small & mid cap coverage poland - polenergia · polish equity research 2 small & mid cap...

Polish Equity Research

Small & Mid Cap coverage – Poland

November 3, 2016

Research analysts:

Dariusz Gorski +48 22 586 8100; [email protected]

Pawel Puchalski, CFA +48 22 586 8095; [email protected]

Grzegorz Balcerski Securities broker, Investment Adviser +48 22 534 1610; [email protected]

Tomasz Kasowicz [email protected]

Lukasz Kosiarski +48 22 586 8225; [email protected]

Adrian Kyrcz +48 22 586 8159; [email protected]

Adam Milewicz Securities broker +48 22 586 8155; [email protected]

Tomasz Sokolowski +48 22 586 8236; [email protected]

Michal Sopiel +48 22 586 8233; [email protected]


2

Small & Mid Cap coverage – Poland

November 3, 2016 17:00

Small- and mid-caps have had a good run year to date with mWIG40 up 12% and

sWIG60 up 6%. We remain positive on the near-term outlook for both indices, but note

that the call on the fortune of small- and mid-caps is less obvious than it was at the

start of the year. Back then (see Small & Mid Cap coverage: Força Mid-Caps! from

January 27, 2016 for reference), the sold-off mWIG traded at less than 1.1x book, while

sWIG at 1.0x. Current valuations look much richer, particularly mWIG at its forward P/E

of 12.5x and 1.5x next year book. sWIG80, at forward P/E of less than 10x and P/Book

just above 1.0x, offers similar 20%+ EPS growth next year and seems more reasonably

valued to us.

Upside potential implied by the updated target prices for 47 stocks covered in this

report reflect our abating enthusiasm. Despite the 10% lower RFR and mostly upped

2017-18E EPS, the upside averages at 20%+ currently, below 30%+ in our last report.

Also there much fewer stocks with high double digit upside than there were at the start

of the year.

Enjoy reading and screening!

In this report, we are presenting refreshed estimates, price targets and recommendations for 47 small- and mid-cap names, dropping coverage of Wojas and Pekaes and initiating coverage of Orzel Bialy (Sell, TP PLN7.73), Rainbow (Buy, TP PLN40.0) and Mangata (Buy, TP PLN142).

Pages 8 to 10 include screens containing top ten best/worst stock in each metric. More detailed comparisons are available upon request.

Upside potential (%)

2017E P/E (x)

10 Highest 10 Lowest


MONNARI 92% NETIA -8%

SYNEKTIK 44.5 ZEPAK 2.0

POLENERGIA 72% ORZEL BIALY -3%

LIVECHAT 23.6 CI GAMES 4.0

PHN 61% TORPOL 1%

BENEFIT 22.1 UNIWHEELS 7.2

AMBRA 57% SYNEKTIK 4%

MEDICALGORITHMICS 19.5 ABC DATA 7.3

EMPERIA 43% RONSON 5%

COMARCH 19.1 AB 7.6

LIVECHAT 37% GINO ROSSI 6%

WORK SERVICE 19.0 PELION 8.2

IZO BLOK 36% ZEPAK 7%

POLENERGIA 18.2 ELEMENTAL 8.4

CI GAMES 33% ABC DATA 8%

TRAKCJA 18.2 ORZEL BIALY 9.3

AB 33% ALUMETAL 9%

NEUCA 16.7 RAINBOW TOURS 9.4

WIELTON 31% KETY 9%

EMPERIA 16.6 AMBRA 9.4

Source: DM BZ WBK estimates

2015-2018E EPS CAGR (%) 2017E DY (%)

10 Highest 10 Lowest 10 Highest 10 Lowest

PFLEIDERER 92.6% POLENERGIA -17.3% UNIWHEELS 11.3% COMARCH 0.9%

CI GAMES* 72.9% ABC DATA -9.7% ABC DATA 10.2% PFLEIDERER 1.0%

MEDICALGORITHMICS 62.3% MONNARI -9.0% ZEPAK 9.6% NEUCA 1.5%

PAGED 47.8% STALPRODUKT -5.1% NETIA 8.3% MONNARI 1.6%

ZEPAK 40.5% COMARCH -0.4% DOM DEVELOPMENT 7.9% FORTE 1.9%

GINO ROSSI 32.0% PELION -0.4% AMBRA 7.4% PELION 1.9%

AUTO PARTNER 31.9% ORZEL BIALY 2.2% BUDIMEX 6.7% POLENERGIA 2.2%

LIVECHAT 29.6% ASSECO SEE 2.8% ASSECO SEE 6.3% STALPRODUKT 2.5%

DOM DEVELOPMENT 28.7% SNIEZKA 3.1% SNIEZKA 6.2% MEDICALGORITHMICS 2.6%

MANGATA 26.4% EMPERIA 3.5% ASSECO BS 5.8% UNIBEP 2.7%

* -based on average 2016-18/2013-15 EPS * include dividend paying companies only


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Contents

Key drivers of small- &mid-cap performance at a glance ................................................ 4

SMC Radar: stock picking tool ........................................................................................... 8

AB ................................................................................................................................... 11 ABC DATA ........................................................................................................................ 13 ALUMETAL ......................................................................................................................... 15 AMBRA .............................................................................................................................. 17 AMICA ............................................................................................................................... 19 APATOR ............................................................................................................................ 21 ASSECO BS ...................................................................................................................... 23 ASSECO SEE .................................................................................................................... 25 AUTO PARTNER .................................................................................................................. 27 BENEFIT SYSTEMS ............................................................................................................. 29 BUDIMEX ........................................................................................................................... 31 BYTOM .............................................................................................................................. 33 CI GAMES ......................................................................................................................... 35 COMARCH ......................................................................................................................... 37 DOM DEVELOPMENT ........................................................................................................... 39 ELEMENTAL HOLDING ......................................................................................................... 41 EMPERIA ........................................................................................................................... 43 ERBUD .............................................................................................................................. 45 FORTE .............................................................................................................................. 47 GINO ROSSI ...................................................................................................................... 49 IZO BLOK ........................................................................................................................ 51 KETY ................................................................................................................................ 53 LIVECHAT SOFTWARE ......................................................................................................... 55 MANGATA .......................................................................................................................... 57 MEDICALGORITHMICS ......................................................................................................... 61 MONNARI .......................................................................................................................... 63 NETIA ............................................................................................................................... 65 NEUCA .............................................................................................................................. 67 ORZEŁ BIAŁY ..................................................................................................................... 69 PAGED .............................................................................................................................. 73 PELION ............................................................................................................................. 75 PFLEIDERER ...................................................................................................................... 77 PHN................................................................................................................................. 79 POLENERGIA ..................................................................................................................... 81 RAINBOW .......................................................................................................................... 83 RONSON ........................................................................................................................... 87 SNIEZKA ............................................................................................................................ 89 STALPRODUKT ................................................................................................................... 91 SYNEKTIK .......................................................................................................................... 93 TORPOL ............................................................................................................................ 95 TRAKCJA ........................................................................................................................... 97 UNIBEP ............................................................................................................................. 99 UNIWHEELS ..................................................................................................................... 101 VOXEL ............................................................................................................................ 103 WIELTON ......................................................................................................................... 105 WORK SERVICE ............................................................................................................... 107 ZE PAK .......................................................................................................................... 109

Throughout the report we use share prices as of November 2, 2016


4

Key drivers of small- &mid-cap performance at a glance

Dwindling inflows into domestic equity mutual funds… Fig. 1. mWIG40: performance vs. inflows into equity funds Fig. 2. mWIG40 vs. cumulative net inflows to PL eqt.

Source: Bloomberg, DM BZ WBK estimates

Fig. 3. sWIG80: performance vs. inflows into equity funds Fig. 4. sWIG80 vs. cumulative net inflows to PL eqt.


…good performance of small- and mid-caps globally… Fig. 5. Performance of mid-cap indices Fig. 6. Relative performance of mid-cap indices


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mWIG40 sWIG80European mid-caps US mid-caps

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mWIG40 sWIG80European mid-caps US mid-caps


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…elevated valuation multiples (P/Book is currently close to 1.7x), historically a turning point… Fig. 7. mWIG: Twelve year trajectory


…and weakening macro backdrop look like warning signals for small- and mid-caps in the near-term… Fig. 8. mWIG40: 12-m returns vs. PMIs Fig. 9. sWIG80: performance vs. IP


…but uptrends are typically much longer than corrections; historical patterns suggest further significant upside and over 20 more months of bull market

Fig.10 . mWIG: Twelve year trajectory


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WIG mWIG40 sWIG80

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WIG 80 (lhs) IP (3m avg.)

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245% change over 26 months



-78% change over 20 months



? months


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Throughout the report we use share prices as of November 2, 2016


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Fig. 11. BZ WBK coverage: Changes to valuations & recommendations

Company Recommendation 12M Target Price

current previous change current previous chng. % upside %

AB Buy Buy ▬ 43.6 45.1 -3% 34%

ABC DATA Hold Hold ▬ 2.20 3.40 -35% 8%

ALUMETAL Hold Hold ▬ 66.5 66.3 0% 9%

AMBRA Buy Buy ▬ 11.9 10.7 11% 57%

AMICA Buy Buy ▬ 223 213.5 4% 17%

APATOR Hold Hold ▬ 32.1 33.0 -3% 13%

ASSECO BS Buy Hold ▲ 27.9 21.0 33% 21%

ASSECO SEE Buy Buy ▬ 11.9 11.9 0% 27%

AUTO PARTNER Buy Buy ▬ 5.40 4.80 13% 29%

BENEFIT Buy Buy ▬ 900 900 0% 33%

BUDIMEX Buy Buy ▬ 225 221 2% 17%

BYTOM Buy Buy ▬ 3.00 3.60 -17% 19%

CI GAMES Buy Buy ▬ 35.9 35.0 3% 33%

COMARCH Buy Hold ▲ 206 155.9 32% 25%

DOM DEVELOPMENT Buy Buy ▬ 68.7 63.4 8% 15%

ELEMENTAL Buy Buy ▬ 4.77 4.83 -1% 30%

EMPERIA Buy Buy ▬ 92.0 85.0 8% 43%

ERBUD Buy Buy ▬ 36.4 36.4 0% 26%

FORTE Hold Hold ▬ 77.3 71.2 9% 8%

GINO ROSSI Hold Buy ▼ 2.62 2.40 9% 6%

IZO BLOK Buy Buy ▬ 245 246 0% 36%

KETY Hold Hold ▬ 403 350 15% 4%

LIVECHAT Buy Buy ▬ 62.3 60.4 3% 37%

MANGATA Buy n.a. n.a. 142 n.a. n.a. 29%

MEDICALGORITHMICS Buy Buy ▬ 340 300 13% 19%

MONNARI Buy Buy ▬ 19.2 22.1 -13% 92%

NETIA Sell Sell ▬ 4.24 4.24 0% -8%

NEUCA Buy Buy ▬ 458 456 0% 19%

ORZEL BIALY Sell n.a. n.a. 7.73 n.a. n.a. -3%

PAGED Buy Buy ▬ 60.6 66.0 -8% 24%

PELION Buy Buy ▬ 71.0 70.0 1% 30%

PFL GROUP Buy Buy n.a. 41.9 42.4 -1% 23%

PHN Buy Buy ▬ 26.5 27.8 -5% 61%

PEKAES Dropped Hold n.a. n.a. 14.9 n.a. n.a.

POLENERGIA Buy Buy ▬ 18.4 36.2 -49% 72%

RAINBOW TOURS Buy n.a. n.a. 40.0 n.a. n.a. n.a.

RONSON Hold Hold ▬ 1.37 1.37 0% 5%

SNIEZKA Buy Buy ▬ 60.9 74.4 -18% 15%

STALPRODUKT Buy Buy ▬ 545 545 0% 27%

SYNEKTIK Hold Buy ▼ 18.7 22.0 -15% 4%

TORPOL Hold Hold ▬ 11.4 10.3 11% 1%

TRAKCJA Buy Buy ▬ 14.4 14.1 2% 17%

UNIBEP Buy Buy ▬ 12.5 12.5 0% 16%

UNIWHEELS Buy Buy ▬ 222 178 25% 14%

VOXEL Buy Buy ▬ 25.8 26.6 -3% 31%

WIELTON Buy Buy ▬ 16.5 10.4 59% 31%

WOJAS Dropped Hold n.a. n.a. 6.2 n.a. n.a.

WORK SERVICE Hold Hold ▬ 12.6 14.6 -14% 15%

ZEPAK Hold U/R n.a. 13.2 U/R n.a. 7% Source: DM BZ WBK estimates


8

SMC Radar: stock picking tool

Fig. 12. Small& Mid caps:valuation screens

2017E P/E (x) 2017E EV/EBITDA (x)


SYNEKTIK 44.5 ZEPAK 2.0 SYNEKTIK 22.9 CI GAMES 1.5

LIVECHAT 23.6 CI GAMES 4.0 LIVECHAT 18.1 ZEPAK 2.3

BENEFIT 22.1 UNIWHEELS 7.2 MEDICALGORITHMICS 14.7 ORZEL BIALY 4.5

MEDICALGORITHMICS 19.5 ABC DATA 7.3 BENEFIT 14.4 AMBRA 4.7

COMARCH 19.1 AB 7.6 FORTE 11.2 ASSECO SEE 4.7

WORK SERVICE 19.0 PELION 8.2 NEUCA 10.8 UNIWHEELS 5.1

POLENERGIA 18.2 ELEMENTAL 8.4 ASSECO BS 10.0 STALPRODUKT 5.3

TRAKCJA 18.2 ORZEL BIALY 9.3 ABC DATA 9.7 RAINBOW TOURS 5.3

NEUCA 16.7 AMBRA 9.4 KETY 9.5 MONNARI 5.5

EMPERIA 16.6 RAINBOW TOURS 9.4 RONSON 9.4 PFLEIDERER 5.5

2015-2018E Revenues CAGR (%) 2015-2018E EBIT CAGR (%)


CI GAMES 81.7% ZEPAK -7.3% CI GAMES* 160.4% NETIA -37.1%

MEDICALGORITHMICS 58.0% NETIA -4.7% MEDICALGORITHMICS 54.5% POLENERGIA -12.1%

LIVECHAT 30.2% ERBUD -2.3% BENEFIT 34.4% ABC DATA -8.0%

BENEFIT 23.4% SYNEKTIK -0.7% AUTO PARTNER 33.8% STALPRODUKT -6.2%

MANGATA 20.3% POLENERGIA 0.3% LIVECHAT 29.0% PELION -5.8%

AUTO PARTNER 18.9% STALPRODUKT 0.5% DOM DEVELOPMENT 28.2% ERBUD -4.5%

IZO BLOK 16.9% PFLEIDERER 1.7% MANGATA 26.8% PAGED -1.9%

WORK SERVICE 16.8% ALUMETAL 2.4% ZEPAK 25.0% SNIEZKA 0.1%

DOM DEVELOPMENT 16.8% ELEMENTAL 2.6% IZO BLOK 23.1% AB 0.6%

BYTOM 13.5% UNIBEP 2.9% WIELTON 22.3% AMBRA 1.8%

* - based on average 2016-18/2013-15 EBIT

2015-2018E EBITDA CAGR (%) 2015-2018E EPS CAGR (%)


MEDICALGORITHMICS 53.0% NETIA -7.9% PFLEIDERER 92.6% POLENERGIA -17.3%

CI GAMES* 51.4% ABC DATA -7.5% CI GAMES* 72.9% ABC DATA -9.7%

BENEFIT 32.3% ZEPAK -6.9% MEDICALGORITHMICS 62.3% MONNARI -9.0%

AUTO PARTNER 31.2% ERBUD -3.7% PAGED 47.8% STALPRODUKT -5.1%

LIVECHAT 28.4% STALPRODUKT -2.2% ZEPAK 40.5% COMARCH -0.4%

DOM DEVELOPMENT 27.6% POLENERGIA -1.7% GINO ROSSI 32.0% PELION -0.4%

MANGATA 25.1% PELION -0.8% AUTO PARTNER 31.9% ORZEL BIALY 2.2%

IZO BLOK 21.4% PAGED -0.1% LIVECHAT 29.6% ASSECO SEE 2.8%

SYNEKTIK 20.4% AB 0.7% DOM DEVELOPMENT 28.7% SNIEZKA 3.1%

WIELTON 19.2% VOXEL 1.4% MANGATA 26.4% EMPERIA 3.5%

* based on average 2016-18/2013-15 EBITDA

* based on average 2016-18/2013-15 EPS

2017E EBITDA Margin (%) 2017E Net margin (%)


LIVECHAT 65.0% ABC DATA 1.0% LIVECHAT 51.7% NETIA -0.9%

CI GAMES 63.3% AB 1.4% CI GAMES 34.0% ABC DATA 0.6%

MEDICALGORITHMICS 39.7% PELION 1.8% MEDICALGORITHMICS 30.1% AB 0.8%

ASSECO BS 37.5% NEUCA 2.4% ASSECO BS 25.8% PELION 0.8%

NETIA 25.5% ERBUD 3.3% UNIWHEELS 11.6% POLENERGIA 1.0%

VOXEL 23.5% RAINBOW TOURS 3.6% MONNARI 11.5% WORK SERVICE 1.3%

ZEPAK 21.1% UNIBEP 3.8% ZEPAK 10.8% NEUCA 1.6%

KETY 17.1% WORK SERVICE 4.0% VOXEL 10.3% EMPERIA 1.8%

PAGED 16.5% EMPERIA 4.2% FORTE 10.3% ERBUD 1.9%

UNIWHEELS 16.0% MANGATA 4.5% BYTOM 10.1% UNIBEP 2.5%


9

2017E Net debt to Equity (x) 2017E Net debt to EBITDA (x)


PFLEIDERER 1.1 SYNEKTIK -0.1 POLENERGIA 3.4 BUDIMEX -6.0

PELION 1.0 COMARCH -0.1 ABC DATA 2.6 MONNARI -1.9

WORK SERVICE 0.8 ASSECO SEE -0.1 PELION 2.6 RAINBOW TOURS -1.5

PAGED 0.7 ASSECO BS -0.3 GINO ROSSI 2.2 SYNEKTIK -1.5

GINO ROSSI 0.7 MONNARI -0.3 PAGED 2.2 ASSECO BS -1.0

POLENERGIA 0.6 BUDIMEX -3.0 PFLEIDERER 2.0 LIVECHAT -0.7

BENEFIT 0.5 RAINBOW TOURS -0.7 AB 1.8 ASSECO SEE -0.7

AUTO PARTNER 0.5 LIVECHAT -0.8 WIELTON 1.8 COMARCH -0.7

WIELTON 0.4 STALPRODUKT 0.0 RONSON 1.7 CI GAMES -0.6

ABC DATA 0.4 ERBUD 0.0 TORPOL 1.7 ERBUD -0.5

2017E ROE (%) 2017E P/BV (x)


LIVECHAT 109.6% NETIA -0.7% LIVECHAT 22.8 ZEPAK 0.1

CI GAMES 78.0% MONNARI 3.5% BUDIMEX 7.2 POLENERGIA 0.4

BUDIMEX 44.9% TRAKCJA 3.9% PELION 7.2 ORZEL BIALY 0.5

MEDICALGORITHMICS 36.3% POLENERGIA 3.9% PFLEIDERER 6.7 AMBRA 0.7

BENEFIT 31.2% ORZEL BIALY 5.7% MEDICALGORITHMICS 6.5 TRAKCJA 0.7

RAINBOW TOURS 29.6% SYNEKTIK 5.7% BENEFIT 6.3 MANGATA 0.7

BYTOM 25.1% RONSON 6.4% NEUCA 3.9 RONSON 0.7

SNIEZKA 24.8% TORPOL 6.4% SNIEZKA 3.4 TORPOL 0.7

UNIWHEELS 24.6% ASSECO SEE 6.5% ASSECO BS 2.8 ASSECO SEE 0.7

AUTO PARTNER 23.6% ZEPAK 7.5% BYTOM 2.7

2017E DY (%) * Upside potential (%)


UNIWHEELS 11.3% COMARCH 0.9% MONNARI 92% NETIA -8%

ABC DATA 10.2% PFLEIDERER 1.0% POLENERGIA 72% ORZEL BIALY -3%

ZEPAK 9.6% NEUCA 1.5% PHN 61% TORPOL 1%

NETIA 8.3% MONNARI 1.6% AMBRA 57% SYNEKTIK 4%

DOM DEVELOPMENT 7.9% FORTE 1.9% EMPERIA 43% RONSON 5%

AMBRA 7.4% PELION 1.9% LIVECHAT 37% GINO ROSSI 6%

BUDIMEX 6.7% POLENERGIA 2.2% IZO BLOK 36% ZEPAK 7%

ASSECO SEE 6.3% STALPRODUKT 2.5% CI GAMES 33% ABC DATA 8%

SNIEZKA 6.2% MEDICALGORITHMICS 2.6% AB 33% ALUMETAL 9%

ASSECO BS 5.8% UNIBEP 2.7% WIELTON 31% KETY 9% * include dividend paying companies only

