232 243 157
COGS 75 98 133 146 79
Gross profit 33 77 99 97 78
SG&A 18 18 22 21 20
Other operating income, net -4 -4 0 0 0
EBITDA 33 77 76 76 58
Operating profit 24 61 59 58 40
Net financial income (costs) -2 2 0 4 7
Profit before tax 22 63 59 62 47
Income tax 5 12 11 12 9
Net profit 17 52 48 50 38
Gross margin 30.6% 43.9% 42.6% 39.8% 49.6%
EBITDA margin 30.6% 43.9% 33.0% 31.3% 36.9%
Operating margin 22.4% 34.9% 25.3% 23.9% 25.4%
Net profit margin 15.7% 29.6% 20.5% 20.7% 24.4%
Source: Company data, DM BZ WBK estimates
Fig. 34. HAWE: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 70 79 72 61 59
Fixed assets 469 530 552 575 592
Total assets 539 609 625 636 651
Current liabilities 206 78 126 89 64
bank debt 160 29 96 49 35
Long-term liabilities 32 179 98 96 98
bank debt 1 98 49 45 40
Equity 300 353 401 451 489
share capital 139 139 139 139 139
Minority Interest 0 2 0 0 0
Total liabilities 539 609 625 636 651
Net debt 147 101 131 84 62
Source: Company data, DM BZ WBK estimates
Fig. 35. HAWE: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 34 45 48 68 36
CF from investment 43 19 13 13 8
CF from financing, incl. 1 -7 -47 -59 -25
dividends 0 0 0 0 0
Net change in cash -7 19 -12 -4 3
Source: Company data, DM BZ WBK estimates
Polish Equity Research
96
This page has been left intentionally blank.
Polish Equity Research
97
Poland Industrials
GRUPA KETY RECOMMENDATION
BUY (MAINTAINED)
New strategy almost there CURRENT PRICE: PLN278
TARGET PRICE: PLN311 (MAINTAINED)
Equity Story. Our investment story remains intact. We believe that export
sales, especially in the aluminium systems segment, growth in margins
and, finally, stabilisation in the extruded products will remain Kety’s main
drivers of growth. We also still believe that Kety can monetise the rising
aluminium usage in the automotive segment.
3Q14 Results Review. Kety’s management had previously announced
that the company had the highest results in its history. Its sales amounted
to PLN489 (+8% y/y), the EBITDA/EBIT to PLN103mn/PLN81.6mn
(+32.9% y/y and +43.2% y/y, respectively). The net profit came in at
PLN62.1mn (+41.1%). The bottom line was, however, burdened by FX
losses due to the UAH devaluation (financial costs were at PLN5.4mn).
The results’ growth was driven by improvement in the three main
segments and all of them recorded growth in sales and margins, both in
y/y as well as q/q terms. It also worth noting that both aluminium systems
and the flexible packaging segments generated record-high margins, with
the extruded products returning to margins unseen since 2010. The
growth in sales was caused by a rise in demand on the domestic, as well
as on the majority of its export markets (biggest export growth was
recorded in Germany, Italy, Holland, UK and the Czech Republic). Kety’s
net debt stood at PLN192.7mn at the end of the quarter, slightly below the
previously suggested level of PLN200mn. The operating cash flow
amounted to PLN63.2mn (61% of the EBITDA due to the seasonal
working capital spike) and CAPEX was at PLN30mn (PLN74mn after 9M).
Moreover, the management suggested that y/y demand growth for
products in 4 out of 5 segments will continue in 4Q14 (with the y/y
demand growth in extrustion, aluminium systems and accessories seen at
5-10%, in flexible packaging at 5% and in constructional services flat).
New strategy in 1Q15. The management announced that its strategic
targets for 2015, which were set in the company’s previous strategy,
would be met or nearly met already in 2014 (we assume that the target of
PLN325mn in EBITDA will be missed just by PLN1mn). Kety is due to
present its new, five-year strategy in 1Q15. The company is set to focus
on organic growth in its present segments but will not rule out
acquisitions. Its CAPEX plans will be balanced with a satisfactory dividend
level for its shareholders (according to our model, the company should be
able to maintain the 60% pay-out ratio without a debt increase and still be
able to finance its CAPEX of PLN150-160mn in the coming years).
Valuation & Recommendation. We made no changes to our forecasts
and, as a consequence, to our valuation.
STOCK PERFORMANCE
KTY
TP
WIG Relative
10
60
110
160
210
260
310
360
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10-23-2014 266.2 311.0 4.5% 4.1
Buy 8-6-2014 219.0 287.0 24.6% 19.3
COMPANY DESCRIPTION
Kety is a leading Polish aluminium products (extruded profiles and aluminium systems) and flexible packaging manufacturer.
Main shareholders % of votes
Aviva pension fund 18.0%
ING pension fund 17.2%
PZU pension fund 9.8%
Allianz pension fund 5.3%
ANALYST
Tomasz Kucinski +48 22 534 16 10
Company Data
PLNmn 2013 2014E 2015E 2016E Reuters/Bloomberg codes KTY.WA / KTY PW
Sales 1,594 1,790 1,867 1,942 Market capitalisation (PLNmn) 2,610.7
EBITDA 226 324 336 347 Number of shares (mn) 9.4
EBIT 145 240 253 262 Free float (%) 98.8%
Net income 154 185 199 205 Avg. daily turnover 3M (PLNm) 1.8
P/E (x) 16.9 14.0 13.1 12.7 Price performance
1M 3M YTD
EV/EBITDA (x) 12.5 8.7 8.4 8.1 5.5% 27.1% 27.1% Source: Company data, DM BZ WBK estimates
Polish Equity Research
98
Fig. 1. Kety: 3Q14 results review PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q
Sales 411.3 390.5 349.8 387.5 442.9 387.9 334.4 379.6 452.6 427.2 412.9 438.7 489.0 8.0% 11.5%
EBITDA 70.1 50.2 47.2 62.7 74.4 40.3 45.1 53.0 77.5 50.3 67.9 81.3 103.0 32.9% 26.7%
EBITDA margin 17.0% 12.9% 13.5% 16.2% 16.8% 10.4% 13.5% 14.0% 17.1% 11.8% 16.4% 18.5% 21.3% 4.1 2.7
EBIT 52.7 30.7 27.6 41.5 53.9 19.1 25.6 33.1 57.0 29.2 48.4 61.1 81.6 43.2% 33.6%
EBIT margin 12.8% 7.9% 7.9% 10.7% 12.2% 4.9% 7.7% 8.7% 12.6% 6.8% 11.7% 13.9% 16.9% 4.3 3.0
Net profit 34.0 19.7 23.9 31.8 44.0 17.2 17.0 42.9 44.0 49.6 30.8 52.6 62.1 41.1% 18.1%
Net margin 8.3% 5.0% 6.8% 8.2% 9.9% 4.4% 5.1% 11.3% 9.7% 11.6% 7.5% 12.0% 13.1% 34.3% 8.9%
Source: Company data, DM BZ WBK estimates
Fig. 2. Kety: Forecasts changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 1,790 1,790 0.0% 1,867 1,867 0.0% 1,942 1,942 0.0%
EBITDA 324 324 0.0% 336 336 0.0% 347 347 0.0%
EBIT 240 240 0.0% 253 253 0.0% 262 262 0.0%
Net profit 185 185 0.0% 198 198 0.0% 205 205 0.0%
Source: Company data, DM BZ WBK estimates
Fig. 3. Kety: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 311 311 0%
Comparable valuation (based on 2014-2016E) 308 308 0%
Source: Company data, DM BZ WBK estimates
Fig. 4. Kety: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Sales revenue: 1,568 1,594 1,790 1,867 1,942
operating cost, ex. depreciation
1,365 1,412 1,490 1,554 1,619
Depreciation 83 81 84 84 85
EBITDA 225 226 324 336 347
Operating profit 142 145 240 253 262
Net financial income (costs) -5 -11 -17 -8 -9
Profit before tax 137 134 222 245 253
Income tax 20 -19 37 47 48
Net profit 117 154 185 198 205
EBITDA margin 14.3% 14.2% 18.1% 18.0% 17.9%
Operating margin 9.1% 9.1% 13.4% 13.5% 13.5%
Net profit margin 7.5% 9.6% 10.3% 10.6% 10.6%
Source: Company data, DM BZ WBK estimates
Fig. 5. Kety: Balance sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 711 710 766 797 827
Fixed assets 932 1006 1060 1121 1183
Total assets 1,643 1,716 1,826 1,918 2,010
Current liabilities 482 467 484 492 499
bank debt 254 245 252 251 251
Long-term liabilities 138 124 125 122 120
bank debt 52 39 42 41 41
Equity 1,023 1,126 1,217 1,305 1,391
share capital 830 887 947 1,021 1,100
Minority Interest 0 0 0 0 0
Total liabilities 1,643 1,716 1,826 1,918 2,010
Net debt 236 208 231 228 227
Source: Company data, DM BZ WBK estimates
Fig. 6. Kety: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 108 239 210 259 267
CF from investment -87 -158 -138 -145 -147
CF from financing, incl. -15 -72 -85 -112 -120
dividends paid -46 -56 -93 -111 -119
Net change in cash 6 10 -12 1 1
Source: Company data, DM BZ WBK estimates
Polish Equity Research
99
Poland Health Care / IT
NOVEMBER 12, 2014
MEDICALGORITHMICS RECOMMENDATION
HOLD (INITIATION)
Fair-valued growth story CURRENT PRICE: PLN204
TARGET PRICE: PLN230
Equity Story. Medicalgorithmics’ success story is based on its own, state-
of-the-art software system used in Pocket ECG. This allows the company
to enjoy superb margins, the highest among all the WSE-listed
companies. The SaaS sales model helps to stabilise its results and tie its
customers for a long time. Medicalgorithmics is the first Polish company
that received an FDA certificate and set a foothold on the most attractive
US market. It has also started to enter new markets in Europe, Asia and
Americas. We like the company’s light business model (no expensive own
distribution), its low CAPEX and working capital requirements, resulting in
a strong cash generation ability, strong balance sheet, as well as
excellent and sustainable pace of growth.
Financials. The growth pace remains the key valuation driver for
Medicalgorithmics. We believe that after the c80% sales y/y expansion in
2014E, the company will be able to expand its top-line by c50% in 2015E
on orders from the largest US market and new contracts for Pocket ECG.
The company’s relocation to a new bigger factory and its headcount
increase ballooned its opex and slightly lowered the margins. We expect,
however, that the operating margin will return to levels seen last year from
2015, when the higher fixed costs will be diluted by higher revenues.
Medicalgorithmics is trading at a 2015E and 2016E P/E of 31.0x and
24.8x, respectively.
Triggers/Risks. Apart from the core Pocket ECG product, the company’s
R&D department is working on three new projects that may have a
positive impact on the company’s P&L. So far Medicalgorithmics is a
single product company, which we think is a major risk. Regulatory risk in
the US was minimised when its global expansion was kicked off, but the
risk of companies like Apple or Samsung appearing on the market is hard
to estimate. Medicalgorithmics does not have a clear policy about what to
do with the cash surplus. A declaration of a higher dividend and a
buyback program would receive a warmer welcome than investments in
the Polish corporate bonds. The stock’s share price has recently been
under pressure from a share supply from the CEO and seed funds, as
well as its lower-than-expected pace of growth. We believe that the
current price levels balance the company’s growth prospects and its
downside risks.
Valuation & recommendation. Based on our DCF model, we arrived at a
12-month TP of PLN230 per share. The TP implies a 13% upside
potential, which caused us to initiate our coverage of the stock with a Hold
recommendation. The comparative valuation points to PLN131 per share.
STOCK PERFORMANCE
MDG
WIG Relative
0
50
100
150
200
250
300
350
No
v-1
1
Feb
-12
May-1
2
Aug
-12
No
v-1
2
Feb
-13
May-1
3
Aug
-13
No
v-1
3
Feb
-14
May-1
4
Aug
-14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
COMPANY DESCRIPTION
The Company is focused on the development of solutions and systems for signal and data processing in cardiac monitoring.
MAIN SHAREHOLDERS
% of votes
ING pension fund 13.1%
Mr. Marek Dziubinski 11.6%
New Europe Ventures 8.0%
Nordea pension fund 7.5%
BioInfoBank Seed Capital 6.3%
Aviva mutual fund 6.0%
ANALYST
Lukasz Kosiarski (+48) 22 586 82 25
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes MDG.WA / MDG PW
Sales 15.7 28.1 41.7 53.0 Market capitalisation (PLNm) 704.9
EBITDA 10.5 17.1 25.0 32.2 Number of shares (m) 3.5
EBIT 10.0 16.5 24.4 31.6 Free float (%) 73.4%
Net income 10.9 16.1 22.5 28.2 Avg. daily turnover 3M (PLNm) 0.5
P/E (x) 64.2 43.3 31.0 24.8 Price performance
1M 3M YTD
EV/EBITDA (x) 59.4 36.4 24.9 19.0 13.8% -8.9% 17.9% Source: Company data, DM BZ WBK estimates
Polish Equity Research
100
Fig. 1. Medicalgorithmics: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Net sales 28.1 41.7 53.0 62.6 71.9 82.1 90.3 99.3 109.2 120.1
EBIT 16.5 24.4 31.6 38.0 44.2 50.9 56.0 61.7 67.9 74.7
Cash taxes on EBIT 3.1 4.6 6.0 7.2 8.4 9.7 10.6 11.7 12.9 14.2
NOPAT 13.4 19.7 25.6 30.8 35.8 41.2 45.4 49.9 55.0 60.5
Depreciation 0.6 0.6 0.6 0.7 0.7 0.7 0.8 0.8 0.9 0.9
Change in operating WC 9.7 8.8 6.4 5.1 5.0 5.4 4.4 4.8 5.3 5.8
Capital expenditure 11.6 1.9 1.7 1.6 1.6 1.7 1.6 1.7 1.8 2.0
Free cashflow -7.4 9.7 18.1 24.8 29.9 34.9 40.2 44.3 48.7 53.6
WACC (2014-23) 8.0%
PV FCF 2014-23 172.9
Terminal growth 2.0%
Terminal Value (TV) 911.3
PV TV 422.1
Total EV 595.0
Net debt -75.0
Equity value 670.0
Number of shares (m) 3.5
Value per share (PLN, 1 Jan 2014/15) 193.9
Month 11
Current value per share (PLN) 210.4
12-month target price (PLN) 230.0
Source: Company data, DM BZ WBK estimates
Fig. 2. Medicalgorithmics: Comparable valuation
Market
Cap P/E EV/EBITDA
Company Price Currency (EURmn) 2014E 2015E 2016E 2014E 2015E 2016E
Medicalgorithmics 204.00 PLN 208 43.3 31.0 24.8 36.4 24.9 19.0
Peers
LiveChat Software 18.01 PLN 137 30.0 22.5 18.0 24.2 18.1 14.2
BioTelemetry 8.25 USD 220 88.7 33.3 n.a. 11.1 8.4 n.a.
LifeWatch 9.67 CHF 134 71.7 17.9 12.9 35.5 9.2 6.7
GN Store Nord 138.10 DKK 3,896 25.6 20.1 17.3 15.8 13.4 12.1
Sonova Holding 150.90 CHF 10,514 25.2 21.8 20.1 17.5 15.1 13.5
Nihon Kohden 5850.00 JPY 2,335 21.6 19.9 18.2 10.5 9.5 8.7
SHL TeleMedicine 8.70 CHF 98 117.2 20.5 12.7 16.5 9.9 n.a.
Medtronic 68.70 USD 67,527 17.0 15.7 14.6 11.8 10.6 9.8
St Jude Medical 65.22 USD 18,647 16.4 15.5 14.2 12.2 11.4 10.4
Boston Scientific 13.33 USD 17,682 16.1 14.7 13.3 12.5 10.7 9.3
SHL TeleMedicine 8.70 CHF 98 117.2 20.5 12.7 16.5 9.9 n.a.
Lepu Medical Technology 26.11 CNY 3,469 47.8 38.4 30.6 n.a. n.a. n.a.
Median 25.6 20.1 14.4 14.1 10.3 9.8
Implied share price vs. LiveChat (PLN) 141.3 148.1 148.4 142.8 154.7 158.8
Implied share price vs. peers (PLN) 120.6 132.2 118.7 92.6 97.6 117.2
Implied price (PLN) 131.0
Source: BZ WBK Brokerage research, company data
Polish Equity Research
101
Fig. 3. Medicalgorithmics: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Sales 1.3 1.9 2.3 3.1 2.7 2.9 3.3 3.7 3.9 4.8 5.9 6.6 7.3 90.0% 11.0%
EBITDA 0.7 1.2 1.8 1.8 1.9 2.1 2.2 2.4 2.9 3.1 3.9 4.1 4.3 44.9% 3.8%
EBITDA margin 53.7% 63.3% 77.4% 57.0% 71.3% 71.1% 66.6% 64.4% 76.5% 63.7% 65.7% 62.4% 58.3% -18.2 -4.1
EBIT 0.6 1.1 1.7 1.6 1.8 1.9 2.1 2.3 2.7 3.0 3.8 4.0 4.1 51.8% 3.9%
EBIT margin 46.5% 57.8% 72.7% 53.6% 67.5% 67.0% 63.1% 61.3% 70.5% 61.1% 63.4% 60.1% 56.3% -14.2 -3.8
Net profit 0.6 1.0 1.3 1.6 2.0 2.5 2.5 2.6 2.8 3.0 3.8 3.9 4.1 44.1% 5.2%
Net margin 48.7% 55.2% 58.3% 53.5% 75.2% 85.8% 76.7% 70.5% 73.3% 61.1% 63.5% 58.6% 55.6% -17.7 -3.0
Source: Company data, DM BZ WBK estimates
Fig. 4. Medicalgorithmics: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 28.1 n.a. n.a. 41.7 n.a. n.a. 53.0 n.a. n.a.
EBITDA 17.1 n.a. n.a. 25.0 n.a. n.a. 32.2 n.a. n.a.
EBIT 16.5 n.a. n.a. 24.4 n.a. n.a. 31.6 n.a. n.a.
Net profit 16.1 n.a. n.a. 22.5 n.a. n.a. 28.2 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 5. Medicalgorithmics: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 230 n.a. n.a.
Comparable valuation (based on 2014-2016E) 131 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. Medicalgorithmics: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 11.0 15.7 28.1 41.7 53.0
Opex 3.9 5.8 11.6 17.3 21.4
Other operating income, net 0.0 0.1 0.1 0.0 0.0
EBITDA 7.2 10.2 17.1 25.0 32.2
Operating profit 7.1 10.0 16.5 24.4 31.6
Net financial income (costs) 2.1 3.5 3.4 3.4 3.2
Profit before tax 9.2 13.5 19.9 27.8 34.8
Income tax 1.8 2.6 3.8 5.3 6.6
Net profit 7.4 10.9 16.1 22.5 28.2
EBITDA margin 65.9% 64.7% 60.8% 59.9% 60.8%
Operating margin 64.5% 63.7% 58.7% 58.5% 59.6%
Net profit margin 67.6% 69.3% 57.3% 54.0% 53.2%
Source: Company data, DM BZ WBK estimates
Fig. 7. Medicalgorithmics: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 65.2 50.0 54.9 66.5 83.2
Fixed assets 10.4 33.5 44.5 45.8 46.9
Total assets 75.5 83.5 99.4 112.3 130.1
Current liabilities 1.8 2.6 7.0 8.3 10.6
bank debt 0.0 0.0 0.0 0.0 0.0
Long-term liabilities 0.0 0.0 0.0 0.0 0.0
bank debt 0.0 0.0 0.0 0.0 0.0
Equity 73.8 80.9 92.4 104.0 119.5
share capital 0.3 0.3 0.3 0.3 0.3
Minority Interest 0.0 0.0 0.0 0.0 0.0
Total liabilities 75.5 83.5 99.4 112.3 130.1
Net debt -61.9 -75.0 -75.6 -77.1 -85.2
Source: Company data, DM BZ WBK estimates
Fig. 8. Medicalgorithmics: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 6.3 9.2 7.0 14.3 22.4
CF from investment -6.1 -23.3 -11.6 -1.9 -1.7
CF from financing 54.5 -3.7 -4.6 -11.0 -12.7
Net change in cash 7.0 9.0 9.7 10.1 10.5
Source: Company data, DM BZ WBK estimates
Polish Equity Research
102
This page has been left intentionally blank.
Polish Equity Research
103
Poland TMT
NOVEMBER 12, 2014
MIDAS RECOMMENDATION
BUY (MAINTAINED)
Polkomtel’s promo to boost 3Q volume? CURRENT PRICE: PLN0.60
TARGET PRICE: PLN1.39 (MAINTAINED)
3Q14 Results Preview. We expect Midas’ 3Q14 data
transfer volume to increase by 29% q/q and 122% y/y to
18GB. We see the 9M data transfer expanding to 44.6GB,
up 112% y/y. In our view the strength of the 3Q14 volumes
may be attributed to Polkomtel’s recent LTE-focused
promotion, likely driving the September volume to some
7GB. We expect little surprises or expansion at the cost
line, but an ‘extra’ 1GB of the September 2014 transfer
volume boosts the EBITDA by an additional PLN5mn. Flat
transfer rates q/q will trim quarterly loss to PLN25mn.
While we see the 3Q14 results broadly flat at the EBITDA /
EBIT / net profit levels y/y, the quarter brings us much
closer to the long-awaited EBITDA breakeven. Outcome:
POSITIVE.
Competitive LTE offers. The other Polish mobile players
have all announced a launch of their own LTE services for
mid-2014. But so far Midas remains the only fully-blown
provider of LTE services in Poland.
Auction for 800 / 2,600 MHz frequencies. The regulator
announced an auction for five 800MHz and fourteen
2,600MHz blocks (5MHz width each), priced at PLN250mn
and PLN25mn, respectively. Bids may be placed by 24
November, 2014 and the regulator will have one month for
verification.
Change in Forecasts. We keep our forecasts unchanged
over the entire forecasting period.
Change in Valuation & Recommendation. We apply no
changes to our DCF and DDM valuations, leaving these
unchanged, respectively, at PLN1.39 and PLN1.29 per
share. We maintain our BUY recommendation.
PUBLICATION DATE
NOVEMBER 15, 2014
3Q14 RESULTS PREVIEW
3Q14E y/y q/q
Sales 87.8 56% 21%
EBITDA -25.4 n.a. n.a.
EBIT -55.8 n.a. n.a.
Net profit -62.8 n.a. n.a.
STOCK PERFORMANCE
MDS
TP
WIG Relative
0
0
0
1
1
1
1
1
2
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10-20-2014 0.55 1.39 9.1% 6.9
Buy 7-9-2014 0.51 1.39 7.8% 4.4
Buy 4-28-2014 0.63 1.09 -19.0% -17.4
Buy 1-30-2014 0.69 1.28 -8.7% -11.0
COMPANY DESCRIPTION
Midas builds and operates LTE network in Poland, eyes 66% coverage of the country with the total of 4,700 base stations.
ANALYST
Pawel Puchalski, CFA (+48) 22 586 80 95
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes MDSP.WA / MDS PW
Sales 219 318 468 669 Market capitalization (PLNm) 888
EBITDA -98 -129 -21 160 Number of shares (m) 1,479.7
EBIT -210 -260 -176 -5 Free float (%) 34.0%
Net income -207 -304 -248 -90 Avg. daily turnover 3M (PLNm) 0.7
P/E (x) n.a. n.a. n.a. n.a. Price performance
1M 3M YTD
EV/EBITDA (x) n.a. n.a. n.a. 12.1 11.1% 15.4% -9.1% Source: Company data, DM BZ WBK estimates
Polish Equity Research
104
Fig. 1. Midas: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Sales 5.5 11.5 18.3 20.7 22.4 28.5 43.0 48.1 56.4 82.5 66.9 72.5 87.8 55.6% 21.2%
EBITDA -7.4 -16.6 -14.9 -21.4 -19.9 -25.5 -21.2 -32.0 -28.1 -17.1 -49.4 -40.7 -25.4 n.a. n.a.
EBITDA margin -134% -144% -81% -104% -89% -89% -49% -67% -50% -21% -74% -56% -29% 21.0 27.3
EBIT -12.3 -22.9 -29.9 -47.8 -45.9 -62.5 -47.2 -59.6 -55.8 -47.5 -78.4 -71.1 -55.8 n.a. n.a.
EBIT margin -223% -199% -164% -231% -205% -219% -110% -124% -99% -58% -117% -98% -63% 35.5 34.6
Net profit -14.1 -24.4 -28.8 -44.6 -42.8 -59.5 -43.9 -56.3 -61.4 -44.9 -82.6 -77.5 -62.8 n.a. n.a.
Net margin -255% -212% -157% -216% -191% -209% -102% -117% -109% -54% -123% -107% -71% 37.4 35.5
Source: Company data, DM BZ WBK estimates.
Fig. 2. Midas: Forecasts changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 318 318 0% 468 468 0% 669 669 0%
EBITDA -129 -129 n.a. -21 -21 n.a. 160 160 0%
EBIT -260 -260 n.a. -176 -176 n.a. -5 -5 n.a.
Net profit -304 -304 n.a. -248 -248 n.a. -90 -90 n.a. Source: Company data, DM BZ WBK estimates
Fig. 3. Midas: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 1.39 1.39 0%
DDM valuation 1.29 1.29 0% Source: Company data, DM BZ WBK estimates
Fig. 4. Midas: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 90 219 318 468 669
COGS, ex. depreciation 275 429 578 644 674
Depreciation 104 112 132 154 165
Gross profit -185 -210 -260 -176 -5
SG&A 0 0 0 0 0
Other operating income, net -1 0 0 0 0
EBITDA -82 -98 -129 -21 160
Operating profit -186 -210 -260 -176 -5
Net financial income (costs) 2 -15 -52 -81 -93
Profit before tax -184 -225 -312 -256 -98
Income tax -8 -19 -8 -8 -8
Net profit -176 -207 -304 -248 -90
EBITDA margin -206% -96% -82% -37% -1%
EBITDA margin adjusted -91% -45% -41% -5% 24%
Operating margin -207% -96% -82% -37% -1%
Net profit margin adjusted -196% -94% -96% -53% -13%
Source: Company data, DM BZ WBK estimates
Fig. 5. Midas: Balance sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 232 198 262 263 368
Fixed assets 1,189 1,285 1,371 1,465 1,382
Total assets 1,420 1,483 1,633 1,728 1,751
Current liabilities 282 237 317 408 529
bank debt 16 0 20 20 20
Long-term liabilities 169 483 858 1,109 1,101
bank debt 33 357 740 1,000 1,000
Equity 970 763 459 210 120
share capital 148 148 148 148 148
Minority Interest 0 0 0 0 0
Total liabilities 1,420 1,483 1,633 1,728 1,751
Net debt -116 317 716 1,046 1,065
Source: Company data, DM BZ WBK estimates
Fig. 6. Midas: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations -109 -109 -181 -82 65
CF from investment -390 -325 -218 -248 -83
CF from financing, incl. 627 307 403 260 0
dividends paid 0 0 0 0 0
Net change in cash 128 -127 5 -70 -18
Source: Company data, DM BZ WBK estimates
Polish Equity Research
105
Poland Retail
NOVEMBER 12, 2014
MONNARI RECOMMENDATION
BUY (INITIATION)
What doesn't kill you makes you stronger CURRENT PRICE: PLN9.5
TARGET PRICE: PLN13.5
Equity Story. Monnari offers investors another successful
restructuring story. Some past bad decision-making pushed
Monnari on the verge of bankruptcy in 2008-09. But thanks to
aggressive restructuring and loyal clients , Monnari did not go the
way of the dodo. Monnari is now a company that has shown
PLN22mn in net cash (including PLN16mn loan) in 3Q14, has
attractive office real estate for sale (worth c.PLN25mn) and plans
further development of the proven Monnari concept – a concept
that survived the worst. And we believe that this scenario will
materialise in the coming years. We expect Monnari to increase
its floor space at least by c5k sqm by 2016E, which accounts for
27% of its current floor space. This should yield in sales and an
EBITDA at a 11% and 14% CAGR in 2014-2016.
Financials. We expect that Monnari will remain on the growth
path in 2015. Our main assumptions are: 1) selling space growth
by 2.2k/1.9k/0.9k sqm in 2014-16E, respectively, 2) LfL at 5.0%,
3.0% and 3.0% in 2014-16E, respectively, 3) the gross margin at
57.5% (+135bps), 56.5% (-95bps) and 57.1% (+52bps), 4) the
SG&A/avg. sqm at PLN3,808 (+9.0% y/y), PLN3,757 (-1.3% y/y)
and PLN3,873 (+3.1% y/y) and 5) starting of tax payments since
2016. We have also assumed that Monnari will sell real estate for
PLN25mn, which will boost company costs by cPLN2mn
(additional rents and lack of rent incomes from external tenants).
Valuation & recommendation. Monnari is currently trading at a
PE of 12.1x (on adj. basis) and 11.9x in 2014-15E, which seems
cheap taking into account its growth potential, the high ROE
(26%) and the clean balance sheet. We believe that PE at c.15-
16x would be fairer. Assuming that we are correct with our FY’14-
15 forecasts, there is still plenty of upside to catch. On the other
hand, such corporate actions like loans to external companies
that are connected to Monnari’s owners casts some shadow on
the company and might hinder its price appreciation toward more
attractive multiples. In our view, it would be better to finance
private projects by dividend rather than loans from Monnari.
Based on our DCF model, we arrived at a 12 month TP of
PLN13.5 per share, which implies a 42% upside potential. We
initiate coverage with a Buy rating.
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
COMPANY DESCRIPTION
Monnari is a retail company selling women’s fashion mainly under the brand Monnari.
Main shareholders % of votes
Mr. Miroslaw Misztal 26.1%
Fair Ltd. 8.3%
Mr. Jakub Banasiak 6.5%
Union Investment 7.3%
Free float 51.8%
ANALYST
Tomasz Sokolowski (+48) 22 586 82 36
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes MONP.WA /MON PW
Sales 145.6 166.9 182.6 197.4 Market capitalisation (PLNm) 298.6
EBITDA 25.4 25.8 26.4 28.3 Number of shares (m) 30.6
EBIT 22.6 22.7 23.1 24.7 Free float (%) 47.8%
Net income 23.6 26.9 24.7 21.4 Avg. daily turnover 3M (PLNm) 0.4
P/E (x) 12.5 11.0 11.9 13.8 Price performance
1M 3M YTD
EV/EBITDA (x) 9.5 8.4 7.4 6.8 -4.0% +15.6% +46.9% Source: Company data, DM BZ WBK estimates
Polish Equity Research
106
Fig. 1. Monnari: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Net sales 167 183 197 191 201 209 218 227 236 246
EBIT 23 23 25 16 17 18 20 23 26 26
Cash taxes on EBIT 0 0 5 3 3 3 4 4 5 5
NOPAT 23 23 20 13 14 15 16 18 21 21
Depreciation 3 3 4 4 4 4 5 5 5 6
Change in operating WC 3 2 2 -1 1 1 1 1 1 1
Capital expenditure 5 4 4 4 5 5 5 5 6 7
Free cashflow 18 20 17 13 12 13 15 17 19 19
WACC (2014-2023, %) 8.0%
PV FCF 2013-2023 110
Terminal growth (%) 2.5%
Terminal Value (TV) 374
PV TV 173
Total EV 284
Net debt -77
Equity value 361
Number of shares (m) 31
Value per share (PLN, 1 Jan 2014) 12
Month 11
Current value per share (PLN) 12.5
12 month target price (PLN) 13.5
Source: Company data, DM BZ WBK estimates
Fig. 2. Monnari: Comparable valuation
P/E EV/EBITDA PEG ROE DY
Name 2014E 2015E 2016E 2014E 2015E 2016E 1Y 2Y 2014E 2015E 2016E 2014E 2015E 2016E
LPP 33.1 28.7 22.2 20.3 17.7 13.8 1.5 0.7 30.2% 28.9% 30.6% 1.0% 1.2% 1.4%
Monnari 11.0 11.9 13.8 8.4 7.4 6.8 0.8 2.6 26.4% 19.3% 14.9% 0.0% 0.0% 5.0%
Bytom 13.9 10.5 10.9 9.3 7.4 6.4 0.02 0.01 29.3% 32.0% 27.5% 0.0% 4.9% 6.7%
average 19.3 17.1 15.6 12.7 10.8 9.0 0.8 1.1 28.6% 26.8% 24.4% 0.3% 2.0% 4.4%
CCC 26.2 19.9 16.9 18.1 14.1 12.2 0.9 0.4 28.7% 31.2% 1.2% 1.9% 2.5% 0.0%
Wojas 10.1 10.6 10.1 6.1 5.9 5.5 14.5 -2.5 14.8% 12.3% 11.4% 1.3% 1.9% 0.0%
Gino Rossi 20.5 13.4 12.3 8.4 7.2 6.6 0.1 0.0 10.5% 14.2% 13.5% 0.0% 0.0% 0.0%
average 18.9 14.6 13.1 10.9 9.1 8.1 5.1 -0.7 18.0% 19.2% 8.7% 1.1% 1.5% 0.0%
Total - average 19.1 15.9 14.4 11.8 10.0 8.5 3.0 0.2 23.3% 23.0% 16.5% 0.7% 1.7% 2.2%
Source: BZ WBK Brokerage research, company data
Polish Equity Research
107
Fig. 3. Monnari: 3Q14 results review PLN in millions, unless otherwise stated
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13E 1Q14 2Q14 3Q14 y/y q/q
Sales 27.3 30.7 30.9 42.9 30.6 32.2 33.6 49.1 35.1 41.6 37.0 9.9% -11.1%
EBITDA -0.5 2.8 0.3 8.4 0.0 4.7 2.3 11.4 4.1 7.2 4.9 108.1% -32.5%
EBITDA margin -1.9% 9.3% 1.1% 19.6% -0.1% 14.7% 6.9% 23.2% 11.6% 17.3% 13.1% 619 -417
EBIT -1.3 2.2 -0.3 7.8 -0.6 4.0 1.8 10.8 3.4 6.3 4.0 127.2% -36.1%
EBIT margin -4.6% 7.0% -0.9% 18.1% -1.9% 12.4% 5.3% 22.0% 9.6% 15.2% 10.9% 565 -429
Net profit -1.4 2.3 -0.7 8.0 1.1 4.4 0.9 10.6 6.1 6.4 4.0 322.4% -38.4%
Net margin -5.1% 7.6% -2.4% 18.7% 3.6% 13.7% 2.8% 21.5% 17.4% 15.4% 10.7% 791 -473
Source: Company data, DM BZ WBK estimates
Fig. 4. Monnari: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 167 n.a. n.a. 183 n.a. n.a. 197 n.a. n.a.
EBITDA 26 n.a. n.a. 26 n.a. n.a. 28 n.a. n.a.
EBIT 23 n.a. n.a. 23 n.a. n.a. 25 n.a. n.a.
Net profit 27 n.a. n.a. 25 n.a. n.a. 21 n.a. n.a.
Source: Company data, DM BZ WBK estimates
Fig. 5. Monnari: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 13.5 n.a. n.a.