Source: DM BZ WBK estimates (all tables)


10

Fig. 13. Small& Mid caps:momentum radar

1M Share Price Performance (%)

3M Share Price Performance (%)



ZEPAK 11.61 ORZEL BIALY -21.72

UNIWHEELS 29.08 POLENERGIA -16.82

PHN 11.00 MONNARI -16.48

PELION 23.97 ABC -15.98

MEDICALGORITHMICS 7.54 COMARCH -16.00

STALPRODUKT 23.71 BYTOM -9.25

Benefit Systems SA 6.28 AMICA -10.50

BENEFIT SYSTEMS 23.04 SNIEZKA -7.25

STALPRODUKT 5.70 ABC -10.09

ORZEL BIALY 23.02 PAGED -7.24

SNIEZKA 2.16 EMPERIA -9.70

MEDICALGORITHMICS 21.26 ELEMENTAL -6.38

PEKAES 1.82 UNIWHEELS -8.18

AB 18.41 MANAGTA -5.91

ELEMENTAL 1.38 UNIBEP -7.74

SYNEKTIK 17.63 GINO ROSSI -3.01

PAGED 0.92 AB -7.53

PHN 16.84 LIVECHAT -2.96

TRAKCJA -0.70 MANGATA -7.20

AUTO PARTNER 16.81 ASSECO SEE -2.80

1Y Share Price Performance (%)

YTD Share Price Performance (%)



BENEFIT 65.88 POLENERGIA -58.71

WIELTON 73.61 POLENERGIA -60.50

WIELTON 63.40 MONNARI -38.84

BENEFIT 61.35 ABC -34.92

UNIWHEELS 63.29 ABC -37.88

UNIWHEELS 56.87 WORK SERVICE -25.09

STALPRODUKT 41.04 WORK SERVICE -31.48

ASSECO BS 49.03 MONNARI TRADE -19.70

ASSECO BS 40.94 WOJAS -24.41

STALPRODUKT 44.82 NETIA -15.56

KETY 36.76 FARMACOL -20.34

COMARCH 39.94 ELEMENTAL -14.65

IZOBLOK 36.36 BYTOM -18.27

ZEPAK 38.89 BYTOM -13.27

COMARCH 30.82 ELEMENTAL -17.53

FORTE 33.90 PHN -12.00

FORTE 27.68 NETIA -17.09

MEDICALGORITHMICS 30.02 APATOR -10.98

PFLEIDERER 27.30 PHN -14.62

ORZEL BIALY 27.05 ASSECO SEE -7.90

Source: DM BZ WBK estimates


11

Poland IT Distribution

NOVEMBER 3, 2016 17:00

AB RECOMMENDATION

BUY (MAINTAINED)

Safest bet in the sector CURRENT PRICE: PLN32.6

TARGET PRICE: PLN43.6 (PREV. PLN45.1)

Equity story. AB is the only company in the sector that managed

to avoid a large profit contraction. Compared to ABC Data and

Action, AB looks like a safe haven – in addition to its top position

on the domestic market, it is also a leader in the Czech Republic.

Most importantly, it currently has no ongoing tax audits. AB’s

conservative business model and strict cost policy are paying off

already now, with the opportunity to take-over market shares from

its troubled competitors.

Financials. We have slightly adjusted our forecasts for AB

following the 4Q15/16 results release. In 2016/17E we expect the

company’s revenues to grow 6% to PLN8.0bn and another 3% in

2017/18E. In our view, the higher revenues should allow AB to

report earnings growth as well. We see the net profit at

PLN67.4mn in 2016/17E and PLN69.5mn in 2017/18E, implying a

P/E ratio of 8.2x and 7.8x, respectively. Due to large investments

into working capital, we expect to see a lower DPS y/y at

PLN0.40 (1.2% yield).

3Q16 results preview. After superb top-line growth in the

previous quarter we now expect a less dynamic pace in 1Q16/17.

However, all three regions should show a positive growth rate.

We expect revenues to grow 8% in Poland, 20% in the Czech

Republic and 10% in Slovakia. We expect the gross margin at

3.79% vs 3.92% in 1Q15/16 and SG&A at PLN43.0 vs

PLN38.4mn in 1Q15/16, with the SG&A/sales ratio flat at 2.5%.

This should allow AB to report higher earnings across all lines.

Valuation & Recommendation. Because of of our slight cut in

the earnings forecasts and adjustment of the working capital

requirements, we cut our 12-month Target Price for AB to

PLN43.6 from PLN45.1. The new Target Price implies a 34%

upside potential vs the current price, which causes us to maintain

our Buy rating for the stock. Our comparative valuation points to

PLN41.0 per share.

STOCK PERFORMANCE

The chart measures performance against the WIG index.

On 11/2/2016, the WIG index closed at 47,899.

LAST RECOMMENDATIONS

Rec. Date Price Price performance

on issue date

12 month target

absolute relative (p.p)

Buy 1-27-2016 31.8 45.1 5.9% -6.5

COMPANY DESCRIPTION

One of the largest IT distribution company in Poland and the Czech Republic.

Main shareholders % of votes

Andrzej Przybylo 15.0

Iwona Przybylo 10.0

NN pension fund 13.1

Aviva BZ WBK pension fund 12.1

Aviva Investors mutual fund 5.7

Bankowy pension fund 5.3

EQUITY ANALYST

Lukasz Kosiarski (+48) 22 586 82 25

[email protected]

Company Data

PLNmn 2015/16 2016/17E 2017/18E 2018/19E Reuters/Bloomberg codes ABEP.WA / ABE PW

Sales 6,793 7,553 8,028 8,226 Market capitalisation (PLNmn) 528

EBITDA 108.4 112.3 111.5 112.3 Number of shares (mn) 16.2

EBIT 100.2 98.6 96.9 97.9 Free float (%) 79.2%

Net income 68.4 64.6 67.4 69.5 Avg. daily turnover 3M (PLNmn) 0.3

P/E (x) 7.7 8.2 7.8 7.6 Price performance

1M 3M YTD

EV/EBITDA (x) 4.9 4.7 4.7 4.7 -9.4% 21.4% -1.5% Source: Company data, DM BZ WBK estimates

ABE

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Buy Hold Sell Under Review / Suspended

mailto:[email protected]


12

Fig. 1. AB: 1Q16/17 results preview

PLNmn 1Q13/14 2Q13/14 3Q13/14 4Q13/14 1Q14/15 2Q14/15 3Q14/15 4Q14/15 1Q15/16 2Q15/16 3Q15/16 4Q15/16 1Q16/17E y/y q/q

Sales 1,256 1,637 1,348 1,517 1,495 2,078 1,692 1,528 1,505 2,354 1,707 1,987 1,696 12.7% -14.6%

EBITDA 20.6 33.5 18.8 23.1 22.7 39.2 24.4 22.1 22.7 39.2 24.8 25.6 25.1 10.6% -2.3%

EBITDA margin 1.6% 2.0% 1.4% 1.5% 1.5% 1.9% 1.4% 1.4% 1.5% 1.7% 1.5% 1.3% 1.5% 0.0 0.2

EBIT 18.2 31.0 16.3 19.9 20.6 37.2 22.4 19.9 20.0 35.7 21.0 21.9 21.3 6.2% -2.9%

EBIT margin 1.4% 1.9% 1.2% 1.3% 1.4% 1.8% 1.3% 1.3% 1.3% 1.5% 1.2% 1.1% 1.3% -0.1 0.2

Net profit 13.1 21.2 10.6 12.4 15.1 25.6 13.5 14.2 13.1 25.1 12.4 14.1 13.6 3.8% -3.6%

Net margin 1.0% 1.3% 0.8% 0.8% 1.0% 1.2% 0.8% 0.9% 0.9% 1.1% 0.7% 0.7% 0.8% -0.1 0.1

Source: Company data, DM BZ WBK estimates

Fig. 2. AB: Forecasts changes

PLNmn 2016/17E 2017/18E 2018/19E

New Previous Change New Previous Change New Previous Change

Sales 8,028 7,043 14% 8,226 7,395 11% 8,429 7,765 9%

EBITDA 111.5 112.0 0% 112.3 117.6 -5% 114.6 123.5 -7%

EBIT 96.9 101.0 -4% 97.9 106.8 -8% 100.5 112.8 -11%

Net profit 67.4 73.5 -8% 69.5 79.1 -12% 72.6 84.9 -15% Source: Company data, DM BZ WBK estimates

Fig. 3. AB: Valuation changes

PLN New Previous Change

DCF valuation 43.6 45.1 -3%

Comparable valuation (based on 2016/17-2018/19E) 41.0 39.3 4% Source: Company data, DM BZ WBK estimates

Fig. 4. AB: Income statement forecast

PLNmn 2014/15 2015/16 2016/17E 2017/18E 2018/19E

Net sales 6,793 7,553 8,028 8,226 8,429

COGS 6,493 7,219 7,695 7,882 8,076

Gross profit 300.2 334.5 332.5 344.0 352.7

SG&A 174.3 222.0 235.6 246.0 252.3

Other operating income, net -25.8 -13.9 0.0 0.0 0.0

EBITDA 108.4 112.3 111.5 112.3 114.6

Operating profit 100.2 98.6 96.9 97.9 100.5

Net financial income (costs) -11.2 -15.9 -13.8 -12.2 -10.8

Profit before tax 88.9 82.7 83.2 85.8 89.6

Income tax 20.5 18.1 15.8 16.3 17.0

Net profit 68.4 64.6 67.4 69.5 72.6

Gross margin 4.4% 4.4% 4.1% 4.2% 4.2%

EBITDA margin 1.6% 1.5% 1.4% 1.4% 1.4%

Operating margin 1.5% 1.3% 1.2% 1.2% 1.2%

Net profit margin 1.0% 0.9% 0.8% 0.8% 0.9%


Fig. 5. AB: Balance sheet forecast

PLNmn 2014/15 2015/16 2016/17E 2017/18E 2018/19E

Current assets 1,259 1,565 1,594 1,652 1,714

Fixed assets 261 274 267 260 253

Total assets 1,520 1,839 1,861 1,912 1,966

Current liabilities 865 1,053 1,013 1,014 1,017

bank debt 164 143 123 103 83

Long-term liabilities 135 202 203 203 203

bank debt 130 196 196 196 196

Equity 520 584 645 695 746

share capital 16 16 16 16 16

Minority Interest 0 0 0 0 0

Total liabilities 1,520 1,839 1,861 1,912 1,966

Net debt 198 312 243 202 159


Fig. 6. AB: Cash flow forecast

PLNmn 2014/15 2015/16 2016/17E 2017/18E 2018/19E

CF from operations 61.0 -68.5 82.8 68.2 71.0

CF from investment -95.1 -17.7 -7.4 -6.9 -7.1

CF from financing 83.2 17.9 -26.5 -40.2 -40.8

Net change in cash 49.1 -68.3 48.9 21.0 23.1



13

Poland IT Distribution

NOVEMBER 3, 2016 17:00

ABC DATA RECOMMENDATION

HOLD (MAINTAINED)

High DPS at risk CURRENT PRICE: PLN2.04


Equity story. Last year’s changes in the VAT regime caused a

massive earnings decline. However, ABC Data’s revenue growth

in the last two quarters, coupled with some cost optimisation

processes and expansion in the CEE region, as well as

consolidation of S4E, should all pave the way for a moderate

earnings improvement next year. That said, the three ongoing tax

audits remain a major risk for the company and until those audits

are cleared we would remain cautious on ABC Data. Moreover,

its weak OpCF, high net debt and factoring, as well as the

acquisition of S4E, pose a risk for the company’s high dividend

payout in 2017E. We assume 2017E DPS at PLN0.21 vs

PLN0.39 in 2016.

Financials. In this report, we have re-approached ABC Data. We

raise our sales forecasts for ABC Data by c20% as we expect the

company to take over market shares from Action. Also, in line

with the trends seen in the last several quarters, we implemented

higher cash conversion cycles that altered the company’s working

capital requirements, short-term debt and, consequently, led to

higher financial costs. In 2016, we expect ABC Data’s revenues

to be flat y/y at PLN4.9bn in 2016E and PLN5.5-5.6bn in 2017-

18E, and see its net profit at PLN29.4mn in 2016E and

PLN35.1mn in 2017E, implying a P/E ratio of 8.8x and 7.3x,

respectively.

3Q16 results preview. ABC Data’s preliminary sales for 3Q16

imply a 7% top-line growth and we think this will be mostly due to

good performance of the Polish market (we expect a 12% y/y

growth rate in Poland). To the contrary, we see a lower gross

margin (5.05% vs 5.10%) and higher SG&A (PLN49.4mn vs

PLN43.8mn in 3Q15) as the two factors behind the company’s

lower profits y/y.

Valuation & Recommendation. Based on our DCF model, we

arrived at a 12-month TP of PLN2.20 per share. The Target Price

implies an 8% upside potential vs the current price. This causes

us to maintain our Hold rating for the stock. Our comparative

valuation points to PLN2.51 per share.

STOCK PERFORMANCE





on issue date

12 month target


Hold 1-27-2016 3.1 3.4 -31.5% -43.9

COMPANY DESCRIPTION

One of the largest IT distribution company in Poland.


MCI Venture Projects 61.5

PZU pension fund 9.3


EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes ABCP.WA / ABC PW

Sales 4,856 4,879 5,485 5,615 Market capitalisation (PLNmn) 256


EBIT 66.5 45.4 51.6 51.8 Free float (%) 32.3%



1M 3M YTD

EV/EBITDA (x) 6.6 10.6 9.7 9.8 -10.5% -22.7% -35.2% Source: Company data, DM BZ WBK estimates

ABC

TP

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14

Fig. 1. ABC Data: 3Q16 results preview

PLNmn 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16E y/y q/q

Sales 1,212 1,425 1,169 1,391 1,375 1,639 1,346 998 1,021 1,490 1,036 1,188 1,095 7.2% -7.8%

EBITDA 19.5 28.3 12.7 22.5 8.0 19.5 18.4 20.6 8.7 21.3 12.1 6.5 6.6 -24.8% 1.5%

EBITDA margin 1.6% 2.0% 1.1% 1.6% 0.6% 1.2% 1.4% 2.1% 0.9% 1.4% 1.2% 0.5% 0.6% -0.3 0.1

EBIT 18.9 27.6 12.2 21.9 7.5 19.0 17.7 20.0 8.1 20.7 11.5 5.9 6.0 -26.5% 1.7%

EBIT margin 1.6% 1.9% 1.0% 1.6% 0.5% 1.2% 1.3% 2.0% 0.8% 1.4% 1.1% 0.5% 0.5% -0.3 0.1

Net profit 14.2 19.7 6.8 11.2 2.0 13.3 12.9 13.9 5.0 15.0 7.3 2.9 3.2 -35.2% 9.0%

Net margin 1.2% 1.4% 0.6% 0.8% 0.1% 0.8% 1.0% 1.4% 0.5% 1.0% 0.7% 0.2% 0.3% -0.2 0.0


Fig. 2. ABC Data: Forecasts changes

PLNmn 2016E 2017E 2018E


Sales 4,879 4,367 12% 5,485 4,596 19% 5,615 4,826 16%

EBITDA 47.9 51.2 -7% 54.7 54.0 1% 54.6 56.7 -4%

EBIT 45.4 48.6 -7% 51.6 51.3 1% 51.8 53.9 -4%


Fig. 3. ABC Data: Valuation changes



Comparable valuation (based on 2016-2018E) 2.51 3.01 -17% Source: Company data, DM BZ WBK estimates

Fig. 4. ABC Data: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 5,573 4,856 4,879 5,485 5,615

COGS 5,302 4,588 4,620 5,175 5,297

Gross profit 271.7 268.2 258.5 310.1 317.1

SG&A 209.2 199.3 220.8 258.6 265.4


EBITDA 62.7 69.0 47.9 54.7 54.6




Income tax 15.3 12.3 7.7 8.2 8.1

Net profit 33.3 46.8 29.4 35.1 34.5

Gross margin 4.9% 5.5% 5.3% 5.7% 5.6%

EBITDA margin 1.1% 1.4% 1.0% 1.0% 1.0%




Fig. 5. ABC Data: Balance sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 871 995 1,018 1,146 1,179

Fixed assets 77 73 96 95 94

Total assets 948 1,068 1,113 1,240 1,272

Current liabilities 648 766 830 949 977

bank debt 81 96 130 150 160


bank debt 0 0 0 0 0

Equity 299 301 282 290 293

share capital 125 125 125 125 125


Total liabilities 948 1,068 1,113 1,240 1,272

Net debt 47 64 121 142 145


Fig. 6. ABC Data: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E

CF from operations 132.6 24.9 17.3 7.0 30.8

CF from investment -5.0 1.8 -25.0 -2.1 -1.9

CF from financing -110.5 -28.5 -15.1 -6.4 -21.6

Net change in cash 17.1 -1.9 -22.8 -1.5 7.3



15

Poland Industrials

NOVEMBER 3, 2016 17:00

ALUMETAL RECOMMENDATION

HOLD (MAINTAINED)

Reality check CURRENT PRICE: PLN61.29


Equity story. Alumetal specialises in the manufacturing of secondary aluminum casting alloys. The company continues to benefit from the expanding EU automotive industry and trends among the automakers to shift their production facilities to the CEE region. The group’s current production capacity (it operates three production sites) amounts to 165kt per year. This would be significantly boosted by the already introduced into operations greenfield investment in Hungary (additional 60kt capacities by the end of 1H17). Additionally, the company plans to increase its capacity of master alloys in its Gorzyce production plant. CAPEX is estimated at PLN58.5mn (embracing i.a. production site expansion, infrastructure enhancement and introduction of auxiliary equipment). Costs are to be incurred in FY2016-18E (peaking in 2017). Alumetal plans to complete the investment in 2Q18. The project should allow for margin expansion and geographical diversification. We also need to point out that Alumetal is currently analysing the potential benefits for the company from investing in SKTB, an aluminum alloy producer based in France. Finally, the strong balance sheet and cash generation should enable the company to successfully combine operational expansion and dividend policy based on 50% dividend pay-outs (at safe indebtedness levels as we estimate the net debt/EBITDA at the end of 2016 at c0.4x).

Triggers/risks. We reckon, however, that despite the appealing prospects in the mid- / long-tem, the short-term might prove shaky for the company, both in terms of market and price performance. On the one hand, positive trends in the European automotive sector remain in place (4.8% y/y new car registrations in the EU in 3Q16). On the other, the persistently contracting alloy-to-scrap spread (EUR252 /t in Oct 2016, -33% y/y) should finally negatively affect Alumetal’s earnings momentum. Above all, the high base effect should exert its pressure on the earnings dynamics at the turn of 2016/17. We believe the effect of the latter to ease mid-2017, which we associate with rising production volumes in Hungary. Beyond the aforementioned, the company is strongly exposed to the automotive sector (over 90% of its sales) and thus vulnerable to any shocks in the industry. Alumetal has, however, a good track record of active demand allocation, which, in our view, reduces the risk of possible external price or volume pressures to some extent.

Changes in Forecasts. We did not implement any significant changes to our valuation model. We stick to our FY16 EBITDA forecast close to PLN118mn.

3Q16E Results’ Review. The company to report the following financial results in 3Q16E: sales – PLN299mn (-15% y/y), EBITDA – PLN24mn (-30% y/y; 8.1% margin), EBIT – PLN18.2mn (-37.6% y/y; 6.1% margin) and net profit – PLN18.6mn (-33% y/y; 6.2% margin). Outcome: NEUTRAL

Valuation & Recommendation. Our DCF model points to a TP of PLN66.5 per share (8.5% upside potential). A comparative valuation points to PLN67.1. We, therefore, reiterate our Hold rating for the stock.

STOCK PERFORMANCE





on issue date

12 month target


Hold 8-5-2016 62.3 66.3 -6.1% -8.3

Buy 4-29-2016 51.0 58.0 22.3% 22.4

Buy 1-27-2016 49.0 57.5 4.0% -6.2

Hold 11-2-2015 52.3 58.6 -6.3% 8.3

COMPANY DESCRIPTION

Company is a largest polish and 4th biggest in Europe

manufacturer of secondary aluminium casting alloys used primarily in automotive sector.