Comparable valuation (based on 2014-2016E) 12.4 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. Monnari: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 132 146 167 183 197
COGS 63 64 71 79 85
Gross profit 69 82 96 103 113
SG&A 60 60 74 80 88
Other operating income, net -1 1 0 0 0
EBITDA 11 25 26 26 28
Operating profit 8 23 23 23 25
Net financial income (costs) 1 0 -1 -2 -2
Profit before tax 8 22 24 25 26
Income tax -1 -1 -3 0 5
Net profit 8 24 27 25 21
Gross margin 52.5% 56.1% 57.5% 56.5% 57.1%
EBITDA margin 8.5% 17.4% 15.5% 14.5% 14.4%
Operating margin 6.4% 15.5% 13.6% 12.6% 12.5%
Net profit margin 6.2% 16.2% 16.1% 13.5% 10.9%
Source: Company data, DM BZ WBK estimates
Fig. 7. Monnari: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 88 84 97 139 146
Fixed assets 20 18 33 18 19
Total assets 108 102 131 157 165
Current liabilities 35 13 15 17 18
bank debt 25 0 0 0 0
Long-term liabilities 1 0 0 0 0
bank debt 0 0 0 0 0
Equity 71 88 115 140 147
share capital 68 69 77 89 102
Minority Interest 0 0 0 0 0
Total liabilities 108 102 131 157 165
Net debt -2 -28 -36 -74 -78
Source: Company data, DM BZ WBK estimates
Fig. 8. Monnari: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 2 33 27 26 23
CF from investment 3 -1 -19 12 -4
CF from financing -1 -31 0 0 -15
Net change in cash 3 1 9 38 4
Source: Company data, DM BZ WBK estimates
Polish Equity Research
108
This page has been left intentionally blank.
Polish Equity Research
109
Poland FINANCIALS
NOVEMBER 12, 2014
MW TRADE RECOMMENDATION
BUY (INITIATION)
Healthy momentum CURRENT PRICE: PLN 18.7
TARGET PRICE: PLN 21.6
Equity Story. MW Trade is Poland’s second-largest, non-bank
provider of funding and financial services for the health care
sector (hospitals as well as their suppliers). The company is also
increasingly engaged with local governments and municipalities.
Its close cooperation with the Getin Holding group (Idea Bank
funding) offers the company more flexibility and opportunity to
grow in the new business line of guarantees and fees. Following
the 56% revenues CAGR in 2010-2013 and 49% of earnings,
2014-2016E should bring 15% and 11% growth rates,
respectively, despite our assumption of margin contraction. Based
on our estimates, the company trades at a 8.9x 2015E P/E and a
P/Book of 1.9x, while continues to generate a ROE of 23%. Our
TP of PLN 21/ share implies a 16% upside potential. We are
initiating our coverage with a BUY rating.
Financials. The company’s strong revenues and EPS growth
should continue despite our conservative assumptions for its
product portfolio growth (10% CAGR in 2014-2016E vs. 22% in
2010-2013) and negative margin development (10.7% in 2016E
vs. 13.3% in 2013). We expect a 15% revenue CAGR in 2014-
16E, following 56% in 2009-2013 and an EPS CAGR 11% vs. a
historical rate of 49%. We expect the dividend pay-out ratio to
stay at 50% in 2014E-2016E, which implies a DY of 5.1%-6.1% in
upcoming years.
Triggers/Risks. The risks include frequent changes to
regulations on hospital liabilities and the general structural
challenges that the Polish health care system is facing. The
funding risks are significant, though we believe they are properly
addressed in our model since we use a COE of 14%. Lastly, MW
Trade is in the Getin Holding group, which is both an opportunity
and a threat. Idea Bank is now granting safe and flexible loans,
but there is the threat that Idea Bank might acquire MW Trade’s
know-how and become its competitor.
Valuation & recommendation. We have set a 12-month target
price for MW Trade at PLN21.6/share using a blend of residual
income (50%) and a warranted equity method (50%), which
implies a 16% upside potential. The company currently trades at
P/E 8.9x 2015E, P/BV of 1.9x, a headline EV/EBITDA of 39x and
a dividend yield of 5.6%
STOCK PERFORMANCE
MWTWIG
Relative
0
5
10
15
20
25
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
n.a. n.a. n.a. n.a. n.a. n.a.
COMPANY DESCRIPTION
MW Trade provides funding and financial services to health care sector, its suppliers as well as local governments and municipalities. The company is a second player on the Polish market of hospital liabilities.
Main shareholders % of votes
Getin Holding 51.3%
Mr. Rafał Wasilewski 20.0%
TFI Quercus 10.2%
AVIVA OFE 5.2%
ANALYSTS
Andrzej Bieniek Securities broker, Investment advisor (+48) 22 586 85 21 [email protected] Dariusz Górski (+48) 22 586 81 00 [email protected]
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes MWT.WA / MWT PW
Sales 61.3 68.6 79.7 93.3 Market capitalisation (PLNm) 140
EBITDA 17.5 20.2 21.9 23.9 Number of shares (m) 8.4
EBIT 17.2 19.8 21.5 23.5 Free float (%) 28.7%
Net income 14.0 16.0 17.5 19.3 Avg. daily turnover 3M (PLNm) 0.05
P/E (x) 9.5 8.6 7.9 9.5 Price performance
1M 3M YTD
EV/EBITDA (x) 37.5 38.5 37.2 37.5 -7.6% 0.7% -21.6% Source: Company data, DM BZ WBK estimates
Polish Equity Research
110
Fig. 1. MW Trade: Residual income valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E
Net profit 16 17 19 Equity (YE) 71 80 90 ROE 23.7% 23.1% 22.7% COE 14.0% 14.0% 14.0% Excess return 9.7% 9.0% 8.7% Residual income 7 7 7
PV of residual income (2014-16E) 17.4
Growth (CAGR) ROE (avg.) Pay-out (avg.) Total value PV
Transition period (2017-2023E) -0.9% 20.9% 60% 58 32.2 Perpetuity 3.0% 19.7% 60% 84 35
Total intrinsic value 84.9 # of shares (m) 8 Value per share 10.1 Last reported BVPS 7.6 Fair value (Jan'14) 17.7 Month 10 Fair value (current) 19.8
12 month TP 22.5
Upside potential 25%
Source: Company data, DM BZ WBK estimates
Fig. 2. MW Trade: Comparable valuation
2016E ROE (%) 22.7 COE (%) 14.0 g (%) 3.0 Implied fair P/B (x) 1.8 YE16E BVPS 10.7 Fair value (YE16) 19.1
PV (Jan'14) 12.9
DPS14E 0.9 DPS15E 1.0 DPS16E 1.1
PV of 2014-16E DPS 2.4
PV of equity + DPS (Jan'14) 15.3
Month 10 PV (current) 17.1
12-month price target 19.5
Upside potential 8%
Source: BZ WBK Brokerage research, company data
Fig. 3. MW Trade: Valuation changes Fig. 4. MW Trade: Valuation changes
0.12
0.17
0.22
0.27
0.32
Ja
n-1
2
Mar-
12
May-1
2
Ju
l-12
Sep
-12
No
v-1
2
Ja
n-1
3
Mar-
13
May-1
3
Ju
l-13
Sep
-13
No
v-1
3
Ja
n-1
4
Mar-
14
May-1
4
Ju
l-14
Sep
-14
No
v-1
4
MWT/MAG price ratio STD +/-1
STD +/-2
0.50
0.55
0.60
0.65
0.70
0.75
0.80
0.85
0.90
0.95
1.00
Feb
-14
Mar-
14
Apr-
14
May-1
4
Ju
n-1
4
Ju
l-14
Aug
-14
Sep
-14
Oct-
14
MWT/MAG P/E ratio Average
STD +/-2 STD +/- 1
Source: Bloomberg data, DM BZ WBK estimates Source: Bloomberg data, DM BZ WBK estimates
Polish Equity Research
111
Fig. 5. MW Trade: 3Q14 results review PLN in millions, unless otherwise stated
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q
Revenues 13.3 17.0 15.0 15.9 14.9 16.7 17.6 17% 5%
Funding cost -8.7% -8.4% -7.9% -8.1% -7.7% -7.9% -7.9% 0% 0%
Gross profit 3.5 5.6 4.0 4.0 4.0 5.0 5.0 26% 1%
Opex -1.4 -1.7 -1.5 -2.4 -1.7 -1.8 -1.7 13% -6%
EBITDA 3.6 5.7 4.1 4.2 4.2 5.0 5.1 25% 2%
EBIT 3.5 5.6 4.0 4.1 4.1 4.9 5.0 26% 2%
Net profit 2.9 4.6 3.3 3.2 3.3 3.9 4.0 20% 2%
Income yield 13.0% 14.9% 12.4% 12.7% 11.6% 12.4% 12.0% n.a. n.a.
Funding cost -8.7% -8.4% -7.9% -8.1% -7.7% -7.9% -7.9% n.a. n.a.
Gross profit margin 26.0% 33.1% 26.4% 25.3% 26.7% 29.6% 28.3% n.a. n.a.
EBITDA margin 26.9% 33.7% 27.2% 26.1% 28.2% 30.0% 29.0% n.a. n.a.
EBIT margin 26.2% 33.1% 26.5% 25.4% 27.5% 29.4% 28.5% n.a. n.a.
Net profit margin 21.6% 27.0% 22.2% 20.3% 22.2% 23.6% 22.8% n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. MW Trade: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 68.6 n.a. 0% 79.7 n.a. 0% 93.3 n.a. 0%
EBITDA 20.2 n.a. 0% 21.8 n.a. 0% 24.1 n.a. 0%
EBIT 19.8 n.a. 0% 21.5 n.a. 0% 23.7 n.a. 0%
Net profit 16.0 n.a. 0% 17.5 n.a. 0% 19.3 n.a. 0% Source: Company data, DM BZ WBK estimates
Fig. 7. MW Trade: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
Residual income 19.8 n.a. 0%
Warranted Equity 17.1 n.a. 0%
Blended average target price 21.6 n.a. 0% Source: Company data, DM BZ WBK estimates
Fig. 8. MW Trade: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 44.6 61.3 68.6 79.7 93.3
Portfolio funding cost -27.2 -35.8 -40.2 -49.2 -59.6
Gross profit 17.4 25.5 28.5 30.5 33.7
Opex -6.6 -8.4 -8.8 -9.2 -10.1
EBITDA 11.1 17.5 20.2 21.8 24.1
EBIT 10.8 17.2 19.8 21.5 23.7
Other 0.4 0.2 0.0 0.2 0.2
Pre-tax profit 11.2 17.4 19.8 21.7 23.9
Income tax -2.2 -3.3 -3.8 -4.2 -4.6
Net profit 9.0 14.0 16.0 17.5 19.3
Gross margin 39.1% 41.6% 41.5% 38.3% 36.1%
EBITDA margin 24.8% 28.6% 29.5% 27.4% 25.8%
EBIT margin 24.2% 28.0% 28.9% 26.9% 25.4%
Pre-tax margin 25.1% 28.3% 28.9% 27.2% 25.6%
Effective tax rate -19.3% -19.1% -19.4% -19.4% -19.4%
Net profit margin 20.2% 22.9% 23.3% 21.9% 20.7%
Source: Company data, DM BZ WBK estimates
Fig. 9. MW Trade: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 214.3 162.9 228.3 267.4 290.4
Cash and equivalents 2.3 1.7 4.1 5.4 4.5
Financial assets 211.7 158.3 221.3 258.0 281.0
L-t 184.2 361.6 502.5 584.5 635.9
PP&E 2.2 2.3 2.4 2.5 2.6
Financial assets 178.3 353.3 494.1 576.0 627.2
Total assets 398.5 524.5 730.8 851.9 926.3
Current liabilities 188.6 160.7 190.1 205.9 210.8
Long-term liabilities 156.5 300.5 419.6 491.6 533.5
Equity 53.4 63.2 71.3 80.1 89.8
Total liabilities and equity 398.5 524.5 730.8 851.9 926.3
Source: Company data, DM BZ WBK estimates
Fig.10. MW Trade: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations -96.7 -112.0 -128.2 -75.4 -25.0
CF from investment -0.5 -0.6 -0.6 -0.6 -0.6
CF from financing 96.4 112.0 131.2 77.3 24.7
Net change in cash -0.7 -0.7 2.4 1.3 -0.9
Source: Company data, DM BZ WBK estimates
Dom Maklerski BZ WBK S.A. with its registered office in Poznan, Pl. Wolności 15, 60 - 967 Poznan, registered by the District Court in Poznan – Nowe Miasto i Wilda, Division VIII Commercial of the National Court Register under the number KRS 0000006408, Taxpayer Identification No. 778-13-59-968, with share capital amounting to PLN 45 073 400 fully paid up. DM BZ WBK S.A. is subject to the supervision of the Financial Supervision Commission. The disclaimers concerning the nature of the published document are found on the last page of the document and constitute its integral part.
This page has been left intentionally blank.
Polish Equity Research
113
Poland TMT
NOVEMBER 12, 2014
NETIA RECOMMENDATION
HOLD (PREV. SELL)
Concerning customer trends CURRENT PRICE: PLN5.56
TARGET PRICE: PLN5.71 (PREV. PLN4.95)
3Q14 Results Review. The results came in below our estimates and
the market consensus: there was a 10% top line erosion, the reported
EBITDA was down 23% y/y and there was a net loss, something not
seen in a very long time. Most importantly, the total RGUs (down 62k
to 2.36m) erosion accelerated to 7.7% y/y and 2.6% q/q; the reported
long-unseen RGU erosion in its own network, the highest-ever
volume erosion in the B2C segment, a sudden slowdown in the B2B
segment. The management believes that the erosion in the own
network RGUs is a one-off and that growth will emerge already in
4Q14. The management finds sales to the old Aster clients ‘very
promising’; due to (1) the intensified market competition and (2)
Netia’s focus on high-margin clients. The company will strive to
maintain revenues and margin.
Changes in shareholder structure. SISU Capital increased its stake
to 10.18% from 8.7%. On the other hand, insider(s) sold 305k Netia
shares in Sept. and Oct. 2014. An insider bought 15k shares very
recently.
Strategy update. The company will focus on the B2B segment,
trimming any operating or investing outlays in the B2C segment. It is
also set to quit proactive acquisition of the B2C segment’s clients and
it will strive to optimise costs in both. The company will effectively
divide its B2B and B2C segments into separate business lines.
PLN145mn payment from Orange. Netia and Orange agreed to
settle all their past lawsuits and Orange will pay Netia PLN145mn,
with Netia giving up all its future claims. If the EU fine put on Orange
settles below EUR120mn, Netia might receive up to EUR50mn in the
future.
Change in Forecasts. We adjust our forecasts for the PLN145mn
(pre-tax) inflow from Orange, to be reported in 4Q14.
Change in Valuation & Recommendation. The PLN145mn comes
out of the blue and boosts Netia’s valuations (DCF and comparative)
by some 8-9% each. We expect Netia to become very inexpensive on
the EV/EBITDA ratios following the PLN145mn 4Q14 payment. We
changed our method of TP-setting from pure DCF to 50% DCF-50%
comparable. The new TP at PLN5.71 offers little upside, so we
change our recommendation to Hold from Sell.
PUBLICATION DATE
NOVEMBER 6, 2014
3Q14 RESULTS REVIEW
3Q14E y/y q/q
Sales 413.4 -10% -2%
EBITDA 109.4 -23% -9%
EBIT 3.1 -91% -78%
Net profit -4.4 n.a. n.a.
STOCK PERFORMANCE
NET TP
WIG Relative
0
1
2
3
4
5
6
7
8
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Sell 7-20-2014 5.5 5.0 1.5% -3.0
Sell 7-9-2014 5.5 4.5 0.4% -0.8
Sell 4-28-2014 5.4 4.6 1.1% 2.8
Sell 1-30-2014 4.8 4.5 11.8% 9.5
COMPANY DESCRIPTION
Netia is the largest alternative fixed line telecommunication service provider in Poland.
ANALYST
Pawel Puchalski, CFA (+48) 22 586 80 95
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes NET.WA / NET PW
Sales 1,876 1,739 1,667 1,616 Market capitalisation (PLNm) 1,934
EBITDA 533 637 455 429 Number of shares (m) 347.9
EBIT 93 207 65 79 Free float (%) 74.3%
Net income 50 157 45 52 Avg. daily turnover 3M (PLNm) 2.4
P/E (x) 40.0 12.6 43.9 38.0 Price performance
1M 3M YTD
EV/EBITDA (x) 4.4 3.8 4.5 4.6 -3.0% -0.5% 5.5% Source: Company data, DM BZ WBK estimates
Polish Equity Research
114
Fig. 1. Netia: 3Q14 results review PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q BZWBK
est. mkt
cons
Sales 394.6 426.7 544.3 536.5 521.1 519.5 490.7 477.5 457.1 450.8 434.4 422.2 413.4 -10% -2% 416 415
EBITDA 103.4 98.0 124.1 134.9 148.4 54.1 138.6 136.4 142.5 115.2 126.0 119.8 109.4 -23% -9% 115 117
EBITDA margin 26.2% 23.0% 22.8% 25.1% 28.5% 10.4% 28.3% 28.6% 31.2% 25.6% 29.0% 28.4% 26.5% -4.7 -1.9 27.7% 28.2%
EBIT 27.6 16.2 4.1 12.8 27.3 -65.2 27.3 26.4 32.8 6.2 20.7 14.2 3.1 -91% -78% 9 12
EBIT margin 7.0% 3.8% 0.8% 2.4% 5.2% -13% 5.6% 5.5% 7.2% 1.4% 4.8% 3.4% 0.7% -6.4 -2.6 2.3% 2.8%
Net profit 24.7 14.3 -9.8 21.0 10.0 -108.9 13.1 8.6 14.1 10.5 11.0 8.3 -4.4 n.a. n.a. 3 5
Net margin 6.2% 3.3% -1.8% 3.9% 1.9% -21% 2.7% 1.8% 3.1% 2.3% 2.5% 2.0% -1.1% -4.1 -3.0 0.8% 1.3%
Source: Company data, DM BZ WBK estimates
Fig. 2. Netia: Forecasts changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 1,739 1,739 0% 1,667 1,667 0% 1,616 1,616 0%
EBITDA 637 492 29% 455 455 0% 429 429 0%
EBIT 207 62 234% 65 65 0% 79 79 0%
Net profit 157 39 304% 45 43 5% 52 50 4% Source: Company data, DM BZ WBK estimates
Fig. 3. Netia: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 5.37 4.95 8%
Comparable valuation (based on 2014-2016E) 6.05 5.55 9%
Weighted valuation* 5.71 n.a. n.a. Source: Company data, DM BZ WBK estimates. * 50% DCF, 50% comparable valuation.
Fig. 4. Netia: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales, incl.: 2,121 1,876 1,739 1,667 1,616
Voice Revenues 986 830 712 623 548
Data Revenues 791 747 736 732 729
Other Revenues 344 299 291 312 338
COGS, incl.: -2,142 -1,783 -1,532 -1,602 -1,537 Sales & mgm (ex. wages / restruct. / deprec. ) -283 -257 -211 -192 -179
Depreciation -482 -440 -430 -390 -350 One-offs (provisions & restructuring) -102 -4 143 0 0
EBITDA 462 533 637 455 429
Operating profit -21 93 207 65 79
Net financial income (costs) -40 -25 -18 -15 -14
Profit before tax -61 68 189 50 64
Income tax 27 18 32 5 12
Net profit -88 50 157 45 52
EBITDA margin 21.8% 28.4% 36.6% 27.3% 26.5%
EBITDA margin, ex. one-offs 26.6% 28.6% 28.4% 27.3% 26.5%
Operating margin -1.0% 4.9% 11.9% 3.9% 4.9%
Net profit margin -4.1% 2.6% 9.1% 2.7% 3.2%
Source: Company data, DM BZ WBK estimates
Fig. 5. Netia: Balance sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 455 316 544 580 586
Fixed assets 2,777 2,621 2,381 2,232 2,123
Total assets 3,232 2,937 2,925 2,812 2,708
Current liabilities 486 416 395 384 376
bank debt 166 127 127 127 127
Long-term liabilities 451 317 312 310 308
bank debt 384 257 257 257 257
Equity 2,296 2,205 2,219 2,119 2,025
share capital 386 348 351 352 352
Minority Interest 0 0 0 0 0
Total liabilities 3,232 2,937 2,925 2,812 2,708
Net debt 380 292 50 6 -5
Source: Company data, DM BZ WBK estimates
Fig. 6. Netia: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 453 515 588 439 407
CF from investment -262 -298 -200 -250 -250
CF from financing, incl. -182 -295 -146 -146 -146
dividends paid 125 128 146 146 146
Net change in cash 10 -78 242 43 11
Source: Company data, DM BZ WBK estimates
Polish Equity Research
115
Poland Pharma / Health Care
NOVEMBER 12, 2014
NEUCA RECOMMENDATION
BUY (MAINTAINED)
Under influence of the ACP takeover CURRENT PRICE: PLN 231
TARGET PRICE: PLN 376 (MAINTAINED)
Equity story: We left our investment case unchanged. We believe that
Neuca is an attractive company because: (1) it is a leader on the
continuously growing pharma wholesale/retail market (c4-5%pa), (2) the
recent takeover of ACP Pharma’s wholesale business will provide easy
and notable synergies, (3) further development of Synoptis Pharma’s
business, together with the potential gains from the emerging business of
its own chain of private clinics. These are all arguments that stand behind
our belief that Neuca will be continuously improving its results in the
coming years.
The company is currently trading with 4%/10% discount vs. Pelion and
Farmacol on FY’14 PE. In regards to FY’15, Neuca is trading at an 12%
and 27% discount vs. Pelion and Farmacol, respectively. In this light,
Neuca is cheap as it has the highest fair PE level thanks to the highest
ROE and growth, which we calculate at 12.5x vs. Farmacol (11.6x) and
Pelion (9.0x). In this light, we remain buyers on the stock seizing the
opportunity of the possible correction after disappointing 3Q14
resutls.
Change in valuation & recommendation. DCF-based valuation stayed
unchanged. A comparative valuation against Polish peers points to
PLN250/share.
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10/21/2014 216.0 376.0 6.9% 6.2
Buy 9/7/2014 217.9 383.0 -0.8% 1.4
Buy 4/28/2014 232.9 346.0 -6.5% -12.0
Buy 1/30/2014 276.5 365.0 -15.8% -18.1
COMPANY DESCRIPTION
Neuca is the largest Polish pharmaceutical distributor, with rising exposure in drug production.
ANALYST
Tomasz Sokolowski (+48) 22 586 82 36
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes NEUP.WA / NEU PW
Sales 5,795 6,537 7,402 7,786 Market capitalisation (PLNm) 1,052
EBITDA 127 120 167 178 Number of shares (m) 4.6
EBIT 102 91 132 141 Free float (%) 42.1%
Net income 85 87 110 121 Avg. daily turnover 3M (PLNm) 0.7
P/E (x) 12.9 13.5 10.7 9.7 Price performance
1M 3M YTD
EV/EBITDA (x) 10.0 11.2 7.4 6.5 4.0% 8.5% -18.4% Source: Company data, DM BZ WBK estimates
Polish Equity Research
116
Fig. 1. Neuca: 3Q14 results review PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y (%) q/q (%)
Sales 1,482 1,617 1,459 1,412 1,361 1,456 1,532 1,418 1,435 1,410 1,497 1,555 1,737 21.0% 11.7%
EBITDA 21.2 26.3 35.0 27.7 27.0 27.9 43.5 31.6 28.5 23.1 34.0 20.8 21.1 -26.1% 1.2%
EBITDA margin 1.4% 1.6% 2.4% 2.0% 2.0% 1.9% 2.8% 2.2% 2.0% 1.6% 2.3% 1.3% 1.2% -77 -13
EBIT 15.8 20.6 29.1 21.9 21.3 21.9 37.7 25.1 22.6 17.1 28.1 13.8 15.3 -32.4% 10.6%
EBIT margin 1.1% 1.3% 2.0% 1.6% 1.6% 1.5% 2.5% 1.8% 1.6% 1.2% 1.9% 0.9% 0.9% -69 -1
Net profit 9.9 20.2 20.1 15.0 15.7 15.2 32.3 20.3 19.7 13.1 36.3 10.8 11.8 -39.8% 9.3%
Net margin 0.7% 1.3% 1.4% 1.1% 1.2% 1.0% 2.1% 1.4% 1.4% 0.9% 2.4% 0.7% 0.7% -69 -1
Source: Company data, DM BZ WBK estimates
Fig. 2. Neuca: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 6,537 6,537 0.0% 7,402 7,402 0.0% 7,786 7,786 0.0%
EBITDA 120 120 0.0% 167 167 0.0% 178 178 0.0% EBIT 91 91 0.0% 132 132 0.0% 141 141 0.0% Net profit 87 87 0.0% 110 110 0.0% 121 121 0.0% Source: Company data, DM BZ WBK estimates Fig. 3. Neuca: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 376 376 n.a.
Comparable valuation (based on 2014-2016E) 250 246 +1.6% Source: Company data, DM BZ WBK estimates
Fig. 4. Neuca: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 5,687 5,795 6,537 7,402 7,786
COGS 5,121 5,243 5,949 6,728 7,060
Gross profit 566 552 588 674 726
SG&A 452 429 480 525 568
Other operating income, net -19 -21 -16 -17 -17
EBITDA 118 127 120 167 178
Operating profit 94 102 91 132 141
Net financial income (costs) 13 -2 -4 -3 2
Profit before tax 81 105 87 129 143
Income tax 16 19 0 19 21
Net profit 66 85 87 110 121
Gross margin 10.0% 9.5% 9.0% 9.1% 9.3%
EBITDA margin 2.1% 2.2% 1.8% 2.3% 2.3%
Operating margin 1.7% 1.8% 1.4% 1.8% 1.8%
Net profit margin 1.2% 1.5% 1.3% 1.5% 1.6%
Source: Company data, DM BZ WBK estimates
Fig. 5. Neuca: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 1,461 1,504 2,041 2,217 2,393
Fixed assets 411 413 461 479 492
Total assets 1,872 1,918 2,519 2,715 2,904
Current liabilities 1,437 1,429 1,764 1,869 1,960
bank debt 109 100 109 109 109
Long-term liabilities 92 78 248 248 248
bank debt 84 71 244 244 244
Equity 336 406 475 564 662
share capital 4 5 5 5 5
Minority Interest 6 5 6 6 6
Total liabilities 1,872 1,918 2,519 2,715 2,904
Net debt 176 166 165 64 -11
Source: Company data, DM BZ WBK estimates
Fig. 6. Neuca: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 161 59 225 176 149
CF from investment -18 -32 -29 -54 -50
CF from financing -137 -40 -18 -21 -24
Net change in cash 6 -13 179 101 76
Source: Company data, DM BZ WBK estimates
Polish Equity Research
117
Poland FINANCIALS
NOVEMBER 12, 2014
OPEN FINANCE RECOMMENDATION
BUY (MAINTAINED)
Purification CURRENT PRICE: PLN 5.7
TARGET PRICE: PLN 7.0
Equity Story & Financials. EPS growth to return from 2015 on.
After the downward revision we are now expecting 2014E revenues to drop 18% y/y to PLN361mn and to start recovering from 2015 (up 4% y/y) on. In 2015E the recovery should be driven by an increase in volumes (loans up 4% y/y, investment products up 6% and real estate intermediation up 9%). 2014 should be a ‘down year’ again with EPS forecast to drop 54%. Positive earnings momentum should return from 2015 on (EPS up 19% y/y) with 2015-2016E CAGR at 18%. Restructuring actions (the merger of HB/OF branches, outsourcing of advisers, a new CRM program), new products (low risk regular savings schemes, insurance products) combined with a supportive environment (an economic rebound, low market interest rates and a new government housing subsidy scheme be the drivers. Top line growth should be moderate initially (+ 4% y/y in 2015) as the expected continued margin contraction will, we expect, largely offset the forecast growth in product volumes. C/I should however fall markedly (down to 90% in 2015E), allowing the bottom line recovery.
Dividend prospects. We expect OF to start paying dividends
again in 2016E (DPS of PLN0.11 or DY of 2%). We expect some of the 2013-15E retained earnings to be used to de-leverage and that OF will pay off half of its debt and roll over the balance, which matures in 2015 and 2016
Triggers/Risks. OF enjoys strong operating leverage with
variable costs constituting c. 69% of all costs. On our estimates, a 1% change in revenues translates into cPLN4mn swing in net profit, ceteris paribus. Furthermore, there is a share supply risk from GNB and Idea Bank, which hold 42% and 6.6% stakes respectively. We estimate that the minimum share price levels at which Idea Bank would recognise a capital gain on the transaction is PLN12.69/share, while for GNB the level is at PLN15.60. Both these thresholds are significantly above the current level and hence minimise the risk of an imminent supply.
Valuation & recommendation. We leave our TP PLN7.00, but
given the 23% upside potential we are re-iterating our Buy rating. Our TP is derived from an equal-weighted blend of three methodologies – DCF, comparable multiples and residual income. We use a risk-free rate of 3.0% (3-month average 10-year bond yield), Beta of 1.2, risk premium of 5% and g of 1.0%.
STOCK PERFORMANCE
OPFTP
WIG Relative
0
2
4
6
8
10
12
14
16
18
20
Se
p-1
1
De
c-1
1
Mar-
12
Ju
n-1
2
Se
p-1
2
De
c-1
2
Mar-
13
Ju
n-1
3
Se
p-1
3
De
c-1
3
Mar-
14
Ju
n-1
4
Se
p-1
4
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10-29-2014 6.0 7.0 0.0% 0.2
Buy 7-9-2014 8.4 12.2 -29.2% -34.9
Buy 6-17-2014 9.5 12.2 -11.6% -7.4
COMPANY DESCRIPTION
Open Finance is the largest and most widely-recognized financial intermediary in Poland with a 33% market share in mortgage intermediation and 95% in investment products The group also includes Open TFI, a mutual fund, Open Life, a life insurance company and Open Broker.
Main shareholders % of votes
GNB 42.15%
Idea Bank 6.60%
Amplico pension fund 7.17%
ING pension fund 5.50%
Aviva pension fund 5.20%
ANALYSTS
Andrzej Bieniek Securities Broker, Investment Adviser +48 22 586 85 21; [email protected] Dariusz Górski +48 22 586 81 00; [email protected]
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes OPF.WA / OPF PW
Sales 440 361 376 375 Market capitalisation (PLNm) 309
EBITDA 100 60 69 75 Number of shares (m) 54.4
EBIT 71 28 34 36 Free float (%) 45.7%
Net income 56 26 31 35 Avg. daily turnover 3M (PLNm) 0.06
P/E (x) 5.8 12.5 10.5 9.2 Price performance
1M 3M YTD
EV/EBITDA (x) 4.3 6.8 5.7 4.3 -9.1% -18.0% -66.6% Source: Company data, DM BZ WBK estimates
Polish Equity Research
118
Fig. 1. Open Finance: 3Q14 results review PLN in millions, unless otherwise stated
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q
Revenues 133 117 117 84 105 116 113 107 96 98 85 -25% -14%
Opex (98) (91) (97) (79) (90) (95) (92) (96) (86) (89) (84) -8% -5%
EBITDA 39 33 24 21 22 29 26 23 16 17 16 -38% -4%
EBIT 36 29 20 5 15 20 21 14 8 8 7.2 -66% -13%
Net profit 30 26 20 47 12 16 16 12 6 7 7.9 -52% 6%
EBIT margin 27% 25% 17% 5% 14% 18% 19% 14% 8% 8% 8% -55% 1%
Net profit margin 23% 22% 17% 57% 12% 14% 14% 11% 6% 8% 9% -35% 22% Source: Company data, DM BZ WBK estimates
Fig. 2. Open Finance: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 361 361 0.0% 376 376 0.0% 375 375 0.0%
EBITDA 60 60 0.0% 69 69 0.0% 75 75 0.0%
EBIT 28 28 0.0% 34 34 0.0% 36 36 0.0%
Net profit 26 26 0.0% 31 31 0.0% 35 35 0.0%
Source: Company data, DM BZ WBK estimates
Fig. 3. Open Finance: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
Comparable multiples 6.6 6.6 0.0%
DCF 6.0 6.0 0.0%
Residual Income 6.8 6.8 0.0%
Blended average target price 7.0 7.0 0.0% Source: Company data, DM BZ WBK estimates
Fig. 4. Open Finance: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Revenues 451 440 361 376 375
Operating costs (365) (374) (329) (341) (341)
Gross profit on sales 86 66 32 35 34
Gross margin 19% 15% 9% 9% 9%
EBIT 90 71 28 34 36
EBIT margin 20% 16% 8% 9% 10%
EBITDA 117 100 60 69 75
EBITDA margin 26% 23% 17% 18% 20%
Net financials 107 -8 -8 -7 -4 Share of the associate's profit 22 5 14 14 14
Gross profit 117 68 34 41 47
Income tax 6 -12 -5 -8 -9
Tax rate 5% -17% -16% -19% -19%
Net profit 123 56 26 31 35
Source: Company data, DM BZ WBK estimates
Fig. 5. Open Finance: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Fixed assets 414.3 459.9 463.3 473.3 473.3
Current assets 186.7 179.8 190.6 191.2 233.3
Long-term liabilities 62.5 144.1 135.2 111.2 81.2
Equity 362.1 417.6 445.9 476.6 505.6
Current liabilities 176.1 75.5 72.7 76.6 119.8
Total assets 601.0 639.7 653.8 664.4 706.5
Source: Company data, DM BZ WBK estimates
Fig. 6. Open Finance: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 29 48 77 72 110
CF from investment (87) (83) (51) (50) (37)
CF from financing 24 35 (12) (31) (40)
Net change in cash -34 0 14 -9 33
Source: Company data, DM BZ WBK estimates
Polish Equity Research
119
Poland Others
November 12, 2014
OVOSTAR UNION RECOMMENDATION
HOLD (MAINTAINED)
UAH devaluation takes its toll CURRENT PRICE: PLN70.11
TARGET PRICE: PLN75 (MAINTAINED)
3Q14 Results Preview. Ovostar sold 195mn shell eggs in 3Q,
+27% q/q and y/y, especially thanks to high export sales’ volume.
The company sold 407t of dry egg products (-3% y/y, +12% q/q)
and 1,558t of liquid egg products (-13% y/y, 6% q/q). We expect
the selling price of eggs to seasonally increase to UAH0.84/egg
(+15% y/y, +33% q/q), which, in USD terms, would imply a -28%
y/y decline and a +22% q/q growth. We expect the price of dry
egg products at UAH65/kg (+11% q/q, +48% y/y), which implies,
in USD terms, an 8% y/y decline and a 3% q/q growth, and the
price of liquid egg products at UAH18/kg (-1% q/q, +16% y/y),
which implies a 22% y/y decline and a 3% q/q decrease. We do
not expect any BA revaluation gains/losses. Overall, we expect
much lower y/y BA revaluation adjusted results, but higher q/q.
Outcome: NEUTRAL.
UAH devaluation constitutes the key risk to OVO. The YTD
USD/UAH appreciated 50%+ to UAH12.9. Devaluation generally
reduces our EBITDA forecast, in the short term. Note
thatcompany has EUR-denominated loans and, in case of further
UAH devaluation, extra financial costs may appear.
Change in forecasts. We maintain our financial forecast for
Ovostar intact.
Pressure on fodder costs. The CBOT prices of wheat and corn
(main components of fodder) are under pressure. Price of wheat
decreased by 21% YTD (-15% over 3Q14) and is 30% below
2013 average. The price of corn, is 24% down YTD (-24% over
3Q), and 45% below 2013 avg. Such developments are
favourable for Ovostar, in general.
Change in Valuation & Recommendation. We maintain our
Target Price for OVO at PLN75. We maintain our Hold
recommendation for the company.
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Hold 7-10-2014 67.0 75.0 4.6% -1.5
Hold 7-9-2014 69.9 80.0 -4.2% -3.7
Hold 4-28-2014 69.0 80.0 1.4% 3.0
Hold 1-30-2014 80.0 105.0 -13.8% -16.0
Buy 10-23-2013 98.2 122.0 -18.5% -12.9
COMPANY DESCRIPTION
OVO is egg and egg products manufacturer in Ukraine.
Main shareholders % of votes
Prime One Capital 71.2%
Generali pension fund 9.94%
Metlife pension fund 5.8%
ANALYST
Adrian Kyrcz (+48) 22 586 81 59
Company Data
USDm 2013 2014E 2015E 2016E Reuters/Bloomberg codes OVO.WA / OVO PW
Sales 81.6 88.6 100.3 113.9 Market capitalisation (PLNm) 421
EBITDA 35.5 30.0 26.8 31.2 Number of shares (m) 6.0
EBIT 31.6 22.9 18.5 22.2 Free float (%) 28.8%
Net income 30.9 20.7 15.1 18.1 Avg. daily turnover 3M (PLNm) 0.1
Adj EBITDA 28.5 26.5 26.8 31.2
Adj EBIT 19.4 18.5 22.2 21.6
Adj Net income 23.8 17.2 15.1 18.1
Ad P/E (x) 4.1 6.2 8.4 7.0 Price performance
1M 3M YTD
Adj EV/EBITDA (x) 3.7 4.7 5.1 3.7 1.6% 3.1% -29.9% Source: Company data, DM BZ WBK estimates
Polish Equity Research
120
Fig. 1. Ovostar: 3Q14 results preview USD in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%)
Sales 13.5 20.6 17.5 13.9 12.5 27.2 19.6 15.1 20.9 27.6 19.5 16.1 17.9 13.5 20.6
EBITDA 5.2 7.7 9.4 3.8 2.8 11.2 6.5 3.0 8.3 17.8 9.2 4.3 4.2 5.2 7.7
EBITDA margin 38.7% 37.4% 53.7% 27.0% 22.6% 41.2% 33.1% 19.8% 39.5% 64.5% 47.1% 26.4% 23.7% 38.7% 37.4%
EBIT 4.8 7.4 8.8 3.0 2.0 9.9 5.2 1.7 8.2 16.6 8.1 3.3 3.3 4.8 7.4
EBIT margin 35.7% 35.9% 50.2% 21.2% 16.2% 36.5% 26.4% 11.1% 39.3% 60.1% 41.5% 20.5% 18.4% 35.7% 35.9%
Net profit 2.9 8.6 8.6 3.1 2.1 9.5 5.0 1.6 8.0 16.2 7.7 3.3 3.3 2.9 8.6
Net margin 21.2% 41.9% 49.4% 22.2% 16.6% 35.0% 25.6% 10.7% 38.4% 58.7% 39.5% 20.6% 18.4% 21.2% 41.9%
Source: Company data, DM BZ WBK estimates
Fig. 2. Ovostar: Forecasts changes USD in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 88.6 88.6 0% 100.3 100 0% 113.9 113.9 0%
EBITDA 30.0 30.0 0% 26.8 27 0% 31.2 31.2 0%
EBIT 22.9 22.9 0% 18.5 18 0% 22.2 22.2 0%
Adj EBITDA 26.5 26.5 0% 26.8 27 0% 31.2 31.2 0%
Adj EBIT 19.4 19.4 0% 18.5 18 0% 22.2 22.2 0%
Net profit 20.7 20.7 0% 15.1 15 0% 18.1 18.1 0% Source: Company data, DM BZ WBK estimates
Fig. 3. Ovostar: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 75 75 0%
Comparable valuation 89 89 0% Source: Company data, DM BZ WBK estimates
Fig. 4. Ovostar: Income statement forecast USD in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 60.3 81.6 88.6 100.3 113.9
BA revaluation 11.0 7.0 3.5 0.0 0.0
COGS 42.2 0.0 65.3 77.6 87.6
Gross profit 29.1 35.7 26.8 22.7 26.3
SG&A 5.6 6.8 5.7 6.2 6.3
Other operating income, net 0.2 2.7 1.8 2.0 2.3
EBITDA 27.3 35.5 30.0 26.8 31.2
Operating profit 23.8 31.6 22.9 18.5 22.2
Net financial income (costs) -0.5 0.6 -1.7 -2.8 -3.5
Profit before tax 24.3 31.0 21.2 15.6 18.7
Income tax 0.3 -0.1 0.4 0.5 0.6
Net profit 23.5 30.9 20.7 15.1 18.1
Gross margin 48.2% 43.7% 30.3% 22.6% 23.1%
EBITDA margin 45.2% 43.6% 33.9% 26.7% 27.4%
Operating margin 39.4% 38.8% 25.8% 18.4% 19.5%
Net profit margin 38.9% 37.8% 23.4% 15.1% 15.9%
Source: Company data, DM BZ WBK estimates
Fig. 5. Ovostar: Balance Sheet forecast USD in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 34 48 63 92 116
Fixed assets 86 110 118 126 121
Total assets 120 159 183 219 239
Current liabilities 10 9 8 9 11
bank debt 3 0 0 0 0
Long-term liabilities 2 12 22 42 42
bank debt 2 12 22 42 42
Equity 105 138 153 168 186
Total liabilities 120 159 183 219 239
Net debt 3 3 13 9 -12
Source: Company data, DM BZ WBK estimates
Fig. 6. Ovostar: Cash flow forecast USD in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 17 23 12 20 25
CF from investment -38 -11 -16 -16 -4
CF from financing 4 8 4 20 0
Net change in cash -16 19 0 24 21
Source: Company data, DM BZ WBK estimates
Polish Equity Research
121
Poland Industrials
November 12, 2014
PAGED RECOMMENDATION
BUY (INITIATION)
The die is cast CURRENT PRICE: PLN41.28
TARGET PRICE: PLN67.00
Equity Story. Paged is well-positioned to boost its sales in the coming years, which should translate into a strong financial performance. In our view, worth noting is the company's investment strategy based on solidifying its activity on solid fundamentals with a simultaneous diversification of markets, however, admittedly not always directly related to the core business. The plywood segment is the key growth driver thanks to the surging capacities from the already implemented and current investment programme (development of the MIRROR plywood production capabilities is currently being executed). All the investment works are scheduled to be completed in 1H2015 and should allow for an 10% production capacities’ increase in the end of 2015 vs. the currently observed volumes. It is crucial to keep in mind that at one go Paged will be able to base its plywood production in 25% (starting from 2017 according to the company’s guidance) on coniferous wood (so far only broadleaved), which will mitigate the risk of output contraction in case of broadleaved wood shortage or a margins’ squeeze caused by excessive prices increase (stability of financial results should improve in the long term). The furniture segment is being restructured which should finally lead to an upswing in sales, though we expect that in 2014 the bottom lines of the P&L will be burdened with the cost of new managerial staff acquisition. However, we calculate that starting from 2015, sales will enter a steady upward trend with the EBITDA margin surging from 2.8% in 2013 to 5.5% in 2018. We assumed a stable contribution from the DTP subsidiary (provider of receivables’ management services, in which Paged controls a 47.5% stake) at the yearly EBITDA hovering around PLN25mn. Finally, according to our calculations, Europa Systems (purchased by Paged in August 2014) will push sales and, to some extent, the margins (c. 1p.p.) higher. However, we have a cautious view on the additional business that the company will be able to generate as we forecast PLN90mn in revenues in 2016 (PLN75mn in 2014). In the short term we expect both the entities to be affected by transaction-related costs (Paged c. PLN3mn).
Financials. We forecast the NP margin to come in close to 9% in 2014 and to total 9.6% in 2015. Starting from 2017 (with the full effect visible from 2018 onward), the NP margin is expected to decrease to c. 8.8% due to an increase in the effective tax rate. Focusing on the nominal figures, our calculations indicate that Paged will report its 2014 sales only 1% higher than in the previous year (implication of low margin activity suppression in DTP). 2017 should bring about a significant improvement as we model a 30% sales change vs. 2014. We expect the EBITDA to reach almost PLN160mn in 2016 (PLN120mn this year).
Triggers / Risks. In our model we adopted a rather conservative approach to the output volumes and price trends. With regards to the plywood segment, our forecast assumes that the final capacities at 212cm will be achieved in 2018 (one year later than the company said in its guidelines). In the forecasted horizon, we get flat prices and stable margins at levels similar to those in 1H14. The furniture segment’s and Europa Systems’ operational figures can prove to be higher than expected. Undoubtedly, major risks are related to the raw material prices (especially of broadleaved wood) and to the launch of the MIRROR plywood production.
Valuation & recommendation. Based on our DCF model, we arrived at a 12M month TP of PLN67.00 per share, which implies a 62% upside potential. A comparable valuation points to PLN56.77 per share. Said that we, initiate our coverage of Paged with a Buy recommendation.
STOCK PERFORMANCE
PGD WIG Relative
0
5
10
15
20
25
30
35
40
45
50
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
n.a. n.a. n.a. n.a. n.a. n.a.
COMPANY DESCRIPTION
Paged is the leading plywood producer in Poland. It also manufactures wooden furniture.
Main shareholders % of votes
CI Consulting S.K.A. 9.78%
Fresita Limited Alfa S.K.A. 9.43%
Ksati Investments S.K.A. 9.43%
Polski Instytut Inwestycyjny S.K.A. 9.43%
Yellema Holdings Limited S.K.A. 9.43%
Generalna Dyrekcja Lasów Państwowych 8.33%
Daniel Mzyk 8.23%
Edmund Mzyk 7.09%
CC14 FIZ 6.72%
Yawal S.A. 5.92%
Paged S.A. 5.1%
ANALYST
Michal Sopiel (+48) 22 586 82 33
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes PGDP.WA / PGD PW
Sales 687 702.8 793.2 854.5 Market capitalisation (PLNm) 627
EBITDA 105 120.3 145.2 158.3 Number of shares (m) 15.2
EBIT 87 99.8 117.8 128.1 Free float (%) 17.2%
Net income 58 61.8 76.5 84.8 Avg. daily turnover 3M (PLNm) 0.2
P/E (x) 10.9 10.3 8.3 7.5 Price performance
1M 3M YTD
EV/EBITDA (x) 7.4 8.4 6.9 6.1 +0.7% +12.2% +29.0% Source: Company data, DM BZ WBK estimates
Polish Equity Research
122
Fig.1. Paged: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Net sales*** 655 744 805 860 888 903 912 924 937 950
EBITDA*** 95 119 132 143 149 150 152 153 155 157
EBIT*** 75 92 102 112 116 116 117 118 118 119
Cash taxes on EBIT*** 12 14 16 20 26 27 27 27 27 27
NOPAT 63 79 87 92 89 90 90 91 91 92
Depreciation*** 20 27 30 31 33 34 35 36 37 38
Change in operating WC 50 12 7 6 2 2 1 2 2 2
Capital expenditure 97 77 51 42 41 40 39 39 39 39
Net investment 128 62 28 16 10 8 6 5 5 4
Free cashflow -65 17 58 76 79 82 84 85 87 88
WACC 7.9%
PV FCF 2014-2023 342
Terminal Value (TV) 1,546
PV TV 721
Total EV 1,063
Net debt 271
Minorities 155
DTP* 197
Real estate** 62
Equity value 896
Number of shares (m) 15.2
Value per share (PLN, 1 Jan 2014) 59.0
Month 10
Current value per share (PLN)* 61.7
12-month Target Price 67.0
Source: Company data, DM BZ WBK estimates, *DTP market capitalisation as of Nov 5, 2014, **assumed fair value of real estate
assets,*** DTP excluded
Fig.2. Paged: Comparable valuation
Company Price Currency P/E EV/EBITDA
2014E 2015E 2016E 2014E 2015E 2016E
Paged 42.00 PLN 10.5 8.3 7.5 8.5 6.9 6.2
Polish Industrials
Grupa Kety SA 288.05 PLN 16.7 15.4 18.0 9.7 9.1 8.5 Inter Cars SA 206.50 PLN 16.4 14.9 13.8 12.6 11.4 10.7 Budimex SA 135.45 PLN 20.2 16.9 14.5 9.8 8.4 7.3 Elektrobudowa SA 77.50 PLN 15.4 10.2 8.6 n.a. n.a. n.a. Pfleiderer Grajewo SA 31.01 PLN 13.8 12.7 11.7 8.5 7.8 7.2 Integer.pl SA 210.00 PLN 70.8 35.8 20.0 30.6 12.0 7.4 Fabryki Mebli Forte SA 56.00 PLN 16.1 14.5 13.3 11.1 9.9 9.0 Kopex SA 10.99 PLN 9.7 9.6 8.2 4.8 4.9 4.4 Pozbud T&R SA 4.99 PLN 10.2 9.0 9.7 n.a. n.a. n.a. Famur SA 3.20 PLN 12.7 11.6 11.2 4.3 4.0 3.8 Rovese SA 1.46 PLN n.a. 45.5 18.3 9.0 7.9 7.2
Median 15.7 14.5 13.3 9.7 8.4 7.3
Foreign plywood sector representatives
Norbord Inc 22.87 CAD 61.5 20.0 9.9 15.2 8.5 5.5 Ehlebracht AG 3.83 EUR 18.9 17.2 16.5 6.4 6.1 5.9 Universal Forest Products Inc 50.18 USD 17.7 14.7 21.1 8.2 7.1 9.1 Greenply Industries Ltd 1150.65 INR 18.0 20.0 17.1 10.1 8.9 7.7 Boise Cascade Co 37.43 USD 17.5 14.0 11.0 7.9 6.7 5.7 Canfor Corp 26.99 CAD 17.8 11.2 9.6 7.4 5.8 5.1 Duratex SA 8.22 BRL 12.3 10.4 8.9 6.7 6.0 5.3 Steinhoff International Holdings Ltd 5511.00 ZAr 11.4 10.0 9.0 10.5 9.4 8.9
Median 17.7 14.3 10.4 8.1 6.9 5.8
Premium/discount vs. Polish peers median -33.0% -42.8% -43.1% -12.3% -17.7% -15.1% Premium/discount vs. foreign peers median -40.6% -42.2% -27.7% 5.1% -0.4% 6.8%
Implied Paged price per share vs. Polish peers 62.72 73.37 73.82 47.88 51.06 49.46 Implied Paged price per share vs. foreign peers 70.72 72.70 58.10 39.95 42.16 39.33
Source: BZ WBK Brokerage research, Bloomberg
Polish Equity Research
123
Fig. 3. Paged: 3Q14 results review PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q
Sales 141.5 136.4 151.0 141.4 150.2 137.6 181.7 167.3 187.0 150.6 158.2 171.9 194.2 3.8% 13.0%
EBITDA 18.1 15.7 17.9 15.4 16.4 9.5 35.3 26.0 27.6 16.7 23.6 29.7 37.4 35.5% 25.9%
EBITDA margin 12.8% 11.5% 11.8% 10.9% 10.9% 6.9% 19.4% 15.5% 14.7% 11.1% 14.9% 17.3% 19.2% 8.3 3.7
EBIT 13.8 11.1 13.5 10.9 11.7 4.6 30.8 21.5 23.0 12.1 18.8 24.7 31.3 35.7% 26.4%
EBIT margin 9.7% 8.1% 8.9% 7.7% 7.8% 3.4% 16.9% 12.8% 12.3% 8.0% 11.9% 14.4% 16.1% 8.3 3.3
Net profit 3.2 6.4 11.4 3.2 7.9 5.2 14.0 14.1 21.5 8.9 15.4 14.7 21.3 -0.5% 45.0%
Net margin 2.3% 4.7% 7.5% 2.2% 5.2% 3.8% 7.7% 8.4% 11.5% 5.9% 9.7% 8.6% 11.0% 5.8 2.6
Source: Company data, DM BZ WBK estimates
Fig. 4. Paged: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 703 n.a. n.a. 793 n.a. n.a. 855 n.a. n.a.
EBITDA 120 n.a. n.a. 145 n.a. n.a. 158 n.a. n.a.
EBIT 100 n.a. n.a. 118 n.a. n.a. 128 n.a. n.a.
Net profit 62 n.a. n.a. 76 n.a. n.a. 85 n.a. n.a.
Source: Company data, DM BZ WBK estimates
Fig. 5. Paged: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 67.00 n.a. n.a.
Comparable valuation (based on 2014-2016E) 56.77 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. Paged: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 587.3 686.7 702.8 793.2 854.5
COGS 448.7 511.6 496.1 555.7 597.0
Gross profit 138.6 175.1 206.7 237.5 257.5
SG&A 87.7 89.5 106.6 119.2 128.6
Other operating income, net 10.2 1.8 -0.2 -0.6 -0.9
EBITDA 79.5 105.5 120.3 145.2 158.3
Operating profit 61.0 87.4 99.8 117.8 128.1
Net financial income (costs) 11.8 10.3 13.5 9.9 9.6
Profit before tax 49.2 77.1 86.4 107.8 118.5
Income tax 14.8 7.0 11.1 13.0 15.0
Net profit 28.9 58.4 61.8 76.5 84.8
Gross margin 23.6% 25.5% 29.4% 29.9% 30.1%
EBITDA margin 13.5% 15.4% 17.1% 18.3% 18.5%
Operating margin 10.4% 12.7% 14.2% 14.8% 15.0%
Net profit margin 4.9% 8.5% 8.8% 9.6% 9.9%
Source: Company data, DM BZ WBK estimates
Fig. 7. Paged: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 250.8 264.3 384.4 403.8 411.1
Fixed assets 405.6 432.2 620.0 669.6 689.8
Total assets 656.4 696.6 1,004.3 1,073.3 1,100.9
Current liabilities 165.9 149.6 214.4 217.1 218.0
bank debt 66.7 51.6 81.6 77.7 74.0
Long-term liabilities 148.7 133.9 260.0 249.9 222.3
bank debt 74.4 56.2 221.2 211.0 183.5
Equity 305.5 365.5 427.3 503.8 558.0
share capital 36.3 36.5 36.5 36.5 36.5
Minority Interest 36.3 47.6 102.6 102.6 102.6
Total liabilities 656.4 696.6 1,004.3 1,073.3 1,100.9
Net debt 117.5 93.5 271.5 255.3 227.9
Source: Company data, DM BZ WBK estimates
Fig. 8. Paged: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations -41.7 52.5 62.0 93.2 108.4
CF from investment -140.1 -41.3 -247.0 -77.0 -50.4
CF from financing, incl. 188.2 -20.5 250.0 -14.0 -61.8
dividends 0.0 0.0 0.0 0.0 -30.6
Net change in cash 6.3 -9.3 65.0 2.1 -3.8
Source: Company data, DM BZ WBK estimates
Polish Equity Research
124
This page has been left intentionally blank.
Polish Equity Research
125
Poland FINANCIALS
NOVEMBER 12, 2014
PRIME CAR MANAGMENT RECOMMENDATION
BUY (INITIATION)
Stable dividend payer CURRENT PRICE: PLN 50.6
TARGET PRICE: PLN 59.7
Equity Story. Prime Car Management was focused in recent
years on high-margin car fleet management (CFM) services and
we expect it to stay on track and keep its margins on additional
services and increased volumes. We expect that supportive
environment (an economic rebound, low interest rates) with help
to increase higher margin CFM services instead of pure leasing
services. PCM plans to focus more on SME clients, while in
corporate segment should their market share stay stable. We
also expect the company to gain in the environment of lower
interest rates thanks to the leverage ratio level (debt/equity 1.11).
We are initiating our coverage of Prime Car Management with a
BUY rating and a TP of PLN59.70, offering a 18% upside
potential.
Financials. We expect a net profit of PLN68mn in 2014E (ex-
one-off PLN53mn). We also expect the net profit to fall to
PLN55mn in 2015E (down 19% y/y) and improve to PLN58 in
2016, implying a ROE of 15%, 11% and 12% respectively. We
assume that the margin on leasing will decrease in the following
years and expect the margins on additional services (insurance,
service, remarketing) to stay flat. This, with higher volumes,
should increase the profits. We expect the current mix of fleet to
shift towards a higher share of semi-FSL and FSL.
Triggers/Risks. We assume that the company will pay PLN4.3 of
DPS, which implies an 8.3% (7.2% at TP) of DY. This should be
between 6.7-7% (5.8-6.1% at TP) next year. However, the
company has been actively participating in the consolidation
process of the Polish CFM market and is looking for further
acquisitions. Although we did not factor in any future acquisitions
into our model, we think that the company’s good balance sheet
structure and track record (the company completed two
acquisitions in 2013) provide a good basis for further deals.
Valuation & recommendation. We have set a 12-month TP of
PLN59.7/share using a blend of the residual income model,
warranted equity valuation and DDM, which imply a 18% upside
potential. The company currently trades at P/E 9x 2014, P/BV of
1.3 and DY of 8.4%.
STOCK PERFORMANCE
PCM
WIG Relative
30
35
40
45
50
55
Apr-
14
Apr-
14
May-1
4
May-1
4
Ju
n-1
4
Ju
n-1
4
Ju
l-14
Ju
l-14
Aug
-14
Aug
-14
Sep
-14
Sep
-14
Oct-
14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
n.a. n.a. n.a. n.a. n.a. n.a.
COMPANY DESCRIPTION
Prime Car Management Group is one of the leaders in the car fleet management market in Poland by number of vehicles. The group operates under the Masterlease brand and had almost 8k clients with 23.180 vehicles leased and under management.
Main shareholders % of votes
Fleet Holdings 60.00%
OFE ING 8.00%
ANALYSTS
Andrzej Bieniek Securities broker, Investment advisor (+48) 22 586 85 21 [email protected] Dariusz Górski (+48) 22 586 81 00 [email protected]
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes PCM.WA / PCM PW
Revenues 557 589 600 641 Market capitalisation (PLNm) 605
Costs -498 -500 -530 -569 Number of shares (m) 11.9
Pre-tax profit 59 89 70 72 Free float (%) 40.0%
Net profit 44 68 55 58 Avg. daily turnover 3M (PLNm) 0.42
P/Ex 14.1 9.1 11.2 10.6 Price performance
1M 3M YTD
P/BV 1.3 1.3 1.3 1.2 2.7% 21.0% 15.4% Source: Company data, DM BZ WBK estimates
Polish Equity Research
126
Fig. 1.PCM: Residual Income model PLN in millions, unless otherwise stated
2014E 2015E 2016E
Net profit 68 55 58
Equity (YE) 479 493 508
ROE 14.5% 11.4% 11.6%
COE 9.3% 9.3% 9.3%
Excess return 5.3% 2.1% 2.4%
Residual income 25 10 12
PV of residual income (2014-16E) 41
Growth (CAGR) ROE (avg.) Pay-out (avg.) Total value PV
Transition period (2017-2023E) 3.5% 11.8% 75% 126 56
Perpetuity 2.0% 11.8% 79% 226 86
Total intrinsic value 182
# of shares (m) 12
Value per share 15.3
Last reported BVPS 40.2
Fair value (Jan'14) 55.4
Month 10.0
Fair value (current) 59.7
12-month target price 65.2
Upside potential 28%
Source: Company data, DM BZ WBK estimates
Fig. 2. PCM: DDM valuation
2014E 2015E 2016E
DPS* 0.0 4.3 3.5
Discount factor 0.92 0.84 0.77
NPV of 2014-16E (PLN/share) 6.3
Transition period (2017-23E):
- div. pay-out ratio (min, max) 72% 75%
- CAGR 3.4%
- NPV (PLN/share) 16.4
Terminal value (NPV per share) 28.0
Total NPV per share 50.6
12-month target price 55.3
Upside potential 8%
Source: BZ WBK Brokerage research, company data
Fig. 3. PCM: Warranted Equity Valuation
2016E ROE (%) 11.6
COE (%) 9.3
g (%) 2.0
Implied fair P/B (x) 1.3
YE16E BVPS 42.6
Fair value (YE16E) 57
PV of fair value 43
DPS14E 0.0
DPS15E 4.3
DPS16E 3.5
PV of 2014-16E DPS 6.3
PV of equity + DPS (Jan'14) 50
Month 10
PV (current) 54
12-month price target 58
Upside potential 15%
Source: BZ WBK Brokerage research, company data
Polish Equity Research
127
Fig. 4. PCM: 3Q14 results review PLN in millions, unless otherwise stated
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q
Revenues 135 148 139 135 139 151 128 -8% -15%
o/w operating leasing 43 43 42 42 40 40 38 -10% -6%
o/w fees 49 49 49 50 53 51 48 -1% -6%
o/w interest income 10 11 8 11 9 9 9 15% -1%
o/w sale-lease items 30 45 39 30 35 34 33 -16% -4%
Costs -117 -135 -128 -119 -120 -121 -114 -11% -6%
o/w service -39 -45 -42 -40 -40 -42 -40 -4% -5%
o/w depreciation -29 -29 -34 -31 -29 -28 -29 -15% 2%
o/w G&A -9 -9 -8 -10 -9 -10 -9 13% -10%
o/w sale-lease items -28 -42 -36 -29 -33 -33 -29 -19% -11%
Gross profit 19 13 11 16 19 30 14 25% -54%
Net profit 15 10 6 12 15 27 10.9 70% -60%
Source: Company data, DM BZ WBK estimates
Fig. 5. PCM: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Revenues 589 n.a. 0% 600 n.a. 0% 641 n.a. 0%
Costs -500 n.a. 0% -530 n.a. 0% -569 n.a. 0%
Gross profit 89 n.a. 0% 70 n.a. 0% 72 n.a. 0%
Net profit 68 n.a. 0% 55 n.a. 0% 58 n.a. 0%
Source: Company data, DM BZ WBK estimates
Fig. 6. PCM: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
Residual income 64.0 n.a. 0%
WEV 60.6 n.a. 0%
DDM 55.6 n.a. 0%
Blended average target price 59.7 n.a. 0% Source: Company data, DM BZ WBK estimates
Fig. 7. PCM: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Revenues 539 557 589 600 641
o/w operating leasing 177 170 171 191 220
o/w fees 202 196 206 210 215
o/w interest income 38 40 41 39 37
o/w sale-lease items 118 144 148 152 161
Costs (496) (498) (500) (530) (569)
o/w service (184) (166) (169) (173) (177)
o/w depreciation (112) (123) (123) (144) (161)
o/w G&A (32) (35) (36) (37) (38)
o/w sale-lease items (115) (135) (139) (144) (152)
Gross profit 43 59 89 70 72
o/w service 20 34 40 41 42
o/w insurance 4 8 9 9 9
o/w sale-lease items 3 8 9 8 10
Tax rate -23% -26% -23% -21% -19%
Net profit 33 44 68 55 58
Source: Company data, DM BZ WBK estimates
Fig. 8. PCM: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Cash and acash equivalents 16 7 46 23 8
Finance lease receivables 362 380 384 388 392
Inventories 17 35 36 44 50
Leased vehicles 543 526 544 653 751
Total assets 1,090 1,082 1,171 1,261 1,349
Bonds, loans and borrowings 534 522 544 653 751
Other liabilities 133 98 148 115 91
Equity 423 462 479 493 508
C/I 92% 89% 85% 88% 89%
Service margin 0.136% 0.218% 0.250% 0.250% 0.250%
Insurance margin 0.024% 0.052% 0.055% 0.055% 0.056%
Remarketing margin 0.58% 1.55% 1.65% 1.40% 1.40%
Source: Company data, DM BZ WBK estimates
Fig. 9. PCM: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 92 39 107 72 82
CF from investment (4) (1) (1) (1) (1)
CF from financing (92) (48) (66) (94) (96)
Net change in cash -4 -10 39 -23 -14
Source: Company data, DM BZ WBK estimates
Polish Equity Research
128
This page has been left intentionally blank.
Polish Equity Research
129
Poland Industrials
November 12, 2014
PEKAES RECOMMENDATION
BUY (INITIATION)
Something to prove CURRENT PRICE: PLN9.04
TARGET PRICE: PLN10.57
Equity Story. Pekaes operates on a challenging market with a strong exposure to the current economic activity (a highly cyclical business that could be described as the litmus paper of the economy). The long-term strategic plans are scheduled for 2014-18 and are aimed at expansion in full warehouse logistics (domestic and abroad) together with sector and market diversification both through acquisitions and organic growth. The logistics services provider is taking measures to deliver more value to its shareholders thanks to implementation of higher margin services and cross-line activities intended to extract synergies. The full truck road transport (delivering the lowest margin) represents c. 40% of the sales (figure used to amount to 80%), while the more profitable groupage transport is attributable for another 40%. Chemikals and Spedcont, the fully consolidated subsidiaries purchased at the end of 2013 that operate in the intermodal segment, bring in on average of 10% of the P&L top line. Sticking more to market figures, the recent statistics describing the transport and logistics sector indicate a stable financial and operational standing of the companies in 3Q14. Taking into account the less favorable industrial output data for the Polish economy in y/y terms (the seasonally adjusted gauge dropped c. 2pp in comparison to 2Q14) and pressure on prices of services (accompanied by limited possibilities of price cuts by the suppliers), the market remains tough. Statistics indicate an approx. 5.6% uptick in sales in transport and warehouses services in 1H2014.
Financials. Looking forward, the company expects to grow above the historical long term TSL market average of 3%-4%. We assume that the pace of the sales increase on a y/y basis will be close to 4% in the long-term horizon (4.5% in the medium term, till 2019). In our opinion, the company’s sales will amount to PLN717mn in 2014 (a 30.7% y/y surge) due to the consolidation of Chemikals and Spedcont. The NP is forecasted to come in at PLN15.7mn (2.2% margin). We estimate the EBITDA margin to near 5% in the current year and hover in a range of 4.5% to 5% in the long term, which is still well beneath the MB’s goal at the sector average of 6.5%. From 2015 onward, the effective tax rate is expected to increase due to the full settlement of the losses from the previous years.
Triggers / Risks. We assume that Pekaes will continue to build its position in the groupage shipment and the intermodal transport segment, reducing its exposure to the full-truck load services. According to the management’s guidance, the company is considering an acquisition that would allow it to double its parent entities’ sales with the engagement of own cash and external debt. Adverse trends in the economy pose a significant downside risk for the TSL company. Nevertheless, markets (planned expansion in southern Europe) and services should translate into lower business cyclicality in the long run.
Valuation & recommendation. We used a mixed approach to get our valuation, which is a combination of DCF (50% weight) at PLN12.8 per share and comparative valuation (50% weight) at PLN8.34 (assigned equal weights for Polish peers multiples of PLN8.67 and those for foreign peers of PLN8.01). Implementation of the described formula provides a 12M TP of PLN10.57, which offers an upside potential of 16.4%. We, therefore, initiate our coverage of Pekaes with a Buy recommendation.
STOCK PERFORMANCE
PEKWIG Relative
0
2
4
6
8
10
12
14
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
n.a. n.a. n.a. n.a. n.a. n.a.
COMPANY DESCRIPTION
Pekaes is one of Poland’s leading firms in full-warehouse logistics and multi-channel freight forwarder.
Main shareholders % of votes
KH Logistyka Sp. z o.o. 56.71%
ING OFE 12.60%
PEK Holdings 6.30%
ANALYST
Michal Sopiel (+48) 22 586 82 33
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes PEKA.WA / PEK PW
Sales 549 717 750 784 Market capitalisation (PLNm) 275.9
EBITDA 18 35 36 36 Number of shares (m) 30.5
EBIT 10 16 17 18 Free float (%) 37.0%
Net income 13 16 15 14 Avg. daily turnover 3M (PLNm) 0.1
P/E (x) 21.3 17.7 18.5 19.6 Price performance
1M 3M YTD
EV/EBITDA (x) 13.5 6.7 6.5 6.3 -1.4% +7.1% -9.9% Source: Company data, DM BZ WBK estimates
Polish Equity Research
130
Fig. 1. Pekaes: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Net sales 717 750 784 819 857 896 923 950 979 1,009
EBITDA 35 36 36 37 39 41 42 43 44 46
EBIT 16 17 18 19 21 23 25 26 28 29
Cash taxes on EBIT 0 2 3 4 4 4 5 5 5 6
NOPAT 16 15 15 15 17 19 20 21 22 24
Depreciation 19 19 18 18 18 18 17 17 17 16
Change in operating WC 31 3 4 4 3 3 2 2 2 2
Capital expenditure 15 16 16 15 15 15 15 14 14 14
Net investment 27 1 1 1 0 0 -1 -1 0 0
Free cashflow -11 15 14 14 17 18 21 22 23 24
WACC 7.9%
PV FCF 2014-2023 94
Terminal Value (TV) 373
PV TV 174
Total EV 268
Net debt -22
Real estate* 57
Equity value 347
Number of shares (m) 30.5
Value per share (PLN, 1 Jan 2014) 11.4
Month 10
Current value per share (PLN) 12.0
12-month Target Price 12.8
Source: Company data, DM BZ WBK estimates, *assumed fair value of real estate assets
Fig. 2. Pekaes: Comparable valuation
Company Price Currency P/E EV/EBITDA
2014E 2015E 2016E 2014E 2015E 2016E
Pekaes 9.00 PLN 17.5 18.3 19.4 7.2 7.0 6.8
Polish Industrials
Grupa Kety SA 288.05 PLN 16.7 15.4 18.0 9.7 9.1 8.5 Inter Cars SA 206.50 PLN 16.4 14.9 13.8 12.6 11.4 10.7 Budimex SA 135.45 PLN 20.2 16.9 14.5 9.8 8.4 7.3 Elektrobudowa SA 77.50 PLN 15.4 10.2 8.6 n.a. n.a. n.a. Paged SA 42.00 PLN 10.9 7.6 7.1 n.a. n.a. n.a. Integer.pl SA 210.00 PLN 70.8 35.8 20.0 30.6 12.0 7.4 Fabryki Mebli Forte SA 56.00 PLN 16.1 14.5 13.3 11.1 9.9 9.0 Kopex SA 10.99 PLN 9.7 9.6 8.2 4.8 4.9 4.4 Pozbud T&R SA 4.99 PLN 10.2 9.0 9.7 n.a. n.a. n.a. Famur SA 3.20 PLN 12.7 11.6 11.2 4.3 4.0 3.8 PKP Cargo SA 79.99 PLN 11.7 11.2 9.8 5.2 5.0 4.6
Median 15.4 11.6 11.2 9.7 8.7 7.3
Foreign logistics sector representatives
ACM Shipping PLC n.a. GBp n.a. n.a. n.a. n.a. n.a. n.a. Agility Public Warehousing Co KSC 860.00 KWd 17.6 14.6 9.6 10.0 8.7 6.6 Asciano Ltd 6.29 AUD 15.1 13.2 12.2 8.2 7.5 7.2 ALL - America Latina Logistica SA 6.46 BRL 28.0 16.2 10.6 4.8 4.2 3.6 Bollore SA 400.95 EUR 34.8 31.1 26.7 14.1 12.7 11.6 Delticom AG 16.36 EUR 33.5 16.9 11.7 12.3 9.5 7.6 Egyptian Transport and Commercial Services Co SAE 18.21 EGP 10.7 7.4 6.1 8.0 5.0 4.2 Eurokai GmbH & Co KGaA 29.10 EUR 13.6 11.7 10.6 4.9 4.6 4.3 Hamburger Hafen und Logistik AG 17.31 EUR 24.3 19.9 17.1 5.6 5.3 5.0 LDLC.com 20.40 EUR 15.3 12.2 9.4 9.9 8.2 6.3 Mueller - die Lila Logistik AG 4.40 EUR 10.5 9.6 n.a. n.a. n.a. n.a. Reysas Tasimacilik ve Lojistik Ticaret AS 0.81 TRY 9.0 9.0 n.a. n.a. n.a. n.a. Super Group Ltd/South Africa 3125.00 ZAr 12.0 10.7 9.6 5.2 4.8 4.1 Stobart Group Ltd 97.75 GBp 32.5 20.3 12.3 27.5 20.1 12.4 TAL International Group Inc 43.49 USD 11.5 11.5 11.2 8.3 8.0 7.5
Median 15.2 12.7 10.9 8.3 7.7 6.5
Premium/discount vs. Polish peers median 13.8% 57.8% 73.5% -26.3% -20.2% -7.4%
Premium/discount vs. foreign peers median 15.4% 43.9% 78.5% -13.1% -10.0% 4.8%
Implied Pekaes price per share vs. Polish peers 7.91 5.70 5.19 12.21 11.27 9.72
Implied Pekaes price per share vs. foreign peers 7.80 6.25 5.04 10.36 10.00 8.59
Source: BZ WBK Brokerage research, Bloomberg.