Ipopema 30 FIZAN 39.45%

Aviva BZ WBK pension fund 9.79%

NN pension fund 7.42%

EQUITY ANALYST

Michal Sopiel (+48) 22 586 82 33

[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes AMT.WA / AML PW

Sales 1442 1263 1498 1543 Market capitalisation (PLNmn) 943

EBITDA 107 118 126 130 Number of shares (mn) 15.4

EBIT 86 92 100 104 Free float (%) 56%

Net income 78 85 91 97 Avg. daily turnover 3M (PLNm) 0.6


1M 3M YTD

EV/EBITDA (x) 9.3 8.3 7.6 7.1 -7.8% -4.4% +20.6% Source: Company data, DM BZ WBK estimates

AML

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16

Fig. 1. Alumetal: 3Q16 results review

PLNmn 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 y/y q/q

Sales 274.2 271.6 311.4 305.2 292.3 326.4 385.4 367.0 351.3 338.1 337.9 318.1 299.0 -14.9% -6.0%

EBITDA 16.4 18.4 22.8 13.3 19.7 22.6 19.4 28.2 34.3 24.8 35.8 30.8 24.1 -29.7% -21.9%

EBITDA margin 6.0% 6.8% 7.3% 4.4% 6.7% 6.9% 5.0% 7.7% 9.8% 7.3% 10.6% 9.7% 8.1% -1.7 -1.6

EBIT 12.4 14.1 18.0 8.5 14.9 17.6 14.5 23.1 29.2 19.6 30.5 25.7 18.2 -37.6% -29.1%

EBIT margin 4.5% 5.2% 5.8% 2.8% 5.1% 5.4% 3.8% 6.3% 8.3% 5.8% 9.0% 8.1% 6.1% -2.2 -2.0

Net profit 12.4 12.9 17.2 10.7 14.0 17.4 9.8 21.6 27.8 18.5 28.7 26.6 18.6 -33.1% -29.9%

Net margin 4.5% 4.8% 5.5% 3.5% 4.8% 5.3% 2.5% 5.9% 7.9% 5.5% 8.5% 8.3% 6.2% -1.7 -2.1


Fig. 2. Alumetal: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 1263.2 1260.3 0% 1497.9 1,496.1 0% 1542.8 1,541.0 0%

EBITDA 117.6 122.9 -4% 126.2 132.8 -5% 130.0 131.0 -1%

EBIT 92.1 97.4 -5% 99.9 106.5 -6% 103.7 104.7 -1%

Net profit 84.8 89.9 -6% 91.0 97.3 -6% 96.5 97.6 -1%


Fig. 3. Alumetal: Valuation changes

PLN per share New Previous Change

DCF valuation 66.5 66.3 0.3%

Comparable valuation (based on 2016-2018E) 67.1 74.4 -9.8%


Fig. 4. Alumetal: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 1235 1442 1263 1498 1543

COGS 1131 1307 1129 1348 1388

Gross profit 104 135 135 150 155

SG&A 41 43 40 48 49

Other operating income, net -4 -5 2 2 2

EBITDA 78 107 118 126 130

Operating profit 59 86 92 100 104

Net financial income (costs) 1 6 4 6 4

Profit before tax 60 80 88 94 100

Income tax 1 3 4 3 3

Net profit 59 78 85 91 97

Gross margin 8.4% 9.4% 10.6% 10.0% 10.0%

EBITDA margin 6.3% 7.4% 9.3% 8.4% 8.4%




Fig. 5. Alumetal: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 334 347 447 550 565

Fixed assets 202 224 270 271 272

Total assets 536 570 717 821 837


bank debt 43 47 49 96 67


bank debt 4 3 60 36 22

Equity 325 381 434 489 545

share capital 264 302 348 396 447


Total liabilities 536 570 717 821 837

Net debt 45 47 37 22 -25


Fig. 6. Alumetal: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E

CF from operations 60 70 97 81 116

CF from investment -16 -47 -56 -29 -29

CF from financing -43 -21 26 -12 -84

dividends -18 -29 -39 -42 -46

Net change in cash 1 2 67 39 3



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.

Poland FMCG

NOVEMBER 3, 2016 17:00

AMBRA RECOMMENDATION

BUY (MAINTAINED)

Profit growth ahead CURRENT PRICE: PLN7.60


Equity story. We uphold our Buy recommendation and raise our

12-month Target Price to PLN11.9 from PLN10.7. The higher

Target Price reflects an upward correction of our EBITDA and net

profit forecasts in 2016/17E-17/18E (up 13%/7% and 8%/12%,

respectively) on the back of a higher forecast of volume sales

growth (at 6% y/y now vs the previously mere 0.5%). In our view,

the industry’s current surroundings benefit Ambra and growth in

wine consumption in all the non-discount channels is likely to last

in the coming years, boding well for the company’s results. Ambra

is currently trading at a normalised PE16/17E of 10x and a

normalised EV/EBITDA of 5x. In our view, this is unjustified taking

into account the restored growth profile (3Y sales CAGR at 6%)

vs 2% for the peers). Ambra can also be distinguished from other

WSE companies by its good FcF profile (5.0% in 2016/17E).

Ambra generates a stable OCF (avg. conversion ratio at 0.8x),

which, along with the limited CAPEX, enables it to pay hefty

dividends with the DY16/17E at 6.6%.

Financials. We expect Ambra to report sales of PLN449mn (+6%

y/y) in 2016/17E mainly on the back of rising volumes of wine

sales and further development of the cider segment. We also

expect the flat y/y gross margin to stand at 32.8%, which, along

with stabilisation of OPEX and optimisation of marketing

spending, should result in EBITDA margin improvement by 11bps

to 10.6%. All in all, we expect EBITDA adj. at PLN47mn (+7% y/y)

and the net profit at PLN19mn (+12% y/y) n 2016/17E.

1Q16/17 resutls preview. We expect Ambra to likely to post a

net profit of PLN0.7mn (vs PLN0.4mn last year), an EBITDA of

PLN7.6mn (flat y/y) on sales of PLN95mn (+9% y/y). Continued

growth of sales volumes, the company’s stable gross margin and

OPEX are likely to be the main reasons for the good results.

Outcome: POSITIVE.


arrived at a 12-month TP of PLN11.9 per share, which implies a

57% upside potential. Comparable valuation points to PLN18.7.

STOCK PERFORMANCE





on issue date

12 month target


Buy 1/27/2016 6.9 10.7 7.2% -5.1

Buy 2/13/2015 8.6 13.7 -19.3% -1.9

Buy 12/11/2014 8.3 12.0 2.6% 3.0

COMPANY DESCRIPTION

Ambra is one of the largest Polish beverage manufacturers and distributors.


Schloss Wachenheim 61.1%

Aviva BZWBK pension fund 10.0%

EQUITY ANALYST

Tomasz Sokolowski (+48) 22 586 82 36

[email protected]

Company Data

PLNmn 2015/16 2016/17E 2017/18E 2018/19E Reuters/Bloomberg codes AMB.WA / AMB PW

Sales 424 449 474 501 Market capitalisation (PLNm) 192

EBITDA 44 47 49 49 Number of shares (m) 25.2

EBIT 34 34 35 36 Free float (%) 37.4%



1M 3M YTD

EV/EBITDA (x) 5.2 4.9 4.8 4.8 -4.5% 5.7% 5.4% Source: Company data, DM BZ WBK estimates

AMB TPWIG Relative

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Fig. 1. Ambra: 1Q16/17 results preview

PLNmn 1Q'13/14 2Q'13/14 3Q'13/14 4Q'13/14 1Q'14/15 2Q'14/15 3Q'14/15 4Q'14/15 1Q15/16 2Q15/16 3Q15/16 4Q15/16 1Q16/17E y/y q/q

Sales 86 168 63 88 87 165 65 80 87 169 75 94 95 9.1% 0.7%

EBITDA 10 31 0 0 9 40 -5 2 7 35 -1 4 8 5.2% 84.0%

EBITDA margin 11.3% 18.6% -0.2% 0.0% 10.3% 24.5% -7.5% 1.9% 8.3% 20.6% -1.0% 4.4% 8.0% -29 362

EBIT 7 29 -3 -3 6 37 -8 -2 4 32 -4 2 4 -2.0% 150.1%

EBIT margin 8.2% 17.1% -4.5% -3.0% 7.2% 22.6% -12.0% -2.0% 5.1% 18.8% -5.3% 1.9% 4.6% -52 276

Net profit 3 20 -3 6 2 24 -6 -1 0 22 -4 0 1 102.7% -286.3%

Net margin 3.9% 12.1% -5.4% 6.4% 2.8% 14.7% -9.9% -1.7% 0.4% 13.2% -6.0% -0.4% 0.8% 36 120


Fig. 2. Ambra: Forecast changes

PLNmn 2016/17E 2017/18E 2018/19E


Sales 449 405 11% 474 405 17% 501 406 24%

EBITDA 47 42 13% 49 42 17% 49 43 14%

EBIT 34 29 19% 35 28 27% 36 29 22%

Net profit 19 18 8% 20 18 12% 20 20 3% Source: Company data, DM BZ WBK estimates

Fig. 3. Ambra: Valuation changes



Comparable valuation (based on 2016/17-18/19E) 18.7 16.4 14.3% Source: Company data, DM BZ WBK estimates

Fig. 4. Ambra: Income statement forecast

PLNmn 14/15 15/16 16/17E 17/18E 18/19E

Net sales 393 424 449 474 501

COGS 261 285 302 320 340

Gross profit 132 139 147 154 161

SG&A 101 107 113 119 125

Other operating income, net -1 2 0 0 0

EBITDA 41 45 47 49 49


Net financial income (costs) -6 -3 -2 -2 -2


Income tax -2 13 13 13 13

Net profit 26 18 19 20 20

Gross margin 33.6% 32.8% 32.8% 32.5% 32.2%

EBITDA margin 10.4% 10.7% 10.6% 10.2% 9.9%




Fig. 5. Ambra: Balance Sheet forecast

PLNmn 14/15 15/16 16/17E 17/18E 18/19E

Current assets 222 224 236 250 260

Fixed assets 197 188 190 187 188

Total assets 419 412 426 437 448


bank debt 73 25 40 40 40


bank debt 20 24 12 12 12

Equity 226 240 246 252 258




Net debt 44 39 42 42 45


Fig. 6. Ambra: Cash flow forecast

PLNmn 14/15 15/16 16/17E 17/18E 18/19E


CF from investment 0 -12 -15 -11 -15

CF from financing -53 -10 -10 -14 -15

Net change in cash 0 2 0 0 -3



19

Poland Industrials NOVEMBER 3, 2016 17:00

AMICA RECOMMENDATION

BUY (MAINTAINED)

Permanent growth potential CURRENT PRICE: PLN191

TARGET PRICE: PLN223 (PREV. PLN213.5)

Equity story. Data published by CECED Poland point to a c6.3% y/y growth rate of domestic equipment sales in Poland over the first eight months in 2016 (respective data for July-August 2016 point to c10.5% expansion). The Economic Sentiment Indicator (ESI) points to positive trends in the Euro Area (106 points at the end of oct 2016 vs. 104 points in the end of Jun 2016). The rebounding post-Brexit referendum PMI readings bode well for the future as well (additionally supported by stable employment prospects). That said, we expect Amica to enjoy further business expansion both in FY16 (+c22% y/y due to CDA Group consolidation) and in the following years (+c4% in FY17 attributable to organic growth). Our bottom up estimates indicate that the German and Scandinavian markets are showing a slight momentum slowdown, though still allow for high single-digit top-line growth next year. With respect to the domestic market, we anticipate the company’s revenues to go up by 5% y/y in FY17. With respect to the sales mix, organic growth should be driven to a large extent by higher sales of goods (especially in Poland and Germany). This positive scenario might, however, not materialise or prove to be less appealing in case of a strong weakening of CNY against PLN or (in particular) EUR. Summing up, we expect the white goods producer to enjoy several quarters of a satisfactory growth rate.

M&A Adding Higher Gear. The anticipated organic growth (attributable i.a. to the new capacities, as far as the top line is concerned, or the developed of the high storage warehouse translating into cost reduction) does not exploit the growth potential. Following the acquisition of CDA Group, a British distributor of household appliances, the company seeks further opportunities on the market to deliver added value from the transaction transmitting either through a rise in its market share or cost cuts. The interest in taking over distributors as well as refrigerator and hood producers might translate into expenditures close to EUR30mn in the coming year (we do not rule out any transactions in the short term).

Triggers/risks. The purchase of raw input materials might cause a negative impact in FY17. This effect could be mitigated by better production efficiency thanks to the already accomplished and pending investment outlays. Consumer confidence and FX volatility should be perceived as a significant threat as well (for instance, the recent GBP slump vs EUR). CNY fluctuations against EUR might undermine Amica’s relative competitive advantage over its main competitors on the Western European markets. We believe the coming quarters could bring in further sales expansion skewed towards the goods segments (characterised by lower margins). Heating appliances (more profitable) should report a slower growth momentum, we believe. Nevertheless, expansion on the Russian market might bring in a positive surprise.

Changes in Forecasts. We did not apply any significant changes to our valuation model.

3Q16E Results’ Preview. We expect the company to report the following financial results in 3Q16E: sales – PLN668mn (24% y/y), EBITDA – PLN57mn (8% y/y; 8.6% margin), EBIT – PLN45mn (3.5% y/y; 6.8% margin) and net profit – PLN33mn (4.5% y/y; 5% margin). Outcome: POSITIVE.

Valuation & Recommendation. Our DCF model points to a TP of PLN223 per share (c17% upside potential). A comparative valuation points to PLN205. We, therefore, leave our Buy recommendation for the stock intact.

STOCK PERFORMANCE





on issue date

12 month target


Buy 8-5-2016 190.8 213.5 4.3% 2.1

Buy 4-29-2016 179.2 208.0 6.5% 6.6

Buy 1-27-2016 161.1 200.0 11.2% 1.0

Buy 8-31-2015 159.0 200.0 1.3% 17.0

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.


Holding Wronki 51.76%


EQUITY ANALYST

Michal Sopiel (+48) 22 586 82 33

[email protected]

Company Data

PLNm 2015 2016E 2017E 2018E Reuters/Bloomberg codes AMCP.WA / AMC PW

Sales 2,090 2,550 2,650 2,736 Market capitalisation (PLNmn) 1,485


EBIT 147 166 170 171 Free float (%) 99.7%



1M 3M YTD


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Fig. 1. Amica: 3Q16E results preview


Sales 445.6 497.1 427.6 449.9 535.5 615.3 475.3 451.1 538.9 625.2 573.5 581.5 667.7 23.9% 14.8%

EBITDA 33.6 46.0 33.9 39.3 45.1 48.0 43.2 35.4 53.3 52.0 51.2 41.1 57.4 7.7% 39.5%

EBITDA margin 7.5% 9.3% 7.9% 8.7% 8.4% 7.8% 9.1% 7.8% 9.9% 8.3% 8.9% 7.1% 8.6% -1.3 1.5

EBIT 26.4 38.6 25.5 31.5 36.5 37.1 34.3 26.3 43.9 42.4 40.2 30.1 45.4 3.4% 50.7%

EBIT margin 5.9% 7.8% 6.0% 7.0% 6.8% 6.0% 7.2% 5.8% 8.1% 6.8% 7.0% 5.2% 6.8% -1.3 1.6

Net profit 41.4 29.6 13.0 22.2 22.0 23.2 21.9 17.6 31.7 24.3 28.7 21.3 33.1 4.5% 55.0%

Net margin 9.3% 6.0% 3.0% 4.9% 4.1% 3.8% 4.6% 3.9% 5.9% 3.9% 5.0% 3.7% 5.0% -0.9 1.3


Fig. 2. Amica: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 2,550 2,512 2% 2,650 2,612 1% 2,736 2,698 1%

EBITDA 212 204 4% 225 220 2% 232 233 0%

EBIT 166 161 3% 170 169 0% 171 176 -3%

Net profit 121 112 8% 123 121 1% 123 126 -2%


Fig. 3. Amica: Valuation changes


DCF valuation 223 214 5%

Comparable valuation (based on 2016-2018E) 205 208 -1%


Fig. 4. Amica: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 2028 2090 2550 2650 2736

COGS 1391.1 1396.6 1739.4 1817.2 1883.6

Gross profit 637.2 693.9 810.8 832.7 852.9

SG&A 500.9 531.3 640.1 659.8 679.6

Other operating income, net -5.7 -15.8 -5.0 -3.0 -2.0

EBITDA 166.3 183.9 211.8 224.9 232.4


Net financial income (costs) 29.6 24.7 19.8 19.5 20.1


Income tax 23.2 26.7 24.8 28.6 28.7

Net profit 77.8 95.4 121.1 121.8 122.5

Gross margin 31.4% 33.2% 31.8% 31.4% 31.2%

EBITDA margin 8.2% 8.8% 8.3% 8.5% 8.5%




Fig. 5. Amica: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 684.4 895.5 1002.4 1020.9 1062.5

Fixed assets 409.5 527.8 534.6 572.1 621.0

Total assets 1093.9 1423.3 1537.0 1593.0 1683.6

Current liabilities 493.8 641.0 652.8 656.3 675.7

bank debt 49.4 79.4 77.5 61.9 64.8

Long-term liabilities 66.1 189.6 187.7 172.0 175.0

bank debt 44.2 156.3 154.4 138.8 141.7

Equity 533.9 592.8 696.5 764.6 832.9

share capital 440.6 481.8 559.9 627.2 694.9

Minority Interest 0.0 0.0 0.0 0.0 0.0

Total liabilities 1093.9 1423.3 1537.0 1593.0 1683.6

Net debt 38 171 89 72 65


Fig. 6. Amica: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E



CF from financing -20 105 -21 -85 -48

dividends -27 -23 -43 -54 -55

Net change in cash 30 9 78 -15 13



21

Poland Industrials

NOVEMBER 3, 2016, 17:00

APATOR RECOMMENDATION

HOLD (MAINTAINED)

Never ending Rector story CURRENT PRICE: PLN28.3

TARGET PRICE: PLN32.1 (PREV. 33.0)

Equity Story. Apator Rector is still the biggest headache of the

company, overshadowing positive trends in the metering segment, which performs well thanks to decent sales growth rates in the gas and electricity metering sections. There are also positive signs in the switchgear segment. In 1H16, Rector delivered PLN7.8mn in EBITDA loss. We assume that the Rector subsidiary burdens the bottom line at PLN3-3.6mn quarterly and we think that it will continue to do so in 2H16. We expect one of the two delayed contracts (responsible for the above mentioned losses) to be closed by the end of 2016 and the second one to be settled in 2Q17. We then expect Apator Rector to shift into the black.

Guidance revision. As we expected MB decreased FY2016 net

profit guidance to PLN62mn from PLN80mn. Simultaneously, the company confirmed its revenues forecasts (PLN850mn). The guidance revision is a result of reported loss in subsidiary Apator Rector in amount of PLN19.5mn (1-3Q16) generated by prolonged unprofitable contracts. Apator has already informed about a scale of loss generated by Rector and possible guidance revision, so it should not be a surprise.

3Q preview. We expect to see double-digit growth in sales

(16.5% y/y) in 3Q16 thanks to the company’s over-budget performance of the metering and switchgear segments in 2016. EBITDA should fall c6% y/y due to a negative operational contribution from the Rector subsidiary. NP should be at PLN14.6mn, -23% y/y.

Earnings outlook. We expect PLN891.8mn of revenues in

FY2016 and PLN59mn of net profit.The former will likely be made possible thanks to the good performance of the gas and electricity meter lines, and the switchgear segment. The latter, however, is burdened by the utility sector’s instability that additionally makes the development of the Polish smart metering market improbable. Nevertheless, we appreciate the company’s efforts to expand its product portfolio (ultrasonic water meters, communication technology, smart gas meters, simpler and cost-efficient energy meter production) and expect its margins to improve ahead after a trough in 2016. In 2017, we forecast PLN72.2mn in the net profit vs mentioned PLN59.0mn in 2016 (+22%).

Valuation & Recommendation. We maintain our Hold

recommendation and set the 12-month TP at PLN32.1 (13% upside potential) based on a 50/50 blend of DCF and comparative valuations (PLN32.7 and PLN31.4, respectively).

STOCK PERFORMANCE

The chart measures performance against the WIG index. On 2/11/2016, the WIG index closed at 47,899.



on issue date

12 month target


Hold 8-5-2016 31.0 33.0 -5.7% -7.9

Hold 4-29-2016 32.2 34.4 -3.9% -3.8

Buy 1-27-2016 27.0 34.7 19.3% 9.1

Hold 8-12-2015 35.1 36.5 -23.1% -5.3

COMPANY DESCRIPTION

Apator focuses its activity in two segments of the electromechanical industry: metering and switchgear.