Polish Equity Research
131
Fig. 3. Pekaes: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%)
Sales 143.5 123.2 129.8 134.4 130.6 107.5 118.4 132.3 146.5 151.4 180.1 178.4 178.1 21.5% -0.2%
EBITDA 0.7 -3.8 0.3 -3.0 3.2 9.5 0.6 4.0 6.8 6.4 8.6 9.1 8.8 29.6% -3.1%
EBITDA margin 0.5% -3.1% 0.2% -2.2% 2.4% 8.9% 0.5% 3.0% 4.6% 4.2% 4.8% 5.1% 5.0% 2.5 1.9
EBIT 0.7 -6.4 -2.3 -5.5 0.8 7.3 -1.1 2.5 5.0 3.9 4.3 3.9 4.1 -17.4% 5.4%
EBIT margin 0.5% -5.2% -1.8% -4.1% 0.6% 6.8% -1.0% 1.9% 3.4% 2.5% 2.4% 2.2% 2.3% 1.7 0.4
Net profit 3.4 -5.7 -2.5 -4.3 2.1 8.5 0.4 3.9 5.6 3.2 4.2 3.6 3.6 -35.5% -0.5%
Net margin 2.4% -4.6% -1.9% -3.2% 1.6% 7.9% 0.3% 2.9% 3.8% 2.1% 2.3% 2.0% 2.0% 0.4 -0.9
Source: Company data, DM BZ WBK estimates
Fig. 4. Pekaes: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 717 n.a. n.a. 750 n.a. n.a. 784 n.a. n.a.
EBITDA 35 n.a. n.a. 36 n.a. n.a. 36 n.a. n.a.
EBIT 16 n.a. n.a. 17 n.a. n.a. 18 n.a. n.a.
Net profit 16 n.a. n.a. 15 n.a. n.a. 14 n.a. n.a.
Source: Company data, DM BZ WBK estimates
Fig. 5. Pekaes: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 12.80 n.a. n.a.
Comparable valuation (based on 2014-2016E) 8.34 n.a. n.a.
Weighted TP 10.57 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. Pekaes: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 523.3 548.6 717.0 749.6 783.7
COGS 491.0 508.7 663.3 692.5 723.2
Gross profit 32.3 39.9 53.7 57.1 60.4
SG&A 38.5 31.6 38.4 39.8 41.2
Other operating income, net 5.6 2.6 2.0 2.1 2.2
EBITDA 10.0 17.8 35.3 35.8 36.3
Operating profit 0.1 10.2 16.3 17.2 18.0
Net financial income (costs) -4.4 -3.0 0.4 0.5 0.6
Profit before tax 4.6 13.2 15.9 16.7 17.4
Income tax 0.7 0.2 0.2 1.7 3.3
Net profit 3.8 13.0 15.7 15.0 14.1
Gross margin 6.2% 7.3% 7.5% 7.6% 7.7%
EBITDA margin 1.9% 3.2% 4.9% 4.8% 4.6%
Operating margin 0.0% 1.9% 2.3% 2.3% 2.3%
Net profit margin 0.7% 2.4% 2.2% 2.0% 1.8%
Source: Company data, DM BZ WBK estimates
Fig. 7. Pekaes: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 204.8 163.3 217.5 227.8 237.9
Fixed assets 161.1 271.4 253.8 250.9 248.1
Total assets 365.9 434.7 471.3 478.8 486.0
Current liabilities 77.6 95.3 100.2 103.7 107.3
bank debt 0.0 2.8 8.8 8.8 8.8
Long-term liabilities 12.5 52.4 68.4 68.4 68.4
bank debt 0.0 16.3 32.3 32.3 32.3
Equity 275.8 287.0 302.7 306.7 310.4
share capital 98.2 98.2 98.2 98.2 98.2
Minority Interest 0.0 0.0 0.0 0.0 0.0
Total liabilities 365.9 434.7 471.3 478.8 486.0
Net debt -88.8 -36.5 -40.8 -44.5 -47.6
Source: Company data, DM BZ WBK estimates
Fig. 8. Pekaes: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 32.6 43.9 5.7 30.2 28.9
CF from investment 0.8 -94.3 -1.4 -15.8 -15.5
CF from financing, incl. -37.7 17.3 22.0 0.0 -10.3
dividends 0.0 0.0 0.0 0.0 -10.3
Net change in cash -4.3 -33.2 26.3 14.5 3.1
Source: Company data, DM BZ WBK estimates
Polish Equity Research
132
This page has been left intentionally blank.
Polish Equity Research
133
Poland Pharma / Health Care
NOVEMBER 12, 2014
PELION RECOMMENDATION
HOLD (MAINTAINED)
Under pressure from falling margin CURRENT PRICE: PLN75
TARGET PRICE: PLN79 (MAINTAINED)
3Q14 Results Preview. We expect Pelion to report another weak
quarter y/y in 3Q14 on all the P&L levels. The results will be hit by
lower margins on Rx-drugs as well as by the lack of any visible
cost-cutting or growth in sales. We expect the top line to grow
5.0% y/y on the back of pharma growth, which we estimate at 4-
5% y/y. We also assume that the gross margin will probably fall
47bps to 10.4% y/y. Despite some costs savings, putting SG&A at
PLN175mn, or 9.3% of sales in 3Q14, and compared with
PLN170mn (9.6% of sales) in 3Q13, it is not enough to push the
EBITDA higher y/y. All in all, we expect the EBITDA to fall 11%
y/y (the EBITDA margin by 27bp to 1.4%) in 3Q14. Assuming
PLN4mn in net financials, we expect a net profit of PLN10mn
(-10% y/y) in 3Q14. Outcome: NEGATIVE.
We see no reason to change our recommendation on Pelion. In
line with the scenario that we had outlined following the positive
surprise in 1H13, 2H13 brought massive disappointment to
investors because the effects of the massive cost cutting in its
retail business and the impact of the loyalty programmes on sales
growth evaporated. Moreover, (1) another margin cut on the
refunded drugs; (2) slow market growth in 2014; and (3) the
continuous advertising ban in retail all add to this bleak picture.
We, therefore, expect Pelion to report notably weaker results y/y
with the EBITDA and the net profit falling 17% and 31% y/y in
2014. This means that Pelion is trading on a PE’ for 2014E of
13.4x and EV/EBITDA of 10.8x, which implies a 7% discount to
Farmacol and a 17% premium over Neuca. In our view, Pelion
should be traded at a discount to both.
Change in valuation & recommendation. We maintained our 12
month TP at PLN79/share. A comparative valuation against
Polish peers points to PLN62/share.
PUBLICATION DATE
NOVEMBER 14, 2014
3Q14 RESULTS PREVIEW
3Q14E y/y (%) q/q (%)
Sales 1,869 5.0% 0.9%
EBITDA 27.0 -12.0% 35.3%
EBIT 17.0 -21.6% 52.3%
Net profit 10.0 -13.8% 393.7%
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Hold 10/21/2014 72.6 79.0 3.6% 2.9
Hold 9/7/2014 72.0 80.0 0.8% 3.0
Hold 4/28/2014 76.5 86.0 -5.9% -11.4
Hold 1/30/2014 89.1 96.0 -14.2% -16.4
COMPANY DESCRIPTION
Pelion is one of the largest Polish pharmaceutical distributors controlling a ca. 20% market share and with exposure in the retail segment.
ANALYST
Tomasz Sokolowski (+48) 22 586 82 36
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes PELIO.WA / PEL PW
Sales 7,302 7,589 7,889 8,219 Market capitalisation (PLNm) 793
EBITDA 164 137 154 165 Number of shares (m) 11.2
EBIT 128 96 111 119 Free float (%) 68.1%
Net income 100 69 81 83 Avg. daily turnover 3M (PLNm) 0.6
P/E (x), adj. 9.9 12.3 11.1 10.8 Price performance
1M 3M YTD
EV/EBITDA (x), adj. 8.4 10.9 9.5 9.0 -0.4% 3.0% -27.1% Source: Company data, DM BZ WBK estimates
Polish Equity Research
134
Fig. 1. Pelion: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%)
Sales 1,628 1,697 1,663 1,659 1,610 1,754 1,922 1,770 1,780 1,831 1,947 1,852 1,869 5.0% 0.9%
EBITDA 35.1 31.3 28.2 29.4 29.7 52.3 63.2 42.8 30.7 28.0 46.6 20.0 27.0 -12.0% 35.3%
EBITDA margin 2.2% 1.8% 1.7% 1.8% 1.8% 3.0% 3.3% 2.4% 1.7% 1.5% 2.4% 1.1% 1.4% -28 37
EBIT 27.2 22.5 18.6 19.6 20.0 42.6 54.4 33.5 21.7 18.7 36.6 11.2 17.0 -21.6% 52.3%
EBIT margin 1.7% 1.3% 1.1% 1.2% 1.2% 2.4% 2.8% 1.9% 1.2% 1.0% 1.9% 0.6% 0.9% -31 31
Net profit 14.5 43.3 5.1 5.8 6.5 38.5 35.7 20.5 11.6 32.4 24.5 2.0 10.0 -13.8% 393.7%
Net margin 0.9% 2.6% 0.3% 0.3% 0.4% 2.2% 1.9% 1.2% 0.7% 1.8% 1.3% 0.1% 0.5% -12 43
Source: Company data, DM BZ WBK estimates
Fig. 2. Pelion: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 7,589 7,589 0.0% 7,889 7,889 0.0% 8,219 8,219 0.0%
EBITDA 137 137 0.0% 154 154 0.0% 165 165 0.0% EBIT 96 96 0.0% 111 111 0.0% 119 119 0.0% Net profit 69 69 0.0% 81 81 0.0% 83 83 0.0% Source: Company data, DM BZ WBK estimates
Fig. 3. Pelion: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 78.8 78.8 n.a.
Comparable valuation (based on 2014-2016E) 62.0 61.0 +1.6% Source: Company data, DM BZ WBK estimates
Fig. 4. Pelion: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 6,686 7,302 7,589 7,889 8,219
COGS 5,858 6,466 6,738 7,008 7,305
Gross profit 827 836 851 881 913
SG&A 707 699 747 765 789
Other operating income, net -20 -9 -8 -5 -5
EBITDA 140 164 137 154 165
EBITDA, adj. 159 173 145 159 170
Operating profit 101 128 96 111 119
Net financial income (costs) 24 18 21 23 23
Profit before tax 77 110 75 88 96
Income tax 19 9 6 7 14
Net profit 57 100 69 81 83
Net profit, adj. 78 96 69 81 83
Gross margin 12.4% 11.5% 11.2% 11.2% 11.1%
EBITDA margin 2.1% 2.3% 1.8% 2.0% 2.0%
Operating margin 1.5% 1.8% 1.3% 1.4% 1.5%
Net profit margin 0.9% 1.4% 0.9% 1.0% 1.0%
Source: Company data, DM BZ WBK estimates
Fig. 5. Pelion: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 1,562 1,741 1,929 2,054 2,178
Fixed assets 915 992 968 972 983
Total assets 2,477 2,733 2,897 3,026 3,161
Current liabilities 1,623 1,745 1,775 1,839 1,910
bank debt 67 38 144 144 144
Long-term liabilities 313 394 449 449 450
bank debt 290 372 424 424 424
Equity 539 591 670 734 798
share capital 24 23 23 23 23
Minority Interest 2 3 3 3 3
Total liabilities 2,477 2,733 2,897 3,026 3,161
Net debt* 418 437 542 510 541
Source: Company data, DM BZ WBK estimates, *with reverse factoring
Fig. 6. Pelion: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 168 149 -86 95 45
CF from investment -21 -118 -16 -47 -57
CF from financing -194 17 155 -16 -19
Net change in cash -46 48 53 32 -31
Source: Company data, DM BZ WBK estimates
Polish Equity Research
135
Poland Construction & Real Estate
November 12, 2014
PHN RECOMMENDATION
BUY (MAINTAINED)
Strong 3Q results on tax gain CURRENT PRICE: PLN25.25
TARGET PRICE: PLN29.1 (MAINTAINED)
3Q14 Results Preview. We expect PHN to post strong results in
3Q14. The company had announced an intra-Group transfer of
properties worth PLN243mn to SPV. Such a transaction should
result in the release of a tax provision (tax gain), as in the past.
And though the transaction was concluded already in 4Q, we
think that the company may decide to recognise the gain already
in 3Q. The core business should perform much better than in
2Q14 thanks to 1) higher q/q notary sale volumes (residential
business line), 2) higher q/q rental profits on q/q margin growth.
The continuing restructuring should also lead to slightly lower q/q
(PLN0.6mn) administrative costs. We expect, however, some
PLN4mn in one-off restructuring costs. Overall, we project PHN’s
EBIT to grow to PLN5.6mn from PLN0.6mn in 2Q but to fall vs.
3Q13 by >30%, especially with respect to the gradual NOI
contraction (pressure on rent levels, rising vacancy rates etc.). At
the bottom line level, we expect as much as PLN45.5mn (c.
PLN10mn in 2Q14 and 79mn in 3Q13), helped by the PLN40mn
tax gain. Outcome: POSITIVE.
Change in forecasts. We maintain our financial forecast intact.
Change in Valuation & Recommendation. We maintain our TP
for PHN at PLN29.1. With a fundamental upside, we maintain our
recommendation at Buy. Material tax gains in 3Q14E and 4Q14E
might offer a positive surprise, boosting the FY14 net profit close
to PLN90mn. Assuming there is a 100% dividend pay-out (likely
scenario), the dividend yield would exceed 7%, which is solid
level, the way we see it (PHN’s peers do not pay dividends given
their high leverage, whereas PHN is net cash). The company is
trading 0.63x to its 2Q14 NAV, which offers a huge discount to
the WSE peers, such as Echo or GTC (approx. 0.8x). That said,
we think that the current share valuation is justified only when a
flat NAV is assumed in the coming 6 years (assuming 8.2%
WACC). We find this to be an unlikely scenario in light of the
recently announced strategy to target NAV growth of 75% by
2023 (development of pipeline projects and acquisition of yielding
properties). With respect to the ST risk factors, the introduction of
approx. 0.2mn employee shares into trading by year-end may
produce an additional supply of shares. Furthermore, the
Treasury failed to sell its 73% stake in PHN to a strategic
investor. We think that a sale of the stake in a public placement
could be a possible scenario.
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10-22-2014 25.7 29.1 -1.0% -1.6
Hold 7-9-2014 24.7 27.5 4.1% -1.0
Hold 4-28-2014 29.9 29.7 -17.4% -15.8
Hold 2-11-2014 28.1 29.5 6.4% 8.3
COMPANY DESCRIPTION
PHN is a real estate developer.
Main shareholders % of votes
Trasury 70.5%
Aviva pension fund 9.2%
ING pension fund 5.1%
ANALYST
Adrian Kyrcz (+48) 22 586 81 59
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes PHN.WA / PHN PW
Sales 131.2 158.6 160.0 136.0 Market capitalisation (PLNm) 1 170.5
EBITDA -5.0 16.4 39.2 45.4 Number of shares (m) 46.4
EBIT -7.0 14.4 37.2 43.4 Free float (%) 29.8%
Net income 100.4 88.7 26.4 31.6 Avg. daily turnover 3M (PLNm) 0.4
P/E (x) 11.2 12.7 36.3 33.9 Price performance
1M 3M YTD
P/BV (x) 0.60 0.61 0.60 0.59 4.1% 12.3% -5.9% Source: Company data, DM BZ WBK estimates
Polish Equity Research
136
Fig. 1. PHN: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%)
Sales n.a. 52.9 48.8 52.1 40.2 46.6 50.7 41.5 37.9 41.2 39.8 38.7 40.1 5.8% 3.6%
EBITDA n.a. -82.9 -63.1 -63.1 -56.7 -47.0 10.5 -32.2 9.0 7.7 3.0 1.0 6.0 -33.3% n.m.
EBITDA margin n.a. n.a. n.a. n.a. n.a. n.a. 20.7% -77.6% 23.7% 18.7% 7.5% 2.6% 15.0% -0.4 4.8
EBIT n.a. -83.9 -63.9 -63.7 -57.2 -47.7 9.9 -32.8 8.6 7.3 2.6 0.6 5.6 -34.9% n.m.
EBIT margin n.a. -
158.6% -
130.9% -
122.3% -
142.3% -
102.4% 19.5% -79.0% 22.7% 17.7% 6.5% 1.6% 14.0%
-0.4 8.0
Net profit n.a. -66.7 -46.0 -41.2 -43.8 -39.8 6.8 -23.1 78.8 37.5 2.5 10.2 45.5 -42.3% n.m.
Net margin n.a. -
126.1% -94.3% -79.1%
-
109.0% -85.4% 13.4% -55.7% 207.9% 91.0% 6.3% 26.4% n.m.
-0.5 3.3
Source: Company data, DM BZ WBK estimates
Fig. 2. PHN: Forecasts changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 159 159 0% 160 160 0% 136 136 0%
EBITDA 16 16 0% 39 39 0% 45 45 0%
EBIT 14 14 0% 37 37 0% 43 43 0%
Net profit 89 89 0% 27 27 0% 32 32 0% Source: Company data, DM BZ WBK estimates
Fig. 3. PHN: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
SOTP valuation 29.1 29.1 0%
Comparable valuation (based on P/BV) 27.9 27.9 0% Source: Company data, DM BZ WBK estimates
Fig. 4. PHN: Income statement forecast PLN in millions, unless otherwise stated
2013 2014E 2015E 2016E
Net sales 131.2 158.6 160.0 136.0
COGS -59.1 -89.6 -90.1 -60.6
Gross profit 72.1 69.0 69.9 75.4
SG&A 46.2 35.1 39.0 39.0
Other operating income, net -19.5 -7.7 -7.0 0.0
EBITDA -5.0 16.4 39.2 45.4
Operating profit -7.0 14.4 37.2 43.4
Net financial income (costs) 6.8 0.6 -4.6 -4.5
Profit before tax -0.2 15.0 32.6 39.0
Income tax 107.4 74.5 -6.2 -7.4
Net profit 100.4 88.7 26.4 31.6
Gross margin 55.0% 43.5% 43.7% 55.5%
EBITDA margin -3.8% 10.3% 24.5% 33.4%
Operating margin -5.3% 9.1% 23.3% 31.9%
Net profit margin 76.5% 55.9% 16.5% 23.2%
Source: Company data, DM BZ WBK estimates
Fig. 5. PHN: Balance Sheet forecast PLN in millions, unless otherwise stated
2013 2014E 2015E 2016E
Current assets 483.0 291.2 235.8 254.7
Fixed assets 1974.2 2074.2 2166.4 2180.0
Total assets 2457.2 2365.4 2402.2 2434.7
Current liabilities 251.7 251.7 251.7 251.7
bank debt 1.1 1.1 100.0 100.0
Long-term liabilities 212.8 138.3 237.2 237.2
bank debt 0.4 0.4 0.4 0.4
Equity 1992.7 1975.4 1913.3 1945.8
Total liabilities 2457.2 2365.4 2402.2 2434.7
Net debt -216.3 -49.9 64.4 45.5
Source: Company data, DM BZ WBK estimates
Fig. 6. PHN: Cash flow forecast PLN in millions, unless otherwise stated
2013 2014E 2015E 2016E
CF from operations 34.4 48.5 73.5 37.8
CF from investment 10.2 -115.0 -95.0 -15.0
CF from financing -0.5 -99.9 6.1 -4.0
Net change in cash 44.1 -166.4 -15.4 18.9
Source: Company data, DM BZ WBK estimates
Polish Equity Research
137
Poland Construction & Real Estate
NOVEMBER 12, 2014
POZBUD RECOMMENDATION
BUY (MAINTAINED)
Another good quarter CURRENT PRICE: PLN 4.5
TARGET PRICE: PLN 7.7 (MAINTAINED)
Our investment story remains intact. Pozbud still benefits from
a recovery in the domestic market, while its good quality products
and competitive prices are helping it increase its sales in Western
Europe markets. In our view, it should last for another year.
Additionally, in next year Pozbud will finalize investments into
additional capacities and is likely to sign production contract with
foreign partner. In our view, it will be a notable upside for Pozbud,
which we has not included in our model so far.
3Q14 results preview. 3Q14 was another positive quarter for
Pozbud. We expect top line to stay flat y/y at PLN68mn in 3Q14.
Please note the strong comparison base from previous year for
Pozbud. We estimate the gross margin should fall y/y in 3Q14 to
10.4% vs. 12.8% last year. We expect SG&A at PLN2.1mn (3.1%
in sales vs. 3.2% last year). We expect EBITDA of PLN6.2mn
(9.1% margin compared to 9.9% last year). We expect Pozbud to
report a net profit of PLN3.8mn vs. PLN4.8mn last year.
Outcome: NEUTRAL.
We materially cut our forecasts due to elimination of Baumal’s
takeover impact. On the other hand, we excluded from our
calculations notable dilution of Pozbud’s capital, which totally
eliminated negative impact of forecast decrease on our valuation.
12-m Target Price increase to PLN7.7 from PLN7.2 mainly comes
from lower RfR and time-passage.
Change in valuation & recommendation. Our DCF-based 12-
month target price points to PLN7.70/share. The comparative
valuation points to PLN4.0/share.
PUBLICATION DATE
NOVEMBER 14, 2014
3Q14 RESULTS PREVIEW
3Q14E y/y (%) q/q (%)
Sales 67.6 0.4% 62.3%
EBITDA 6.1 -18.3% 34.5%
EBIT 5.1 -22.6% 35.1%
Net profit 3.8 -21.0% 27.7%
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10/22/2014 4.6 7.7 9.0% 8.4
Buy 4/28/2014 5.2 7.2 -11.8% -15.2
Buy 1/30/2014 5.3 6.7 -3.2% -5.5
Buy 10/23/2013 4.5 6.1 20.0% 25.6
COMPANY DESCRIPTION
Pozbud T&R is a producer of high-quality wooden windows and doors that has recently expanded into solid wooden floor production.
ANALYST
Tomasz Sokolowski (+48) 22 586 82 36
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes POZP.WA / POZ PW
Sales 148.9 188.8 187.8 155.0 Market capitalisation (PLNm) 133
EBITDA 17.8 19.5 21.0 19.0 Number of shares (m) 26.8
EBIT 14.7 16.3 17.9 15.7 Free float (%) 70.1%
Net income 11.4 13.3 14.0 11.8 Avg. daily turnover 3M (PLNm) 0.1
P/E (x) 10.2 8.7 8.3 9.8 Price performance
1M 3M YTD
EV/EBITDA (x) 7.0 7.0 7.2 8.5 1.2% 11.2% 0.2% Source: Company data, DM BZ WBK estimates
Polish Equity Research
138
Fig. 1. Pozbud: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%)
Sales 21.6 35.8 19.6 25.8 24.0 23.7 17.5 24.6 67.3 35.0 33.2 41.6 67.6 0.4% 62.3%
EBITDA 4.1 2.6 2.7 3.6 2.5 4.5 2.3 3.1 7.5 3.9 4.8 4.6 6.1 -18.3% 34.5%
EBITDA margin 18.9% 7.1% 13.8% 14.0% 10.3% 18.8% 13.4% 12.7% 11.1% 11.1% 14.5% 10.9% 9.1% -208 -188
EBIT 3.3 1.8 1.9 2.9 1.8 3.7 1.7 2.4 6.6 3.1 3.8 3.8 5.1 -22.6% 35.1%
EBIT margin 15.4% 5.0% 9.9% 11.4% 7.4% 15.5% 9.7% 9.9% 9.7% 8.9% 11.5% 9.0% 7.5% -223 -152
Net profit 2.3 2.0 1.5 2.4 1.8 2.1 1.7 2.1 4.8 2.0 2.9 3.0 3.8 -21.0% 27.7%
Net margin 10.7% 5.5% 7.7% 9.2% 7.7% 8.9% 9.8% 8.6% 7.1% 5.8% 8.7% 7.1% 5.6% -152 -152
Source: Company data, DM BZ WBK estimates
Fig. 2. Pozbud: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 188.8 188.8 0.0% 187.8 187.8 0.0% 155.0 155.0 0.0%
EBITDA 19.5 19.5 0.0% 21.0 21.0 0.0% 19.0 19.0 0.0% EBIT 16.3 16.3 0.0% 17.9 17.9 0.0% 15.7 15.7 0.0% Net profit 13.3 13.3 0.0% 14.0 14.0 0.0% 11.8 11.8 0.0% Source: Company data, DM BZ WBK estimates
Fig. 3. Pozbud: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 7.7 7.7 n.a.
Comparable valuation (based on 2014-2016E) 4.0 3.9 +2.6% Source: Company data, DM BZ WBK estimates
Fig. 4. Pozbud: Income statement forecast PLN in millions, unless otherwise stated
2012 2013E 2014E 2015E 2016E
Net sales 93.2 148.9 188.8 187.8 155.0
COGS 79.0 126.7 164.2 161.2 130.5
Gross profit 14.3 22.3 24.6 26.5 24.5
SG&A 4.6 8.3 8.0 8.3 8.5
Other operating income, net 0.2 0.7 -0.3 -0.3 -0.3
EBITDA 12.6 17.8 19.5 21.0 19.0
Operating profit 9.8 14.7 16.3 17.9 15.7
Net financial income (costs) -1.1 -1.5 -0.9 -1.6 -2.1
Profit before tax 8.7 13.1 15.4 16.3 13.6
Income tax 1.0 1.7 2.1 2.3 1.8
Net profit 7.7 11.4 13.3 14.0 11.8
Gross margin 15.3% 15.0% 13.0% 14.1% 15.8%
EBITDA margin 13.6% 12.0% 10.3% 11.2% 12.2%
Operating margin 10.5% 9.8% 8.6% 9.5% 10.1%
Net profit margin 8.3% 7.7% 7.0% 7.5% 7.6%
Source: Company data, DM BZ WBK estimates
Fig. 5. Pozbud: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013E 2014E 2015E 2016E
Current assets 77.3 102.3 77.9 73.7 71.3
Fixed assets 113.7 133.9 155.9 166.3 167.6
Total assets 191.0 236.2 233.8 240.0 238.9
Current liabilities 55.6 74.9 60.7 60.9 56.7
bank debt 31.6 38.0 22.4 22.4 22.4
Long-term liabilities 15.9 13.2 21.9 21.9 21.6
bank debt 14.9 12.4 20.0 20.0 20.0
Equity 119.5 143.7 146.8 152.8 156.2
share capital 23.4 26.8 23.4 23.4 23.4
Minority Interest 0.0 4.4 4.4 4.4 4.4
Total liabilities 191.0 236.2 233.8 240.0 238.9
Net debt 17.2 9.0 19.9 35.6 45.5
Source: Company data, DM BZ WBK estimates
Fig. 6. Pozbud: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013E 2014E 2015E 2016E
CF from operations -4.9 9.7 22.9 5.9 4.5
CF from investment 5.6 -18.8 -23.5 -13.6 -5.9
CF from financing -1.2 21.1 -18.2 -8.0 -8.4
Net change in cash -0.5 11.9 -18.8 -15.8 -9.8
Source: Company data, DM BZ WBK estimates
Polish Equity Research
139
Poland FINANCIALS
NOVEMBER 12, 2014
PRESCO RECOMMENDATION
SELL (INITIATION)
No story to buy CURRENT PRICE: PLN 3.8
TARGET PRICE: PLN 3.1
Equity Story. PRESCO is one of the leading entities operating on the
market of purchase and sale of mass-scale consumer receivables in
Poland. It conducts the process of receivables recovery for its own
account, using amicable methods and, if necessary, at court. The
basic market on which the company builds its position and
development plans is Poland. In 2013, P.R.E.S.C.O. launched a pilot
project aimed at expansion abroad by way making the first investment
in a receivables portfolio in Russia. PRESCO had a quite weak 1H14
with PLN1.8mn in net profit (vs. PLN9.1mn in 2013) and it didn`t buy
any major debt portfolio in the period. What is more, its CFO
resigned. All this doesn’t exactly help the company. Based on our
estimates, the company trades at 28.5x 2014 P/E and an EV/EBITDA
of 13.9x. It generates a ROE of 2%. Our TP of PLN3.1/ share implies
a 19% downside potential. We are initiating our coverage with a SELL
rating.
Financials. We expect the company’s revenues to rise by 3% to
PLN53mn in 2015 and to PLN57mn in 2016E. Due to changes in the
business model (50/50 settlement and court cases), we expect its
cost-to- income to fall in the following years to 70%. We do not expect
the Russian portfolio to add any extras to revenues in 2014-2016.
Purchases of debt portfolios should stabilise at around PLN40mn per
year. We expect the company to hit bottom in 2014E , when its net
profit should amount to PLN2.6mn. It should, however, rise to
PLN7.7mn in 2016E.
Triggers/Risks. We believe that the golden age for the company has
already passed. We do not see any triggers that could help either.
Since court collectability is lower each year, the company tries to shift
the business model towards settlement. But it won’t work, in our
opinion, not I the near future anyway. We also believe it Russian
portfolio to be quite risky, even though its losses aren’t as big.
Valuation & recommendation. We have set a 12-month target price
for PRESCO at PLN3.1/share using a blend of residual income (50%)
and a DCF method (50%), which implies a 19% downside potential.
The company currently trades at P/E 11x 2015E, an EV/EBITDA of
11.1x and a dividend yield of 0.1%. We used a RFR of 3%, risk
premium 5%, Beta levered 1.54.
STOCK PERFORMANCE
PREWIG
Relative
0
2
4
6
8
10
12
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
n.a. n.a. n.a. n.a. n.a. n.a.
COMPANY DESCRIPTION
PRESCO group is one of the entities operating on the market of purchase and sale of mass-scale consumer receivables in Poland. The Company was established in 1998 and it specialises in the purchasing of portfolios receivables, which have been recognised to be difficult to recover by the primary owners.