Mariusz Lewicki 10.1%

Tadeusz Sosgórnik 8.8%

Danuta Guzowska 7.9%

Zbigniew Jaworski 6.6%

Apator Mining 6.5%

Janusz Marzyglinski 6.2%

ANALYST

Grzegorz Balcerski Securities Broker, Investment Advisor

+48 22 534 16 10

[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes APTP.WA / APT PW

Sales 769.4 891.8 920.2 927.0 Market capitalisation (PLNmn) 937.6


EBIT 78.0 84.0 100.3 102.9 Free float (%) 56.7%

Net income 60.5 59.0 72.2 74.8 Avg. daily turnover 3M (PLNm) 0.5


1M 3M YTD

EV/EBITDA (x) 10.4 9.3 8.3 8.2 -4.7% -2.3% -13.7%


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Fig. 1. Apator: 3Q16-2Q17 results’ preview

PLNmn 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16E y/y q/q 4Q16E 1Q17E 2Q17E

Sales 181.7 208.0 180.9 183.6 191.6 213.3 197.8 222.5 223.2 16.5% 0.3% 248.3 218.6 224.1

EBITDA 30.5 37.2 27.1 22.8 31.7 26.8 27.3 29.1 29.7 -6.2% 2.2% 33.7 32.7 33.7

EBITDA margin 16.8% 17.9% 15.0% 12.4% 16.5% 12.6% 13.8% 13.1% 13.3% -3.2 0.3 13.6% 15.0% 15.0%

EBIT 25.5 29.3 20.1 15.2 23.8 18.9 18.5 20.5 20.5 -13.7% 0.3% 24.5 23.4 24.3

EBIT margin 14.0% 14.1% 11.1% 8.3% 12.4% 8.9% 9.4% 9.2% 9.2% -3.2 0.0 9.9% 10.7% 10.8%

Net profit 22.0 23.9 16.4 12.4 18.8 12.9 13.2 13.8 14.5 -22.7% 5.2% 17.5 16.7 17.5

Net margin 12.1% 11.5% 9.1% 6.7% 9.8% 6.1% 6.7% 6.2% 6.5% -3.3 0.3 7.0% 7.7% 7.8%


Fig. 2 Apator: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 891.8 852.5 4.6% 920.2 880.3 4.5% 927.0 890.4 4.1%

EBITDA 119.7 124.9 -4.1% 138.0 139.7 -1.2% 141.5 143.1 -1.1%

EBIT 84.0 90.7 -7.4% 100.3 104.6 -4.1% 102.9 106.8 -3.7%

Net profit 59.0 65.8 -10.4% 72.2 76.4 -5.4% 74.8 78.5 -4.7%


Fig. 3. Apator: Valuation changes



Comparable valuation (based on 2016-2018E) 31.4 32.5 -3%


Fig. 4. Apator: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 726 769 892 920 927

COGS 505 560 658 664 667

Gross profit 221 209 233 256 260

SG&A 119 133 148 156 157

Other operating income, net 1 2 -1 0 0

EBITDA 127 108 120 138 141




Income tax -21 -15 -16 -18 -19

Net profit 84 60 59 72 75

Gross margin 30.5% 27.2% 26.2% 27.9% 28.1%

EBITDA margin 17.5% 14.1% 13.4% 15.0% 15.3%




Fig. 5. Apator: Balance Sheet forecast

2014 2015 2016E 2017E 2018E

Current assets 338 362 419 444 462

Fixed assets 357 435 445 453 459

Total assets 695 797 864 897 921


bank debt 94 113 137 131 125


bank debt 72 82 78 73 68

Equity 386 422 421 460 490


Net debt 104 152 176 148 121


Fig. 6. Apator: Cash flow forecast

2014 2015 2016E 2017E 2018E



CF from financing 82 4 -27 -35 -46

dividends -19 -24 -33 -33 -45

Net change in cash 44 -20 -15 17 15



23

Poland IT

NOVEMBER 3, 2016 17:00

ASSECO BS RECOMMENDATION

BUY (PREV. HOLD)

Growth and dividend - all in one CURRENT PRICE: PLN23.1


Equity story. Asseco Business Solution turned in last two years

from a very stable dividend stock but with sluggish low-single digit

growth into a growth stock with a hefty dividend payout. Company

took advantage of the improving ERP market in Poland and

successfully started international expansion with its FMCG

product Mobile Touch. Moreover ABS is able to improve its

margin despite higher workforce costs, pressure on wages. We

assume that next several quarters will be also very supportive for

ABS as on the domestic market we should see higher IT

investments related to the implementation of unified control file in

SME segment. In our view international expansion is a long term

growth potential.

Financials. In this report we increased our forecast for ABS by 5-

10% on the top-line and 10-20% on the bottom line. We assume

the company will be able to sustain a decent growth pace in

2017E as well. Asseco BS trades at 2016E P/E 17.5x and 2017E

P/E 16.2x, with a premium vs the parent company, for example,

but offers an attractive DY of c5.7%. Assuming the traditional

100% pay-out, the company’s DPS from its 2016 profits should

reach PLN1.33. At our TP, Asseco BS still offers a decent 4.8%

DY.

3Q16 results review. Asseco Business Solutions posted a strong

set of results. Its sales were up 16% y/y. The sales growth came

both from Polish operations (+11% y/y) and export sales

(PLN5.1mn, +67% y/y). Export sales amounted to 12% of total

sales. The gross margin rose 5.3pp y/y to 44.8%, while SG&A

amounted to PLN5.2mn. ABS’s EBITDA reached PLN16.4mn

(+30% y/y), while the net profit in at PLN11.2mn. ABS’s operating

cash flow amounted to PLN12.7mn (vs PLN11.3mn in 3Q15, 77%

of the quarterly EBITDA). 2016 backlog stands at PLN152mn

(+14% y/y).

Valuation & recommendation. We raise our DCF-based

valuation to PLN27.9 from PLN21.0. Since the new TP implies a

21% upside to the current valuation of the stock, we upgrade our

recommendation to Buy. Our comparative valuation points to

PLN19.2 per share.

STOCK PERFORMANCE





on issue date

12 month target


Hold 7-28-2016 21.0 21.0 13.3% 9.3

Buy 1-27-2016 13.6 18.4 54.4% 46.4

COMPANY DESCRIPTION

Asseco Business Solutions is a developer of IT solutions for business.


Asseco Poland 46.5

Metlife pension fund 10.5


EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes ABSP.WA / ABS PW

Sales 151.8 172.6 187.2 197.9 Market capitalisation (PLNmn) 772


EBIT 40.5 53.7 58.2 61.7 Free float (%) 48.0%



1M 3M YTD


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Fig. 1. Asseco Business Solutions: 3Q16 results review


Sales 31.3 48.5 39.1 31.2 32.6 42.1 37.1 35.1 36.1 43.5 41.3 39.5 41.7 15.6% 5.7%

EBITDA 10.0 14.4 12.0 9.4 10.2 14.4 12.4 10.7 12.6 15.5 15.5 13.5 16.4 29.5% 21.1%

EBITDA margin 32.0% 29.7% 30.8% 30.1% 31.4% 34.2% 33.5% 30.5% 35.0% 35.6% 37.5% 34.2% 39.2% 4.2 5.0

EBIT 7.1 11.5 9.2 6.3 7.3 11.4 9.7 8.0 9.9 12.8 12.7 10.8 13.6 37.0% 26.5%

EBIT margin 22.8% 23.7% 23.5% 20.3% 22.4% 27.1% 26.2% 22.8% 27.5% 29.4% 30.9% 27.2% 32.6% 5.1 5.4

Net profit 5.9 9.4 7.7 5.4 6.1 9.4 8.1 6.7 8.2 10.5 10.4 8.9 11.2 36.7% 25.3%

Net margin 18.8% 19.4% 19.7% 17.2% 18.7% 22.4% 21.9% 19.1% 22.7% 24.1% 25.1% 22.6% 26.8% 4.1 4.2


Fig. 2. Asseco Business Solutions: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 172.6 165.4 4.3% 187.2 173.3 8.0% 197.9 180.0 9.9%

EBITDA 65.1 58.0 12.2% 70.2 60.7 15.6% 74.2 63.0 17.8%

EBIT 53.7 46.6 15.2% 58.2 48.7 19.6% 61.7 50.4 22.4%

Net profit 44.6 38.8 14.9% 48.3 40.5 19.3% 51.1 41.9 22.1% Source: Company data, DM BZ WBK estimates

Fig. 3. Asseco Business Solutions: Valuation changes


DCF valuation 27.9 21.0 33%

Comparable valuation (based on 2016-2018E) 19.2 17.2 12% Source: Company data, DM BZ WBK estimates

Fig. 4. Asseco BS: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 145.0 151.8 172.6 187.2 197.9

COGS 92.2 91.7 97.7 106.4 112.6

Gross profit 52.8 60.2 74.8 80.8 85.2

SG&A 18.8 20.0 21.3 22.5 23.6

Other operating income, net 0.3 0.2 0.2 0.0 0.0

EBITDA 46.1 51.3 65.1 70.2 74.2




Income tax 7.0 8.1 10.5 11.3 12.0

Net profit 28.6 33.5 44.6 48.3 51.1

Gross margin 36.4% 39.6% 43.4% 43.1% 43.1%

EBITDA margin 31.8% 33.8% 37.7% 37.5% 37.5%




Fig. 5. Asseco BS: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 90.3 95.7 107.8 113.0 116.6

Fixed assets 194.1 194.3 195.2 196.0 196.9

Total assets 284.3 290.0 303.0 309.0 313.5


bank debt 0.0 0.0 0.0 0.0 0.0


bank debt 0.0 0.0 0.0 0.0 0.0

Equity 260.7 265.9 277.0 280.7 283.5

share capital 167.1 167.1 167.1 167.1 167.1



Net debt -57.5 -65.9 -70.3 -72.2 -73.5


Fig. 6. Asseco BS: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E




Net change in cash 2.8 8.4 4.3 2.0 1.3



25

Poland IT

NOVEMBER 3, 2016 17:00

ASSECO SEE RECOMMENDATION

BUY (MAINTAINED)

Lost momentum CURRENT PRICE: PLN9.37


Equity story. In 2016 Asseco SEE lost its good results

momentum that we saw in 2014-15. The company reported weak

3Q16 results, but this was mostly due to a high base from 3Q15.

Its backlog improvement points to better results already in 4Q16.

The stock is not expensive on its multiples, trades at a discount to

ACP and offers several upsides. In our view, there is still some

room for cost optimisation and the company’s 2015-16 investment

in sales forces and new products should start paying off already

in 2017. On top of that, the largest contributor to ASEE’s EBIT is

the most marginable payments business that has further growth

potential, in our view. Finally, depending on its M&A policy, good

cash generation and lower capex creates room for a higher

dividend payout.

Financials. We expect ASEE’s results to grow moderately in

2017 after the flat 2016. We expect a 13% revenue improvement

in the payments business and 4% in the banking segment, with

similar growth rates at the EBIT level. Compared with our

previous report, we have slightly altered our forecasts for ASEE.

We expect ASEE to report a net profit of PLN43.6mn and

PLN46.5mn in 2016E and 2017E, respectively, which implies the

2016E P/E at 11.1x and 2017E P/E 10.5x.

3Q16 results review. Asseco SEE reported a mediocre set of

results, higher y/y at the top line and weaker y/y earnings. The

banking segment reported a 9% y/y top-line decline and a lower

EBIT as well. The payments segment’s top line was visibly higher

y/y (PLN55.7mn, +31% y/y), with the EBIT at PLN8.2mn (slightly

up y/y). The company’s system integration segment performed

worse y/y across all lines. EBITDA reached PLN21.9mn (-3%

y/y), while the net profit came in at PLN12.2mn (-14% y/y).

Operating cash flow amounted to a positive PLN6.6mn.



27% upside potential. We, therefore, maintain our Buy rating for

the stock. Our comparative valuation points to PLN13.4 per

share.

STOCK PERFORMANCE





on issue date

12 month target


Buy 7-28-2016 9.5 11.9 -1.4% -5.4

Buy 1-27-2016 8.6 12.2 9.9% 1.8

COMPANY DESCRIPTION

Asseco South Eastern Europe is a developer of IT solutions for business.


Asseco Poland 51.1


EBRD 9.3

EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes ASEP.WA / ASE PW



EBIT 53.1 52.3 57.1 58.0 Free float (%) 32.9%



1M 3M YTD


ASE

TP

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Fig. 1. Asseco South Eastern Europe: 3Q16 results review


Sales 107.3 150.8 99.3 121.0 115.2 165.5 98.6 121.8 127.1 139.7 119.9 140.2 131.2 3.2% -6.4%

EBITDA 13.2 17.2 12.6 16.2 18.1 22.3 16.8 21.4 22.5 22.7 18.9 22.9 21.9 -2.5% -4.3%

EBITDA margin 12.3% 11.4% 12.7% 13.4% 15.7% 13.5% 17.0% 17.6% 17.7% 16.3% 15.8% 16.3% 16.7% -1.0 0.4

EBIT 9.8 13.5 8.0 10.5 11.9 15.8 9.9 14.2 14.7 14.4 10.2 13.7 12.5 -14.8% -9.1%

EBIT margin 9.1% 8.9% 8.1% 8.7% 10.3% 9.5% 10.0% 11.6% 11.5% 10.3% 8.5% 9.8% 9.5% -2.0 -0.3

Net profit 8.6 12.2 7.0 9.1 9.2 13.7 8.1 11.6 12.7 11.1 8.1 12.2 10.9 -14.1% -10.7%

Net margin 8.0% 8.1% 7.1% 7.5% 8.0% 8.3% 8.2% 9.6% 10.0% 7.9% 6.8% 8.7% 8.3% -1.7 -0.4


Fig. 2. Asseco South Eastern Europe: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 557.3 551.4 1% 587.8 545.7 8% 607.4 563.2 8%

EBITDA 84.1 88.1 -5% 90.5 91.4 -1% 93.1 94.1 -1%

EBIT 52.3 56.3 -7% 57.1 58.0 -2% 58.0 59.0 -2%

Net profit 43.6 45.0 -3% 46.5 46.4 0% 47.3 47.4 0% Source: Company data, DM BZ WBK estimates

Fig. 3. Asseco South Eastern Europe: Valuation changes




Fig. 4. Asseco SEE: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 500.9 487.2 557.3 587.8 607.4

COGS 383.3 361.8 428.3 450.8 467.1

Gross profit 117.6 125.4 129.0 137.0 140.3

SG&A 71.6 73.4 78.0 81.1 83.5


EBITDA 69.2 83.4 84.1 90.5 93.1




Income tax 7.2 10.2 8.8 10.9 11.1

Net profit 39.0 43.6 43.6 46.5 47.3

Gross margin 23.5% 25.7% 23.1% 23.3% 23.1%

EBITDA margin 13.8% 17.1% 15.1% 15.4% 15.3%




Fig. 5. Asseco SEE: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 235.4 235.2 260.9 272.8 288.0

Fixed assets 612.9 614.9 629.2 640.3 644.7

Total assets 848.3 850.0 890.1 913.1 932.7


bank debt 24.3 21.2 21.2 21.2 21.2


bank debt 22.0 26.9 26.9 26.9 26.9

Equity 679.0 689.3 711.1 727.1 741.9

share capital 518.9 518.9 518.9 518.9 518.9



Net debt -45.3 -55.7 -61.3 -65.0 -74.7


Fig. 6. Asseco SEE: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E



CF from financing 16.0 11.9 -21.8 -30.5 -32.6




27

Poland Pharma / Health Care

NOVEMBER 3, 2016 17:00

AUTOPARTNER RECOMMENDATION

BUY (MAINTAINED)

Growing on diversification of service stations

CURRENT PRICE: PLN4.19


Equity story: We keep our Buy recommendation in-tact and raise

our 12M TP by 13% to PLN5.4. The higher target price reflects

22%/18% higher EBITDA forecasts in 2017-18E, respectively, on

the back of higher gross margin assumptions (26.8% vs previous

26.0%). Autopartner recently said it was in talks to join a

purchasasing group from January 2017, which should boost the

margin by 1-3p.p. on 50% of its purchases. In addition, AP’s long-

term plans of having 80 sales agencies by YE17 vs 58 in YE15

remain in place. However, we cannot rule out an even faster

development as we see growing chances for AP to move up from

its 5th

position on the market. AP is one of the few market players

capable of delivering quality services comparable to Intercars.

Apart from this, further strategic initiatives, such as developing the

company beyond the Polish borders (Czech Republic, Slovakia,

Pre-Baltica and Germany) and introducing spare parts for

Japanese cars and motorcycles are also being implemented in

line with schedule.

Financials: We expect AP’s sales CAGR’16/18 at 13% mainly on

the back of further advance of its market share driven by the

growing needs of the independent car repair shops for deeper

diversification and overall market growth. At the same time, we

expect AP to keep its EBITDA and net profit margins similar to

their 2016 levels at 7.8%/5.5%, rescpetively. We believe that the

new sales agencies should keep their shorter maturity period in

the coming years thanks to constant growth of AP’s market share

and should not be a drag on the company’s overall profitabitly.

3Q16 preview. We expect 3Q16 to be another strong quarter for

Autopartner. We forecast that the company will report sales at

PLN187mn – in line with its monthly statements. Besides, we

foresee its EBITDA at PLN12mn, while the net profit at PLN10mn

in 3Q16. The following are the core assumtions behind our

forecasts: gross margin at 25.9% and SG&A/sales ratio at 19%.

Outcome: POSITIVE.

Valuation & Recommendation. Our DCF model points to a 12-

month TP of PLN5.4/share. Our comparable valuation points to

PLN5.7/share.

STOCK PERFORMANCE





on issue date

12 month target


Buy 6/21/2016 2.9 4.8 43.9% 37.8


Mr A. Gorecki 35.6

Mrs K. Gorecka 29.7

Aegon pension fund 5.7

COMPANY DESCRIPTION

Auto Partner is the 5th largest car parts distributors in Poland.

EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes APR.WA / APR PW

Sales 519 679 800 871 Market capitalisation (PLNm) 490.2


EBIT 26 49 60 63 Free float (%) 100.0%


P/E (x), adj. 24.1 13.9 11.0 10.5 Price performance

1M 3M YTD

EV/EBITDA (x), adj. 16.4 10.9 8.9 8.3 -3.2% 18.4% n.a. Source: Company data, DM BZ WBK estimates

APR

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28

Fig. 1. Autopartner: 3Q16 results preview

PLNmn 1H15 1H16 3Q16E

Sales 242.6 332.5 187.0

EBITDA 13.7 25.8 13.6

EBITDA margin 6% 8% 7%

EBIT 11.8 23.5 12.4

EBIT margin 5% 7% 7%

Net profit 7.6 17.8 9.7

Net margin 3% 5% 5%


Fig. 2. Autopartner: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 679 672 1% 800 782 2% 871 864 1%

EBITDA 53 49 7% 65 54 22% 68 57 18%

EBIT 49 45 8% 60 49 24% 63 52 20%


Fig. 3. Autopartner: Valuation changes



Comparable valuation (based on 2016-2018E) 5.7 4.7 21.0% Source: Company data, DM BZ WBK estimates

Fig. 4. Autopartner: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 425 519 679 800 871

COGS 313 388 502 585 637

Gross profit 112 131 177 215 234

SG&A 84 102 127 153 170

Other operating income, net -3 -2 -1 -1 -1

EBITDA 28 30 53 65 68





Net profit 15 16 36 46 48

Gross margin 26.3% 25.2% 26.1% 26.8% 26.8%

EBITDA margin 6.5% 5.8% 7.8% 8.1% 7.8%




Fig. 5. Autopartner: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 170 198 294 347 398


Total assets 202 232 332 389 442


bank debt 57 31 30 30 30


bank debt 42 69 69 69 69

Equity 59 76 170 216 264




Net debt 104 100 78 81 61

Source: Company data, DM BZ WBK estimates,

Fig. 6. Autopartner: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E

CF from operations -51 9 -28 6 28


CF from financing 49 3 57 0 0

Net change in cash 0 6 21 -2 20



29

Poland Services

NOVEMBER 3, 2016 17:00

BENEFIT SYSTEMS RECOMMENDATION

BUY (MAINTAINED)

Still in a good shape CURRENT PRICE: PLN677

TARGET PRICE: PLN900 (PREV. PLN900)

Equity story. The company trades at 2016E P/E 27x, but due to

monetisation of its record-high growth in sports cards (+120k y/y

in Poland and +21k y/y abroad) and multiple acquisitions of

fitness club chains, Benefit Systems offers 70% EPS growth over

the next two years and stable, above-average results

improvement for the whole forecast period. Benefit is the

unprecedented leader of non-wage benefit schemes in Poland,

successfully replicating its business model in other countries in

the region. Moreover, its recent acquisitions make Benefit

Systems the largest fitness chain in Poland and consolidator of

the fragmented fitness club market, which practically erases the

possibility that a large competitor, both in the sports card and

fitness businesses, could emerge.

Financials. The superb performance of the sports card business

should enable the company to sustain its double-digit sales

growth pace in the next three years, we think. We estimate that

the company’s EBITDA should reach PLN114.2mn (+62% y/y)

and PLN157.9mn (+38% y/y) in 2016E and 2017E, respectively,

also due to consolidation of Calypso and Zdrofit; a smaller

negative effect of the cafeteria segment and operating leverage.

Despite the company’s large investment programme in the fitness

segment (PLN200mn in five years), its core business should

generate high OpCF that should easily cover the investments and

allow for the maintenance of the company’s high payout rate

(buyback of above 60% of profits).

3Q16 results review. Benefit Systems reported very good results

in 3Q16. Supportive seasonality in the sports card business (3Qs

have highest gross margin), large new additions y/y (+127k y/y in

Poland and +25k y/y on other markets) and low base in the

cafeteria business translated into a record-high profits with c50%

earnings growth y/y. The company’s revenues settled at

PLN182.9mn (+29% y/y), the EBITDA at PLN41.0mn, the EBIT at

PLN35.3mn (including PLN1.9mn in costs for the stock option

programme). Net profit was PLN27.8mn vs PLN18.6mn in 3Q15.


arrived at a 12-month TP of PLN900 per share, which implies a

33% upside potential. We, therefore, maintain our Buy rating for

the stock. Our comparative valuation points to PLN671 per share.

STOCK PERFORMANCE





on issue date

12 month target


Buy 9-29-2016 690.0 900.0 -5.1% -7.4

Buy 1-27-2016 398.0 570.0 73.4% 63.5

COMPANY DESCRIPTION

The Company provides fringe benefit system solutions including flagship MultiSport Scheme.


James Van Bergh 23.3

Benefit Invest 22.4


Marek Kamola 10.3

NN pension fund 9.4

EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes BFT.WA / BFT PW

Sales 581.5 740.4 924.3 1,092.2 Market capitalisation (PLNmn) 1,760.0


EBIT 54.9 84.5 107.5 133.3 Free float (%) 42.8%



1M 3M YTD


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30

Fig. 1. Benefit Systems: 3Q16 results review


Sales 91.7 103.0 108.6 114.5 109.8 119.5 128.0 147.7 141.6 164.0 172.1 184.3 182.9 29.1% -0.7%

EBITDA 17.5 7.0 4.3 13.2 23.6 14.1 6.7 17.7 28.0 18.0 15.6 29.3 41.0 46.7% 40.2%

EBITDA margin 19.1% 6.8% 4.0% 11.5% 21.5% 11.8% 5.3% 12.0% 19.8% 11.0% 9.0% 15.9% 22.4% 2.7 6.6

EBIT 16.4 5.7 2.9 11.9 22.3 12.7 4.6 13.5 23.4 13.5 10.2 23.4 35.3 51.0% 50.6%

EBIT margin 17.9% 5.6% 2.6% 10.4% 20.3% 10.7% 3.6% 9.1% 16.5% 8.2% 5.9% 12.7% 19.3% 2.8 6.6

Net profit 12.6 4.5 2.7 9.2 17.7 9.0 7.8 10.5 18.6 12.2 8.6 18.4 27.8 49.5% 51.2%

Net margin 13.8% 4.4% 2.5% 8.0% 16.1% 7.5% 6.1% 7.1% 13.1% 7.5% 5.0% 10.0% 15.2% 2.1 5.2


Fig. 2. Benefit Systems: Forecasts changes

PLNmn 2016E 2017E 2018E


Sales 740.4 740.4 0% 924.3 924.3 0% 1092.2 1092.2 0%

EBITDA 108.2 108.2 0% 134.2 134.2 0% 163.0 163.0 0%

EBIT 84.5 84.5 0% 107.5 107.5 0% 133.3 133.3 0%

Net profit 65.1 65.1 0% 81.0 81.0 0% 101.4 101.4 0% Source: Company data, DM BZ WBK estimates

Fig. 3. Benefit Systems: Valuation changes

PLNmn New Previous Change


Comparable valuation (based on 2016-2018E) 671.0 589.7 +13% Source: Company data, DM BZ WBK estimates

Fig. 4. Benefit Systems: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 452.3 581.5 740.4 924.3 1092.2

COGS 345.4 431.3 545.0 675.4 780.7

Gross profit 106.9 150.2 195.5 249.0 311.5

SG&A 57.2 86.5 110.3 141.5 178.2

Other operating income, net 0.0 -8.7 -0.6 0.0 0.0

EBITDA reported 55.2 70.4 108.2 134.2 163.0

EBITDA exc. SOP 60.7 76.9 118.1 139.3 168.1

Operating profit reported 49.8 54.9 84.5 107.5 133.3

Operating profit exc. SOP 55.3 61.3 94.4 112.6 138.4

Net financial income (costs) -0.1 8.0 -1.0 -3.7 -3.3


Income tax 11.1 14.3 19.5 22.8 28.6

Net profit 38.6 49.1 65.1 81.0 101.4

Gross margin 23.6% 25.8% 26.4% 26.9% 28.5%

EBITDA margin 12.2% 12.1% 14.6% 14.5% 14.9%




Fig. 5. Benefit Systems: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 67.6 104.1 121.5 144.0 174.9

Fixed assets 181.6 284.6 392.0 443.8 474.1

Total assets 249.2 388.7 513.6 587.8 649.0


bank debt 39.5 18.3 30.0 30.0 30.0


bank debt 6.0 74.4 120.0 120.0 100.0

Equity 153.0 191.3 235.3 283.3 342.0

share capital 2.6 2.6 2.6 2.7 2.7



Net debt 11.4 59.9 118.7 118.7 88.3


Fig. 6. Benefit Systems: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E



CF from financing -4.8 -11.5 36.3 -33.0 -62.7

Net change in cash -0.7 17.2 -1.5 0.1 10.4



31

Poland Construction & Real Estate

November 3, 2016 17:00

BUDIMEX RECOMMENDATION

BUY (MAINTAINED)

‘First choice’ contractor CURRENT PRICE: PLN192.0


Equity story. We raise our Target Price for Budimex by 1% to

PLN225 and maintain our Buy recommendation. Despite the fact

that Poland’s construction market size fell 14.9% y/y in 9M16,

Budimex managed to deliver record-high results in 3Q16 (93%

y/y) and maintain its backlog at a high level at end-3Q16. This

shows that the company was able to easily take advantage of the

falling construction costs and did well in finding new contracts

despite the ongoing freeze in investment and EU2014-20 fund

utilisation. We think that the low construction costs should

continue to help margins, whereas the high backlog is why we

expect the company to post solid results also next year. The

expected acceleration in road contract distribution in 2H17E

should allow the company to develop its backlog further,

translating into solid results post-2017 as well. We also expect a

100% dividend payout ratio, which implies a healthy 6%+

dividend yield next year. We are also optimistic about the

residential business because low interest rates should continue to

attract apartment buyers next year. Overall, as the largest and

probably the most liquid WSE-listed construction company,

Budimex should remain the ‘first choice’ company in the sector.

Change in forecasts. We raise our 2016-17E profit forecasts due

to: 1) much better than expected 9M16 margins, 2) better than

expected backlog as of end-3Q16. We forecast a solid net profit

of above PLN300mn in 2016-17E and then margin/profit

contraction post 2017 due to a likely upswing in construction

costs. We see an upside to our post 2017 sales forecast (i.e. in

times of accelerated road construction expenditures), which might

translate into higher than expected profits, as well.

Risk factors. Risks: 1) possible backlog fall in 1H17, 2) further

delays in distributing railway&road contracts, 3) market shortage

post EU2014-2020 fund utilisation, 4) pressure on margins due to

a price war between contractors, 5) rise in construction costs

along with an acceleration in road&railroad expenditures.

Change in Valuation & Recommendation. We raise our Target

Price to PLN225 due to changes in the financial forecasts and the

valuation horizon’s forward shift.

STOCK PERFORMANCE





on issue date

12 month target


Buy 8-9-2016 178.4 221.0 16.4% 15.7

Buy 5-5-2016 185.0 217.0 -3.6% -7.5

Buy 2-25-2016 192.5 223.0 -3.9% -5.9

Buy 1-27-2016 190.0 223.0 1.3% -3.9

Hold 10-30-2015 209.8 223.0 -9.4% 4.6

COMPANY DESCRIPTION

Budimex is a general contractor and residential project developer. It has a leading position among contractors specialising in comprehensive general construction works in Poland, with a focus on road building.


Valivala Holdings BV 59.1%


EQUITY ANALYST

Adrian Kyrcz (+48) 22 586 81 59

[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes BDXP.WA / BDX PW

Sales 5,134.0 5,520.9 6,021.9 6,395.7 Market capitalisation (PLNm) 4,902

EBITDA 324.3 421.6 416.6 369.7 Number of shares (m) 25.5

EBIT 292.2 399.2 394.3 347.3 Free float (%) 40.9%



1M 3M YTD


BDX

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32

Fig. 1. Budimex: 3Q16 results review

PLNmn 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 y/y q/q

Sales 846.4 1421.8 1474.8 1391.0 987.4 1442.3 1689.3 15% 17%

o/w construction 826 1,341 1,472 1,298 930 1,442 1,654 12% 15%

o/w real estate 34 105 23 131 78 49 82 259% 67%

o/w other and consolidation corrections -14 -24 -20 -37 -20 -49 -47 135% -3%

Gross profit on sales 81 133 145 134 115 185 195 35% 5%

o/w construction 73 109 135 109 90 168 182 35% 8%

o/w real estate 9 24 8 25 19 15 18 137% 23%

o/w other and consolidation corrections -1 0 2 -1 6 2 -5 n.m. n.m.

EBITDA 52.3 87.8 75.6 99.0 68.5 122.4 130.8 73% 7%

EBITDA margin 6.2% 6.2% 5.1% 7.1% 6.9% 8.5% 7.7% - -

EBIT 46.7 82.1 70.2 93.3 62.9 115.4 130.8 86% 13%

EBIT margin 5.5% 5.8% 4.8% 6.7% 6.4% 8.0% 7.7% - -

Net profit 37.3 69.3 54.5 74.8 51.5 94.5 105.0 93% 11%

Net margin 4.4% 4.9% 3.7% 5.4% 5.2% 6.6% 6.2% - - Source: Company data, DM BZ WBK estimates

Fig. 2. Budimex: Forecasts changes PLN in millions, unless otherwise stated

PLNmn 2016E 2017E 2018E


Sales 5,521 5521 0% 6,022 6022 0% 6,396 6396 0%

EBITDA 422 348 21% 417 351 19% 370 370 0%

EBIT 399 326 22% 394 329 20% 347 347 0%

Net profit 327 282 16% 323 283 14% 285 299 -5% Source: Company data, DM BZ WBK estimates

Fig. 3. Budimex: Valuation changes



Comparable valuation 165 144 15% Source: Company data, DM BZ WBK estimates

Fig. 4. Budimex: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 4950 5134 5521 6022 6396

COGS 4517 -4641 4898 5410 5827

Gross profit 433 493 623 612 569

SG&A 205 220 209 218 222


EBITDA 270 324 422 417 370


Net financial income (costs) -5 5 5 5 5


Income tax -49 -60 -77 -76 -67

Net profit 192 236 327 323 285

Gross margin 8.7% 9.6% 11.3% 10.2% 8.9%

EBITDA margin 5.5% 6.3% 7.6% 6.9% 5.8%




Fig. 5. Budimex: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 3181 3892 4018 4193 4381

Fixed assets 677 821 821 821 821

Total assets 3858 4713 4839 5014 5202


bank debt 24 21 21 21 21


bank debt 51 48 48 48 48

Equity 523 603 722 718 680


Net debt -1757 -2344 -2164 -2165 -2216


Fig. 6. Budimex: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E


CF from investment -49 -70 1 0 0


Net change in cash 137 458 -180 1 51



33

Poland Retail

NOVEMBER 3, 2016 17:00

BYTOM RECOMMENDATION

BUY (MAINTAINED)

Strategy modifications to fuel growth



Equity story. We maintain our Buy recommendation despite a

cut to our 2016-18E EBITDA and net profit forecasts by 7%/8%,

8%/9% and 10%11%, respectively. We changed our forecasts

due to lower sales/avg. sqm estimates, which now stand at -

5.3%,-0.4% and 1.0% in 2016-18E (vs previous -3.6%, 0% and

1.6%), respectively. In 1H16, Bytom implemented a new strategy

aimed at conquering local markets in Poland outside the large

cities. The company lowered prices of its products to position its

brand between mass market retailers and the more upmarket

brands. At the same time, the company boosted by 25% its target

of selling space expansion and eyes 15k sqm by YE18E (11k

sqm currently). The first effects of the new strategy proved to be

negative (the sales volume of some products, mainly suits, turned

out to be insensitive to the lower prices) and undermined both

revenues and the gross margin in 1H16. Bytom addressed the

initial setbacks by modifications to its strategy with a new

approach to pricing/promotional activities. The first effects were

already been visible in the July-August 2016 results data (sales

growth accelerated and the gross margin improved). Even though

September brought in weak sales/gross margin data, in our view

that this was purely due to the heat wave and the rest of the

season should show an improvement of both sales growth and

the gross margin leading to ptofits’ growth in coming years.

3Q16 results review. Bytom reported 3Q16 results, which

matched market consensus and our expectations on EBITDA,

while net profit was notably better on tax gain. Results were

mainly shaped by the heat wave in September, which caused a

false start of A/W season, which dampened sales growth of the

new collection and adversely affected the gross margin. On the

other hand, SG&A/avg. sqm declined 2.5%, which should be

viewed positively. Overall, 3Q16 came in broadly in line with

expectations, which not change FY forecasts.



19% upside potential. Comparable valuation points to

PLN2.8/share.

STOCK PERFORMANCE




on issue date

12 month target


Buy 8/24/2016 3.0 3.6 -14.5% -16.8

Buy 1/27/2016 2.5 3.4 20.2% 10.4

Buy 8/13/2015 3.3 4.1 -24.1% -5.7

Buy 5/6/2015 2.4 2.9 36.6% 43.5

COMPANY DESCRIPTION

Bytom is a retail company selling mens’ formalwear. The company operates 79 stores retail chain.


Forum X mutual fund 16.4%

FRM 4E 11.2%


NN Investment Partners 9.0%

BZWBK mutual fund 6.9%

EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes BTM.WA / BTM PW

Sales 130.8 148.0 168.9 191.2 Market capitalisation (PLNm) 180.2


EBIT 14.3 15.8 19.1 21.3 Free float (%) 80.3%



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Fig. 1. Bytom: 3Q16 results review

PLNmn 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 y/y (%) q/q (%)

Sales 21.0 25.0 26.7 31.1 26.2 33.4 32.3 38.8 30.7 40.2 35.9 11.1% -10.6%

EBITDA -0.1 2.8 2.6 3.9 1.2 6.6 4.0 5.7 1.6 6.8 3.7 -8.3% -45.1%

EBITDA margin -0.3% 11.1% 9.6% 12.6% 4.6% 19.8% 12.5% 14.7% 5.3% 16.8% 10.3% -2.2 -6.5

EBIT -0.7 2.1 1.9 3.2 0.4 5.8 3.2 4.8 0.6 5.7 2.6 -18.4% -53.6%

EBIT margin -3.4% 8.2% 7.0% 10.2% 1.7% 17.5% 10.0% 12.3% 2.0% 14.2% 7.4% -2.7 -6.8

Net profit -0.9 2.1 1.5 2.7 0.5 5.3 2.9 3.8 0.5 4.3 4.3 51.1% -0.5%

Net margin -4.5% 8.3% 5.4% 8.8% 1.9% 15.8% 8.8% 9.9% 1.6% 10.8% 12.0% 3.2 1.2


Fig. 2. Bytom: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 148 151 -2% 169 173 -2% 191 197 -3%

EBITDA 20 21 -7% 24 26 -8% 27 29 -10%

EBIT 16 17 -9% 19 21 -10% 21 24 -12%

Net profit 13 15 -8% 17 19 -9% 18 21 -11% Source: Company data, DM BZ WBK estimates

Fig. 3. Bytom: Valuation changes


DCF valuation 3.0 3.6 -17.0%

Comparable valuation (based on 2016-2018E) 2.8 3.1 -9.0% Source: Company data, DM BZ WBK estimates

Fig. 4. Bytom: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 103.9 130.8 148.0 168.9 191.2

COGS 50.3 61.5 69.9 76.6 86.7

Gross profit 53.5 69.3 78.1 92.3 104.5

SG&A 46.0 53.5 62.3 72.9 82.8


EBITDA 9.2 17.6 19.9 23.7 26.5


Net financial income (costs) -1.4 -0.8 -0.9 0.0 0.4


Income tax -0.4 1.0 1.5 2.1 3.4

Net profit 5.3 12.5 13.4 17.0 18.4

Gross margin 51.5% 53.0% 52.8% 54.6% 54.6%

EBITDA margin 8.9% 13.5% 13.5% 14.0% 13.9%




Fig. 5. Bytom: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 52 58 76 81 102


Total assets 66 73 91 96 117


bank debt 5 12 12 0 0


bank debt 0 1 2 0 0

Equity 26 40 53 70 88




Net debt 4 12 6 -4 -16


Fig. 6. Bytom: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E

CF from operations -5 -5 10 15 17


CF from financing 4 9 1 -14 0

Net change in cash -1 0 7 -4 12



35

Poland Video Games

NOVEMBER 3, 2016 17:00

CI GAMES RECOMMENDATION

BUY (MAINTAINED)

Sniper will shoot later CURRENT PRICE: PLN26.9


Equity story. CI Games has delayed the release of Sniper 3, its

upcoming game till April’17. The 2.5-month delay shouldn’t have

major impact on company’s financials, it should increase the total

development cost by several PLNmn forcing company to take a

new loan. We maintain our positive view on Sniper 3 financial

performance – we believe that the combination of focus on

quality, higher retail price, favourable FX and the higher share of

digital distribution should effect in record high results in 2017E.

Because of large part of development outsourced to Chinese

companies we do not change our expectations on Lords of the

Fallen 2 – we assume the release in 2H18 as the delays of Sniper

3 are not crossing out this release date.

Financials. We keep our forecasts for CI Games almost

unchanged. We assume 1.8mn copies of Sniper 3 sold in 2017,

implying PLN274mn revenues, PLN174mn EBITDA and net profit

at PLN93mn. In 2018E we assume release of Lords 2, however

the game has in our view a smaller sales potential than Sniper

franchise (PLN150mn revenues, PLN90mn EBITDA and

PLN40mn net profit in 2018E). For 2019E we do not assume any

major releases.

3Q16 results preview. A slow quarter without a new release with

sales mostly generated in the digital channels. The company’s

sales should be slightly higher q/q due to revenues from the

contract with Elbo and Polaford, while its presence at fair trades

should raise costs. The company should remain EBITDA positive,

with a PLN1.4mn net loss.

Valuation & recommendation. Small adjustments to the

projected release dates caused a slight increase in our DCF-

based TP to PLN35.9 from PLN35.0. Still, the new TP implies a

33% upside potential, which caused us to maintain our Buy

recommendation. Our comparative valuation points to PLN53.3

per share.

STOCK PERFORMANCE





on issue date

12 month target


Buy 7-28-2016 26.8 35.0 5.0% 1.1

Buy 1-27-2016 20.9 29.0 28.1% 20.1

COMPANY DESCRIPTION

Game developer and publisher.


Marek Tyminski 42.9

PZU mutual fund 5.6

EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes CIA.WA / CIG PW



EBIT -9.0 -2.8 114.4 48.4 Free float (%) 54.3%

Net income -7.9 -2.4 93.1 40.4 Avg. daily turnover 3M (PLNmn) 1.4

P/E (x) n.a. n.a. 4.0 9.3 Price performance

1M 3M YTD

EV/EBITDA (x) 209.1 37.9 1.5 2.2 -17.0% -2.3% 30.0% Source: Company data, DM BZ WBK estimates

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Fig. 1. CI Games: 3Q16 results preview


Sales 9.2 5.7 6.7 19.1 2.1 81.1 4.0 3.5 4.1 13.5 7.7 3.8 5.6 36.9% 47.4%

EBITDA 0.6 -9.3 0.6 4.6 -4.1 43.5 2.2 -2.0 -1.7 3.3 2.1 0.0 0.0 n.a. n.a.