Main shareholders % of votes
Andrzejewski Investments Limited 40.7%
Piwonski Investments Limited 40.6%
TFI Legg Maison 5.3%
ANALYSTS
Andrzej Bieniek Securities broker, Investment advisor (+48) 22 586 85 21 [email protected] Dariusz Górski (+48) 22 586 81 00 [email protected]
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes PRE.WA / PRE PW
Sales 65.8 51.4 53.1 57.1 Market capitalisation (PLNm) 76
EBITDA 17.4 10.4 14.3 15.4 Number of shares (m) 19.7
EBIT 16.6 9.6 13.5 14.6 Free float (%) 18.7%
Net income 9.1 2.6 6.8 7.7 Avg. daily turnover 3M (PLNm) 0.004
P/E (x) 8.2 28.5 11.1 9.7 Price performance
1M 3M YTD
EV/EBITDA (x) 7.4 13.9 10.1 9.4 -7.4% 8.4% -39.6% Source: Company data, DM BZ WBK estimates
Polish Equity Research
140
Fig. 1.PRESCO: Residual Income valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E
Net profit 3 7 8
Equity (YE) 116 122 130
ROE 2.3% 5.7% 6.1%
COE 10.7% 10.7% 10.7%
Excess return -8.4% -5.0% -4.6%
Residual income -10 -6 -6
PV of residual income (2014-16E) -17.8
Growth (CAGR) ROE (avg.) Pay-out (avg.) Total value PV
Transition period (2017-2023E) 1.6% 7.2% 30% -38 -18.8
Perpetuity 3.0% 7.4% 30% -80 -29
Total intrinsic value -65.7
# of shares (m) 20
Value per share -3.3
Last reported BVPS 5.9
Fair value (Jan'14) 2.5
Month 10
Fair value (current) 2.8
12 month TP 3.1
Upside potential -19%
Source: Company data, DM BZ WBK estimates
Fig. 2. PRESCO: DCF valuation
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E TV
Revenues 51 53 57 61 64 67 70 72 73 74 75
y/y -22% 3% 8% 7% 6% 5% 4% 3% 2% 1% 1%
EBIT 9.6 13.5 14.6 15.2 14.8 14.8 14.7 14.4 14.0 13.4 13.5
y/y -42% 42% 8% 4% -3% 0% -1% -2% -3% -4% -4%
EBIT margin 19% 25% 26% 25% 23% 22% 21% 20% 19% 18% 18%
Taxes on EBIT 1.8 2.6 2.8 2.9 2.8 2.8 2.8 2.7 2.7 2.5 2.6
NOPAT 7.7 11.0 11.8 12.3 12.0 12.0 11.8 11.7 11.3 10.8 10.9
Depreciation 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8
Portfolio amortisation 14.1 17.1 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0
Portfolio purchase -17.1 -40.0 -40.0 -40.0 -40.0 -40.0 -40.0 -40.0 -40.0 -40.0 -40.0
Capex -0.8 -0.8 -0.8 -0.8 -0.8 -0.8 -0.8 -0.8 -0.8 -0.8 -0.8
WC change 0.3 0.3 0.3 -1.3 0.1 0.3 0.3 0.3 0.3 0.3 0.3
Free cash flow 5.0 -11.7 12.1 11.0 12.1 12.3 12.1 11.9 11.6 11.1 11.2
Discount 0.9 0.8 0.8 0.7 0.7 0.6 0.5 0.5 0.5 0.4 0.4
WACC (2014-23E) 9%
PV FCF (2014-23E) 50
Terminal growth 1.0%
PV Terminal value 55
Total EV 104
Net debt (cash) (YE13) 54
Equity value 51
Number of shares (mn) 19.7
Equity value per share-current (PLN) 2.6
Target price (12-month) 2.8
Upside/downside -26%
Source: BZ WBK Brokerage research, company data
Polish Equity Research
141
Fig. 3. PRESCO: 3Q14 results preview PLN in millions, unless otherwise stated
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Revenues 20.2 14.2 18.1 12.2 14.9 19.2 17.1 14.6 14.4 12.7 10.0 -42% -21%
o/w revaluation of debt portfolios -0.8 -6.8 -2.9 -8.8 -6.2 -1.9 -3.9 -6.5 -4.9 -8.1 -8.0 104% -2%
COGS -11.0 -11.1 -11.2 -6.2 -12.9 -16.5 -8.0 -8.7 -11.8 -9.0 -8.0 0% -11%
EBITDA 8.8 2.9 6.6 5.2 1.6 2.4 7.7 5.7 2.2 3.4 2.1 -73% -38%
EBIT 8.6 2.5 6.0 5.2 1.4 2.2 7.5 5.5 2.0 3.2 1.9 -75% -41%
Net profit 7.2 0.9 4.1 3.3 -0.6 0.7 5.5 3.5 0.1 1.6 0.1 -97% -91%
Purchases of debt portfolio 11 21 29 16 0 -1 -5 20 -1 -2 18 -435% -862%
EBIT margin 42% 17% 33% 42% 10% 11% 44% 38% 14% 25% 19%
Net profit margin 36% 7% 22% 27% -4% 4% 32% 24% 1% 13% 1% Source: Company data, DM BZ WBK estimates
Fig. 4. PRESCO: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 51.4 n.a. 0% 53.1 n.a. 0% 57.1 n.a. 0%
EBITDA 10.4 n.a. 0% 14.3 n.a. 0% 15.4 n.a. 0%
EBIT 9.6 n.a. 0% 13.5 n.a. 0% 14.6 n.a. 0%
Net profit 2.6 n.a. 0% 6.8 n.a. 0% 7.7 n.a. 0% Source: Company data, DM BZ WBK estimates
Fig. 5. PRESCO: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 2.80 n.a. 0%
Residual Income valuation 2.77 n.a. 0%
Blended average target price 3.10 n.a. 0% Source: Company data, DM BZ WBK estimates
Fig.6. PRESCO: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 64.8 65.8 51.4 53.1 57.1
CoGS -39.4 -46.1 -40.2 -37.2 -40.0
Gross profit 25.4 19.7 11.2 15.9 17.1
Management costs -2.7 -3.1 -2.4 -2.5 -2.6
other operating income, net -6.7 -7.5 -6.9 -6.8 -6.9
EBITDA 23.0 17.4 10.4 14.3 15.4
EBIT 22.3 16.6 9.6 13.5 14.6
Financial expenses/income -6.7 -7.5 -6.9 -6.8 -6.9
Pre-tax profit 15.5 9.1 2.6 6.8 7.7
Income tax 0.0 0.0 0.0 0.0 0.0
Net profit 15.5 9.1 2.6 6.8 7.7
Margins
Gross margin 39.2% 29.9% 21.8% 30.0% 30.0%
EBITDA margin 35.4% 26.5% 20.2% 27.0% 27.0%
EBIT margin 34.3% 25.2% 18.6% 25.5% 25.6%
Pre-tax margin 24.0% 13.8% 5.1% 12.7% 13.5%
Effective tax rate -0.2% 0.0% 0.0% 0.0% 0.0%
Net profit margin 24.0% 13.8% 5.1% 12.7% 13.5%
Source: Company data, DM BZ WBK estimates
Fig.7. PRESCO: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 20.7 22.1 8.4 8.4 8.4
L-t assets 172.3 170.1 160.9 160.9 160.9
Total assets 193.0 192.2 169.3 169.3 169.3
Current liabilities 32.9 32.8 32.8 32.8 32.8
o/w debt 29.6 30.4 32.4 32.4 32.4
L-t liabilities 50.4 44.7 45.0 45.0 45.0
o/w debt 50.4 44.6 44.9 44.9 44.9
Equity 107.6 112.8 115.7 122.5 130.2
Source: Company data, DM BZ WBK estimates
Fig.8. PRESCO: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 43.5 37.2 36.7 37.3 35.3
CF from investment -86.6 -11.7 -14.0 -37.0 -37.0
CF from financing 27.3 -13.0 -7.5 -6.9 -6.9
Net change in cash -15.9 12.5 15.2 -6.5 -8.5
Source: Company data, DM BZ WBK estimates
Polish Equity Research
142
This page has been left intentionally blank.
Polish Equity Research
143
Poland Construction & Real Estate
November 12, 2014
RONSON RECOMMENDATION
SELL (INITIATION)
Simply too expensive CURRENT PRICE: PLN1.70
TARGET PRICE: PLN1.53
Equity Story. Ronson offers exposure to the quickly developing
Polish residential construction market. We expect a favourable
2015E outlook for the company, incl. probable growth in sales
volumes and strong profits on rising notary sales. In the short
term, however, we expect net losses in 4Q14/1Q14 on low notary
sales, accompanied by a negative operating cash flow boosting
leverage. Also, having followed the stock’s outperformance in the
last 3M period (compared to its closest peers), we believe the
company became quite expensive. It is trading in line with its NAV
and above the estimated fair P/NAV ratio, which we estimate at
0.96x, taking into account the 2015E ROE and 0.73x based on
our 2016E ROE estimates. We also cannot exclude some share
supply overhang, which theoretically could put some pressure on
the share price. Note for example that U.Dori, Ronson’s major
shareholder, recognised a deep net loss and negative equity in
1H14 and, hypothetically, we think it could decide to divest to
deleverage.
Financials. Following the disappointing 2014E results (net loss),
we expect a strong profit momentum in 2015. We expect the
handing-overs to rise to 950 units next year (from 500 in 2014E)
from the accumulation of completed dwellings (with respect to the
construction schedule) and strong pre-sales in 2014E (c. 700).
We forecast the sales volume at c. 850-900 units annually beyond
2015 (above the 2014E level) and the handing-overs at the same
level.
Triggers/Risks. We see a possible risk in the form of share
supply from U.Dori, which faces a strained balance sheet. The
growing sales volumes could be a major trigger, drawing support
from 1) a low WIBOR3M (past reverse-correlation between
interest rates and apartment sales volumes), 2) a recovery of
mortgage originations on some GDP growth acceleration next
year (past correlation between the GDP rate and mortgage
originations), and 3) a likely further increase in price limits under
the MdM scheme. We think that these factors should more than
offset the negative implication from the maximum LTV fall to 90%
from 2015 on from the current 95%. Another trigger could be
dividend payment next year (from retained profits)
Valuation & recommendation. Based on our DCF model, we
arrived at 12 month TP at PLN1.53 per share, and we issue Sell
recommendation for Ronson.
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
- - - - - -
COMPANY DESCRIPTION
Ronson is a residential developer focusing on Warsaw and Poznan markets.
Main shareholders % of votes
U.Dori Group 39.8%
ITR Dori 39.8%
ING pension fund 7.3%
Metlife pension fund 4.97%
ANALYST
Adrian Kyrcz (+48) 22 586 81 59
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes RONO.WA / RON PW
Sales 207.0 160.4 370.9 314.5 Market capitalisation (PLNm) 463
EBITDA 19.4 0.3 51.1 43.5 Number of shares (m) 272.4
EBIT 18.7 -0.3 50.5 42.8 Free float (%) 20.4%
Net profit 19.0 -4.4 38.3 33.1 Avg. daily turnover 3M (PLNm) 0.2
P/E (x) 24.3 n.m. 12.1 14.0 Price performance
1M 3M YTD
EV/EBITDA (x) 29.7 n.m. 9.8 10.8 -4.0% 18.9% -9.1% Source: Company data, DM BZ WBK estimates
Polish Equity Research
144
Fig. 1. Ronson: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Net sales 160 371 315 310 338 336 334 334 325 320
EBIT 0 50 43 42 45 44 44 43 41 42
Cash taxes on EBIT 0 10 8 8 9 8 8 8 8 8
NOPAT 0 41 35 34 37 36 35 35 33 34
Depreciation 1 1 1 1 1 1 1 1 1 1
Change in operating WC 16 22 1 -4 0 0 0 2 1 1
Capital expenditure -1 -1 -1 -1 -1 -1 -1 -1 -1 -1
Free cash flow 16 63 35 29 37 36 36 37 34 34
Sum of FCFFs PVs 239.5
Risk free rate 3.0%
WACC 8.0%
Residual growth of FCFFs 1.0%
Residual value 493.7
Present value of the residual value 228.6
Ronson’s EV 468.1
Cash and equivalents (2014 bop) 52.2
Interest-bearing debt (2014 bop) 164.0
Dividends 0.0
Equity value 356.2
No. of shares (m) 272.4
Equity value of Ronson per share (PLN) 1.31
Month 11
Current equity value of Ronson per share (PLN)
1.41
12M Target Price (PLN) 1.53
Source: Company data, DM BZ WBK estimates
Fig. 2. Ronson: Comparable valuation to housing developers
P/NAV
Name 2Q14
Dom Development 1.33
Robyg 1.37
Polnord 0.17
JWC 0.44
Inpro 0.90
Vantage 0.55
Median: 0.79
NAV of Ronson as of 2Q14 (PLNmn) 465
Implied equity value of Ronson (PLNmn) 369
Implied equity value of Ronson per share (PLN) 1.36
Source: Bloomberg, BZ WBK research
Polish Equity Research
145
Fig. 3. Ronson: 3Q14 results review PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q
Sales 21 35 7 35 31 126 54 57 57 39 66 47 29.5 -48.5% -37.3%
EBITDA -1.0 4.4 -2.7 2.3 -2.2 29.6 9.0 5.2 4.2 0.1 5.8 1.5 -4.8 -212.2% -416.3%
EBITDA margin -4.8% 12.5% -37.5% 6.6% -6.9% 23.5% 16.7% 9.2% 7.4% 0.3% 8.7% 3.2% -16.1% -3.2 -6.0
EBIT -1.3 4.4 -2.9 2.1 -2.3 29.4 8.9 5.0 4.1 0.0 5.6 1.4 -4.9 -219.6% -462.2%
EBIT margin -6.2% 12.4% -40.2% 6.0% -7.5% 23.4% 16.4% 8.8% 7.2% 0.0% 8.5% 2.9% -16.6% -3.3 -6.8
Net profit 0.4 5.9 -1.1 3.0 -1.6 31.4 9.1 4.0 4.6 0.4 4.2 0.0 -4.9 -206.0% n.m.
Net margin 1.7% 16.7% -14.9% 8.6% -5.2% 24.9% 16.8% 7.1% 8.1% 1.1% 6.3% 0.1% -16.6% -3.1 -167.4
Source: Company data, DM BZ WBK estimates
Fig. 4. Ronson: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 160 n.a n.a 371 n.a n.a 315 n.a n.a
EBITDA 0 n.a n.a 51 n.a n.a 43 n.a n.a
EBIT 0 n.a n.a 50 n.a n.a 43 n.a n.a
Net profit -4 n.a n.a 38 n.a n.a 33 n.a n.a Source: Company data, DM BZ WBK estimates
Fig. 5. Ronson: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 1.53 - -
Comparable valuation (based on 2014-2016E) 1.36 - - Source: Company data, DM BZ WBK estimates
Fig. 6. Ronson: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 199 207 160 371 315
COGS 148 164 135 296 247
Gross profit 50 43 25 75 68
SG&A 22 23 24 25 25
Other operating income, net -2 -1 -1 0 0
EBITDA 27 19 0 51 43
Operating profit 26 19 0 50 43
Net financial income (costs) 2 -1 -4 -3 -2
Profit before tax 28 17 -4 47 41
Income tax 3 1 0 -9 -8
Net profit 32 19 -4 38 33
Gross margin 25.4% 20.6% 15.8% 20.3% 21.6%
EBITDA margin 13.6% 9.4% 0.2% 13.8% 13.8%
Operating margin 13.2% 9.1% -0.2% 13.6% 13.6%
Net profit margin 15.9% 9.2% -2.7% 10.3% 10.5%
Source: Company data, DM BZ WBK estimates
Fig. 7. Ronson: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 749 698 710 791 824
Fixed assets 37 47 47 47 47
Total assets 787 745 757 838 871
Current liabilities 174 124 139 183 182
bank debt 67 20 20 20 20
Long-term liabilities 153 155 155 155 155
bank debt 141 144 144 144 144
Equity 460 467 462 501 534
Total liabilities 787 745 757 838 871
Net debt 163 112 100 40 6
Source: Company data, DM BZ WBK estimates
Fig. 8. Ronson: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations -36 54 20 68 40
CF from investment -8 1 1 2 4
CF from financing -6 -48 -9 -10 -11
Net change in cash -50 7 12 60 34
Source: Company data, DM BZ WBK estimates
Polish Equity Research
146
This page has been left intentionally blank.
Polish Equity Research
147
Poland Health Care
NOVEMBER 12, 2014
SYNEKTIK RECOMMENDATION
BUY (MAINTAINED)
New cyclotron weigh on results CURRENT PRICE: PLN23.53
TARGET PRICE: PLN32.5 (MAINTAINED)
3Q14 Results Preview. We expect Synektik to report
mediocre results, lower y/y across all lines, but visibly
higher than in 1-2Q14. Such dynamics is also an effect of
high base from 3Q13. In radiopharmacy segment earnings
were depressed by opex and depreciation costs of Warsaw
cyclotron, which is still in registration process. ‘Old
business’ should perform quite well mostly due to
settlement of contract for MRI scanner shipment to
Oncology Hospital in Gliwice. We expect distribution and IT
segment to report PLN16.5mn sales, -5% y/y. Overall, we
see company to report sales of PLN22.4mn, with an
EBITDA of PLN3.4mn and a net profit of PLN1.6mn.
Outcome: NEUTRAL.
Deal with Iason GmbH. Synektik purchased rights to four
radiopharmaceuticals - EFDEGE, IASOflu, IASOdopa and
IASOcholine - for EUR2.77mn in Poland, Lithuania, Latvia,
Estonia, Ukraine and Belarus. It also bought the right to
produce and sell those radiopharmaceuticals in then Czech
Republic and Slovakia. According to our calculations,
Synektik paid 4-5x this year’s license fee, which we have
estimated is at 12% of sales, and gained access to several
new markets. We expect 2-3k doses to be sold on the new
markets.
Change in Forecasts. We apply no changes to our model.
Change in Valuation & Recommendation. We keep our
12-month Target Price for Synektik at PLN32.5 and
maintain our Buy rating for the stock. The comparative
valuation points to PLN27.6 per share.
STOCK PERFORMANCE
SNT
TP
WIG Relative
0
5
10
15
20
25
30
35
40
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10-21-2014 22.7 32.5 3.6% 2.9
Buy 7-9-2014 21.0 35.9 8.1% 3.2
Buy 4-28-2014 25.1 32.9 -16.4% -14.8
Buy 1-30-2014 22.5 31.3 11.7% 9.5
MAIN SHAREHOLDERS
% of votes
Melhus Company Limited 25.0%
Templeton Asset Management 10.8%
ING pension fund 10.0%
PZU mutual fund 8.7%
Altus mutual fund 7.5%
Trigon mutual fund 5.4%
Norges Bank 5.2%
Noble mutual fund 5.1%
COMPANY DESCRIPTION
Synektik is a healthcare company focused on radiology segment.
ANALYST
Lukasz Kosiarski (+48) 22 586 82 25
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes SNTP.WA / SNT PW
Sales 77.4 85.2 101.3 105.6 Market capitalisation (PLNm) 201
EBITDA 14.2 12.4 19.0 21.5 Number of shares (m) 8.5
EBIT 10.3 6.8 14.5 17.0 Free float (%) 75.0%
Net income 7.7 5.8 12.1 14.1 Avg. daily turnover 3M (PLNm) 0.3
P/E (x) 28.3 37.7 18.0 15.4 Price performance
1M 3M YTD
EV/EBITDA (x) 13.7 16.4 9.9 7.9 9.4% 12.7% 14.8% Source: Company data, DM BZ WBK estimates
Polish Equity Research
148
Fig. 1. Synektik: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Sales 9.0 19.2 6.9 9.2 16.4 28.9 11.9 10.5 24.3 32.2 9.3 18.7 22.4 -7.9% 19.4%
EBITDA 0.5 1.6 -1.3 0.1 0.5 3.9 1.3 1.7 4.2 7.0 1.0 2.0 3.4 -18.6% 71.9%
EBITDA margin 5.3% 8.4% -18.8% 0.7% 2.9% 13.4% 11.2% 16.3% 17.2% 21.8% 11.2% 10.6% 15.2% -2.0 4.6
EBIT 0.2 1.3 -2.0 -0.7 -0.3 3.2 0.6 0.9 3.4 6.2 0.3 0.5 1.7 -49.8% 219.7%
EBIT margin 2.7% 6.5% -29.3% -7.3% -1.6% 10.9% 5.0% 8.9% 13.9% 19.4% 2.9% 2.8% 7.6% -6.3 4.8
Net profit 0.2 1.0 -1.9 -0.9 -0.6 2.8 0.3 0.6 2.9 4.7 0.3 0.4 1.6 -44.2% 264.2%
Net margin 1.8% 5.0% -28.0% -9.4% -3.9% 9.8% 2.4% 5.8% 11.8% 14.7% 2.9% 2.3% 7.1% -4.7 4.8
Source: Company data, DM BZ WBK estimates
Fig. 2. Synektik: Forecasts changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 85.2 85.2 0.0% 101.3 101.3 0.0% 105.6 105.6 0.0%
EBITDA 12.4 12.4 0.0% 19.0 19.0 0.0% 21.5 21.5 0.0%
EBIT 6.8 6.8 0.0% 14.5 14.5 0.0% 17.0 17.0 0.0%
Net profit 5.8 5.8 0.0% 12.1 12.1 0.0% 14.1 14.1 0.0% Source: Company data, DM BZ WBK estimates
Fig. 3. Synektik: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 32.50 32.50 0.0%
Comparable valuation (based on 2014-2016E) 27.60 27.60 0.0% Source: Company data, DM BZ WBK estimates
Fig. 4. Synektik: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 61.5 77.4 85.2 101.3 105.6
COGS 42.5 45.0 55.5 59.6 59.8
Gross profit 19.0 32.3 29.7 41.7 45.8
SG&A 18.9 22.1 22.9 27.1 28.8
Other operating income, net -0.3 0.2 0.0 0.0 0.0
EBITDA 2.8 14.2 12.4 19.0 21.5
Operating profit -0.1 10.3 6.8 14.5 17.0
Net financial income (costs) -0.8 -1.1 0.1 0.3 0.4
Profit before tax -1.0 9.2 6.9 14.9 17.4
Income tax 0.0 1.5 1.1 2.8 3.3
Net profit -0.9 7.7 5.8 12.1 14.1
Gross margin 30.9% 41.8% 34.8% 41.1% 43.3%
EBITDA margin 4.6% 18.4% 14.5% 18.8% 20.4%
Operating margin -0.2% 13.4% 7.9% 14.4% 16.1%
Net profit margin -1.5% 9.9% 6.8% 11.9% 13.3%
Source: Company data, DM BZ WBK estimates
Fig. 5. Synektik: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 37.5 59.0 51.3 70.2 88.4
Fixed assets 22.5 43.8 48.7 45.5 42.0
Total assets 60.1 102.9 100.0 115.7 130.4
Current liabilities 34.5 39.0 31.2 36.7 38.1
bank debt 3.2 3.4 2.5 2.5 2.5
Long-term liabilities 8.0 8.9 7.2 5.4 4.6
bank debt 7.0 7.9 6.1 4.3 3.5
Equity 17.5 54.9 61.6 73.6 87.7
share capital 3.3 3.4 4.3 4.3 4.3
Minority Interest 0.0 0.0 0.0 0.0 0.0
Total liabilities 60.1 102.8 100.0 115.7 130.4
Net debt -3.7 -21.7 -14.1 -29.5 -47.0
Source: Company data, DM BZ WBK estimates
Fig. 6. Synektik: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 1.4 13.3 2.0 16.6 18.6
CF from investment -3.5 -24.4 -10.5 -1.2 -1.1
CF from financing -1.6 31.0 -1.8 -1.8 -0.8
Net change in cash -3.7 19.9 -10.4 13.6 16.8
Source: Company data, DM BZ WBK estimates
Polish Equity Research
149
Poland Construction & Real Estate
NOVEMBER 12, 2014
TESGAS RECOMMENDATION
BUY (MAINTAINED)
Nothing new CURRENT PRICE: PLN 4.5
TARGET PRICE: PLN 7.4 (MAINTAINED)
Equity Story: Our investment view on Tesgas has not changed.
Similar to Atrem’s case, the long-awaited margin rebound in the
construction niches where Tesgas operates is not materialising
and it is unlikely to emerge any time soon. In our view, we will
have to wait a little longer to see better times arrive in terms of the
generated margins on contracts. On the other hand, we do not
change our view on Tesgas. For us, it is operating in an attractive
natural gas niche of the construction market, which also offers
exposure to the new round of EU funds’ flow, and it is well-
balanced with an estimated FY’14 net cash of PLN20mn (c. 50%
of the market capitalisation). In this light, we believe Tesgas, like
Atrem, is well-prepared for a rebound in margins, which, in our
view, will finally materialise sometime ahead.
Change in valuation & recommendation. Our DCF-based
valuation remains nearly unchanged at PLN7.40/share. The
comparative valuation points to PLN4.30/share.
PUBLICATION DATE
NOVEMBER 14, 2014
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10/22/2014 4.2 7.4 6.9% 6.4
Buy 4/28/2014 5.0 7.8 -16.5% -19.9
Buy 3/31/2014 5.1 7.8 -1.2% 0.4
Buy 1/30/2014 4.8 7.4 5.2% 1.3
COMPANY DESCRIPTION
Tesgas is an engineering company specializing in the construction of a great variety of natural gas facilities as well
as providing maintenance services for the largest natural gas network operators, namely PGNiG and Gaz System.
ANALYST
Tomasz Sokolowski (+48) 22 586 82 36
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes TSGP.WA / TSG PW
Sales 60.7 78.9 93.7 103.4 Market capitalisation (PLNm) 51
EBITDA 3.7 4.2 5.0 7.4 Number of shares (m) 11.4
EBIT 1.3 2.1 2.8 5.1 Free float (%) 17.9%
Net income 3.5 0.0 3.7 5.8 Avg. daily turnover 3M (PLNm) 0.1
P/E (x) 14.7 n.a. 13.9 8.7 Price performance
1M 3M YTD
EV/EBITDA (x) 7.8 7.3 5.8 3.5 10.6% 2.1% 29.9% Source: Company data, DM BZ WBK estimates
Polish Equity Research
150
Fig. 1. Tesgas: 3Q14 results review PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y (%) q/q (%)
Sales 31.9 47.9 23.1 18.4 21.3 28.8 11.6 11.7 18.1 19.4 16.9 18.3 24.6 36.3% 34.3%
EBITDA 2.1 8.9 3.5 -21.7 1.6 4.2 0.4 0.3 1.0 1.8 0.3 -0.3 0.9 -6.5% -462.9%
EBITDA margin 6.7% 18.5% 15.0% -117.9% 7.4% 14.6% 3.2% 2.7% 5.6% 9.5% 1.7% -1.4% 3.8% -175 523
EBIT 1.4 8.1 2.7 -22.5 1.0 3.4 -0.3 -0.4 0.4 1.6 -0.4 -1.0 0.2 -60.1% -117.4%
EBIT margin 4.3% 16.9% 11.6% -122.1% 4.5% 11.8% -2.8% -3.4% 2.4% 8.1% -2.4% -5.5% 0.7% -171 616
Net profit 1.9 5.9 2.1 -48.7 1.1 3.4 -0.1 -0.2 0.2 3.6 -0.1 -0.7 0.3 111.1% -144.3%
Net margin 6.0% 12.3% 8.9% -264.5% 5.0% 11.9% -0.9% -1.7% 0.8% 18.6% -0.6% -4.0% 1.3% 47 529
Source: Company data, DM BZ WBK estimates
Fig. 2. Tesgas: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 78.9 78.9 0.0% 93.7 93.7 0.0% 103.4 103.4 0.0%
EBITDA 4.2 4.2 0.2% 5.0 7.0 -27.9% 7.4 7.8 -4.8%
EBIT 2.1 2.1 -1.2% 2.8 4.7 -40.1% 5.1 5.4 -6.1%
Net profit 0.0 3.0 n.a. 3.7 5.8 -37.0% 5.8 6.4 -8.8%
Source: Company data, DM BZ WBK estimates
Fig. 3. Tesgas: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 7.4 7.4 n.a.
Comparable valuation (based on 2014-2016E) 4.3 4.4 -2.3% Source: Company data, DM BZ WBK estimates
Fig. 4. Tesgas: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 91.6 60.7 78.9 93.7 103.4
COGS 74.8 50.1 66.3 79.6 86.6
Gross profit 16.8 10.6 12.6 14.0 16.8
SG&A 10.9 9.7 10.5 11.2 11.8
Other operating income, net -21.3 0.3 0.0 0.0 0.0
EBITDA -13.1 3.7 4.2 5.0 7.4
Operating profit -15.4 1.3 2.1 2.8 5.1
Net financial income (costs) -0.1 -1.7 -1.0 -1.0 -0.9
Profit before tax -15.3 2.9 3.0 3.8 6.0
Income tax 0.8 -0.5 0.0 0.0 0.0
Net profit -14.6 3.5 0.0 3.7 5.8
Gross margin 18.3% 17.5% 16.0% 15.0% 16.3%
EBITDA margin -14.3% 6.1% 5.3% 5.4% 7.2%
Operating margin -16.9% 2.1% 2.6% 3.0% 4.9%
Net profit margin -15.9% 5.7% 0.0% 3.9% 5.6%
Source: Company data, DM BZ WBK estimates
Fig. 5. Tesgas: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 69.7 70.1 77.5 86.2 94.7
Fixed assets 51.4 49.2 50.1 51.5 53.2
Total assets 122.6 121.4 129.9 139.9 150.1
Current liabilities 20.6 21.4 27.2 31.8 34.9
bank debt 2.9 2.3 2.3 2.3 2.3
Long-term liabilities 14.5 12.4 12.5 12.5 12.5
bank debt 14.4 12.3 12.3 12.3 12.3
Equity 76.1 79.5 79.5 83.2 89.0
share capital 11.4 11.4 11.4 11.4 11.4
Minority Interest 1.3 1.2 1.3 1.4 1.5
Total liabilities 122.6 121.4 129.9 139.9 150.1
Net debt -16.8 -22.2 -20.3 -21.6 -25.2
Source: Company data, DM BZ WBK estimates
Fig. 6. Tesgas: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 9.7 6.3 0.6 4.8 7.5
CF from investment 24.4 -0.9 -3.0 -3.6 -4.0
CF from financing -31.2 -2.8 0.6 0.1 0.1
Net change in cash 2.9 2.6 -1.8 1.3 3.6
Source: Company data, DM BZ WBK estimates
Polish Equity Research
151
Poland Construction & Real Estate
November 12, 2014
TRAKCJA RECOMMENDATION
BUY (MAINTAINED)
Relatively cheap CURRENT PRICE: PLN1.15
TARGET PRICE: PLN1.22 (MAINTAINED)
Equity story. We maintain our positive view on Trakcja and see
an upside risk to our 2014E financial forecast following the strong
and slightly better-than-expected 3Q14 results (net profit +63%
y/y, positive operating CF, leverage q/q reduction). Even keeping
our original FY forecasts intact, the company is relatively cheap,
trading at a 2014E P/E of 11.3x, which offers 20% and 27%
discounts to its Polish and Western peers, respectively. The
healthy gross margin at 9.5% in 9M14 also suggests a significant
upside risk to our FY15 forecast (6% expected by us), we
maintain, however, our profit projection to stay on the safe side.
We are also optimistic on the LT outlook for Trakcja since
investments in the sector should accelerate in the coming years
underpinned by EU funds (see the note below for details). Having
said that, we believe in Trakcja’s backlog development in 2015,
although some delay cannot be excluded given the poor track
record of PKP PLK when it comes to smooth contracts’
distribution). We also like the company’s plans for entering new
foreign markets, such as in Scandinavia and the Belarus, which
would constitute an upside to our projections.
Change in forecasts. We maintain our financial forecast for
Trakcja intact.
Results outlook. We estimate that our FY2014/15 sales forecast
is secured by the backlog in 100%/80%, which is high. We
maintain our view that the company’s sales should rebound after
2015 thanks to EU funds’ flow. According to initial estimates, PKP
PLK may get up to PLN45bn from the EU for railway tracks’
construction/renovation in the 2014–2020 period (cash transfers
over 2016– 2022). All in all, spending might reach a total of
approx. PLN60bn, assuming PKP PLK’s contribution is at 25%. If
PKP uses 75% of the available funds, annual investments could
reach PLN6.4bn. We estimate that this would be 35% more than
the average for the 2009–2015E period.
Triggers & Risks. Potential triggers: 1) strong 4Q14 results, 2)
further leverage reduction, 3) signing of new large railway
contracts co-financed by EU finds, 4) dividend payment, 5)
expansion into new foreign markets (Scandinavia, Belarus).
Risks: 1) growth in construction material prices at times of an
accumulation of construction projects in the railway sector, 2)
foreign contractors putting pressure on margins in the sector, 3)
PKP PLK’s inefficiency in utilising EU funds and distributing
contracts to contractors.
Change in Valuation & Recommendation. We maintain our TP
for Trakcja at PLN1.22. We also maintain our Buy
recommendation.
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10-22-2014 1.11 1.22 3.6% 3.1
Hold 7-9-2014 1.00 0.97 11.0% 5.9
Sell 4-28-2014 1.30 0.93 -23.1% -21.4
Sell 1-30-2014 1.3 0.8 0.0% -2.3
Sell 10-23-2013 1.1 0.8 18.2% 23.7
COMPANY DESCRIPTION
Trakcja is a contractor with focus on building railways and roads. The insignificant part of the Company’s business constitutes residential development activity.
Main shareholders % of votes
Comsa 28.8%
ING pension fund 12.9%
ANALYST
Adrian Kyrcz (+48) 22 586 81 59
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes TRKP.WA / TRK PW
Sales 1 675.0 1 756.3 1 750.0 1 841.3 Market capitalisation (PLNm) 473
EBITDA 73.6 88.2 74.1 86.3 Number of shares (m) 411.2
EBIT 50.5 64.8 50.1 61.7 Free float (%) 60.6%
Net income 37.7 41.9 30.2 38.5 Avg. daily turnover 3M (PLNm) 2.0
P/E (x) 12.5 11.3 15.7 12.3 Price performance
1M 3M YTD
EV/EBITDA (x) 7.8 7.2 8.7 7.5 3.6% 13.9% -10.9% Source: Company data, DM BZ WBK estimates
Polish Equity Research
152
Fig. 1. Trakcja: 3Q14 results review PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y (%) q/q (%)
Sales 726.5 748.7 201.2 381.6 404.0 359.0 150.0 405.8 531.3 587.8 239.1 340.0 459.0 -13.6% 35.0%
EBITDA 32.3 93.2 -0.2 50.6 12.9 -12.9 -11.4 36.0 33.1 15.8 3.9 28.5 38.7 16.8% 35.9%
EBITDA margin 4.4% 12.4% -0.1% 13.3% 3.2% -3.6% -7.6% 8.9% 6.2% 2.7% 1.6% 8.4% 8.4% 0.4 0.0
EBIT 22.2 67.9 -6.3 43.1 5.9 -19.6 -17.1 30.3 27.5 9.8 -1.9 22.5 32.6 18.7% 45.0%
EBIT margin 3.1% 9.1% -3.1% 11.3% 1.5% -5.5% -11.4% 7.5% 5.2% 1.7% -0.8% 6.6% 7.1% 0.4 0.1
Net profit 1.0 84.8 -7.8 28.3 -1.1 -33.6 -21.3 21.8 21.3 16.0 -5.1 14.1 23.8 11.6% 68.0%
Net margin 0.1% 11.3% -3.9% 7.4% -0.3% -9.4% -14.2% 5.4% 4.0% 2.7% -2.1% 4.2% 5.2% 0.3 0.2
Source: Company data, DM BZ WBK estimates
Fig. 2. Trakcja: Forecasts changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 1756 1756 0% 1750 1750 0% 1841 1841 0%
EBITDA 88 88 0% 74 74 0% 86 86 0%
EBIT 65 65 0% 50 50 0% 62 62 0%
Net profit 42 42 0% 30 30 0% 39 39 0% Source: Company data, DM BZ WBK estimates
Fig. 3. Trakcja: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 1.22 1.22 0%
Comparable valuation 0.89 0.89 0% Source: Company data, DM BZ WBK estimates
Fig. 4. Trakcja: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 1347 1675 1756 1750 1841
COGS 1305 1530 1637 1646 1721
Gross profit 42 108 119 104 120
SG&A 58 59 54 54 58
Other operating income, net 45 1 0 0 0
EBITDA 55 74 88 74 86
Operating profit 28 50 65 50 62
Net financial income (costs) -28 -18 -13 -13 -14
Profit before tax 1 33 52 37 48
Income tax -13 5 -10 -7 -9
Net profit -12 38 42 30 39
Gross margin 3.1% 6.5% 6.8% 6.0% 6.5%
EBITDA margin 4.1% 4.4% 5.0% 4.2% 4.7%
Operating margin 2.1% 3.0% 3.7% 2.9% 3.4%
Net profit margin -0.9% 2.2% 2.4% 1.7% 2.1%
Source: Company data, DM BZ WBK estimates
Fig. 5. Trakcja: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 628 923 927 948 1024
Fixed assets 699 720 713 706 698
Total assets 1327 1643 1640 1653 1723
Current liabilities 669 875 848 831 861
bank debt 186 202 202 200 200
Long-term liabilities 164 133 115 115 116
bank debt 111 69 50 50 50
Equity 494 635 677 707 745
Total liabilities 1327 1643 1640 1653 1723
Net debt 176 188 205 181 147
Source: Company data, DM BZ WBK estimates
Fig. 6. Trakcja: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 118 -120 12 54 65
CF from investment -66 -10 -16 -17 -16
CF from financing -116 -5 -33 -15 -15
Net change in cash -63 -136 -37 22 33
Source: Company data, DM BZ WBK estimates
Polish Equity Research
153
Poland Construction & Real Estate
November 12, 2014
UNIBEP RECOMMENDATION
BUY (INITIATION)
Capitalizing on housing boom CURRENT PRICE: PLN 7.96
TARGET PRICE: PLN 9.2
Equity Story. Unibep has become the ‘first choice contractor’ for
many top residential developers, thanks to its high-quality service
in home-building. We think that the housing boom in Poland
should further support the company’s backlog development and
performance of the construction division, as well as homes sale
volumes of its Unidevelopment subsidiary. We also believe the
company already learnt its lesson from its presence in the
Norwegian market and the modular home construction there, as
well as road construction in Poland (poor margins so far). This is
why we think the profitability of both these business lines should
finally reach targeted levels. Valuation-wise, Unibep is relatively
cheap. The P/E multiple for 2015 at 11.1x is not demanding and
offers a double-digit discount for the peers’ median.
Financials. The 4Q14 outlook is promising. The company is
scheduled to complete two residential projects (Lycke and
Czarnieckiego), which should boost its q/q notary sales. We also
expect y/y growth in sales and profits from residential business in
2015E. Residential construction is a high margin business line
and these projects should strongly and positively help Unibep’s
quarterly figures, in our view. In 2015E, we forecast a double-digit
profit growth on some margin rebound and a marginal sales
increase. In details, we forecast flat sales from the construction
business, with risk on the upside, and a slight (6%) increase in
sales from the modular home construction, with respect to the
company’s further expansion into Norway and Germany. We also
expect a flat sales from road projects. Beyond 2015, we forecast
flat sales from the aforementioned business lines and gross
margin stabilisation.
Triggers/Risks. The company’s high reliance on the construction
business in Eastern markets (>20% of backlog) is the major risk
factor. Any worsening of the investment climate in Russia may
harm business development there. On the other hand, the
expected profit growth in 2015E might be a trigger for the share
market price. Also conclusion of the disposal of non-core property
(of BV of c. PLN22mn) could be another share price trigger.
Valuation & recommendation. Based on our DCF model, we
arrived at 12 month TP at PLN9.2 per share. We issue Buy
recommendation.
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
- - - - - -
COMPANY DESCRIPTION
Unibep is a general contractor and residential projects developer. Company is focusiing on general construction works and roads construction.
Main shareholders % of votes
Ms. Zofia Mikoluszko 26.2%
Ms. Zofia Iwona Stajkowska 17.1%
Ms. Beata Maria Skowronska 16.9%
Aviva pension fund 9.8%
Aviva mutual fund 5.0%
ANALYST
Adrian Kyrcz (+48) 22 586 81 59
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes UERB.WA / ERB PW
Sales 920.5 1 177.8 1 204.1 1 186.6 Market capitalisation (PLNm) 279.2
EBITDA 34.0 34.1 39.1 36.4 Number of shares (m) 35.1
EBIT 28.1 27.9 32.9 30.2 Free float (%) 38.9%
Net income 16.2 20.7 24.6 22.7 Avg. daily turnover 3M (PLNm) 0.1
P/E (x) 16.9 13.2 11.1 12.1 Price performance
3M 3M YTD
EV/EBITDA (x) 7.4 8.9 7.4 7.5 7.6% 10.6% -0.5% Source: Company data, DM BZ WBK estimates
Polish Equity Research
154
Fig. 1. Unibep: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Net sales 1178 1204 1187 1197 1190 1183 1183 1183 1183 1183
EBIT 28 33 30 31 29 28 27 27 26 25
Cash taxes on EBIT 5 6 6 6 6 5 5 5 5 5
NOPAT 23 27 24 25 24 23 22 22 21 20
Depreciation 6 6 6 6 6 6 6 6 6 7
Change in operating WC -67 -4 3 -2 1 1 0 0 0 0
Capital expenditure -6 -6 -6 -6 -6 -6 -6 -6 -6 -7
Free cash flow -44 22 27 23 25 24 22 22 21 20
Sum of FCFFs PVs 93.6
Risk free rate 3.0%
WACC 8.0%
Residual growth of FCFFs 1.0%
Residual value 292.7
Present value of the residual value 135.7
Unibep’s EV 229.3
Cash and equivalents (2014 bop) 90.5
Interest-bearing debt (2014 bop) 67.4
Dividends 4.2
Equity value 248.2
No. of shares (m) 35.1
Equity value of Unibep per share (PLN) 7.1
Month 11 Current equity value of Unibep per share (PLN)
7.6
12M equity value per share (PLN) 8.2
Real estate per share (PLN)* 0.9
12M TP inc. Real Estate (PLN) 9.2
Source: Company data, DM BZ WBK estimates, *please see table below for details
Fig. 2. Unibep: Real estate value calculation PLN in millions, unless otherwise stated
Property name Property BV Discount applied Estimated value Estimated value per share (PLN)
Prymasa Tysiaclecia Land 22 20% 17.7 0.50
Przytycka Land 31 50% 15.3 0.44
Source: Company data, DM BZ WBK estimates
Fig. 3. Unibep: Comparable valuation
P/E EV/EBITDA
Name 2014E 2015E 2016E 2014E 2015E 2016E
Acciona 51.2 27.0 18.6 8.8 8.4 8.1
Astaldi 5.8 4.9 4.3 5.6 5.2 4.9
Bilfinger Berger 12.7 9.9 8.7 6.0 4.9 4.4
Eiffage 12.7 10.6 8.9 7.8 7.6 7.3
Ferrovial 33.7 30.0 25.9 20.1 19.2 18.3
Skanska 17.2 15.0 13.9 11.3 10.2 9.7
Strabag 13.0 11.2 9.8 3.6 3.4 3.3
Vinci 12.6 12.4 11.6 7.5 7.4 7.2
Hochtief 17.5 14.3 11.8 4.3 4.1 3.9
Median - Western peers 13.0 12.4 11.6 7.5 7.4 7.2
Atrem 13.1 24.1 11.3 5.0 6.5 4.3
Tesgas - 12.6 7.9 6.1 4.8 2.8
Erbud 15.5 13.5 11.8 15.5 13.6 11.9
Trakcja 10.8 15.0 11.7 8.7 7.5 8.5
Budimex 20.7 19.8 14.7 10.6 9.8 6.7
Elektrobudowa 15.3 10.1 8.5 6.3 4.7 4.2
Median - Polish peers 15.3 14.3 11.5 7.5 7.0 5.5
Average implied share price of Unibep in PLN (Polish peers) 9.2 10.2 7.6 6.6 7.5 5.9
Average implied share price of Unibep in PLN (Western peers) 8.5 8.5 7.3 6.6 8.0 7.7
Average implied share price of Unibep (PLN) 7.8
Source: Bloomberg, BZ WBK research, company data
Polish Equity Research
155
Fig. 4. Unibep: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Sales 271.3 300.0 141.6 225.5 250.5 220.3 195.5 240.2 256.1 228.8 201.3 260.6 307.2 19.9% 17.9%
EBITDA 11.6 15.3 6.6 4.7 10.3 4.1 5.8 9.0 9.5 9.7 4.4 10.3 10.0 4.8% -3.1%
EBITDA margin 4.3% 5.1% 4.6% 2.1% 4.1% 1.9% 3.0% 3.8% 3.7% 4.3% 2.2% 3.9% 3.2% -0.1 -0.2
EBIT 9.9 15.2 5.2 3.3 9.0 2.7 4.3 7.6 8.0 8.2 2.7 8.6 8.2 3.0% -3.7%
EBIT margin 3.7% 5.1% 3.7% 1.5% 3.6% 1.2% 2.2% 3.2% 3.1% 3.6% 1.4% 3.3% 2.7% -0.1 -0.2
Net profit 3.8 11.0 2.4 6.4 4.1 3.8 2.5 4.1 4.5 2.5 3.0 4.7 4.7 4.6% 1.1%
Net margin 1.4% 3.7% 1.7% 2.9% 1.7% 1.7% 1.3% 1.7% 1.8% 1.1% 1.5% 1.8% 1.5% -0.1 -0.1
Source: Company data. DM BZ WBK estimates
Fig. 5. Unibep: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 1178 n.a. n.a. 1204 n.a. n.a. 1187 n.a. n.a.
EBITDA 34 n.a. n.a. 39 n.a. n.a. 36 n.a. n.a.
EBIT 28 n.a. n.a. 33 n.a. n.a. 30 n.a. n.a.
Net profit 21 n.a. n.a. 25 n.a. n.a. 23 n.a. n.a.
Source: Company data, DM BZ WBK estimates
Fig. 6. Unibep: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 9.2 - -
Comparable valuation (based on 2014-2016E) 7.8 - - Source: Company data, DM BZ WBK estimates
Fig. 7. Unibep: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 838 921 1178 1204 1187
COGS 788 862 1119 1140 1124
Gross profit 49 58 59 64 62
SG&A 31 31 31 32 32
Other operating income, net 2 1 0 0 0
EBITDA 26 34 34 39 36
Operating profit 20 28 28 33 30
Net financial income (costs) -5 -5 -2 -3 -2
Profit before tax 15 23 26 30 28
Income tax 1 -7 -5 -6 -5
Net profit 17 16 21 25 23
Gross margin 5.9% 6.3% 5.0% 5.4% 5.3%
EBITDA margin 3.1% 3.7% 2.9% 3.2% 3.1%
Operating margin 2.4% 3.1% 2.4% 2.7% 2.5%
Net profit margin 2.0% 1.8% 1.8% 2.0% 1.9%
Source: Company data, DM BZ WBK estimates
Fig. 8. Unibep: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 473 409 498 521 532
Fixed assets 107 145 145 145 145
Total assets 580 554 643 666 677
Current liabilities 299 245 307 312 308
bank debt 107 33 33 33 33
Long-term liabilities 109 123 134 135 134
bank debt 24 34 34 34 34
Equity 172 186 202 220 235
Total liabilities 580 554 643 666 677
Net debt 94 -23 23 9 -8
Source: Company data, DM BZ WBK estimates
Fig. 9. Unibep: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 29 46 -31 33 37
CF from investment -58 81 -5 -5 -4
CF from financing 23 -72 -10 -13 -15
Net change in cash -6 54 -46 14 17
Source: Company data, DM BZ WBK estimates
Polish Equity Research
156
This page has been left intentionally blank.
Polish Equity Research
157
Poland FINANCIALS
NOVEMBER 12, 2014
VOTUM RECOMMENDATION
BUY (INITIATION)
History likes to repeat itself? CURRENT PRICE: PLN 7.5
TARGET PRICE: PLN 9.9
Equity Story. Votum provides a broad range of services related to
assistance in obtaining compensation from insurance companies.
Assistance in claiming compensation for personal injuries of road accident
victims, bodily injuries and death of a close relative represents the vast of
majority of its business. The company also has its own clinic, where its
clients and those injured can get rehab (the clinic should be around its
breakeven point in 2014). Votum derives its revenues from two main
segments: cases settled directly with insurers that typically agree to pay
more (c. 2x) than they would pay the claimants otherwise and the more
complex or larger cases that are typically settled by Votum’s law firm in
court proceedings, allowing Votum to earn a higher fee. Based on our
estimates, the company trades at 10x 2015E P/E and an EV/BITDA of
5.8x. Our DCF and peer group-derived TP of PLN9.9/share implies a 32%
upside potential. We are initiating our coverage with a BUY rating.
Financials. We expect strong growth in the years ahead. We expect a
more modest growth rate ahead resulting in a CAGR of 15% in revenues.
This, coupled with stable margins, should translate into a 24% CAGR of
net profit in the period. Strong cash generation should allow Votum to pay
substantial dividends (pay-out ratio of PLN6mn and 50% above the
PLN6mn of net profit) and, unless it embarks on major acquisitions or
broader geographical expansion, its dividend yield could be as high as 8%
in 2016E vs. 6% in 2013. Its ROE could be above 41% by 2016.
Triggers/Risks. In 2Q14, Votum’s casework was worth PLN970mn
(PLN394mn in courts and PLN577 pre-courts), up from PLN358mn in
YE12. The number of cases rose to 24 from 14 in 2012. The average
length of a court case is about two years and one year for the pre-court
cases. We expect cases from 2012-2013 to start closing in 2015-2016
and the company is set to show a significant rise in revenues and
earnings. The story should be similar to EuCO’s in 2013.
Valuation & recommendation. We have set a 12-month TP of PLN
9.9/share using a blend of DCF and comparable company multiples. The
implied 32% upside may seem steep, but at our TP Votum multiples
(13.5x 2015 earnings and 8.3 EV/EBITDA) it would only be marginally
above the current median for the peers. We think our TP is justified by
Votum’s superb ROE and net profit margin (11%).
STOCK PERFORMANCE
VOTWIG
Relative
0
1
2
3
4
5
6
7
8
9
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
n.a. n.a. n.a. n.a. n.a. n.a.
COMPANY DESCRIPTION
Votum specialises in servicing personal injury claims typically on behalf of victims of motor accidents. It is one of the leading player in Poland. It’s in house legal practice pursues more complex cases in courts..
Main shareholders % of votes
DSA Financial Group 47.3%
Mr. Adam Gilowski 22.3%
Quercus TFI 7.1%
Mr. Andrzej Dadełło 5.8%
ANALYSTS
Andrzej Bieniek Securities broker, Investment advisor (+48) 22 586 85 21 [email protected] Dariusz Górski (+48) 22 586 81 00 [email protected]
Company Data
PLNmn 2013 2014E 2015E 2016E Reuters/Bloomberg codes VOT.WA / VOT PW
Sales 58 69 79 88 Market capitalisation (PLNm) 90
EBITDA 7 10 13 14 Number of shares (m) 12
EBIT 6 8 11 13 Free float (%) 17.5%
Net income 5 6 9 10 Avg. daily turnover 3M (PLNths) 11
P/E (x) 17.6 14.9 10.5 9.3 Price performance
1M 3M YTD
EV/EBITDA (x) 10.9 7.9 6.0 5.5 4.2% 14.5% 19.64 Source: Company data, DM BZ WBK estimates
Polish Equity Research
158
Fig. 1.Votum: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Net sales 68.6 78.9 88.4 97.6 106.3 114.0 120.5 125.5 128.7 130.0
y/y 15% 12% 10% 9% 7% 6% 4% 3% 1%
EBIT 8.3 11.3 12.8 13.6 14.3 14.7 15.0 15.0 14.7 14.2
EBIT margin 12.1% 14.4% 14.4% 13.9% 13.4% 12.9% 12.4% 11.9% 11.4% 10.9%
Taxes on EBIT 1.6 2.2 2.4 2.6 2.7 2.8 2.8 2.8 2.8 2.7
NOPAT 6.7 9.2 10.3 11.0 11.6 11.9 12.1 12.1 11.9 11.5
Depreciation 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3
Capex -1.3 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3
WC change -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5
Free cash flow 6.2 8.7 9.8 10.5 11.1 11.4 11.6 11.6 11.4 11.0
WACC (2014-23E) 9.1%
PV FCF (2014-23E) 64
Terminal growth 1.0%
PV Terminal value 58
Total EV 121
Net debt (cash) (YE13) 11
Equity value 110
Number of shares (mn) 12.0
Equity value per share-current (PLN) 9.2
Target price (12-month) 10.0
Upside/downside 33%
Source: Company data, DM BZ WBK estimates
Fig. 2. Votum: Comparable valuation
Market Cap Current P/E EV/EBITDA
Company Price Currency (EURm) fiscal year 2014E 2015E 2016E 2014E 2015E 2016E
Domestic peers
Kruk S.A. 106.35 PLN 429 12/14 Y 13.3 12.0 10.0 12.7 11.3 9.7
EuCO 25.50 PLN 34 12/14 Y 11.5 10.6 9.8 9.6 8.3 7.5
Open Finance SA 5.78 PLN 74 12/14 Y 9.4 7.2 5.8 5.1 5.0 4.6
Magellan SA 77.99 PLN 122 12/14 Y 10.0 8.8 7.9 22.1 21.0 20.1
GPW 43.85 PLN 436 12/14 Y 16.6 15.1 14.1 10.8 9.3 8.5
Median 11.5 10.6 9.8 10.8 9.3 8.5
International peers Median 16.7 14.8 13.8 10.8 9.6 9.2
Median 13.0 11.4 10.0 10.8 9.4 8.6
Votum
14.9 10.5 9.3 7.9 6.0 5.5
Premium/(discount), %
15% -8% -7% -27% -36% -36%
Votum - implied share price (PLN)
6.5 8.1 8.1 8.7 9.9 10.1
Weights
17% 17% 17% 17% 17% 17%
Votum - implied fair value (PLN) 8.6
Source: BZ WBK Brokerage research, company data
Polish Equity Research
159
Fig. 3. Votum: 3Q14 results review PLN in millions, unless otherwise stated
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q
Revenues 12.9 13.3 12.1 13.7 13.1 15.3 12.9 16.4 15.0 17.6 16.6 29% -5%
Gross profit 1.8 2.2 0.9 1.5 0.9 2.2 0.7 2.2 1.7 2.7 2.6 267% -5%
Opex -11.1 -11.1 -11.2 -12.2 -12.2 -13.1 -12.2 -14.2 -13.3 -14.9 -14.0 15% -5%
EBITDA 2.9 1.5 1.2 1.6 1.4 2.1 1.0 2.5 2.0 2.8 2.3 127% -16%
EBIT 1.7 2.2 0.9 1.3 1.1 1.8 0.7 2.2 1.6 2.4 2.3 246% -2%
Net profit 1.4 1.4 0.7 1.8 1.2 1.5 0.5 1.9 1.2 1.7 1.8 244% 10%
Gross profit margin 13.8% 16.7% 7.2% 11.1% 7.0% 14.2% 5.4% 13.3% 11.4% 15.4% 15.5% n.a n.a
EBITDA margin 22.8% 11.6% 9.7% 11.8% 10.6% 13.7% 8.0% 15.3% 13.3% 15.8% 14.1% n.a n.a
EBIT margin 13.4% 16.4% 7.3% 9.4% 8.3% 11.6% 5.2% 13.1% 10.7% 13.6% 14.1% n.a n.a
Net profit margin 10.5% 10.2% 6.0% 13.5% 9.0% 9.5% 4.1% 11.8% 8.1% 9.5% 11.0% n.a n.a Source: Company data, DM BZ WBK estimates
Fig. 4. Votum: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 69 n.a. 0% 79 n.a. 0% 88 n.a. 0%
EBITDA 10 n.a. 0% 13 n.a. 0% 14 n.a. 0%
EBIT 8 n.a. 0% 11 n.a. 0% 13 n.a. 0%
Net profit 6 n.a. 0% 9 n.a. 0% 10 n.a. 0% Source: Company data, DM BZ WBK estimates
Fig. 5. Votum: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 9.2 n.a. 0%
Comparable valuation (based on 2014-2016E) 8.6 n.a. 0%
Blended average target price 9.9 n.a. 0% Source: Company data, DM BZ WBK estimates
Fig. 6. Votum: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net Sales 52 58 69 79 88
Gross profit 6 6 9 12 13
Opex -46 -52 -59 -67 -75
EBITDA 7 7 10 13 14
EBIT 6 6 8 11 13
Pre-tax profit 7 6 8 11 13
Income tax -2 -1 -2 -3 -3
Net profit 5 5 6 9 10
Gross margin 12.3% 10.3% 13.0% 15.0% 15.0%
EBITDA margin 14.0% 12.2% 14.0% 16.1% 16.0%
EBIT margin 11.7% 9.9% 12.1% 14.4% 14.4%
Pre-tax margin 13.1% 10.8% 11.4% 14.1% 14.2%
Effective tax rate 22.3% 18.2% 22.7% 22.7% 22.7%
Net profit margin 10.1% 8.8% 8.8% 10.9% 11.0%
Source: Company data, DM BZ WBK estimates
Fig. 7. Votum: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 15.7 17.7 20.7 24.7 28.6
Cash and equivalents 7.0 7.6 8.6 11.1 13.5
L-t 18.3 22.0 21.7 22.0 22.5
PP&E 12.0 15.7 15.8 15.9 15.9
Total assets 34.0 39.7 42.3 46.7 51.0
Current liabilities 13.2 15.3 17.1 18.9 20.5
Bank debt/bonds 0.7 0.9 0.9 0.9 0.9
Long-term liabilities 2.0 5.6 5.6 5.6 5.6
Bank debt/bonds 0.6 3.7 3.7 3.7 3.7
Equity 18.5 18.5 19.6 22.2 24.9
Total liabilities and equity 33.7 39.4 42.3 46.7 51.0
Net debt 5.7 3.0 4.0 6.5 9.0
Source: Company data, DM BZ WBK estimates
Fig. 8. Votum: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 3.9 6.9 8.8 11.2 12.2
CF from investment -3.0 -3.6 -1.2 -1.2 -1.2
CF from financing -5.4 -2.8 -6.5 -7.5 -8.5
Net change in cash -4.6 0.6 1.0 2.5 2.4
Source: Company data, DM BZ WBK estimates
Polish Equity Research
160
This page has been left intentionally blank.
Polish Equity Research
161
Poland Health Care
NOVEMBER 12, 2014
VOXEL RECOMMENDATION
HOLD (INITIATION)
Play for M&A CURRENT PRICE: PLN11.25
TARGET PRICE: PLN12.50
Equity Story. Voxel’s core business is operating imaging diagnostic
clinics; five PET-CT clinics with own cyclotron, Gamma Knife and over a
dozen CT/MRI clinics. Due to the limited contracts with the Public
Healthcare Fund NFZ, all the PET/CT clinics are working way below their
potential. The new oncology law, due to come into force in 2015, should
boost the company’s volumes. Therefore, we see Voxel and Synektik as
best investments in light of the upcoming new regulations. We also think
Voxel could be a potential acquisition target, valued at a large discount
compared with the recent transactions (Lux-Med, EMC and Enel-Med
clinics sold at double-digit EV/EVITDA). The restructuring of Alteris, a
distributor of diagnostic devices, should also allow for some savings in
2015.
Financials. We expect Voxel to perform 6.0k PET-CT procedures in
2015E in four clinics and 7.7k procedures in 2016E in five locations,
assuming another contract for PET-CT and Gamma Knife in Katowice in
2016E. The company may also decide to relocate the device to another
city. We expect Voxel’s average revenue from the PET-CT procedures to
drop to PLN3.3k in 2015E and 3.0k from 2017E (to the end of the forecast
period) from PLN4.1k in 2014E. We expect no large new investments. At
the same time, better utilisation of the devices should increase the
company’s EBITDA margin to above 18% from current 16%. In 2016E, its
EBITDA should exceed PLN20mn. We believe that the net debt may
slightly rise due to further loans to Exira. The company trades at a 2014E
and 2015E EV/EBITDA of 10.0x and 9.2x, which is demanding but fair
valued. The stock offers some upside in case of a M&A story and a
positive scenario in PET-CT and Gamma Knife contracting.
Triggers/Risks. Concentrating on a single customer – NFZ – is the
largest threat to Voxel and other clinic operators. NFZ is a very tough
negotiations partner and contracting decisions are not always reasonable.
Voxel learnt this the hard way when it had nearly completed a PLN40mn
investment programme and all the new clinics lacked contracts and
generated losses for 12 months. Voxel is fully consolidating its three new
PET-CT clinics in Brzozow, Bialystok and Katowice. JV with Enterprise
Investors Exira (operator of Gamma Knife) is not consolidated, but it can
count on loans from Voxel until it secures its NFZ contract. It looks like
Brzozow and Bialystok will have contracts for 2015. The “when” and
“which” big contracts Voxel will have is the key driver of the company’s
results in upcoming years.
Valuation & recommendation. Based on our DCF model, we arrived at a
12-month TP of PLN12.5 per share. The TP implies a 14% upside
potential, which caused us to initiate our coverage of the stock with a Hold
recommendation. The comparative valuation points to PLN12.1 per share.
STOCK PERFORMANCE
VOX
WIG Relative
0
5
10
15
20
25
30
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
COMPANY DESCRIPTION
Operator of medical diagnostic clinics and distributor of radiology devices.
MAIN SHAREHOLDERS
% of votes
Voxel International 60.5%
PZU mutual fund 11.4%
Allianz pension fund 5.4%
ANALYST
Lukasz Kosiarski (+48) 22 586 82 25
Company Data
PLNmn 2013 2014E 2015E 2016E Reuters/Bloomberg codes VOXP.WA / VOX PW
Sales 103.2 101.0 108.3 120.3 Market capitalisation (PLNm) 118.2
EBITDA 16.4 16.5 19.0 21.8 Number of shares (m) 10.5
EBIT 6.1 3.5 6.0 8.8 Free float (%) 27.4%
Net income 3.0 -0.5 1.2 3.5 Avg. daily turnover 3M (PLNm) 0.0
P/E (x) 38.3 n.a. 97.0 33.0 Price performance
1M 3M YTD
EV/EBITDA (x) 10.1 10.2 9.2 7.7 14.7% -1.3% -31.0% Source: Company data, DM BZ WBK estimates
Polish Equity Research
162
Fig. 1. Voxel: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Net sales 101.0 108.3 120.3 126.5 132.7 134.2 135.7 137.3 138.9 140.6
EBIT 3.5 6.0 8.8 10.2 11.7 11.5 11.0 10.6 10.1 9.7
Cash taxes on EBIT 0.6 1.1 1.7 1.9 2.2 2.2 2.1 2.0 1.9 1.8
NOPAT 3.0 4.8 7.1 8.3 9.5 9.3 8.9 8.6 8.2 7.8
Depreciation 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0
Change in operating WC 1.8 0.9 1.5 0.8 0.8 0.2 0.2 0.2 0.2 0.2
Capital expenditure 11.6 6.5 6.8 7.1 7.4 7.7 8.0 8.2 8.4 8.7
Free cashflow 2.5 10.4 11.8 13.4 14.3 14.4 13.8 13.2 12.6 12.0
WACC (2014-23) 7.7%
PV FCF 2014-23 77.4
Terminal growth 1.0%
Terminal Value (TV) 180.0
PV TV 85.7
Total EV 163.0
Net debt 49.2
Equity value 113.8
Number of shares (m) 10.50
Value per share (PLN, 1 Jan 2014/15) 10.84
Month 11
Current value per share (PLN) 11.61
Year-end target price (PLN) 12.50
Source: Company data, DM BZ WBK estimates
Fig. 2. Voxel: Comparable valuation
Market
Cap P/E EV/EBITDA
Company Price Currency (EURmn) 2014E 2015E 2016E 2014E 2015E 2016E
Voxel 11.25 PLN 35 -252.7 99.2 33.8 10.3 9.3 7.8
Peers
Synektik 23.53 PLN 59 24.8 17.7 15.8 11.6 8.5 7.3
Medicalgorithmics 204.00 PLN 208 37.1 19.3 12.9 30.9 14.6 8.9
Eckert & Ziegler 23.67 EUR 157 13.0 11.7 10.8 5.4 4.8 4.1
Ion Beam Applications 13.75 EUR 487 20.2 17.4 16.9 15.4 12.3 9.8
Centrum Medyczne Enel-Med 11.20 PLN 78 7.3 52.1 42.3 4.9 12.7 11.2
Sonic Healthcare 19.02 AUD 6,548 18.3 16.5 15.3 11.8 10.6 9.8
Source Bioscience 10.13 GBp 51 14.5 12.7 11.3 6.7 5.7 4.7
Oral Hammaslaakarit 6.48 EUR 71 25.9 15.4 13.0 n.a. n.a. n.a.
Clinica Baviera 7.50 EUR 153 38.9 24.4 17.4 13.1 9.9 8.0
Athens Medical Center 0.80 EUR 87 40.0 n.a. n.a. 16.7 16.7 n.a.
Digirad 4.02 USD 75 33.5 16.1 11.5 n.a. n.a. n.a.
CHC Healthcare 65.10 TWD 277 19.4 16.2 n.a. 11.9 n.a. n.a.
Median 22.5 16.5 14.1 11.8 10.6 8.4
Implied share price vs. peers (PLN) -1.0 1.9 4.7 13.6 13.7 12.4
Implied price (PLN) 12.1
Source: BZ WBK Brokerage research, company data
Polish Equity Research
163
Fig. 3. Voxel: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Sales 20.0 34.9 22.3 23.8 20.2 40.2 19.3 25.3 32.9 25.7 21.4 22.7 23.7 -28.1% 4.1%
EBITDA 2.1 4.6 4.4 2.4 3.2 11.2 5.0 3.5 3.6 4.3 5.7 2.9 3.9 9.9% 37.4%
EBITDA margin 10.4% 13.0% 19.8% 10.2% 15.7% 27.9% 26.2% 13.6% 10.9% 16.7% 26.5% 12.6% 16.7% 5.8 4.0
EBIT 0.1 2.4 2.2 0.1 0.8 8.8 2.5 0.9 1.0 1.7 2.4 0.1 1.2 13.0% 13x
EBIT margin 0.7% 6.9% 9.7% 0.5% 4.0% 21.9% 13.1% 3.5% 3.1% 6.6% 11.1% 0.4% 4.9% 1.8 4.5
Net profit -1.0 -0.4 0.7 -0.8 -0.5 6.9 1.4 0.5 0.4 0.6 1.3 -0.9 -0.2 n.a. n.a.
Net margin -5.2% -1.1% 3.0% -3.2% -2.6% 17.1% 7.5% 2.0% 1.3% 2.5% 6.2% -3.7% -0.8% -2.2 2.9
Source: Company data, DM BZ WBK estimates
Fig. 4. Voxel: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 101.0 n.a. n.a. 108.3 n.a. n.a. 120.3 n.a. n.a.
EBITDA 16.5 n.a. n.a. 19.0 n.a. n.a. 21.8 n.a. n.a.
EBIT 3.5 n.a. n.a. 6.0 n.a. n.a. 8.8 n.a. n.a.
Net profit -0.5 n.a. n.a. 1.2 n.a. n.a. 3.5 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 5. Voxel: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 12.5 n.a. n.a.
Comparable valuation (based on 2014-2016E) 12.1 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. Voxel: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 106.5 103.2 101.0 108.3 120.3
COGS 80.1 77.0 76.1 80.2 88.7
Gross profit 26.5 26.3 24.9 28.1 31.6
SG&A 19.7 21.2 21.6 22.1 22.9
Other operating income, net 5.2 1.0 0.3 0.0 0.0
EBITDA 21.2 16.4 16.5 19.0 21.8
Operating profit 11.9 6.1 3.5 6.0 8.8
Net financial income (costs) -5.6 -3.5 -4.1 -4.5 -4.4
Profit before tax 6.3 2.6 -0.6 1.5 4.3
Income tax 0.2 -0.4 -0.1 0.3 0.8
Net profit 6.1 3.0 -0.5 1.2 3.5
Gross margin 24.8% 25.4% 24.6% 25.9% 26.3%
EBITDA margin 19.9% 15.9% 16.4% 17.5% 18.1%
Operating margin 11.2% 5.9% 3.5% 5.5% 7.3%
Net profit margin 5.7% 2.9% -0.5% 1.1% 2.9%
Source: Company data, DM BZ WBK estimates
Fig. 7. Voxel: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 34.3 40.2 48.4 45.2 53.4
Fixed assets 160.3 175.2 173.9 177.4 171.2
Total assets 194.6 215.4 222.3 222.5 224.6
Current liabilities 41.9 46.0 55.8 57.4 60.0
bank debt 12.4 17.6 30.0 30.0 30.0
Long-term liabilities 62.2 60.5 58.0 55.5 51.5
bank debt 34.9 36.5 36.5 36.5 35.0
Equity 90.6 108.9 108.4 109.6 113.1
share capital 9.7 10.5 10.5 10.5 10.5
Minority Interest 0.6 0.6 0.6 0.6 0.6
Total liabilities 194.6 215.4 222.3 222.5 224.6
Net debt 42.0 49.2 52.6 58.3 52.7
Source: Company data, DM BZ WBK estimates
Fig. 8. Voxel: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 7.1 -0.4 2.8 20.8 12.5
CF from investment -14.4 -26.5 -11.6 -16.5 -6.8
CF from financing -0.3 22.1 12.4 0.0 -1.5
Net change in cash -7.6 -4.7 3.5 4.3 4.1
Source: Company data, DM BZ WBK estimates
Polish Equity Research
164
This page has been left intentionally blank.
Polish Equity Research
165
Poland Industrials
NOVEMBER 12, 2014
WIELTON RECOMMENDATION
HOLD (INITIATION)
Risky business CURRENT PRICE: PLN5.6
TARGET PRICE: PLN6.0
Equity Story. Wielton, similarly to Amica and other successful Polish
exporters on the Russian market, has grown rapidly in the last few years
(2009-2012 volumes CAGR at 46%, 187% on the Russian market). But
now that the fountain of growth is drying out fast, it is time to change
direction. So far growth on other markets (Southern Europe, Baltic Sea
Countries) and the rise in the market share on the domestic market on the
back of the broadening of the product mix have been enough to cover this
revenue whole. But what is the next step? Wielton will try to conquer
Western markets using its fresh acquisition – the French Fruehauf SAS.
Firstly, however, this deal need to be finalised and talks with the French
labour unions are extending a tad long (we assumed a 75% probability of
success in our model). Secondly, Fruehauf itself has some problems that
need to be addressed. The company has obsolete assets that will force
Wielton to incur additional CAPEX, an already high market share in
France (no space for growth) and no export sales that will need to be built
(and the company was unsuccessful here in the past). We believe that the
acquisition might actually work out because moving part of the production
(chassis) to Poland should yield cost synergies, helping Fruehauf to
become more competitive on other markets. But we believe that Wielton is
a risky pick (hence the high WACC) due to the cyclicality of the semi-
trailer business itself, exposure to the Eastern markets and the probability
that the acquisition will burden its balance sheet (net/EBITDA’14 at 2.9x, if
Fruehauf acquisition is finalised).
Financials. We believe that further falls on the Eastern markets will be
offset by growth on other markets but the pace of growth will not be
impressive – volumes 14-17 CAGR at a meagre 2.2%. The company will
also manage to keep its gross profit margin at about 16%. As far as
Fruehauf is concerned, due to the operational leverage and cost
synergies, its margins should converge to those of Wielton.
Triggers/Risks. We listed the key risks in the equity story section. The
completion of the Fruehauf acquisition could add another PLN0.25 to our
current valuation.
Valuation & recommendation. Our DCF model values Wielton’s
current business at PLN5.3 per share. The Fruehauf acquisition (at 75%
probability) is adding PLN0.6 to the current valuation. All in all, we set the
TP at PLN6.0 with a Hold recommendation.
STOCK PERFORMANCE
WLT
WIG Relative
0
1
2
3
4
5
6
7
8
9
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
COMPANY DESCRIPTION
Wielton is Poland biggest’s semi-trailers and trailers producer and one of the 10 leading producers in Europe.