EBITDA margin 6.5% -162.9% 9.0% 24.1% -195.6% 53.7% 56.6% -57.3% -42.2% 24.2% 27.3% -0.4% 0.0% 42.1 0.3

EBIT -1.4 -15.2 -1.5 -11.8 -7.1 22.8 -0.6 -4.2 -4.6 0.3 -1.1 -1.5 -1.4 n.a. n.a.

EBIT margin -15.2% -265.4% -21.9% -61.7% -340.1% 28.1% -15.3% -119.1% -111.7% 2.5% -14.0% -38.9% -25.4% 86.4 13.5

Net profit -1.9 -13.0 -1.5 -11.9 -7.0 22.4 0.0 -2.8 -4.6 -0.4 -1.5 -1.2 -1.4 n.a. n.a.

Net margin -20.7% -227.3% -21.8% -62.4% -334.6% 27.7% 0.9% -80.7% -113.5% -3.2% -19.4% -30.5% -25.4% 88.2 5.1


Fig. 2. CI Games: Forecasts changes

PLNmn 2016E 2017E 2018E


Sales 26.5 27.7 -4.2% 274.0 274.0 0.0% 150.2 150.2 0.0%

EBITDA 4.6 10.3 -55.1% 173.6 171.3 1.3% 90.2 89.3 1.0%

EBIT -2.8 -2.7 4.2% 114.4 113.7 0.7% 48.4 49.0 -1.2%

Net profit -1.8 -2.3 -20.3% 93.1 92.5 0.7% 40.4 40.8 -1.0% Source: Company data, DM BZ WBK estimates

Fig. 3. CI Games: Valuation changes




Fig. 4. CI Games: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 109.0 25.0 26.5 274.0 150.2

COGS 77.5 18.5 14.6 110.7 68.0

Gross profit 31.5 6.5 12.0 163.3 82.2

SG&A 25.8 15.5 14.2 48.9 33.8

Other operating income, net -3.3 0.0 -0.6 0.0 0.0

EBITDA 44.7 1.8 4.6 173.6 90.2

Operating profit 2.4 -9.0 -2.8 114.4 48.4

Net financial income (costs) -0.1 0.9 0.6 0.5 1.4

Profit before tax 2.3 -8.1 -2.3 115.0 49.9

Income tax 0.2 -0.2 -0.4 21.8 9.5

Net profit 2.1 -7.9 -1.8 93.1 40.4

Gross margin 28.9% 26.1% 45.2% 59.6% 54.7%

EBITDA margin 41.0% 7.1% 17.4% 63.3% 60.0%

Operating margin 2.2% -36.0% -10.6% 41.8% 32.2%

Net profit margin 1.9% -31.4% -6.9% 34.0% 26.9%


Fig. 5. CI Games: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 42.3 19.3 17.0 145.5 193.7

Fixed assets 57.0 71.4 84.5 56.0 47.3

Total assets 99.3 90.7 101.5 201.5 241.1


bank debt 0.0 5.7 25.0 0.0 0.0


bank debt 0.0 0.0 0.0 0.0 0.0

Equity 83.0 75.2 73.4 166.5 206.9

share capital 1.4 1.4 1.4 1.4 1.4



Net debt -11.3 -3.6 11.2 -112.2 -175.5


Fig. 6. CI Games: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E



CF from financing 5.7 19.3 -25.0 0.0 0.0

Net change in cash -2.3 4.5 98.4 63.3 -46.5



37

Poland Video Games

NOVEMBER 3, 2016 17:00

COMARCH RECOMMENDATION

BUY (PREV. HOLD)

Play for 2017 CURRENT PRICE: PLN165

TARGET PRICE: PLN206 (PREV. PLN155.9)

Equity story. After a difficult 2016, we expect Comarch to report

solid results growth in 2017-18E. First, its expansion onto new

markets, such as South America or South-East Asia and the

expected rebound on the public market in Poland should allow

Comarch to utilise new capacity. Moreover, its improving

operating cash flow paired with a lower capex beyond 2016

should also create a window for a dividend payout.

Financials. In 2016E, we estimate that the company should

generate PLN1.17bn in sales, an EBITDA of PLN154mn and a

net profit of PLN54mn, while in 2017E we see sales at

PLN1.27bn, the EBITDA at PLN169mn and the net profit at

PLN70mn, implying the 2016-17E EV/EBITDA at 8.0-8.8x. We

expect Comarch to start paying dividends again, possibly in

2017E. Compared to our previous report we altered our

capex/depreciation forecasts – we assume that once the current

real-estate investments end in 2017, the company should have

enough office space for the next 3-4 years of workforce growth.

We expect a lower annual capex level in 2018-20E (at

cPLN60mn) and higher capex at cPLN85mn from 2021E onward.

3Q16 results preview. Poland’s weak public market, higher staff

costs, low season in the DACH region and outage in Cracow

caused by the World Youth Day had negatively affected

Comarch’s results in 3Q16. On the other hand, its better revenue

mix with a lower share of third-party software and hardware, as

well as the low base from last year should be enough to beat its

earnings from 3Q15. We expect PLN124mn (-1% y/y) in revenues

in Poland, PLN50mn (-3% y/y) in DACH and PLN46mn (+41%

y/y) on other markets. We assume the gross margin at 27.2% vs

25.6%, flat SG&A at PLN54mn. Consequently, we see a 24%

EBITDA growth rate and the net profit at PLN4.3mn.


arrived at a 12-month TP of PLN206 per share, which implies a

25% upside potential. We, therefore, upgrade our

recommendation to Buy. Our comparative valuation points to

PLN157.6 per share.

STOCK PERFORMANCE





on issue date

12 month target


Hold 7-28-2016 150.7 155.9 14.9% 10.9

Buy 3-10-2016 127.4 152.0 18.2% 18.2

COMPANY DESCRIPTION

Second largest IT company in Poland.


Janusz Filipiak 36.8

Elzbieta Filipiak 31.2


EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes CMR.WA / CMR PW

Sales 1,131.6 1,167.3 1,273.7 1,366.8 Market capitalisation (PLNmn) 1,342


EBIT 113.0 92.9 107.2 120.7 Free float (%) 70.3%



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Fig. 1. Comarch: 3Q16 results preview


Sales 233.5 314.0 208.7 221.0 244.8 363.9 246.3 259.1 223.4 402.7 243.2 273.3 231.9 3.8% -15.1%

EBITDA 13.9 45.2 21.0 26.3 46.3 59.3 33.0 36.5 19.1 78.0 28.3 39.5 23.6 24.0% -40.2%

EBITDA margin 6.0% 14.4% 10.1% 11.9% 18.9% 16.3% 13.4% 14.1% 8.5% 19.4% 11.6% 14.5% 10.2% 1.7 -4.3

EBIT -2.8 29.3 7.8 13.1 33.0 44.7 18.9 25.4 4.5 64.2 12.3 22.9 8.6 93.2% -62.4%

EBIT margin -1.2% 9.3% 3.7% 5.9% 13.5% 12.3% 7.7% 9.8% 2.0% 15.9% 5.0% 8.4% 3.7% 1.7 -4.7

Net profit 0.2 22.9 5.4 7.9 21.4 33.1 18.8 17.0 0.4 43.5 7.2 5.6 4.3 978.4% -22.3%

Net margin 0.1% 7.3% 2.6% 3.6% 8.8% 9.1% 7.6% 6.6% 0.2% 10.8% 3.0% 2.0% 1.9% 1.7 -0.2


Fig. 2. Comarch: Forecasts changes

PLNmn 2016E 2017E 2018E


Sales 1,167.3 1,221.2 -4% 1,273.7 1,345.4 -5% 1,366.8 1,429.4 -4%

EBITDA 154.4 150.4 3% 169.2 169.9 0% 183.7 183.8 0%

EBIT 92.9 97.0 -4% 107.2 116.9 -8% 120.7 131.6 -8%


Fig. 3. Comarch: Valuation changes




Fig. 4. Comarch: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 1,038 1,132 1,167 1,274 1,367

COGS 731 791 830 906 972

Gross profit 307 340 337 367 395

SG&A 187 223 232 248 261


EBITDA 153 167 154 169 184




Income tax 24 28 28 23 25

Net profit 68 80 54 70 79

Gross margin 29.6% 30.1% 28.9% 28.8% 28.9%

EBITDA margin 14.7% 14.7% 13.2% 13.3% 13.4%




Fig. 5. Comarch: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 665 699 718 804 888

Fixed assets 551 606 668 685 684

Total assets 1,217 1,305 1,386 1,489 1,572


bank debt 22 34 34 34 34


bank debt 123 115 140 140 130

Equity 701 781 834 892 955




Net debt -87 -74 -64 -124 -181


Fig. 6. Comarch: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E



CF from financing 8 4 25 -12 -26

Net change in cash 63 -11 16 60 48



39


November 3, 2016 17:00

DOM DEVELOPMENT RECOMMENDATION

BUY (MAINTAINED)

Capitalizing on housing boom CURRENT PRICE: PLN59.74


Equity story. We uphold our positive view on Dom Development.

Gradual growth in pre-sale volumes and average selling price

should directly translate into an earnings expansion in the coming

quarters, when Dom is due to transfer housing units to the clients.

Our estimates point to healthy 48%/25% y/y net profit growth in

2016/17E. Assuming a 100% dividend pay-out ratio, these

translate into a high DPS (PLN4.8/PLN6.0 in 2017/18E) and

respective DYs of 8.0%/10.0%. Moreover, we expect the

company to deliver a spectacularly high ROE of 14.6% (2016-17E

average), validating, we believe, Dom Development‘s P/BV

premium to peers.

Another quarter of strong pre-sales. 3Q16 demand for homes

continued to grow. The company pre-sold over 700 apartments, a

record-high level. Dom wants to sell over 3k apartments in the

coming years (c2.7k should be pre-sold in 2016E) thanks to a

diversified offer size, solid land bank covering c7.5k units and

strong cash position making new land acquisitions possible.

Financial forecast. We continue to expect the company to hand

over 2.5k apartments this year (21% up y/y), which should

translate into a FY16E net profit of PLN120mn (66% to be earned

in 4Q16E). In 2017 we expect the volume to rise to 2.7k units and

lead to a 25% net profit growth to PLN150mn. We increase our

sale volume estimate to 3.0k from 2.35k in 2018, which is still

below the company’s mid-term guidance of 3k+units. As a result,

our FY18 net profit forecast rises to PLN171mn.

Triggers/risks. Triggers: 1) further growth in apartment pre-sale

volumes, 2) earnings’ improvement in 2016-18E on rising notary

sales, 3) dividend payment (100% pay-out from the 2016E

earnings implies a dividend yield of over 8%). Risks: 1) possible

slowdown in apartment volumes beyond 2017-18, 2) full utilisation

of the MdM scheme in 2017, 3) growth in interest rates in 2018, 4)

market slowdown and possible profit contraction post 2018, 5)

lower LTV offered by banks from January 2017.

Change in Valuation & Recommendation. We upped our

Target Price for DOM to PLN68.7, due to 1) changes in our

financial forecasts, and 2) a forward shift of the valuation horizon.

We also maintain our Buy recommendation intact.

STOCK PERFORMANCE





on issue date

12 month target


Buy 8-29-2016 56.0 63.4 10.9% 8.5

Hold 1-27-2016 49.5 56.4 13.2% 3.47

Hold 10-26-2015 53.00 51.4 -6.7% 8.9

COMPANY DESCRIPTION

Dom Development is a residential developer, focussing on Warsaw market.


Dom Development BV 59.4%

Mr. Jaroslaw Szanajca 6.2%


Mr. Grzegorz Kielpsz 5.2%

EQUITY ANALYST

Adrian Kyrcz (+48) 22 586 81 59

[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes DOMP.WA / DOM PW

Sales 904.2 1,125.0 1,296.0 1,440.0 Market capitalisation (PLNm) 1,531


EBIT 102.5 152.3 190.4 216.1 Free float (%) 27.3%



1M 3M YTD

EV/EBITDA (x) 15.8 10.4 8.0 6.7 5.8% 14.6% 12.3% Source: Company data, DM BZ WBK estimates

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40

Fig. 1. Dom Development: 3Q15 results review


Sales 72.5 157.8 193.9 480.0 139.1 228.7 218.2 -5% 72.5

notary sales (in units) 190 375 478 1019 256 564 500 -11% 190

avg. Rev per dwelling 382 421 406 471 543 405 436 8% 382

pre-sales (in units) 467 598 640 678 615 701 705 1% 467

Gross profit on sales 18.3 38.2 37.4 110.1 31.7 48.1 49.4 3% 18.3

Gross margin 25.2% 24.2% 19.3% 22.9% 22.8% 21.1% 22.6% 8% 25.2%

EBITDA -4.7 14.2 14.4 83.0 8.6 24.6 22.3 -9% -4.7

EBIT -5.7 13.1 13.2 81.8 7.3 23.2 21.0 -10% -5.7

Net profit -5.4 10.6 9.5 66.0 5.1 18.4 16.8 -9% -5.4 Source: Company data, DM BZ WBK estimates

Fig. 2. Dom Development: Forecasts changes

PLNmn 2016E 2017E 2018E


Sales 1,125 1125 0% 1,296 1296 0% 1,440 1128 28%

EBITDA 155 155 0% 194 194 0% 219 151 46%

EBIT 152 152 0% 190 190 0% 216 147 47%


Fig. 3. Dom Development: Valuation changes



Comparable valuation (based on P/BV) 38.6 38.8 0% Source: Company data, DM BZ WBK estimates

Fig. 4. Dom Development: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 784 904 1125 1296 1440

COGS 632 700 871 1003 1123

Gross profit 152 204 254 293 317

SG&A 87 95 102 102 101

Other operating income. net 4 -7 0 0 0

EBITDA 72 106 155 194 219


Net financial income (costs) 0 -2 -4 -5 -5


Income tax -13 -20 -28 -35 -40

Net profit 56 81 120 150 171

Gross margin 19.4% 22.6% 22.6% 22.6% 22.0%

EBITDA margin 9.2% 11.7% 13.8% 14.9% 15.2%




Fig. 5. Dom Development: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 1593 1730 1612 1642 1662


Total assets 1606 1753 1634 1664 1684


bank debt 130 3 3 3 3


bank debt 268 370 370 370 370

Equity 858 883 922 953 974


Net debt 45 152 98 39 -42


Fig. 6. Dom Development: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E

CF from operations 137 -28 149 193 245

CF from investment -37 -4 0 -1 -1


Net change in cash -4 -126 54 58 81



41

Poland Industrials

NOVEMBER 3, 2016, 17:00

ELEMENTAL HOLDING RECOMMENDATION

BUY (MAINTAINED)

Volumes increase ahead CURRENT PRICE: PLN3.67


Equity Story. Elemental has been recently focused on the PCB and SAC segments, which seem to offer the best opportunities for the company. The former is dinamically growing organically so the company decided to invest in sampling line to increase its processing capacities. We assume that this line will be launched in 3Q17 and can increase a volume of PCB processed by even 40-50%, allowing for full utilisation of purchased feedstock. The latter segment develops mainly trought M&A activity – after PGM Group acquisition in 2H16 Elemental intends to purchese two further SAC recyclers in UK and Scandinavia, that could open new external markets.

Kat-Metal Oy takeover. One of mentioned acquisisions has just materialised – Elemental acquired 51% stake in Kat-Metal Oy, Finnish national leader in recycling of electronics, automotive catalysts and batteries. Acquisition was financed with own funds and should expend scale of operations in SAC and PCB segments on Scandinavian market. It is another step to consolidate European SAC collection market. We consider it as positive for Elemental because it paves the way for increase of volumes in SAC segment, that is (jointly with PCB) a key EBITDA contributor, and is consistent with Elemental long-term strategy. We assume volume potential of two mentioned items at c200-250 tonnes a year, that implies cEUR1.5-1.8mn of extra EBITDA. We also include finalisation of second transaction in 4Q16 in our calculation. We expect SAC section to perform well in 2017 due to investments in SAC sampling lines run in 1H16.

3Q preview. We expect 3Q16 to be stronger y/y but weaker than 2Q16, when PCB segment performed uniquely well. Sales should be higher y/y, thanks to full consoilidation of PGM Group and continuous improvement in SAC and PCB segments (volumes growth). EBITDA should be at PLN18.1mn with margin stable y/y and q/q. We forecast bottom line at PLN14.4mn.

Earnings outlook. We believe that, in the mid-term, successful investments into sampling lines for PCB and SAC could be a trigger for volume growth, taking into consideration the symbiosis with the potentially high demand from the Asian partners. The company can manage to grow volumes significantly, which, in turn, could make the company invest in a pyrolysis installation for PCB and a plasma furnace for SAC (not included in our forecasts). We are more sympathetic towards Elemental 2016-18E results than in our previous forecast but more cautious about projections in LT. That is caused mainly by aquistion-character of SAC segment further development that is difficult to predict in longer period. We forecast EPS 2016-18E CAGR at 11.2%. Based on our earnings forecast Elemental is currently trading at P/E 2016-18E 10.7-8.6(x) and EV/EBITDA 2016-18E at 9.5-6.7(x).

Valuation & Recommendation. We uphold our TP for Elemental on PLN4.77 (30% upside) and maintain Buy recommendation. The comparable valuation implies a fair value of PLN4.64/sh and the DCF-based share price calculation yields PLN4.89/sh.

STOCK PERFORMANCE




on issue date

12 month target


Buy 8-5-2016 3.9 4.8 -4.1% -6.3

Buy 4-29-2016 3.8 4.5 4.2% 4.3

Buy 4-18-2016 3.8 4.5 -1.0% 0.1

Buy 1-27-2016 3.8 4.7 1.9% -9.6

Buy 8-31-2015 4.3 5.4 -11.8% 3.9

COMPANY DESCRIPTION

Elemental Holding specialises in PCB, SAC and WEEE recycling. The company is currently gaining access to foreign markets through M&As.


Altus TFI 21.0%

Ibah Holding Ltd 13.0%

NN Pension Fund 11.1%

EVF I Investments S.a.r.l. 9.2%

Aviva Investors Pension Fund 6.3%

ANALYST


+48 22 534 16 10

[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes EMPT.WA / EMTPW

Sales 926.2 920.1 1 021.0 999.3 Market capitalisation (PLNmn) 625.6


EBIT 52.7 66.1 76.7 80.3 Free float (%) 33.4%



1M 3M YTD

EV/EBITDA (x) 10.8 9.5 7.9 6.7 0.5% -6.4% -14.7%


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42

Fig. 1. Elemental: 3Q16-2Q17 results’ preview


Sales 217.2 219.0 207.1 280.1 207.9 231.1 192.2 255.4 230.1 10.6% -9.9% 242.4 253.1 250.6

EBITDA 11.6 8.5 14.5 15.8 16.1 14.4 17.3 20.3 18.1 12.6% -10.6% 19.1 21.2 20.7

EBITDA margin 5.3% 3.9% 7.0% 5.6% 7.7% 6.2% 9.0% 7.9% 7.9% 0.1 -0.1 7.9% 8.4% 8.3%

EBIT 9.7 6.4 12.3 13.3 13.2 14.0 14.9 18.1 16.1 22.1% -11.4% 16.9 18.7 18.0

EBIT margin 4.5% 2.9% 5.9% 4.7% 6.3% 6.1% 7.8% 7.1% 7.0% 0.7 -0.1 7.0% 7.4% 7.2%

Net profit 8.6 5.7 12.2 9.6 14.8 8.9 12.6 17.5 14.4 -2.4% -17.5% 14.1 16.1 15.5

Net margin 3.9% 2.6% 5.9% 3.4% 7.1% 3.8% 6.5% 6.8% 6.3% -0.8 -0.6 5.8% 6.4% 6.2%


Fig. 2 Elemental: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 920.1 861.0 6.9% 1,021.0 1038.0 -1.6% 999.3 1110.8 -10.0%

EBITDA 74.7 71.9 3.9% 87.8 80.1 9.6% 91.9 87.2 5.4%

EBIT 66.1 63.6 3.9% 76.7 67.8 13.1% 80.3 74.2 8.2%

Net profit 58.6 51.6 13.5% 66.9 52.7 27.0% 72.4 60.0 20.7%


Fig. 3. Elemental: Valuation changes




Fig. 4. Elemental: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 772 926 920 1021 999

EBITDA 41.2 60.8 74.7 87.8 91.9




Income tax -1.3 1.0 -1.3 -2.8 -3.0

Net profit 31.1 45.6 58.6 66.9 72.4

EBITDA margin 5.3% 6.6% 8.1% 8.6% 9.2%




Fig. 5. Elemental: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 236 308 370 379 447

Fixed assets 217 273 345 361 361

Total assets 454 582 715 740 808


financial debt 45 32 45 37 30


financial debt 88 86 91 65 65

Equity 276 341 417 484 557


Minorities 0 14 44 48 52

Net debt 15 20 42 19 -15


Fig. 6. Elemental: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E



CF from financing 83 50 50 -30 -3

Net change in cash 83 -5 0 -12 78



43

Poland FMCG

NOVEMBER 3, 2016, 17:00

EMPERIA RECOMMENDATION

BUY (MAINTAINED)

LOW VALUATION OF RETAIL ASSETS CURRENT PRICE: PLN64.50


Equity story: We uphold our Buy recommendation and raise our 12-

month Target Price to PLN92 from PLN85. The higher Target Price

reflects a shift from Stokrotka’s FY15E to FY16E sales forecast, on

which we primarily base our SOTP valuation. Stokrotka (Emperia’s

retail arm) recorded a notable 24% y/y growth of its top line in 1H16

on the back of surging store sales (avg. rate at 7.0%) and new store

openings. In our view, Stokrotka’s expansion should continue in

2H16, raising its top line on both the LfL basis and the number of

stores getting rolled out. We expect Stokrotka’s FY16E sales to

amount to PLN2,411 (+18% y/y). Based on this, we estimate that

Emperia’s current market capitalisation values its retail arm at

1.7x/monthly sales, which is much too low compared not only with the

median valuation of M&As on the EMEA FMCG markets, but also

with the recently announced sale offer of the Romanian chain Profi

(c.7.3x). Please also note that Stokrotka will keep on growing its

chain in the coming years, while its management is eager to do a

‘large’ takeover, which should further boost the company’s top line,

raising Emperia’s attractiveness.

3Q16 results preview. We expect 3Q16 to be a favourable quarter for

Emperia. We expect its results to be mainly driven by strong top-line

growth in retail, which had already reported growth at +12% y/y or

PLN570mn (10 new stores and LfL at 5.4% y/y). With regards to the

company’s margins in retail, we expect a 30 bps decline y/y of the

gross margin to 27.8% and flattish SG&A/sqm, which should lead to

significant OPEX deleveraging and drive the EBITDA margin to 2.5%

or PLN14mn. We also expect Emperia to book a PLN6mn gain on

real estate disposals, while the sales gap in IT should be partially

offset by new contracts. In our view, the results should be warmly

welcomed by investors. Outcome: POSITIVE.

Valuation & Recommendation. Emperia’s SOTP model points to a

Target Price of PLN92 per share, offering an 43% upside vs the

current price, assuming PLN783mn for Stokrotka (3.9x 2016E sales

of PLN2,411mn based on EKO’s takeover by Advent), PLN440mn for

real estate (annual NOI of PLN44mn and 10% yield), PLN59mn for

the IT segment, net cash at PLN101mn in 2015 as well as an overdue

tax burden of PLN250mn (22% upside to valuation in case of a

positive decision for Emperia). Comparable valuation points to

PLN78.4/share.

STOCK PERFORMANCE





on issue date

12 month target


Buy 1/27/16 67.0 85.0 -3.7% -16.1

Buy 2/24/15 55.0 84.6 21.8% 40.2

Buy 10/23/14 47.8 81.0 15.2% 15.9

Buy 9/7/14 55.0 82.0 -13.2% -11.2


Ipopema mutual fund 11.0%

Altus mutual fund 11.8%

AXA pension fund 7.9%

Aviva BZWBK pension fund 6.8%


MetLife pension fund 5.1%

Elpro 2.6%

COMPANY DESCRIPTION

Emperia has wholesale and retail operations in the FMCG segment. These are backed by a commercial real estate portfolio.

EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes EMP.WA / EMP PW

Sales 2,095 2,522 2,704 2,884 Market capitalisation (PLNm) 796

normalized EBITDA 94 104 108 112 Number of shares (m) 12.3

EBIT* 55 -189 64 67 Free float (%) 81.4%

normalized net income 39 43 43 45 Avg. daily turnover 3M (PLNm) 0.7

norm.P/E (x)* 22.1 18.7 18.7 17.6 Price performance

1M 3M YTD

norm. EV/EBITDA (x)* 8.0 8.6 7.8 7.1 -9.1% 8.6% -5.7% Source: Company data, DM BZ WBK estimates, *include payment of PLN250mn of overdue tax

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44

Fig. 1. Emperia: 3Q16 results preview


Sales 473 512 479 502 484 512 486 496 520 593 605 607 597 15.0% -1.7%

EBITDA -1 13 17 28 15 23 31 24 20 24 21 25 32 57.7% 27.0%

EBITDA margin -0.2% 2.5% 3.6% 5.5% 3.1% 4.6% 6.4% 4.9% 3.9% 4.0% 3.5% 4.2% 5.4% 146 121

EBIT -11 1 6 16 3 15 20 13 9 12 9 13 20 119.3% 56.3%

EBIT margin -2.3% 0.3% 1.2% 3.2% 0.6% 2.9% 4.1% 2.7% 1.8% 2.1% 1.5% 2.1% 3.4% 162 126

Net profit -11 0 3 14 0 13 19 10 8 11 8 11 16 101% 53.0%

Net margin -2.3% 0.0% 0.7% 2.8% 0.0% 2.5% 3.9% 2.1% 1.6% 1.9% 1.3% 1.8% 2.8% 118 99 Source: Company data, DM BZ WBK estimates

Fig. 2. Emperia: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 2,522 2,424 4.0% 2,704 2,591 4.4% 2,884 2,662 8.3%

EBITDA 104 99 4.7% 108 103 4.5% 112 105 6.7%

EBIT -189 51 n.a. 64 54 17.3% 67 55 21.5%

Net profit 43 42 1.1% 43 45 -5.3% 45 46 -1.4% Source: Company data, DM BZ WBK estimates

Fig. 3. Emperia: Valuation changes


SOTP 91.9 85.3 7.8%


Fig. 4. Emperia: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 1,978 2,095 2,522 2,704 2,884

COGS 1,416 1,500 1,807 1,939 2,070

Gross profit 562 595 715 765 814

SG&A 522 547 660 707 753

Other operating income, net -1 7 -244 6 6

norm. EBITDA 84 94 104 108 112

Operating profit 39 55 -189 64 67

Net financial income (costs) -1 1 2 5 5

Profit before tax 41 54 -191 59 62

Income tax 10 6 0 11 12

norm. net profit 34 39 43 43 45

Gross margin 28.4% 28.4% 28.4% 28.3% 28.2%

EBITDA margin 4.3% 4.5% 4.1% 4.0% 3.9%

Operating margin 2.0% 2.6% -7.5% 2.4% 2.3%



Fig. 5. Emperia: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 361 393 396 469 493

Fixed assets 591 621 631 640 651

Total assets 952 1,014 1,026 1,109 1,144


bank debt 1 1 150 150 100


bank debt 3 2 0 0 0

Equity 607 595 403 450 500



Total liabilities 952 1,014 1,026 1,109 1,144

Net debt -111 -101 97 48 -1


Fig. 6. Emperia: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E

CF from operations 37 120 -119 108 111


CF from financing -68 -61 146 0 -50

Net change in cash -81 -11 -50 49 -1



45


November 3, 2016 17:00

ERBUD RECOMMENDATION

BUY (MAINTAINED)

Strong CF and backlog recovery CURRENT PRICE: PLN 29.0

TARGET PRICE: PLN 36.4 (MAINTAINED)

Equity Story. We maintain our positive view on Erbud. The

finalised sale of a stake in Budlex (residential arm) should offer a

PLN47.5mn cash inflow in the quarter. We also expect the

company had completed construction of a residential building in

Germany, which should generate another EUR15mn in cash

inflows. We also expect the company to show an excellent

backlog q/q recovery from PLN1.1bn at 2Q-end to an estimated

cPLN1.5bn. The company also signed two conditional contracts

worth as much as PLN638mn in 3Q16 (including an office

building and the Mlociny shoping centre, and secured

cPLN370mn in other contracts. Overall, we expect good 3Q16

results (though lower y/y profits), which should be welcomed by

investors, we think.

Financials. We took out the extra financial costs of our 2016

financial forecasts, which we originally assumed would be

connected with the sale of Budlex (the company recognised a

loss as a discontinued activity). Erbud’s better than originally

expected CF caused us to raise the net profit forecasts in 2017

and beyond.

3Q16E Results Preview. We expect Erbud to post much lower

3Q16 profits because of a very high base effect. We assumed

slightly lower y/y sales and a flat q/q gross margin. The operating

CF should be strong. Note that the company’s results used to be

significantly affected by positive and negative one-offs in the past

few quarters (such as release and creation of provisions) and we

cannot rule out (though do not assume) such items in 3Q16

either.

Triggers/Risks. The key risks include: 1) rising saturation of

commercial and office space in Poland that limits supply of

contracts for space construction, 2) higher competition due to

delays in pubic investments. Triggers could be: 1) 3Q16 backlog

recovery, 2) strong 3Q16 CF, which may lead to business

development abroad (organic or acquisitions), and/or higher than

expected dividend payment, 4) further development of the power

segment division.

Valuation & recommendation. Based on our DCF model, we

arrived at a 12 month TP of PLN36.4 per share.

STOCK PERFORMANCE





on issue date

12 month target


Buy 8-9-2016 30.1 36.4 -3.6% -4.3

Buy 5-5-2016 28.9 35.7 4.3% 0.4

Buy 1-27-2016 23.6 35.7 22.5% 15.1

Buy 10-30-2015 31.9 35.7 -26.2% -12.2

COMPANY DESCRIPTION

Erbud is a general contractor. 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 32.5%

DGI FIZ 16.7%


AVIVA pension fund 9.3%

Mr. Jozef Zubelewicz 7.6%

Mr. Dariusz Grzeszkak 6.1%

EQUITY ANALYST

Adrian Kyrcz (+48) 22 586 81 59

[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes ERB.WA / ERB PW

Sales 1,763.3 1,610.0 1,645.0 1,645.0 Market capitalisation (PLNm) 371.5


EBIT 51.5 52.0 44.2 44.8 Free float (%) 58.8%



3M 3M YTD


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http://stooq.pl/h/?i=119u


46

Fig. 1. Erbud: 3Q16 results preview

PLNmn 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16E y/y q/q

Sales 336 503 496 429 342 491 459 -7% -6%

General construction 246 304 304 276 263 356 304 0% -15%

Roads 30 124 109 68 32 35 80 -27% 132%

Developer 23 10 8 7 0 0 0 - -

Power 37 64 75 78 47 101 75 0% -25%

Other 0 0 0 0 0 0 0 - -

GPOS 22.4 39.2 43.5 16.6 27.7 28.4 28.3 -35% -1%

General construction 14.6 21.7 28.4 12.3 21.6 19.3 16.5 -42% -15%

Roads 2.4 8.2 7.7 2.6 4.3 3.2 7.3 -5% 132%

Developer 2.6 3.4 0.5 0.2 0.0 0.0 0.0 - -

Power 2.7 6.0 6.8 1.4 1.8 5.9 4.4 -35% -25%

Other 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - -

EBITDA 10.4 20.2 19.5 12.0 14.2 26.8 13.1 -33% -51%

EBIT 8.5 17.1 17.1 8.8 11.4 24.0 10.3 -40% -57%

Net profit 5.2 10.1 10.8 1.7 6.3 14.9 9.3 -14% -37% Source: Company data, DM BZ WBK estimates

Fig. 2. Erbud: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 1610 1610 0% 1645 1645 0% 1645 1645 0%

EBITDA 63 62 0% 55 55 -1% 55 56 -1%

EBIT 52 52 0% 44 45 -1% 45 45 -1%


Fig. 3. Erbud: Valuation changes




Fig. 3. Erbud: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 1692 1763 1610 1645 1645

COGS 1593 1642 1502 1536 1535

Gross profit 99 122 108 109 110

SG&A 62 78 78 65 65

Other operating income, net 5 8 21 0 0

EBITDA 52 62 63 55 55




Income tax -8 -13 -10 -8 -8

Net profit 26 28 39 31 32

Gross margin 5.9% 6.9% 6.7% 6.6% 6.7%

EBITDA margin 3.1% 3.5% 3.9% 3.3% 3.4%




Fig. 4. Erbud: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 907 924 1004 1032 1050

Fixed assets 161 174 185 185 185

Total assets 1069 1099 1189 1217 1235


bank debt 29 88 88 88 88


bank debt 96 98 98 98 98

Equity 287 316 399 416 434


Net debt -85 -68 -17 -28 -46


Fig. 5. Erbud: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E


CF from investment -3 -9 42 -5 -5





47

Poland Industrials

NOVEMBER 3, 2016 17:00

FORTE RECOMMENDATION

HOLD (MAINTAINED)

Scale matters CURRENT PRICE: PLN71.6


Equity story. In general… nothing new to add. The Polish furniture industry stayed on its growth streak in the first nine months of 2016. The CSO (Central Statistics Office) showed sound y/y growth rates of sold furniture production both in terms of volume (c13% y/y increase) and value (c12% y/y upswing). Due to the high-base effect, it will be difficult for the industry to keep on rising its output at a double-digit pace of growth. Nevertheless, we stick to our view that the economy’s steady expansion, both domestic and the EU’s, should allow for further sales development. That said, we expect the market environment to remain supportive with export sales as the key driver. This makes Forte a natural candidate to take advantage of the expanding volumes, especially when the gradual capacity development is taken into account. Despite the stable or even slightly falling prices of raw materials in the short- and mid-term (the on-going hiccup in the Eastern European economies seems to support this thesis). FY16 brought in, so far, solid margin improvement. This was partially due to a supportive EURPLN exchange rate (average EURPLN exchange rate at 4.37 in 1H16 vs 4.14 in the respective period the year before) and dilution of fixed costs due to a solid production rise. We reckon these two effects would ease in FY17, which should translate into a lower y/y momentum. Thus, we do not see the potential for a further rise in the margins (though a short-lived positive deviation from the recently observed levels is possible). The assumed top-line expansion should, however, allow for satisfactory earnings growth.

Forte in the long run. The company executes its investment roadmap set out until 2021, which, in general assumes (1) the development of the particleboard production line and (2) construction of a new furniture production site. We would like to point out the company’s hedged EURPLN positions till 1H19. The company hedges its net currency exposure via currency options. The current corridors imply a slightly-above 4.4EURPLN hedge that would be value booster, we believe.

Triggers/risks. We still look at exports as the key sales driver for the stock. In our model, we estimate that Forte’s exports to France and Great Britain will record the fastest y/y growth pace in the mid-term. Spain is treated as a growth option for the future. The biggest downside risk we associate with the deterioration of demand for furniture (including the indirect effect of EURPLN strengthening) and ability to deliver the declared capacities’ enhancement on schedule.

Changes in Forecasts. We expect Forte’s sales to total approx. PLN1,100mn in FY16, up c15% y/y and PLN1,150mn in FY17 (+6% y/y). For 2016-18E we forecast an average sales growth rate of c9% y/y. The EBITDA / EBIT margins should amount to 14.5% / 14.6% in FY16, respectively. We expect the expansion momentum to accelerate in 2019/20 due to the nearing finalisation of the pending CAPEX programme.

3Q16E Results’ Preview. We expect the company to report the following financial results in 3Q16E: sales – PLN249mn (11% y/y), EBITDA – PLN38mn (41% y/y; 15.2% margin), EBIT – PLN32.5mn (c49% y/y; 13% margin) and net profit – PLN26mn (c13% y/y; 10.6% margin). Outcome: POSITIVE.

Valuation & Recommendation. Based on our DCF model, we arrived at a 12-month TP of PLN77.3, which implies a 7.5% upside potential. A comparative valuation sets Forte’s share price at PLN52.3. We thus leave our Hold recommendation for the stock intact.

STOCK PERFORMANCE





on issue date

12 month target


Hold 8-5-2016 72.1 71.2 1.6% -0.6

Hold 4-29-2016 66.0 64.0 9.3% 9.4

Buy 1-27-2016 49.3 57.6 34.0% 23.8

Hold 11-2-2015 57.1 59.8 -13.8% 0.8

Hold 8-12-2015 59.7 59.6 -4.3% -0.7

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.


MaForm Holding 32.48%

MetLife OFE 12.45%

AVIVA BZ WBK OFE 9.62%

NN OFE 5.02%

EQUITY ANALYST

Michal Sopiel (+48) 22 586 82 33

[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes FTEP.WA / FTE PW

Sales 954 1,095 1,152 1,229 Market capitalisation (PLNm) 1,711


EBIT 98 138 145 149 Free float (%) 67.1%



1M 3M YTD


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Fig. 1. Forte: 3Q16E results preview


Sales 166.5 196.5 212.0 190.7 189.2 230.5 255.8 190.9 224.2 283.4 300.1 240.3 249.0 11.1% 3.6%

EBITDA 22.0 27.5 32.0 25.6 23.3 29.5 37.1 18.3 26.8 35.7 48.8 33.3 37.8 41.1% 13.4%

EBITDA margin 13.2% 14.0% 15.1% 13.4% 12.3% 12.8% 14.5% 9.6% 11.9% 12.6% 16.3% 13.9% 15.2% 3.2 1.3

EBIT 17.8 23.3 27.9 21.4 19.2 25.1 32.5 13.6 21.9 30.2 43.3 27.7 32.5 48.5% 17.4%

EBIT margin 10.7% 11.9% 13.1% 11.2% 10.1% 10.9% 12.7% 7.1% 9.8% 10.7% 14.4% 11.5% 13.0% 3.3 1.5

Net profit 14.9 18.8 23.2 17.2 15.3 19.5 25.1 12.0 23.4 23.9 34.2 20.0 26.3 12.5% 31.4%

Net margin 9.0% 9.6% 11.0% 9.0% 8.1% 8.4% 9.8% 6.3% 10.4% 8.4% 11.4% 8.3% 10.6% 0.1 2.2


Fig. 2. Forte: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 1,095 1,073 2% 1,152 1,125 2% 1,229 1,189 3%

EBITDA 159 154 3% 168 155 8% 179 166 8%

EBIT 138 132 4% 145 133 9% 152 136 11%


Fig. 3. Forte: Valuation changes




Fig. 4. Forte: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 822.4 954.3 1,095.0 1,151.8 1,228.7

COGS 524.3 608.3 682.2 718.1 771.9

Gross profit 298.2 346.0 412.7 433.7 456.8

SG&A 201.4 237.1 272.1 286.2 305.3


EBITDA 110.4 117.8 158.9 167.7 179.3


Net financial income (costs) 1.3 0.7 -2.5 -1.9 0.2


Income tax 19.8 14.5 25.0 24.2 25.3

Net profit 75.2 84.4 110.2 118.4 123.5

Gross margin 36.3% 36.3% 37.7% 37.7% 37.4%

EBITDA margin 13.4% 12.3% 14.5% 14.6% 14.6%




Fig. 5. Forte: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 356.6 390.4 434.3 477.0 526.3

Fixed assets 282.1 348.0 415.9 495.9 635.9

Total assets 638.7 738.4 850.2 972.9 1,162.2


bank debt 11.0 106.1 95.9 86.6 78.3


bank debt 89.3 30.6 50.6 90.6 190.6

Equity 417.6 474.8 562.1 647.5 735.4

share capital 23.8 23.9 23.9 23.9 23.9


Total liabilities 638.7 738.4 850.2 972.9 1,162.2

Net debt 44.5 81.6 112.5 121.4 199.1


Fig. 6. Forte: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E



CF from financing, incl. -8.6 -12.0 -13.1 -2.3 56.1

dividends -34.7 -45.4 -22.9 -33.1 -35.5

Net change in cash -20.5 -0.7 -21.1 21.9 13.9



49

Poland FMCG

NOVEMBER 3, 2016, 17:00

GINO ROSSI RECOMMENDATION

HOLD (PREV. BUY)

Lack of sales growth in 2016 CURRENT PRICE: PLN2.47


Equity story. We downgrade Gino Rossi to Hold from Buy

because its share price just matched our Target Price following a

good YTD performance at 15%. We cut our forecasts of 2016-

17E EBITDA by 5% and 18%, respectively, mainly on the back of

weaker than previously expected sales per avg. sqm

(PLN17k/avg. sqm vs PLN20k previously). We view Gino’s low

sales growth to be the weakest element in its apparel and

footwear divisions. The company is struggling to deliver even flat

same-store sales, which are currently deep in the red YTD (about

10% y/y down). If not for the gross profit margin improvement,

2016 would mark another lost year for Gino Rossi. Even though

we do not assume negative LfL in 2017 (we estimate LfL at 0%),

we still think next year’s profits improvement might be too slow to

make the company’s current valuations attractive. Gino has to

improve its overall effectiveness through 1) better sales/avg. sqm,

1) further gross margin improvement and 3) debt repayment in

order to finally lift its returns on capital higher and to justify higher

multiples than 2017E PE of 12x and 2017E EV/EBITDA of 8x. In

our view, these look fair for now, taking into account its low ROE

at 10.5%, growth prospects and its net debt at PLN57mn in 2016.