Main shareholders % of votes
MP-FUND FIZAN 37.9%
Jakub Prozner 13.2%
Lukasz Tylkowski 10.6%
Pawel Szataniak 6.7%
Mariusz Szataniak 6.7%
Aviva mutual fund 6.3%
ANALYST
Tomasz Kucinski +48 22 534 16 10
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes WLTP.WA / WLT PW
Sales 588.1 595.4 609.2 623.8 Market capitalisation (PLNmn) 328.4
EBITDA 50.6 40.6 45.2 45.9 Number of shares (mn) 60.4
EBIT 35.8 25.9 30.5 31.2 Free float (%) 37.9%
Net income 25.6 21.2 27.8 27.5 Avg. daily turnover 3M (PLNm) 0.2
P/E (x) 13.2 16.0 12.2 12.3 Price performance
1M 3M YTD
EV/EBITDA (x) 7.8 9.0 8.1 7.7 -10.8% -9.6% -21.2% Source: Company data, DM BZ WBK estimates
Polish Equity Research
166
Fig. 1. Wielton: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Revenues 595.4 609.2 623.8 635.7 653.7 672.1 691.2 708.2 725.7 743.6
EBIT 25.9 30.5 31.2 31.8 32.7 33.6 34.6 35.4 36.3 37.2
Cash taxes on EBIT 0.0 0.7 0.9 6.0 1.8 2.0 2.2 2.3 2.5 7.1
NOPAT 25.9 29.7 30.3 25.7 30.9 31.6 32.4 33.1 33.8 30.1
Depreciation 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7 15.7 16.7
Change in operating WC 4.7 2.0 2.2 1.8 2.7 2.7 2.8 2.5 2.6 2.6
Capital expenditures 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7 15.7 16.7
Net investment 4.7 2.0 2.2 1.8 2.7 2.7 2.8 2.5 2.6 2.6
Free cash flow 21.2 27.7 28.2 24.0 28.2 28.9 29.6 30.6 31.2 27.5
WACC 9.8%
PV FCF 2014-2023 163.4
Terminal growth 2.0%
Terminal value (TV) 357.3
PV TV 153.5
Total EV 316.9
Net debt 28.6
Equity value 288.3
Number of shares (mn) 60.4
Value per share (PLN, 31 Dec 2014) 4.8
Month 11.0
Curent value per share (PLN) 4.7
Fruehauf acquisition (75% probability) 0.6
12M target price 6.0
Source: Company data, DM BZ WBK estimates
Fig. 2. Wielton: Comparable valuation
Price Currency P/E EV/EBITDA
2014E 2015E 2016E 2014E 2015E 2016E
Wielton SA 5.25 75 16.0 12.2 12.3 9.0 8.1 7.7
Inter Cars SA 206.5 692 16.5 15.0 13.9 12.6 11.4 10.7
SAF-Holland SA 10.415 472 12.1 9.4 8.5 n.a. n.a. n.a.
Wabash National Corp 10.64 590 13.4 11.1 9.3 6.3 5.7 5.1
MAN SE 91.8 13,436 113.9 49.6 25.9 20.6 17.3 12.4
Volvo AB 85.45 19,772 22.8 14.4 11.0 12.2 9.4 8.0
Median 16.5 14.4 11.0 12.4 10.4 9.3
Premium/discount vs. median -2.9% -15.4% 11.9% -27.6% -22.1% -17.6%
Source: BZ WBK Brokerage research, company data
Polish Equity Research
167
Fig. 3. Wielton: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q
Sales 135.8 149.5 154.7 160.5 156.2 133.9 109.3 163.6 164.6 150.6 147.4 158.8 154.2 -6.3% -2.9%
EBITDA 12.1 8.8 9.5 14.5 10.8 8.7 6.7 15.5 17.0 11.6 10.4 11.3 12.1 -28.8% 7.2%
EBITDA margin 8.9% 5.9% 6.1% 9.0% 6.9% 6.5% 6.1% 9.5% 10.3% 7.7% 7.1% 7.1% 7.8% -2.5 0.7
EBIT 9.1 5.9 6.4 11.2 7.3 5.0 3.1 11.7 13.2 8.0 6.8 7.6 8.4 -36.5% 10.3%
EBIT margin 6.7% 3.9% 4.1% 7.0% 4.7% 3.7% 2.9% 7.1% 8.0% 5.3% 4.6% 4.8% 5.4% -2.6 0.6
Net profit 3.3 6.9 7.0 7.2 5.6 3.1 2.1 8.0 10.6 5.4 2.7 8.7 7.0 -34.3% -19.6%
Net margin 2.4% 4.6% 4.5% 4.5% 3.6% 2.3% 1.9% 4.9% 6.5% 3.6% 1.9% 5.5% 4.5% -1.9 -0.9
Source: Company data, DM BZ WBK estimates
Fig. 4. Wielton: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 595.4 n.a. n.a. 609.2 n.a. n.a. 623.8 n.a. n.a.
EBITDA 40.6 n.a. n.a. 45.2 n.a. n.a. 45.9 n.a. n.a.
EBIT 25.9 n.a. n.a. 30.5 n.a. n.a. 31.2 n.a. n.a.
Net profit 21.2 n.a. n.a. 27.8 n.a. n.a. 27.5 n.a. n.a.
Source: Company data, DM BZ WBK estimates
Fig. 5. Wielton: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 6.0 n.a. n.a.
Comparable valuation (based on 2014-2016E) 6.3 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. Wielton: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 605 588 595 609 624
COGS 512 493 501 512 524
Gross profit 93 95 95 97 100
SG&A 67 60 67 67 69
Other operating income, net 4 0 -2 0 0
EBITDA 43 51 41 45 46
Operating profit 30 36 26 30 31
Net financial income (costs) 2 11 7 2 3
Profit before tax 28 25 18 28 28
Income tax 5 0 -3 0 0
Net profit 23 26 21 28 28
Gross margin 15.3% 16.2% 15.9% 16.0% 16.0%
EBITDA margin 7.1% 8.6% 6.8% 7.4% 7.4%
Operating margin 4.9% 6.1% 4.4% 5.0% 5.0%
Net profit margin 3.8% 4.4% 3.6% 4.6% 4.4%
Source: Company data, DM BZ WBK estimates
Fig. 7. Wielton: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 222 225 258 258 270
Fixed assets 157 154 126 141 141
Total assets 379 379 384 398 410
Current liabilities 162 147 153 156 158
bank debt 32 30 30 30 30
Long-term liabilities 54 58 53 48 44
bank debt 46 53 47 43 38
Equity 163 174 178 195 208
share capital 78 90 93 110 124
Minority Interest 0 0 0 0 0
Total liabilities 379 379 384 398 410
Net debt 70 56 29 28 17
Source: Company data, DM BZ WBK estimates
Fig. 36. Wielton: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 2 44 31 41 40
CF from investment -12 -14 14 -29 -15
CF from financing 8 -11 -23 -15 -18
Net change in cash -2 19 22 -4 7
Source: Company data, DM BZ WBK estimates
Polish Equity Research
168
This page has been left intentionally blank.
Polish Equity Research
169
Poland Retail
NOVEMBER 12, 2014
WOJAS RECOMMENDATION
HOLD (INITIATION)
NON-CORE INVESTMENTS TRIMMS UPSIDE CURRENT PRICE: PLN8.0
TARGET PRICE: PLN8.4
Equity Story. On first sight, Wojas looks just like another
successful Polish retail company that has been continuously
improving its sales and profits since the post-crisis bottom in
2008. Ever since then, the company has improved its sales to
PLN214mn (vs. PLN85mn in 2008) and its net profit to PLN9.5mn
(vs. 1mn in 2008) in 2014E. On the other hand, we believe that
there are some elements that effectively trim the upside. We do
not share the opinion that the debt financed (PLN10m) non-core
investment in the leisure & entertainment industry, like the
recently announced purchase of a 33% stake in Termy
Chocholowskie (no matter how profitable) create value for the
shoe retailer. We believe that it would be better for Wojas’s
business multiple valuation to remain a clean shoe retailer.
Moreover, the JPY denominated debt (cPLN18mn) also creates a
significant and unnecessary currency risk,, something that could
be easily avoided.
Financials. We expect Wojas to stay on its growth path in the
coming years. We assume that the company will add 1,345
(+7.7%)/1,121 (+6.0%) and 561 sqm in 2014-16E, respectively.
We also expect the LfL at 5.6%, 2.0% and 2.0% in 2014-16E,
respectively. Based on these assumptions, we expect Wojas to
report sales at PLN214mn (+14%y/y), PLN226mn (+5.3%y/y) and
PLN235mn (+4.2%y/y) in 2014-16E. We expect the gross margin
to grow to 44.6% (+138bps), 43.6% (-97bps) and 44.1% (+
47bps) in 2014-16E. In regards to SG&A, we expect the
SG&A/avg. sqm at PLN4,580 (+5.4% y/y), PLN4,387 (-4.2% y/y)
and PLN4,464 (+1.8% y/y). Overall, we expect Wojas to earn an
EBITDA of PLN21.0mn, PLN20.9mn and PLN21.3mn, while its
net profit should come in at PLN9.5mn, PLN9.3mn and
PLN9.7mn in 2014-16E, respectively.
Valuation & recommendation. Wojas is currently trading with a
PE of 10.5x and 10.9x in 2014-15E. Taking into account its
growth, ROE (14%) and leverage, we believe that a PE at c.12x
would be fairer. In this light, Wojas’ current multiple valuation
leaves some upside, which, however, might be trimmed by some
corporate governance issues. Based on our DCF model, we
arrived at a 12 month TP of PLN8.4 per share, which implies a
8% upside potential. We initiate coverage with a Hold rating.
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
COMPANY DESCRIPTION
Wojas is a retail company selling shoes under the brand Wojas and Relaks.
Main shareholders % of votes
Mr. Wieslaw Wojas 83.9%
Free Float 16.1%
ANALYST
Tomasz Sokolowski (+48) 22 586 82 36
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes WOJ.WA / WOJ. P
Sales 187.8 215.1 226.5 236.1 Market capitalisation (PLNm) 101.4
EBITDA 16.4 20.7 21.2 21.6 Number of shares (m) 12.7
EBIT 10.0 14.0 14.1 14.1 Free float (%) 16.1%
Net income 10.0 10.0 9.5 10.0 Avg. daily turnover 3M (PLNm) 0.0
P/E (x) 10.2 10.1 10.6 10.1 Price performance
1M 3M YTD
EV/EBITDA (x) 8.2 6.1 5.9 5.5 0.1% -9.3% 26.4% Source: Company data, DM BZ WBK estimates
Polish Equity Research
170
Fig. 1. Wojas: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Revenues 214 226 235 243 251 257 262 266 270 275
EBIT 14 14 14 10 11 9 11 12 14 14
Cash taxes on EBIT 2 2 2 1 2 2 2 3 4 4
NOPAT 13 12 12 9 9 8 8 9 10 9
Depreciation 7 7 7 8 8 9 9 9 10 10
Change in operating WC 8 3 3 2 2 2 1 1 1 1
Capital expenditure 8 8 7 7 8 6 7 7 7 11
Free cashflow 3 8 9 7 7 8 10 11 11 8
WACC (2014-2023, %) 7.9%
PV FCF 2013-2023 53.2
Terminal growth (%) 2.5%
Terminal Value (TV) 152.1
PV TV 71.0
Total EV 124.2
Net debt 33.0
Equity value 91.2
Number of shares (m) 12.7
Value per share (PLN, 1 Jan 2014) 7.2
Month 11
Current value per share (PLN) 7.7
12 month target price (PLN) 8.4
Source: Company data, DM BZ WBK estimates
Fig. 2. Wojas: Comparable valuation
P/E EV/EBITDA PEG ROE DY
Name 2014E 2015E 2016E 2014E 2015E 2016E 1Y 2Y 2014E 2015E 2016E 2014E 2015E 2016E
LPP 33.1 28.7 22.2 20.3 17.7 13.8 1.5 0.7 30.2% 28.9% 30.6% 1.0% 1.2% 1.4%
Monnari 11.0 11.9 13.8 8.4 7.4 6.8 0.8 2.6 26.4% 19.3% 14.9% 0.0% 0.0% 5.0%
Bytom 13.9 10.5 10.9 9.3 7.4 6.4 0.02 0.01 29.3% 32.0% 27.5% 0.0% 4.9% 6.7%
average 19.3 17.1 15.6 12.7 10.8 9.0 0.8 1.1 28.6% 26.8% 24.4% 0.3% 2.0% 4.4%
CCC 26.2 19.9 16.9 18.1 14.1 12.2 0.9 0.4 28.7% 31.2% 1.2% 1.9% 2.5% 0.0%
Wojas 10.1 10.6 10.1 6.1 5.9 5.5 14.5 -2.5 14.8% 12.3% 11.4% 1.3% 1.9% 0.0%
Gino Rossi 20.5 13.4 12.3 8.4 7.2 6.6 0.1 0.0 10.5% 14.2% 13.5% 0.0% 0.0% 0.0%
average 18.9 14.6 13.1 10.9 9.1 8.1 5.1 -0.7 18.0% 19.2% 8.7% 1.1% 1.5% 0.0%
Total - average 19.1 15.9 14.4 11.8 10.0 8.5 3.0 0.2 23.3% 23.0% 16.5% 0.7% 1.7% 2.2%
Source: BZ WBK Brokerage research, company data
Polish Equity Research
171
Fig. 3. Wojas: 3Q14 results review PLN in millions, unless otherwise stated
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13E 1Q14 2Q14 3Q14 y/y q/q
Sales 33.8 38.3 40.5 54.7 35.9 45.0 46.1 60.8 44.5 54.3 49.7 7.7% -8.5%
EBITDA 3.0 2.9 2.7 6.7 1.6 3.0 3.0 8.8 3.2 5.1 3.1 2.9% -39.4%
EBITDA margin 9.0% 7.5% 6.8% 12.2% 4.5% 6.6% 6.5% 14.4% 7.1% 9.4% 6.2% -29 -318
EBIT 1.6 1.4 1.4 5.2 0.1 1.4 1.4 7.1 1.6 3.5 1.4 0.0% -59.4%
EBIT margin 4.6% 3.6% 3.4% 9.4% 0.2% 3.1% 3.1% 11.7% 3.5% 6.4% 2.8% -22 -356
Net profit 0.8 -0.3 0.6 1.4 0.1 1.7 1.4 6.8 0.3 2.5 1.4 0.0% -44.6%
Net margin 2.4% -0.8% 1.4% 2.5% 0.3% 3.7% 3.0% 11.2% 0.7% 4.6% 2.8% -22 -182
Source: Company data, DM BZ WBK estimates
Fig. 4. Wojas: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 215 n.a. n.a. 226 n.a. n.a. 236 n.a. n.a.
EBITDA 21 n.a. n.a. 21 n.a. n.a. 22 n.a. n.a.
EBIT 14 n.a. n.a. 14 n.a. n.a. 14 n.a. n.a.
Net profit 10 n.a. n.a. 10 n.a. n.a. 10 n.a. n.a.
Source: Company data, DM BZ WBK estimates
Fig. 5. Wojas: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 8.4 n.a. n.a.
Comparable valuation (based on 2014-2016E) 13.9 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 6. Wojas: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 167 188 215 226 236
COGS 94 107 122 128 132
Gross profit 73 81 93 99 104
SG&A 64 71 80 85 90
Other operating income, net 0 0 1 0 0
EBITDA 15 16 21 21 22
Operating profit 9 10 14 14 14
Net financial income (costs) -6 2 -2 -2 -2
Profit before tax 3 12 12 12 12
Income tax 1 2 2 2 2
Net profit 3 10 10 10 10
Gross margin 43.8% 43.2% 43.4% 43.6% 44.1%
EBITDA margin 9.2% 8.7% 9.6% 9.4% 9.2%
Operating margin 5.7% 5.3% 6.5% 6.2% 6.0%
Net profit margin 1.7% 5.3% 4.7% 4.2% 4.2%
Source: Company data, DM BZ WBK estimates
Fig. 7. Wojas: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 88 83 94 103 114
Fixed assets 55 52 54 56 56
Total assets 143 135 148 159 170
Current liabilities 56 42 45 47 48
bank debt 51 49 56 64 70
Long-term liabilities 39 30 30 30 30
bank debt 2 0 0 0 0
Equity 48 63 73 82 92
share capital 3 1 1 1 1
Minority Interest 0 0 0 0 0
Total liabilities 143 135 148 159 170
Net debt 42 33 26 23 18
Source: Company data, DM BZ WBK estimates
Fig. 8. Wojas: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations -2 11 9 13 15
CF from investment -18 -3 -9 -9 -8
CF from financing 10 -12 0 0 0
Net change in cash -9 -3 0 4 7
Source: Company data, DM BZ WBK estimates
Polish Equity Research
172
This page has been left intentionally blank.
Polish Equity Research
173
Poland Pharma / Health Care
NOVEMBER 12, 2014
WORK SERVICE RECOMMENDATION
HOLD (PREV. RESTRICTED)
Cash recent gains CURRENT PRICE: PLN19.0
TARGET PRICE: PLN19.5 (PREV. RESTRICTED)
Equity story. Following the completion of four takeovers in
2013/14, Work Service is not resting on its laurels. We expect the
company to maintain a fast growth path, this time aiming at the
Romanian temporary staffing market. As well as M&A, Work
Service should not slow down its organic growth in the coming
years, benefiting from its competitive advantages, positive
structural market changes and supportive forecasts pointing to
GPD growth. Based on these factors, we see Work Service to
show notable growth in sales and net profit, which we expect to
increase at 39% and 47%, on average, over 2014–16E.
Change in valuation & recommendation. We have updated our
DCF model by 5mn new share issue as well as higher intrest
costs paid by company. Our DCF model implies 12 month TP at
PLN19.5/share. Following a recent price surge Work Service is
trading with PE’14-15 of 24.1x and 17.5x, respectively which
implies double digit premiums on FY14-16 numbers, which are
not justified, in our view. In this light, we are reinitiating coverage
of Work Service with a Hold recommendation and a 12-month
Target Price of PLN19.5/share.
STOCK PERFORMANCE
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
U/R 10/28/2014 n.a. n.a. n.a. n.a.
Buy 6/8/2014 15.3 19.0 n.a. n.a.
COMPANY DESCRIPTION
Work Service is the largest HR services company in Poland, with rising regional exposition in CEE and Germany.
ANALYST
Tomasz Sokolowski (+48) 22 586 82 36
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes WSE.WA / WSE PW
Sales 918 1,677 2,172 2,482 Market capitalisation (PLNm) 1,140.8
EBITDA 53 93 118 136 Number of shares (m) 60.0
EBIT 48 87 110 127 Free float (%) 25.7%
Net income 27 52 71 83 Avg. daily turnover 3M (PLNm) 0.8
P/E (x), adj. 47.1 24.1 17.5 15.1 Price performance
1M 3M YTD
EV/EBITDA (x), adj. 25.1 14.6 11.1 9.4 1.6% 33.3% 52.0% Source: Company data, DM BZ WBK estimates
Polish Equity Research
174
Fig. 1. Work Service: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%)
Sales 158.5 174.9 170.6 182.8 186.7 187.3 188.7 221.4 238.9 269.4 345.9 390.0 495.0 107.2% 26.9%
EBITDA 8.3 11.8 8.6 9.5 8.9 15.2 10.2 9.6 12.3 20.5 17.8 18.3 23.9 94.0% 30.6%
EBITDA margin 5.2% 6.8% 5.0% 5.2% 4.8% 8.1% 5.4% 4.3% 5.2% 7.6% 5.2% 4.7% 4.8% -33 13
EBIT 8.3 11.0 7.7 8.4 8.9 14.1 9.1 8.5 11.2 19.2 16.2 16.2 22.0 96.1% 36.1%
EBIT margin 5.2% 6.3% 4.5% 4.6% 4.8% 7.5% 4.8% 3.9% 4.7% 7.1% 4.7% 4.1% 4.4% -25 30
Net profit 5.4 10.5 3.9 3.4 2.0 11.0 5.7 2.5 4.5 13.8 11.5 3.2 11.0 147.2% 247.6%
Net margin 3.4% 6.0% 2.3% 1.9% 1.1% 5.9% 3.0% 1.1% 1.9% 5.1% 3.3% 0.8% 2.2% 36 141
Source: Company data, DM BZ WBK estimates
Fig. 2. Work Service: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 1,677 n.a. n.a. 2,172 n.a. n.a. 2,482 n.a. n.a.
EBITDA 93 n.a. n.a. 118 n.a. n.a. 136 n.a. n.a.
EBIT 87 n.a. n.a. 110 n.a. n.a. 127 n.a. n.a.
Net profit 52 n.a. n.a. 71 n.a. n.a. 83 n.a. n.a.
Source: Company data, DM BZ WBK estimates
Fig. 3. Work Service: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 19.5 n.a. n.a.
Comparable valuation (based on 2014-2016E) 14.1 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 4. Work Service: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 727 918 1,677 2,172 2,482
COGS 652 806 1,476 1,913 2,185
Gross profit 75 113 201 259 297
SG&A 36 64 114 149 170
Other operating income, net (0) 1 0 - -
EBITDA 43 53 93 118 136
Operating profit 39 48 87 110 127
Net financial income (costs) 14 16 21 16 16
Profit before tax 25 32 66 94 110
Income tax 4 6 14 22 28
Net profit 20 27 52 71 83
Gross margin 10.4% 12.3% 12.0% 11.9% 12.0%
EBITDA margin 6.0% 5.7% 5.6% 5.4% 5.5%
Operating margin 5.4% 5.2% 5.2% 5.1% 5.1%
Net profit margin 2.8% 2.9% 3.1% 3.3% 3.3%
Source: Company data, DM BZ WBK estimates
Fig. 5. Work Service: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 171 251 484 646 777
Fixed assets 185 219 333 337 342
Total assets 355 470 816 983 1,119
Current liabilities 189 158 296 361 401
bank debt 69 37 77 77 77
Long-term liabilities 44 77 142 162 162
bank debt 38 74 139 159 159
Equity 113 224 359 430 513
share capital 5 6 7 7 7
Minority Interest 10 11 19 30 42
Total liabilities 355 470 816 983 1,119
Net debt* 104 76 107 63 24
Source: Company data, DM BZ WBK estimates,
Fig. 6. Work Service: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations -5 -19 -2 45 41
CF from investment -58 -42 -120 -12 -14
CF from financing 66 91 195 31 12
Net change in cash 3 29 74 64 39
Source: Company data, DM BZ WBK estimates
Polish Equity Research
175
Poland Chemicals
NOVEMBER 12, 2014
ZA PULAWY RECOMMENDATION
BUY (MAINTAINED)
Company hits its low in 3Q
CURRENT PRICE: PLN145.6
TARGET PRICE: PLN170.4 (MAINTAINED)
3Q14 Results Preview. As usual, the company’s earnings in 3Q
should be affected by maintenance stoppages and an off-seasonal
drop in demand and fertiliser prices. Nitrogen fertilizer prices hit their
inter-year low in 3Q14, keeping a lid on the company’s earnings
growth. Some nitrogen fertiliser prices were even lower on a y/y
basis. We Also expect the company’s financial performance to be
affected by the relatively tight spread between caprolactam and
benzene. All in all, we expect Pulawy to show 2% higher revenues y/y
at PLN856mn; EBITDA at PLN67mn (+23% y/y) and EBIT at
PLN31mn (+67% y/y). The bottom line is estimated at PLN28m
(+58% y/y). Outcome: NEGATIVE.
Fertiliser & chemical products’ price trends. 3Q14 brought about
a seasonal decrease in the benchmark fertiliser prices q/q. The
Ammonium Nitrate price dropped 1% y/y and 7% q/q. Prices of urea
were 8% higher y/y and q/q, while of UAN -1% y/y and -2% q/q.
Ammonium sulphate prices went up 10% y/y and 16% q/q. Prices of
melamine lost 6% y/y and 2% q/q, while average caprolactam prices
remained flat y/y. The Polish gas tariff was 1.5% higher y/y, while
benzene recorded a 10% y/y hike (up 5% q/q).
Outlook for future / our view on the stock. We believe Pulawy is
the first company that should benefit from a recovery in the fertiliser
markets. Although we have a negative view of the company’s
earnings, we keep our positive view on the stock. We prefer Azoty
Pulawy vs. Azoty Police, given its much bigger potential for
profitability improvement, cash generation capabilities and lower
valuation multiples.
Change in Forecasts. We made no changes to our forecasts for 2014E
and beyond. We leave our financial forecasts unchanged.
Change in Valuation & Recommendation. The applied changes in
our modelling and forecasting led to our DCF-based Target Price of
PLN170.4 per share (17% upside potential). We keep our BUY
recommendation.
PUBLICATION DATE
NOVEMBER 12, 2014
3Q14 RESULTS PREVIEW
3Q14E y/y q/q
Sales 856 2% 3%
EBITDA 67 23% 76%
EBIT 31 67% 156%
Net profit 28 58% 162%
STOCK PERFORMANCE
ZAP
TP
WIG Relative
50
70
90
110
130
150
170
190
210
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Buy 10/27/2014 141.0 170.4 3.3% 3.1
Buy 7/9/2014 145.8 174.5 -3.3% -8.8
Buy 4/28/2014 136.9 174.5 6.5% 8.2
COMPANY DESCRIPTION
ZA Pulawy is one of the largest nitrogen fertilizer manufacturer in Poland, with exposure to fast developing melamine and caprolactam segments.
ANALYST
Tomasz Kasowicz (+48) 22 586 81 55
Company Data
PLNm 12/13 2014E* 2015E 2016E Reuters/Bloomberg codes PULW.WA / ZAP PW
Sales 3,886 5,451 3,928 4,024 Market capitalisation (PLNm) 2,783
EBITDA 554 491 457 534 Number of shares (m) 19.1
EBIT 429 347 327 403 Free float (%) 4.0%
Net income 390 308 275 339 Avg. daily turnover 3M (PLNm) 0.0
P/E (x) 7.2 9.0 10.1 8.2 Price performance
1M 3M YTD
EV/EBITDA (x) 4.2 5.2 5.2 4.3 4.0% 4.1% -16.3% Source: Company data, Bloomberg, BZ WBK Brokerage, *Leap year consisting of six quarters 3Q13-4Q14
Polish Equity Research
176
Fig. 1. Azoty Pulawy: 3Q14 results preview PLN in millions, unless otherwise stated
3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 2Q'13 3Q'13 4Q13 1Q14 2Q14 3Q14E y/y chg. q/q chg.
Sales 821 996 1,115 1,016 878 973 930 840 923 983 880 939 12% -6%
EBITDA
140 206 323 109 67 121 142 55 57 149 118 79 44% 50%
EBITDA margin 17.1% 20.7% 29.0% 10.7% 7.6% 12.4% 15.2% 6.5% 6.2% 15.1% 13.4% 8.4% 1.9 -5.1
EBIT
112 176 292 84 37 91 110 19 21 111 80 43 128% 87%
EBIT margin 13.7% 17.6% 26.2% 8.3% 4.2% 9.4% 11.9% 2.2% 2.3% 11.3% 9.1% 4.5% 2.3 -4.5
Net profit 99 137 245 120 34 87 105 18 19 98 73 37 111% 96%
Net margin 12.1% 13.7% 21.9% 11.8% 3.9% 9.0% 11.3% 2.1% 2.1% 10.0% 8.3% 3.9% 1.9 -4.3
Source: Company data, BZ WBK Brokerage
Fig. 2. Azoty Pulawy: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 3,688 3,688 0% 3,928 3,928 0% 3,953 3,953 0%
EBITDA 456 456 0% 457 457 0% 460 460 0%
EBIT 307 307 0% 327 327 0% 329 329 0%
Net profit 271 271 0% 275 275 0% 278 278 0% Source: Company data, BZ WBK Brokerage
Fig. 3. Azoty Pulawy: Valuation changes In PLN per share, unless otherwise stated
New Previous Change Weight
DCF valuation 170.4 170.4 0% 100%
Comparable valuation (based on 2014-2015E) 189.0 189.0 0% 0% Source: Company data, BZ WBK Brokerage
Fig. 4. Azoty Pulawy: Income statement forecast PLN in millions, unless otherwise stated
11/12 12/13 2014E* 2015E 2016E
Net sales 3,948 3,886 5,451 3,928 4,024
COGS -2,914 -3,011 -4,476 -3,190 -3,208
Gross profit 1,034 875 975 738 816
SG&A 397 458 635 411 414
Other operating income, net 26 12 6 0 0
EBITDA 779 554 491 457 534
Operating profit 664 429 347 327 403
Net financial income (costs) 23 24 22 13 16
Profit before tax 687 453 368 340 419
Income tax 85 69 60 65 80
Net profit after minorities 601 390 308 275 339
Gross margin 26.2% 22.5% 17.9% 18.8% 20.3%
EBITDA margin 19.7% 14.3% 9.0% 11.6% 13.3%
Operating margin 16.8% 11.0% 6.4% 8.3% 10.0%
Net profit margin 15.2% 10.0% 5.6% 7.0% 8.4%
Source: Company data, BZ WBK Brokerage, *leap-year 3Q13-4Q14; FY14 results: Revenues PLN3.69bn; EBITDA PLN455mn; EBIT PLN307mn; Net profit PLN271mn
Fig. 5. Azoty Pulawy: Balance sheet forecast PLN in millions, unless otherwise stated
11/12 12/13 2014E 2015E 2016E
Current assets 1,461 1,431 1,642 1,448 1,548
Fixed assets 1,756 1,982 2,142 2,301 2,424
Total assets 3,218 3,412 3,784 3,749 3,972
Current liabilities 566 504 784 564 575
bank debt 7 9 22 20 24
Long-term liabilities 192 237 218 205 201
bank debt 32 51 33 20 16
Equity 2,445 2,656 2,767 2,965 3,180
share capital 429 429 429 429 429
Minority Interest 15 15 15 15 15
Total liabilities 3,218 3,412 3,784 3,749 3,972
Net debt -472 -430 -225 -425 -507
Source: Company data, BZ WBK Brokerage
Fig. 6. Azoty Pulawy: Cash flow forecast PLN in millions, unless otherwise stated
11/12 12/13 2014E 2015E 2016E
CF from operations 820 461 277 555 444
CF from investment -393 -313 -305 -290 -255
CF from financing, incl. -13 -168 -182 -79 -107
Net change in cash 414 -20 -211 185 82
Source: Company data, BZ WBK Brokerage
Polish Equity Research
177
Poland Chemicals
NOVEMBER 12, 2014.
ZCH POLICE RECOMMENDATION
SELL (MAINTAINED)
Y/y rebound in earnings CURRENT PRICE: PLN21.5
TARGET PRICE: PLN11.60 (MAINTAINED)
3Q14 Results Preview. We expect Police to report a multi-
component fertiliser volumes at 241kt (+20%y/y), with the fertilizer
segment’s revenues 23% higher y/y. Compared with 3Q13, we expect
the company’s fertiliser business profitability to be supported by (1)
larger supplies of cheaper phosphate rock from Senegal and (2)
cheaper gas costs from other-than-PGNiG suppliers. The titanium
dioxide (TiO2) segment’s volumes are assumed at 10.0k tonnes
(+2% y/y), while prices (in EUR) at around -2% y/y (but +1% q/q). We
expect Azoty Police to report the headline EBITDA at PLN47.8mn
(+97% y/y), the EBIT at PLN30.5mn (vs. PLN5.5mn in 3Q13), while
the bottom line at PLN22.0mn (vs. PLN6.8mn in 3Q13). Outlook:
POSITIVE.
Fertilisers price trends in 3Q14: The multi-component fertiliser
benchmark prices varied in the last quarter. The DAP prices rose 9%
q/q and 11% y/y. The benchmark NPK(16,16,16) went up 3% q/q, but
dropped 3% y/y. The urea benchmark prices were 8% higher both q/q
and y/y, while those of ammonia rose 13% y/y (flat q/q). Potassium
chloride climbed 2% q/q (-20% y/y), while phosphate rock remained
flat q/q (-4% y/y).
Outlook for 2014 and beyond. Given the expected strong harvest
season and lower grains’ quotations, we see no reasons for the multi-
component fertiliser prices to go significantly up in coming years.
Change in Forecasts. We made no changes to our forecasts for 2014E
and beyond. We leave our financial forecasts unchanged.
Change in Valuation & Recommendation. We leave our DCF-
based Target Price unchanged at PLN11.6 per share (46% downside
potential). We keep our SELL recommendation.
PUBLICATION DATE
NOVEMBER 12, 2014
3Q14 RESULTS PREVIEW
2Q14E y/y q/q
Sales 608.1 19% -1%
EBITDA 47.8 97% -7%
EBIT 30.5 455% -4%
Net profit 22.0 222% -16%
STOCK PERFORMANCE
PCETPWIG Relative
0
5
10
15
20
25
30
35
Oct-
11
Ja
n-1
2
Apr-
12
Ju
l-12
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
Sell 10/27/2014 23.0 11.6 -6.7% -6.8
Sell 7/9/2014 23.3 11.9 -1.3% -6.8
Sell 4/28/2014 20.0 11.9 16.5% 18.2
COMPANY DESCRIPTION
ZCh Police is the largest domestic NPK fertilizer manufacturer in Poland, with exposure to titanium dioxide and nitrogen fertilizers segments.
ANALYST
Tomasz Kasowicz (+48) 22 586 81 55
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes PICE.WA / PCE PW
Sales 2,464 2,448 2,599 2,745 Market capitalisation (PLNm) 1,610
EBITDA 142 173 230 298 Number of shares (m) 75.0
EBIT 56 87 139 202 Free float (%) 20.2%
Net income 51 66 100 151 Avg. daily turnover 3M (PLNm) 0.1
P/E (x) 31.3 24.4 16.1 10.7 Price performance
1M 3M YTD
EV/EBITDA (x) 8.1 7.0 5.8 4.9 -6.6% 1.0% -10.9% Source: Company data, Bloomberg, BZ WBK Brokerage
Polish Equity Research
178
Fig. 1. Azoty Police: 3Q14 results preview PLN in millions, unless otherwise stated
3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q14 2Q14 3Q14E y/y chg. q/q chg.
Sales 591.9 884.0 726.3 923.4 759.6 571.9 725.4 728.4 510.4 500.1 631.5 617.2 608.1 19% -1%
EBITDA 71.0 101.1 82.6 57.9 50.1 20.3 61.3 52.8 24.2 3.6 50.7 51.7 47.8 97% -7%
EBITDA margin 12.0% 11.4% 11.4% 6.3% 6.6% 3.6% 8.5% 7.2% 4.7% 0.7% 8.0% 8.4% 7.9% 3.1 -0.5
EBIT 52.0 79.9 61.8 37.9 29.9 -1.8 39.6 31.9 5.5 -20.7 20.1 31.7 30.5 455% -4%
EBIT margin 8.8% 9.0% 8.5% 4.1% 3.9% -0.3% 5.5% 4.4% 1.1% -4.1% 3.2% 5.1% 5.0% 3.9 -0.1
Net profit 46.3 150.1 43.3 31.7 28.6 0.6 32.2 23.4 6.8 -10.9 16.3 26.2 22.0 222% -16%
Net margin 7.8% 17.0% 6.0% 3.4% 3.8% 0.1% 4.4% 3.2% 1.3% -2.2% 2.6% 4.3% 3.6% 2.3 -0.6
Source: Company data, BZ WBK Brokerage
Fig. 2. Azoty Police: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 2,448 2,448 0% 2,599 2,599 0% 2,745 2,745 0% EBITDA 173 173 0% 230 230 0% 298 298 0% EBIT 87 87 0% 139 139 0% 202 202 0% Net profit 66 66 0% 100 100 0% 151 151 0% Source: Company data, BZ WBK Brokerage
Fig. 3. Azoty Police: Valuation changes In PLN per share, unless otherwise stated
New Previous Change Weight DCF valuation 11.6 11.6 0% 100%
Comparable valuation (based on 2014-2015E) 15.2 15.2 0% 0% Source: Company data, BZ WBK Brokerage
Fig. 4. Azoty Police: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 2,981 2,464 2,448 2,599 2,745
COGS -2,707 -2,226 -2,140 -2,236 -2,317
Gross profit 274 239 308 363 427
SG&A -185 -229 -224 -225 -225
Other operating income, net 39 46 4 0 0
EBITDA 211 142 173 230 298
Operating profit 128 56 87 139 202
Net financial income (costs) -14 -7 -13 -16 -16
Profit before tax 114 50 75 123 185
Income tax -20 -10 -15 -23 -35
Net profit after minorities 104 51 66 100 151
Gross margin 9.2% 9.7% 12.6% 14.0% 15.6%
EBITDA margin 7.1% 5.8% 7.1% 8.9% 10.9%
Operating margin 4.3% 2.3% 3.6% 5.3% 7.4%
Net profit margin 3.5% 2.1% 2.7% 3.9% 5.5%
Source: Company data, BZ WBK Brokerage
Fig. 5. Azoty Police: Balance sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 653 713 691 728 761
Fixed assets 918 1,275 1,295 1,390 1,459
Total assets 1,571 1,988 1,986 2,118 2,220
Current liabilities 378 619 487 527 536
bank debt 136 197 147 171 164
Long-term liabilities 214 303 393 417 410
bank debt 72 55 147 171 164
Equity 977 970 1,013 1,080 1,181
share capital 750 750 750 750 750
Minority Interest 2 96 93 93 93
Total liabilities 1,571 1,988 1,986 2,118 2,220
Net debt 157 169 212 255 237
Source: Company data, BZ WBK Brokerage
Fig. 6. Azoty Police: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 146 220 76 150 206
CF from investment -114 -158 -115 -182 -160
CF from financing, incl. -29 -29 38 36 -41
Net change in cash 3 33 -1 5 5
Source: Company data, BZ WBK Brokerage
Polish Equity Research
179
Poland UTILITY
November 12, 2014
ZE PAK RECOMMENDATION
HOLD (INITIATION)
Prime Polish play on electricity price CURRENT PRICE: PLN29.84
TARGET PRICE: PLN31.90
Equity Story. ZE PAK operates 2.5GW of lignite-fuelled old generation
units, of which 600MW is to be switched off in 2018 and 1.3GW in 2029.
The company is vertically integrated via its own lignite mines – the
company requires no external fuel except for its 50MW biomass unit. The
company is a key play on the growing Polish electricity price through its
relatively high generation fleet and low-cost units. The company is also
delivering decent gains on cost optimisation and further upside there
seems reasonable. CO2 pricing, in light of today’s respective low volume
of the free certificates held, is the key risk for the stock. PAK’s investment
outlays will exceed its OpCF until 2017E (construction of gas-fired units)
but a potential investment into another unit may delay this moment
further.
Financials. 3Q14 is certain to come in below expectations on the back of
the recently announced provision. Still, if the current prices of electricity
futures and CO2 certificates remain unchanged, ZE PAK is poised to
deliver a very strong EBITDA / bottom line expansion until 2017E – we
see its operating profit doubling in 2014-17E. Lignite extraction should
continue delivering +PLN200mn EBITDA p.a., while generation should
provide the strongest electricity price-driven upside, up from PLN296mn in
2014E to PLN674mn in 17E. Still, the switch-off scheduled for 2018
should trim PAK’s results substantially (see next page for EBIT at DCF).
Triggers / Risks. Growth in the electricity price beyond the current
market prices is the key upside for the company. Further cost optimisation
could also add value to ZE PAK. On the side of risks, the company’s
NetFCF may be delayed with the decision on the gas-fired unit
investment. Moreover, ZE PAK is a dirty producer and has a relatively
small amount of free CO2 certificates – any strong growth in their price
would leave the stock exposed. Finally, uncertainty over rights to future
lignite extraction remains intact.
Valuation & recommendation. Based on our DCF model, we arrived at a
12M TP of PLN20.8 per share, depressed with the high value of the
company’s provisions. On the other hand, the short-term inexpensiveness
at the P/E and EV/EBITDA ratios implies a per share price of PLN41.9.
With such a discrepancy in outcomes, we applied two valuation outcomes
with a 50% weight each, yielding a 12M TP of PLN31.9. We initiate the
stock with a Hold recommendation.
STOCK PERFORMANCE
ZEP
WIG Relative
18
20
22
24
26
28
30
32
34
36
Oct-
12
Ja
n-1
3
Apr-
13
Ju
l-13
Oct-
13
Ja
n-1
4
Apr-
14
Ju
l-14
Oct-
14
Buy Hold Sell Under Review / Suspended
The chart measures performance against the WIG index.
On 11/05/2014, the WIG index closed at 53,591.
LAST RECOMMENDATIONS
Rec. Date Price Price performance
on issue date
12 month target
absolute relative (p.p)
n.a. n.a. n.a. n.a. n.a. n.a.
COMPANY DESCRIPTION
ZE PAK is the largest non-Treasury controlled electricity producer in Poland. Its assets consist of 2.5GW of mostly lignite-fired units, vertically integrated with adjacent lignite mines. ZE PAK produces over 10TWh of electricity per annum, a 7% of total Polish production.
Main shareholders % of votes
Zygmunt Solorz-Żak 51.55%
ING Pension Fund 9.97%
ANALYST
Pawel Puchalski, CFA (+48) 22 586 80 95
Company Data
PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes ZEEP.WA / ZEP PW
Sales 2,764 2,416 2,558 2,701 Market capitalisation (PLNm) 1,516.6
EBITDA 716 497 662 786 Number of shares (m) 50.8
EBIT 359 144 311 438 Free float (%) 48.4%
Net income 217 74 197 286 Avg. daily turnover 3M (PLNm) 2.0
P/E (x) 7.0 20.5 7.7 5.3 Price performance
1M 3M YTD
EV/EBITDA (x) 3.0 5.1 4.3 3.9 -0.5% 6.6% 19.3% Source: Company data, DM BZ WBK estimates
Polish Equity Research
180
Fig. 1. ZE PAK: DCF valuation PLN in millions, unless otherwise stated
2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
Net sales 2,416 2,558 2,701 2,826 2,371 2,368 2,366 2,379 2,391 2,404
EBIT 144 311 438 625 239 254 197 219 241 263
Cash taxes on EBIT 27 59 83 119 45 48 37 42 46 50
NOPAT 117 252 355 507 193 206 159 177 195 213
Depreciation 353 351 348 345 343 324 305 286 268 249
Change in operating WC -2 1 1 1 -3 0 0 0 0 0
Capital expenditure 632 872 872 852 212 212 212 212 212 212
Free cashflow -160 -270 -170 -1 327 318 253 252 251 250
PV FCF PV TV Total
Regulated businesses
Distribution 0 0 0
Heat 0 0 0
Renewables 0 0 0
Sub-total 0 0 0
Non-regulated businesses
Systemic generation -102 1,065 963
Coal extraction 523 653 1,176
Sales & others 18 19 37
Sub-total 439 1,737 2,176
Net Debt, provisions, other 1,261*
Total DCF Valuation [PLNmn, Jan2014] 916
Number of shares [mn] 50.8
SOPT / DCF valuation per share [PLN, Jan2014] 18.0
SOTP / DCF valuation per share - current [PLN, Nov2014] 19.3
12-month Target Price [PLN] 20.8
Source: Company data, DM BZ WBK estimates. * includes PLN599mn of provisions. .
Fig. 2. ZE PAK: Comparable valuation
Price Currency P/E EV/EBITDA
2014E 2015E 2016E 2014E 2015E 2016E
ZE PAK 29.84 PLN 20.5 7.7 5.3 5.1 4.3 3.9
CEZ 604.50 CZK 11.1 13.2 14.4 7.1 7.6 7.7
Public Power Corp 6.68 EUR 12.6 6.4 5.0 6.0 5.4 5.0
Drax Group 580.50 GBp 26.4 17.3 11.1 11.1 8.7 6.5
Enel 3.97 EUR 12.5 11.7 11.2 6.0 5.9 5.8
RWE 28.68 EUR 13.2 13.2 13.7 4.9 4.6 4.4
SSE 1581.00 GBp 13.3 13.5 12.9 10.1 10.1 9.7
E.ON 13.58 EUR 14.9 14.4 14.4 5.6 5.5 5.3
Median 13.2 13.2 12.9 6.0 5.9 5.8
Source: BZ WBK Brokerage research, Bloomberg.
Polish Equity Research
181
Fig. 3. ZE PAK: 3Q14 results preview PLN in millions, unless otherwise stated
3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E* y/y q/q
Sales 631.4 712.8 735.3 663.2 664.1 689.5 747.0 667.7 677.1 676 -2.0% -0.2%
EBITDA 99.8 117.1 139.5 96.2 106.7 216.0 134.1 169.0 140.8 140 -35.2% -0.6%
EBITDA margin 15.8% 16.4% 19.0% 14.5% 16.1% 31.3% 18.0% 25.3% 20.8% 20.7% -10.6 -0.1
EBIT 99.8 116.9 130.4 87.1 97.9 128.0 45.5 80.6 49.5 51 -60.2% 3.1%
EBIT margin 15.8% 16.4% 17.7% 13.1% 14.7% 18.6% 6.1% 12.1% 7.3% 7.5% -11.0 0.2
Net profit 58.8 101.8 90.2 47.3 48.3 102.7 18.6 52.4 34.4 36 -65.0% 4.8%
Net margin 9.3% 14.3% 12.3% 7.1% 7.3% 14.9% 2.5% 7.9% 5.1% 5.3% -9.6 0.3
Source: Company data, DM BZ WBK estimates. * based on market consensus, not adjusted for PLN76mn write-down in 3Q14.
Fig. 4. ZE PAK: Forecast changes PLN in millions, unless otherwise stated
2014E 2015E 2016E
New Previous Change New Previous Change New Previous Change
Sales 2,416 n.a. n.a. 2,558 n.a. n.a. 2,701 n.a. n.a.
EBITDA 497 n.a. n.a. 662 n.a. n.a. 786 n.a. n.a.
EBIT 144 n.a. n.a. 311 n.a. n.a. 438 n.a. n.a.
Net profit 74 n.a. n.a. 197 n.a. n.a. 286 n.a. n.a. Source: Company data, DM BZ WBK estimates
Fig. 5. ZE PAK: Valuation changes In PLN per share, unless otherwise stated
New Previous Change
DCF valuation 20.8 n.a. n.a.
Comparable valuation (based on 2014-2016E) 42.9 n.a. n.a.
Weighted valuation* 31.9 n.a. n.a. Source: Company data, DM BZ WBK estimates. Based on 50% DCF valuation and 50% comparative valuation.
Fig. 6. ZE PAK: Income statement forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Net sales 2,723 2,764 2,416 2,558 2,701
COGS 1,960 2,047 1,919 1,896 1,915
Gross profit 764 716 497 662 786
SG&A 137 152 0 0 0
Other operating income, net -4 1 0 0 0
EBITDA 764 716 497 662 786
Operating profit 484 359 144 311 438
Net financial income (costs) 13 -59 -40 -51 -65
Profit before tax 497 300 104 260 374
Income tax 94 68 20 49 71
Net profit 406 217 74 197 286
Gross margin 28.0% 25.9% 20.6% 25.9% 29.1%
EBITDA margin 28.0% 25.9% 20.6% 25.9% 29.1%
Operating margin 17.8% 13.0% 6.0% 12.2% 16.2%
Net profit margin 14.9% 7.8% 3.1% 7.7% 10.6%
Source: Company data, DM BZ WBK estimates
Fig. 7. ZE PAK: Balance Sheet forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
Current assets 900 1,132 700 718 775
Fixed assets 5,360 5,339 5,605 6,131 6,660
Total assets 6,259 6,471 6,305 6,849 7,436
Current liabilities 925 1,072 988 1,023 1,057
bank debt 462 406 406 406 406
Long-term liabilities 1,792 1,616 1,495 1,842 2,142
bank debt 790 652 652 950 1,200
Equity 3,542 3,783 3,822 3,985 4,237
share capital 104 102 102 102 102
Minority Interest 0 0 0 0 0
Total liabilities 6,259 6,471 6,305 6,849 7,436
Net debt 934 627 1,003 1,305 1,521
Source: Company data, DM BZ WBK estimates
Fig. 8. ZE PAK: Cash flow forecast PLN in millions, unless otherwise stated
2012 2013 2014E 2015E 2016E
CF from operations 791 577 379 551 634
CF from investment -373 -307 -731 -832 -831
CF from financing, incl. -99 -156 -24 276 232
dividends 0 0 -35 -35 -35
Net change in cash 318 113 -376 -5 34
Source: Company data, DM BZ WBK estimates
Polish Equity Research
182
This page has been left intentionally blank.
Polish Equity Research
183
Dom Maklerski BZ WBK
Jana Pawla II Avenue 17 00-854 Warszawa
fax. (+48) 22 586 81 09
Equity Research Department
Pawel Puchalski, CFA, Head tel. (+48) 22 586 80 95 [email protected] Telecommunications, Metals & Mining, Power
Dariusz Gorski, Deputy Head tel. (+48) 22 586 81 00 [email protected] Strategy, Banks
Tomasz Kasowicz tel. (+48) 22 586 81 55 [email protected] Oil&Gas, Chemicals
Tomasz Sokolowski tel. (+48) 22 586 82 36 [email protected] Pharma, Retail
Adrian Kyrcz tel. (+48) 22 586 81 59 [email protected] Construction, Real Estate
Lukasz Kosiarski tel. (+48) 22 586 82 25 [email protected] Media, IT, IT distribution, Video Games, Health Care
Andrzej Bieniek, Securities Broker, Investment Adviser tel. (+48) 22 586 85 21 [email protected] Financials
Tomasz Kucinski tel. (+48) 22 534 16 10 [email protected] Industrials
Michal Sopiel tel. (+48) 22 586 82 33 [email protected] Wood, Quantitative Analysis
Sales & Trading Department
Piotr Zagan , Head tel. (+48) 22 586 80 84 [email protected]
Wojciech Wosko tel. (+48) 22 586 80 82 [email protected] Kamil Cislo tel. (+48) 22 586 80 90 [email protected] Grzegorz Kolodziejczyk, Securities Broker tel. (+48) 22 586 81 93 [email protected] Blazej Leskow, Securities Broker tel. (+48) 22 586 80 83 [email protected]
Marcin Kuciapski, Securities Broker tel. (+48) 22 586 80 96 [email protected]
Marek Wardzynski, Securities Broker tel. (+48) 22 586 80 87 [email protected]
Alex Kaminski tel. (+48) 22 586 80 63 [email protected]
Robert Chudala tel. (+48) 22 586 85 14 [email protected]
Polish Equity Research
184
LIMITATION OF LIABILITY This material was produced by Dom Maklerski BZ WBK which is a separate organizational unit of Bank Zachodni WBK S.A conducting brokerage activity (DM BZ WBK). DM BZ WBK is subject to the regulations of the Act on Trading in Financial Instruments dated July 29th 2005 (Journal of Laws of 2014, item 94 - consolidated text, further amended), Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies dated July 29th 2005 (Journal of Laws of 2013 item 1382 - consolidated text, further amended), Act on Capital Market Supervision dated July 29th 2005 (Journal of Laws of 2005, No.183 item 1537 further amended). It is addressed to qualified investors and professional clients as defined under the above indicated regulations and to Clients of DM BZ WBK entitled to gain recommendations based on the brokerage services agreements. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of Bank Zachodni WBK S.A. (BZ WBK) or entities belonging to BZ WBK Group. DM BZ WBK is an author of this document. All copyrights belong to BZ WBK .This document may not be reproduced or published, in part or in whole, without a prior written consent of BZ WBK. DM BZ WBK may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. DM BZ WBK will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for particular investor and it is recommended to consult an independent investment advisor in case of doubts about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to investor's individual circumstances, or otherwise constitutes a personal recommendation to particular investor. Whenever the document refers to "the Issuer" shall mean the company / companies which is / are the subject of the recommendations referred to in this document. In the case where recommendation refers to several companies, the name "Issuer" will apply to all of them. Affiliates of DM BZ WBK may, from time to time, to the extent permitted by law, participate or invest in financing transactions with Issuer, perform services for or solicit business from such Issuer and/or have a position or effect transactions in the financial instruments issued by the Issuer ("financial instruments"). DM BZ WBK may, to the extent permitted by applicable Polish law, UK law and other applicable law or regulation, effect transactions in the Financial instruments before this material is published to recipients. This document is valid at the time of its preparation and may change. DM BZ WBK may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and DM BZ WBK is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. DM BZ WBK informs that success in past recommendations is not a guarantee of success in future ones. Points of view expressed in the reports reflect Analyst personal opinion on the analysed company and its securities. With the exception of remuneration from the DM BZ WBK ,Analysts do not receive any other form of compensation for recommendations made. The sources of the data include WSE, PAP, Reuters, Bloomberg, EPFR, GUS /Central Statistical Office/, NBP /National Bank of Poland/, DM BZ WBK, Akcje.net, financial periodicals and business and finance websites. Information and opinions contained herein have been compiled or gathered, with due care and diligence, by DM BZ WBK from sources believed to be reliable, however DM BZ WBK cannot ensure their accuracy or completeness. Investor shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the Financial instruments forming the subject matter of this document. The information and opinions contained herein are subject to change without any notice. Dom Maklerski BZ WBK is not responsible for any losses incurred by Investors which were result of investment decisions based on recommendations issued by DM BZ WBK, if they were prepared with due care and diligence. This document does not constitute an offer or invitation to subscribe for or purchase or carry out transactions in any financial instruments and shall not be considered as an offer to sell or to buy any securities. This document is furnished and presented to you solely for your information and shall not be reproduced or redistributed to any other person. This document nor any copy hereof shall not be distributed directly or indirectly in the United States, Canada, Australia or Japan or to any citizen or resident of the United States, Canada, Australia or Japan where its distribution may be restricted by law. Its distribution may be restricted by law in other countries. Persons who distribute this document shall make themselves aware of and adhere to any such restrictions. This document may be distributed in the United States and in the United Kingdom to persons which have professional knowledge about investing in accordance with relevant regulations. Opinions in this document must not be relied upon as having been authorised or approved by issuer the opinions expressed herein are solely those of DM BZ WBK. DM BZ WBK informs that investing assets in financial instruments implies the risk of losing part or all the invested assets. DM BZ WBK indicates that the price of the financial instruments is influenced by lots of different factors, which are or cannot be dependent from issuer and its business results. These are factors such as changing economical, law, political or tax condition. More information on financial instruments and risk connected with them can be found on www.dmbzwbk.pl, section disclaimers and risk. The decision to purchase any of the financial instruments should be made only on the basis of the prospectus, offering circular or other documents and materials which are published on general release on the basis of polish law. Overweight/Underweight/Neutral - means that, according to the authors of this document, the stock price may perform better/worse/neutrally than the WIG20 index in a given month. When particular stocks are marked with Overweight/Underweight/Neutral - such information should not be construed as investment recommendation concerning a given financial instrument. The recommendation system of BZ WBK Brokerage S.A. is based on determination of target prices and their relations to current prices of financial instruments; in addition, when recommendations are addressed to a wide range of recipients, two methods of valuation are required. Overweight/Underweight/Neutral information contained herein does not meet any of the aforementioned requirements. Furthermore, depending on the situation, it can be grounds for taking different (including opposing) investment action in the case of particular investors. Mid-caps - if a stock is included into a mid-cap portfolio it means that, according to the authors of this document, a particular stock price may outperform the WIG20 index during one month. Stocks are added to or deleted from the list on the basis of the requirement to rotate the stocks included in the list. Any change in weight of stocks already included in the portfolio should not be construed as investment recommendation. Such changes are aimed exclusively at making the total weight of all stocks equal 100%. DM BZ WBK confirms that the adjustment for dividend paid, adjustment for preemptive rights, share split or merger, or any other purely technical adjustments to the share price will result in corresponding changes in the stocks' target prices - such situations must be considered within purely technical context and should not be considered as changes to recommendations in the meaning of the law. Explanations of special terminology used in the recommendation: EBIT - earnings before interest and tax EBITDA - earnings before interest, taxes, depreciation, and amortization P/E - price-earnings ratio EV - enterprise value (market capitalisation plus net debt) PEG - P/E to growth ratio EPS - earnings per share CPI - consumer price index WACC - weighted average cost of capital CAGR - cumulative average annual growth P/CE - price to cash earnings (net profit plus depreciation and amortisation) ratio NOPAT - net operational profit after taxation FCF - free cash flows BV - book value ROE - return on equity P/BV - price-book value Recommendation definitions: Buy - indicates a stock's total return to exceed more than 15% over the next twelve months. Hold - indicates a stock's total return to be in range of 0%-15% over the next twelve months. Sell - indicates a stock's total return to be less than 0% over the next twelve months. In the opinion of DM BZ WBK., this document has been prepared with all due diligence and excludes any conflict of interests which could influence its content. DM BZ WBK is not obliged to take any actions which could cause financial instruments that are the subject of the valuation contained in this document to be valued by the market in accordance with the valuation contained in this document. Brokerage activity conducted by DM BZ WBK, which is a separate organizational unit of Bank Zachodni WBK S.A., is subject to the supervision of the Financial Supervision Commission. The date on the first page of this report is the date of preparation and publication of the document. ANY PERSON WHO ACCEPTS THIS DOCUMENT AGREES TO BE BOUND BY THE FOREGOING DISCLAIMER AND LIMITATIONS.
Polish Equity Research
185
Dom Maklerski BZ WBK is a separate organizational unit of Bank Zachodni WBK S.A. with its registered office in Wrocław, ul. Rynek 9/11, 50-950 Wrocław, registered by the District Court in Wrocław - Fabryczna, VI Commercial Division of the National Court Register under the number 0000008723. Share capital - PLN 992 345 340 fully paid up. Taxpayer Identification Number (NIP) 896-000-56-73. ---------------------------------------------------------------------------------------------------------------------------------------- DISCLOSURES This report contains recommendations referring to company/companies: AB S.A., ABC Data S.A., Action S.A., Alumetal S.A., Ambra S.A., Amica Wronki S.A., Apator S.A., Arctic Paper S.A., ASBISc Enterprises PLC, Asseco Business Solutions S.A., Asseco Poland S.A., Asseco South Eastern Europe S.A., Atrem S.A., Automotive Components Europe S.A., Bank BPH S.A., Bank Ochrony Środowiska S.A., Benefit Systems S.A., Budimex S.A., CCC S.A., CD Projekt S.A., CEZ A.S., CI Games S.A., Ciech S.A., Colian S.A., Comarch S.A., Cyfrowy Polsat S.A., Dom Development S.A., Echo Investment S.A., Elemental Holding S.A., Emperia Holding S.A., Enea S.A., Energa S.A., Erbud S.A., Eurocash S.A., Europejskie Centrum Odszkodowań S.A., Fabryka Mebli Forte S.A., Farmacol S.A., Giełda Papierów Wartościowych w Warszawie S.A., Gino Rossi S.A., Grupa Azoty S.A., Grupa Azoty Zakłady Azotowe Puławy S.A., Hawe S.A., Integer.pl S.A., International Personal Finance plc, Jastrzębska Spółka Węglowa S.A., Kęty S.A., KGHM "Polska Miedź" S.A., Kruk S.A., Lotos S.A., LPP S.A., Lubelski Węgiel "Bogdanka" S.A., M.W. Trade S.A., Magellan S.A., mBank S.A., Medicalgorithmics S.A., Midas S.A., Monnari Trade S.A., Netia S.A., Neuca S.A., Open Finance S.A., Orange Polska S.A., Ovostar Union N.V., P.R.E.S.C.O. Group S.A., Paged S.A., Pekaes S.A., Pelion S.A., Pfleiderer Grajewo S.A., PGNiG S.A., PKN Orlen S.A., Polska Grupa Energetyczna S.A., Polski Holding Nieruchomości S.A., Pozbud T&R S.A., Prime Car Management S.A., PZ Cormay S.A., Robyg S.A., Ronson Europe NV, Synektik S.A., Synthos S.A., Tauron Polska Energia S.A., Tesgas S.A., Trakcja S.A., TVN S.A., Unibep S.A., Vantage Development S.A., Votum S.A., Voxel S.A., Wielton S.A., Wojas S.A., Work Service S.A., Zakłady Chemiczne Police S.A., Zakłady Odzieżowe Bytom S.A., Zespół Elektrowni "Pątnów-Adamów-Konin" S.A. ("Issuer"). DM BZ WBK emphasizes that this document is going to be updated at least once a year. This document has not been disclosed to Issuer. In preparing this document DM BZ WBK applied at least two of the following valuation methods: discounted cash flows (DCF), comparative, mid-cycle, dividend discount model (DDM), residual income, warranted equity method (WEV), SOTP valuation, liquidation value. The discounted cash flows (DCF) valuation method is based on expected future discounted cash flows. One advantage of the DCF valuation method is that it takes into account all cash streams reaching Issuer and the cost of money over time. Some disadvantages of the DCF valuation method are that a large number of parameters and assumptions need to be estimated; and the valuation is sensitive to changes in those parameters. The comparative valuation method is based on the economic rule of "one price". Some advantages of the comparative valuation method are that the analyst need only estimate a small number of parameters; the valuation is based on current market conditions; the relatively large accessibility of indicators for companies being compared; and that there is an extensive knowledge of the comparative method among investors. Some disadvantages of valuation by the comparative method are the considerable sensitivity of the results of the valuation on the choice of companies to the comparative group; the method can lead to a simplification of the picture of the company which in turn can lead to omitting certain important factors (e.g. growth dynamics, extra-operational assets, corporate governance, the repeatability of results, differences in applied accounting standards); and the uncertainty of the effectiveness of a market valuation of companies being compared. The mid-cycle valuation is based on long-term averages for the two-year forward consensus P/E and EV/EBITDA multiples for the members of the peer group. The methodology is aimed calculating a fair, through the cycle value of cyclical stocks. Among its shortfalls is that at peaks and/or troughs of the cycle, the implied fair value may deviate substantially from the market's value of an analysed stock as well as the methods' reliance on the quality of external data (we use Bloomberg consensus here). Simplicity and average through-cycle value allowing to capture over as well as under-valuation of a given stock are the main advantages of this methodology. The dividend discount model (DDM) valuation is based on the net present value of the future dividends that are expected to be paid out by the company. Some advantages of the DDM valuation method are that it takes into account real cash flows to equity-owners and that the methodology is used in respect to companies with long dividend payout history. Main disadvantage of the DDM valuation method is that dividend payouts are based on a large number of parameters and assumptions, including dividend payout ratio. Residual income method is conceptually close to the discounted cash flows method (DCF) for non-financial stocks, the difference being that it is based on expected residual income (returns over COE) rather than expected future cash flows. One advantage of this valuation method is that it captures the excess of profit potentially available to shareholders and the cost of money over time. Main disadvantage of the valuation method is that a large number of parameters and assumptions need to be estimated; and the valuation is sensitive to changes in those parameters. The warranted equity method (WEV) is based on the formula P/BV = (two year forward ROE less sustainable growth rate)/(Cost of equity less sustainable growth rate) which allows estimating a fair value (FV) of a given stock in two years time. Subsequently the FV is discounted back to today. The main advantage of the WEV method is that it is a transparent one and based on relatively short term forecasts, hence substantially reducing the margin of forecasting error. The main disadvantage in our view is that the model is based on the principle that stock price should converge towards its fair value implied by company's ROE and COE. SOTP valuation - different assets of a company are being valued according to different valuation methods, and the sum of these valuations represents the final valuation of the company. SOTP valuation advantages / disadvantages are identical to advantages and disadvantages of the specific valuation methods used. Liquidation value method - liquidation value is the estimated amount of money that an asset or company could be quickly sold for, such as if it were to go out of business. Then, the estimated assets value is adjusted for liabilities and liquidation expenses. One advantage of this valuation method is its simplicity. This method does not account for intangible assets as goodwill, which is the main disadvantage. Over the last three months Dom Maklerski BZ WBK issued 27 Buy recommendations, 9 Hold recommendations and 8 Sell recommendations. % of Companies Rating Covered with This Rating Provided with Investment Banking in Past 12M Buy 58,06 5,56 Hold 20,97 7,69 Sell 12,90 25,00 Under Review 8,06 20,00 Definition of each rating was provided in the above section Limitation of liability. The Stock performance charts in this report include line graphs of the securities' daily closing prices for one year period. Information relating to a longer period (max 3 years) is available upon request. The Issuer may hold shares of BZ WBK S.A. Members of the Issuer's authorities or their relatives may be members of the management board or supervisory board of BZ WBK S.A. Among those, who prepared this document, as well as among those who didn't prepare it but had or might have had the access to it, there are such individuals who hold shares or financial instruments whose value is connected with the value of the financial instruments issued by: Giełda Papierów Wartościowych w Warszawie S.A., Grupa Azoty Zakłady Azotowe Puławy S.A., KGHM "Polska Miedź" S.A., Lotos S.A., PGNiG S.A., PKN Orlen S.A., PKO Bank Polski S.A., PZ Cormay S.A., Synthos S.A., Tauron Polska Energia S.A., Trakcja S.A., Zakłady Chemiczne Police S.A. BZ WBK Group, its affiliates, representatives or employees may occasionally under take transactions or may be interested in acquiring securities of issuers directly or indirectly related to those being analysed. During the last 12 months DM BZ WBK has been a party to agreements relating to the offering of financial instruments issued by Action S.A., Work Service S.A. During the last 12 months DM BZ WBK was a member of syndicate for financial instruments issued by Elemental Holding S.A., Energa S.A., Prime Car Management S.A. DM BZ WBK S.A. acts as market maker, on principles specified in the Regulations of the Warsaw Stock Exchange, for the shares of ABC Data S.A., Amica Wronki S.A., Asseco Poland S.A., Cyfrowy Polsat S.A., Enea S.A., Energa S.A., Eurocash S.A., Europejskie Centrum Odszkodowań S.A., Grupa Azoty S.A., Hawe S.A., Jastrzębska Spółka Węglowa S.A., Kęty S.A., KGHM "Polska Miedź" S.A., Lotos S.A., LPP S.A., Lubelski Węgiel "Bogdanka" S.A., Netia S.A., Orange Polska S.A., Pelion S.A., PGNiG S.A., PKN Orlen S.A., Polska Grupa Energetyczna S.A., Polski Holding Nieruchomości S.A., Synthos S.A., Tauron Polska Energia S.A., Tesgas S.A., TVN S.A. DM BZ WBK S.A. acts as issuer's market maker, on principles specified in the Regulations of the Warsaw Stock Exchange, for the shares of ABC Data S.A., Action S.A., Amica Wronki S.A., Benefit Systems S.A., CCC S.A., Dom Development S.A., Enea S.A., Erbud S.A., Europejskie Centrum Odszkodowań S.A., Fabryka Mebli Forte S.A., Hawe S.A., International Personal Finance plc, KGHM "Polska Miedź" S.A., Monnari Trade S.A., P.R.E.S.C.O. Group S.A., Pelion S.A., Polski Holding Nieruchomości S.A., Pozbud T&R S.A., Robyg S.A., Tesgas S.A., Work Service S.A. DM BZ WBK is not a part to the agreement with the Issuer related to issuing recommendations. During the last 12 months DM BZ WBK S.A. has received remuneration for providing services for the Issuer. These services covered acting as issuer's market maker for ABC Data S.A., Action S.A., Amica Wronki S.A., CCC S.A., Dom Development S.A., Enea S.A., Erbud S.A., Europejskie Centrum Odszkodowań S.A., Fabryka Mebli Forte S.A., Hawe S.A., International Personal Finance plc, KGHM "Polska Miedź" S.A., Monnari Trade S.A., P.R.E.S.C.O. Group S.A., Polski Holding Nieruchomości S.A., Pozbud T&R S.A., Robyg S.A., Tesgas S.A., Work Service S.A., managing the deposit of financial instuments issued by ABC Data S.A., Action S.A., Atrem S.A., Elemental Holding S.A., Kęty S.A., Magellan S.A., Ovostar Union N.V., Polska Grupa Energetyczna S.A., Polski Holding Nieruchomości S.A., Tesgas S.A., providing services of Lead Manager for Amica Wronki S.A., Apator S.A., Europejskie Centrum Odszkodowań S.A., KGHM "Polska Miedź" S.A., Synthos S.A., acting as issuing agent for ABC Data S.A., Gino Rossi S.A., managing the managerial scheme for ABC Data S.A., Kęty S.A., Kruk S.A., carrying out the over-the-market transaction for Paged S.A., conducting the tender offer for TVN S.A.
Polish Equity Research
186
During the last 12 months BZ WBK S.A. has received remuneration for providing services of investment banking from Action S.A. , Budimex S.A., KGHM "Polska Miedź" S.A., Polska Grupa Energetyczna S.A., TVN S.A., Work Service S.A. BZ WBK S.A. may be indirectly connected with the Issuer and does not rule out that in the period of preparing this document any Affiliate of BZ WBK S.A. might purchase shares of the Issuer or any financial instruments being the subject of this document which may cause reaching at least 5% of the share capital. BZ WBK Group has hold, in the period of preparing this document, shares of the following issuers: AB S.A., ABC Data S.A., Action S.A., Alumetal S.A., Ambra S.A., Asseco Business Solutions S.A., Asseco Poland S.A., Asseco South Eastern Europe S.A., Automotive Components Europe S.A., Budimex S.A., CCC S.A., CD Projekt S.A., Dom Development S.A., Echo Investment S.A., Erbud S.A., Fabryka Mebli Forte S.A., Farmacol S.A., Kęty S.A., Kruk S.A., Lubelski Węgiel "Bogdanka" S.A., Magellan S.A., Medicalgorithmics S.A., Netia S.A., Open Finance S.A., Ovostar Union N.V., Pelion S.A., Pfleiderer Grajewo S.A., PKN Orlen S.A., Synektik S.A., Tesgas S.A., Unibep S.A., in the amount reaching at least 5% of the share capital. BZ WBK Group may have hold, in the period of preparing this document, shares of the Issuer, in the amount reaching at least 1% of the share capital. Subject to the above, the Issuer are not bound by any contractual relationship with BZ WBK, which might influence the objectivity of the recommendations contained in this document. BZ WBK S.A. has hold, in the period of issuing this document, financial instruments issued by Action S.A., Amica Wronki S.A., Benefit Systems S.A., CI Games S.A., Kęty S.A., Lubelski Węgiel "Bogdanka" S.A., Netia S.A., Polski Holding Nieruchomości S.A., Work Service S.A. (except on the basis of being market maker and issuer's market maker). However, it cannot be ruled out that, in the period of the next twelve months or the period in which this document is in force, BZ WBK S.A. will submit an offer to provide services for the Issuer or will purchase or dispose of financial instruments issued by the Issuer or whose value depends on the value of financial instruments issued by the Issuer. Except for broker agreements with clients under which DM BZ WBK sells and buys the shares of the Issuer at the order of its clients, DM BZ WBK is not party to any agreement which would depend on the valuation of the financial instruments discussed in this document. Remuneration received by the persons who prepare this document may be dependent, in an indirect way, from financial results gained from investment banking transactions, related to financial instruments issued by the Issuer, made by DM BZ WBK or its Affiliates.