3Q16 preview. We expect a flattish net profit in 3Q16, which

should come in at zero. EBITDA is expected at PLN2.3mn (+8%

y/y), while sales at PLN67mn (+3% y/y). Gino’s 3Q16 results

were mainly affected by the weak sales per sqm (-6.4% y/y). Its

gross margin improvement in 3Q16 erased the negative effect

from the operating leverage to some extent though. The

company’s sales growth might be split into LfL at -8% and the

NSC at 10%. The gross margin should grow 341bps y/y to 45.3%

thanks to the improvement in both Gino Rossi and Simple, while

the OPEX/avg. sqm should be flat y/y. Outcome: NEUTRAL.


arrived at a 12-month TP of PLN2.6 per share, which implies just

a 6% upside potential. A comparable valuation points to

PLN2.4/share.

STOCK PERFORMANCE





on issue date

12 month target


Buy 1/27/2016 1.8 2.4 36.3% 23.9

Buy 1/20/2015 3.4 4.5 -46.3% -32.7

Buy 11/12/2014 3.0 4.0 12.3% 16.5

COMPANY DESCRIPTION

Gino Rossi is a retail company selling shoes under the brand Gino Rossi and women’s fashion under the brand Simple.


Forum mutual fund 17.8%

FRM 4E mutual fund 12.9%

Pioneer mutual fund 7.0%

NN mutual fund 6.4%

Trigon mutual fund 5.5%

mBank 5.5%

EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes GRIP.WA / GRI PW



EBIT 13.5 13.5 15.6 18.0 Free float (%) 87.1%



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Fig. 1. Gino Rossi: 3Q16 results preview

PLNmn 3Q'13 4Q'13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16E y/y (%) q/q (%)

Sales 58.3 59.6 60.1 64.8 67.7 72.1 66.2 70.2 65.5 75.9 61.5 71.6 67.1 2.5% -6.2%

EBITDA 3.1 6.0 2.8 7.7 3.8 6.7 2.2 6.6 2.2 9.0 2.2 7.4 2.3 7.5% -68.5%

EBITDA margin 5.3% 10.1% 4.7% 11.8% 5.5% 9.2% 3.3% 9.4% 3.3% 11.9% 3.6% 10.3% 3.5% 16 -683

EBIT 1.7 4.7 1.4 6.0 2.2 5.5 0.8 5.1 0.6 7.1 0.1 5.2 0.6 8.4% -87.9%

EBIT margin 2.9% 7.8% 2.3% 9.3% 3.2% 7.6% 1.1% 7.2% 0.9% 9.3% 0.2% 7.2% 0.9% 5 -629

Net profit 0.3 1.3 0.2 2.2 0.3 2.8 -0.9 2.9 -0.2 3.8 -0.5 4.0 -0.1 -29.0% -103.6%

Net margin 0.5% 2.3% 0.3% 3.4% 0.4% 3.9% -1.3% 4.1% -0.3% 5.1% -0.9% 5.5% -0.2% 9 -575


Fig. 2. Gino Rossi: Forecast changes

PLnmn 2016E 2017E 2018E


Sales 281.5 298.8 -6% 327.1 345.1 -5% 315.1 350.5 -10%

EBITDA 21.3 22.4 -5% 23.2 28.3 -18% 26.4 23.4 13%

EBIT 13.5 15.6 -13% 16.1 20.8 -23% 18.0 15.5 16%

Net profit 8.8 9.8 -10% 10.3 12.4 -17% 13.0 7.9 64% Source: Company data, DM BZ WBK estimates

Fig. 3. Gino Rossi: Valuation changes




Fig. 4. Gino Rossi: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 265 278 281 297 315

COGS 142 149 144 150 158

Gross profit 123 129 138 147 157

SG&A 108 115 124 131 139

Other operating income, net 0 -1 0 0 0

EBITDA 21 20 21 24 26





Net profit 6 6 9 11 13

Gross margin 46.5% 46.4% 49.0% 49.5% 50.0%

EBITDA margin 7.9% 7.2% 7.6% 8.0% 8.4%




Fig. 5. Gino Rossi: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 129 125 131 143 154


Total assets 214 220 223 234 244


bank debt 46 27 27 27 27


bank debt 19 42 35 30 21

Equity 74 80 88 99 112




Net debt 59 66 57 53 44


Fig. 6. Gino Rossi: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E

CF from operations -4 10 13 11 16



Net change in cash -6 -3 1 -1 0



51

Poland Industrials

NOVEMBER 3, 2016 17:00

IZO-BLOK RECOMMENDATION

BUY (MAINTAINED)

Consolidating CURRENT PRICE: PLN180


Equity story. IZO-BLOK is EU’s second largest processor of expanded

polypropylene (EPP) with an estimated market share of c10%. It is highly

exposed to the automotive industry with car parts accounting for almost

90% of the top-line. The company seems to offer a solid organic growth

outlook (revenue CAGR of 6.2% in 2016/17E – 2020/21E), but the

management is more ambitious. IZO-BLOK finalised its acquisition of the

German SSW PearlFoam, the market leader with a c15% market share.

The acquisition of SSW PearlFoam should allow IZO-BLOK to become

the unquestionable market leader with an estimated market share of

c25%. The takeover seems to be value-accretive as the transaction

multiples - 2015/2016E EV/EBITDA of 6.5x and P/E of 11.2x – are below

these of IZO-BLOK standalone. Moreover, the transaction should bring

both revenue and cost synergies (external services, wages). IZO-BLOK

should benefit from EPP market growth in Europe. The last three years

saw IZO-BLOK significantly expanding its production capacity and

profitability. The company should continue to grow as it plans to further

increase its production capacity (up 30%+ to c2.6kt at the end of the

2020/21E). Industry experts forecast the European automotive industry

will grow at 0.9% CAGR until 2022, while the EU EPP market at c8%

CAGR by YE18.

Triggers/risks. Weak PLN vs EUR is depressing earnings in the s-t, but

is favourable for the l-t. IZO-BLOK hedges its net exposure to EURPLN

fluctuations with future contracts for almost two years ahead. The recent

weakness of PLN against EUR was negative for the bottom line (cPLN-

6.2mn in 2015/16) due to the contracts’ valuations. We expect this effect

to ease in 2017. Worldwide trends make the automotive suppliers vigilant.

Global demand is shifting towards the emerging markets. The OEMs and

their suppliers need to respond. This is also the case of the German

OEMs that need to take risks and take some advantage of demand

growth outside Europe.

Changes in Forecasts. We applied no major changes to our recent

forecasts.

2Q2016/17E Results’ Preview. We expect the company to report the

following financial results in 2Q16/17E: sales – PLN47mn (1.2x y/y),

EBITDA – PLN5mn (c41% y/y; c11% margin), EBIT – PLN3.4mn (c24%

y/y; 7.2% margin) and net profit – PLN2.1mn (78x y/y; 4.4% margin).

Outcome: NEUTRAL

Valuation & Recommendation. Our DCF-driven valuation points to a

valuation of PLN279 /sh, whereas the 2016/17E – 2018/19E peers’

valuation suggests a valuation of PLN212 /sh. Applying the weighted

average approach, we arrived at the 12M TP at PLN245 /sh (50% upside

potential). We therefore maintain oura Buy rating for the stock.

STOCK PERFORMANCE





on issue date

12 month target


Buy 8-18-2016 177.0 246.0 2.5% 1.0

COMPANY DESCRIPTION

IZOBLOK 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.


Przemyslaw Skrzydlak 25.03%

Andrzej Kwiatkowski 25.01%

PZU TFI 7.84%

NN PTE 6.59%

Noble Funds TFI 5.88%

Aviva Investors TFI 5.37%

EQUITY ANALYST

Michal Sopiel (+48) 22 586 82 33

[email protected]

Company Data

PLNmn 2015/16E 2016/17E 2017/18E 2018/19E Reuters/Bloomberg codes IZB.WA / IZB PW



EBIT 13.5 22.3 34.0 37.9 Free float (%) 100%



1M 3M YTD

EV/EBITDA (x) 11.6 10.2 6.6 5.5 -3.2% +8.8% +17.4% Source: Company data, DM BZ WBK estimates

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Fig. 1. IZOBLOK: 3Q16E results preview


Sales 21.0 17.5 20.3 18.2 18.3 21.0 22.2 20.6 21.2 24.4 27.6 22.4 47.3 122.9% 111.0%

EBITDA 4.0 2.7 2.2 2.5 2.8 3.9 2.4 4.5 3.6 5.9 3.1 4.5 5.0 40.5% 11.9%

EBITDA margin 19.2% 15.4% 10.7% 13.9% 15.1% 18.3% 10.7% 22.0% 16.8% 24.2% 11.2% 20.0% 10.6% -6.2 -0.1

EBIT 3.7 2.3 1.8 1.9 2.3 3.4 1.8 3.8 2.8 5.0 2.0 3.2 3.4 23.7% 6.1%

EBIT margin 17.6% 13.1% 8.6% 10.7% 12.7% 16.1% 8.3% 18.2% 13.0% 20.4% 7.1% 14.4% 7.2% -5.8 -1.0

Net profit 3.1 2.0 1.7 2.3 1.9 2.9 4.4 1.4 0.0 1.0 2.9 3.0 2.1 78x -29.7%

Net margin 14.6% 11.2% 8.3% 12.8% 10.3% 13.9% 19.6% 6.6% 0.1% 4.0% 10.6% 13.3% 4.4% 4.3 -15.2


Fig. 2. IZOBLOK: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 190 190 0% 248 248 0% 262 262 0%

EBITDA 29 31 -7% 42 42 0% 46 46 0%

EBIT 22 25 -9% 34 34 0% 38 38 0%

Net profit 14 16 -11% 24 24 0% 28 28 0% Source: Company data, DM BZ WBK estimates

Fig. 3. IZOBLOK: Valuation changes



Comparable valuation (based on 2016-2018E) 212 216 -2%

Weighted average (50/50) 245 246 0% Source: Company data, DM BZ WBK estimates

Fig. 4. IZOBLOK: Income statement forecast

PLNmn 2014/15 2015/16E 2016/17E 2017/18E 2018/19E

Net sales 79.7 93.9 190.0 247.8 262.4

COGS 58.9 65.5 139.5 176.9 185.5

Gross profit 20.8 28.4 50.5 70.9 76.9

SG&A 10.4 14.3 28.2 37.1 39.2


EBITDA 11.5 17.1 28.6 41.8 46.1


Net financial income (costs) 4.6 -6.5 -3.8 -2.8 -1.1


Income tax 2.8 1.7 4.4 7.5 8.8

Net profit 10.7 5.3 14.1 23.8 28.0

Gross margin 26.1% 30.2% 26.6% 28.6% 29.3%

EBITDA margin 14.4% 18.2% 15.1% 16.8% 17.6%




Fig. 5. IZOBLOK: Balance Sheet forecast

PLNmn 2014/15 2015/16E 2016/17E 2017/18E 2018/19E

Current assets 34.8 35.2 90.5 115.2 135.1

Fixed assets 46.1 55.1 175.8 179.7 182.0

Total assets 80.9 90.3 266.2 294.9 317.2


bank debt 5.8 5.8 12.5 10.7 12.5


bank debt 12.8 13.9 74.4 73.2 64.4

Equity 49.0 54.3 146.3 170.1 198.1

share capital 10.0 10.0 10.5 10.5 10.5



Net debt 15.1 18.2 64.0 47.2 24.7


Fig. 6. IZOBLOK: Cash flow forecast

PLNmn 2014/15 2015/16E 2016/17E 2017/18E 2018/19E



CF from financing, incl. 2.3 -3.0 143.8 -3.0 -7.0

dividends 0.0 0.0 0.0 0.0 0.0




53

Poland Industrials

KETY RECOMMENDATION

HOLD (MAINTAINED)

Awaiting strategy update CURRENT PRICE: PLN386


Equity story. Metals group Kety has proven its business model helped fuel robust cash generation. The company is benefitting from positive trends on the domestic market and abroad this year, which translates into strong sales and margins. Kety recently raised its FY16 net profit guidance by 14% to PLN279mn on higher top-line (PLN2.26bn) and EBITDA (PLN397) estimates (our current forecasts point at PLN2.25bn and PLN403mn, respectively). We reckon the positive trends will continue and FY17 will prove strong in terms of financial performance as well. Such a strong y/y momentum (+7% y/y EBITDA growth in FY16) should somewhat ease, however. This should be reflected in the 2017 strategy, which is to be published in February 2017. All in all, we remain positive on the stock and appreciate the company’s plans of further business expansion (its desire to base growth on a fourth pillar). We expect the aluminium system and extruded products segment to continue to perform well thanks to high capacity utilisation and roughly flat aluminium prices. We anticipate a moderate EBITDA increase in the flexible packaging segment (despite top-line expansion) due to a slight margin contraction following the kick-off of the BOPP foils production in Oswiecim and a higher share of flexo-print in the sales mix). Expanding export sales, accompanied by a shift in the automotive industry towards bigger usage of aluminium components, should support the company’s EBITDA expansion.

New complementary segment? Kety has recently diversified its foreign sales and introduced new sophisticated products to its offer. Nevertheless, as earlier guided, expansion through acquisitions is a target as well. Kety is considering adding a ‘solid’ fourth segment to the group’s current structure. The fourth pillar could supplement the aluminium segment (i.a. ventilation or lighting systems). The company is probing the market in search for an entity at a reasonable price that would allow for synergies.

Lower CAPEX in EPS. Kety announced that due to a shift of some investment projects (delays in hard alloys at cPL50mn and 6kt output), the company lowered its 2016 capex expectations by 14% to PLN310mn. The management board is waiting for a company that has a similar production profile to be put up for sale in the EU.

Changes in Forecasts. We remain positive on the company. Despite (1) the high capacity utilisation and (2) partially outdated assets in the hard alloy segment, Kety proved its ability to perform well both in operational and financial terms. This bodes well for the future, we believe. Following stronger-than-expected 1H16, we raise our FY16 forecasts. We expect more to come in 2017. We anticipate FY17 top line at cPLN2.5bn, which implies y/y momentum at 12%. With respect to EBITDA / EBIT we see the figures at PLN418mn (+4%) and PLN297mn (roughly y/y), respectively, in 2017. At the same time, we expect the net profit to contract on a y/y basis due to a lack of a tax asset effect that inflated the FY16 net profit by PLN50mn.

Valuation & Recommendation. Based on our DCF model, we arrived at a 12-month TP of PLN403 per share, which implies a 4.5% upside potential. A comparative valuation points to PLN388 value per share. We, therefore, reiterate our Hold recommendation for the stock.

STOCK PERFORMANCE





on issue date

12 month target


Hold 8-5-2016 355.0 350.0 5.8% 3.6

Hold 4-29-2016 329.0 350.0 7.9% 8.0

Buy 1-27-2016 273.7 315.0 20.2% 10.0

Hold 8-12-2015 323.1 340.0 -15.3% 2.4

COMPANY DESCRIPTION

Kety is a leading Polish aluminium products (extruded profiles and aluminium systems) and flexible packaging manufacturer.




PZU pension fund 9.74%

Allianz pension fund 5.29%

EQUITY ANALYST

Michal Sopiel (+48) 22 586 82 33

[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes KTY.WA / KTY PW

Sales 2027 2246 2522 2704 Market capitalisation (PLNmn) 3,649


EBIT 244 298 297 326 Free float (%) 100%



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Fig. 1. Kety: 3Q16 results review


Sales 452.6 427.2 412.9 438.7 489.0 479.0 465.6 494.9 541.1 525.5 519.0 564.2 503.4 -7.0% -10.8%

EBITDA 77.5 50.3 67.9 81.3 103.0 57.2 73.7 84.2 104.4 53.9 91.4 101.1 84.2 -19.3% -16.7%

EBITDA margin 17.1% 11.8% 16.4% 18.5% 21.0% 11.9% 15.8% 17.0% 19.3% 10.3% 17.6% 17.9% 16.7% -2.6 -1.2

EBIT 57.0 29.2 48.4 61.1 81.6 33.5 52.3 62.2 80.5 29.5 66.0 75.4 62.2 -22.7% -17.5%

EBIT margin 12.6% 6.8% 11.7% 13.9% 16.7% 7.0% 11.2% 12.6% 14.9% 5.6% 12.7% 13.4% 12.4% -2.5 -1.0

Net profit 44.0 49.6 30.8 52.6 62.1 23.4 35.1 57.6 65.4 51.7 54.1 89.4 57.6 -12.0% -35.5%

Net margin 9.7% 11.6% 7.5% 12.0% 12.7% 4.9% 7.5% 11.6% 12.1% 9.8% 10.4% 15.8% 11.4% -5.4% -27.8%


Fig. 2. Kety: Forecasts changes

PLNmn 2016E 2017E 2018E


Sales 2,246 2,111 6.4% 2,522 2396 5.2% 2,704 2605 3.8%

EBITDA 403 367 9.7% 418 408 2.5% 456 431 5.8%

EBIT 298 262 13.6% 297 281 5.7% 326 300 8.5%

Net profit 279 220 26.5% 226 225 0.2% 249 233 6.5% Source: Company data, DM BZ WBK estimates

Fig. 3. Kety: Valuation changes


DCF valuation 403 350 15.1%

Comparable valuation (based on 2016-2018E) 388 361 7.5% Source: Company data, DM BZ WBK estimates

Fig. 4. Kety: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Sales revenue: 1820 2027 2246 2522 2704 operating cost, ex. depreciation 1575 1713 1895 2169 2302

Depreciation 84 92 105 121 130

EBITDA 308 336 403 418 456




Income tax 33 20 6 53 58

Net profit 169 210 279 226 249

EBITDA margin 16.9% 16.6% 17.9% 16.6% 16.9%




Fig. 5. Kety: Balance sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 781 818 941 1087 1243

Fixed assets 1017 1141 1343 1403 1347

Total assets 1798 1959 2284 2491 2590


bank debt 212 224 230 299 346


bank debt 23 91 261 300 240

Equity 1203 1279 1411 1483 1575

share capital 948 966 1029 1153 1223



Net debt 169 242 388 458 357


Fig. 6. Kety: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E



CF from financing, incl. -141 -55 29 -47 -169

dividends paid -101 -136 -167 -136 -149

Net change in cash -8 8 28 37 89



55

Poland Video Games

NOVEMBER 3, 2016 17:00

LIVECHAT SOFTWARE RECOMMENDATION

BUY (MAINTAINED)

Growth, as expected CURRENT PRICE: PLN45.6


Equity story. Despite a small slowdown in net additions,

Livechat’s customer base is growing at c40% y/y. With a very

stable ARPU, it turns into a similar revenue growth as well. On

the other hand, the company’s pace of G&A cost growth offers a

positive surprise (G&A 8% lower y/y in 1Q16/17), helping to

achieve a similar earnings growth rate. Because of its SaaS

distribution model, Livechat has very high margins, stable,

subscription-based P&L with low demand for working capital and

low capex requirements. Its top quality product with multiple

features, upcoming integration with social media, continued

expansion among large customers and the launch of a new

partnership distribution channel should all provide fuel for the

company’s future growth. On top of that, the live chat services

market has, in our opinion, long-term growth prospects as e-

commerce will likely continue to oust traditional retailers.

Financials. We leave our forecasts almost unchanged vs our

previous report. In 2016/17E, we expect the company to deliver

PLN74.1mn in sales, an EBITDA of PLN47.5mn and a net profit

of PLN37.6mn, while in 2017/18E we see sales at PLN96.0mn,

the EBITDA at PLN62.4mn and the net profit at PLN49.6mn,

implying the 2016/17-17/18E P/E at 31.2x-23.6x. Assuming 100%

payout we see the company’s 2017 DPS at PLN1.46 (DY 3.1%).

3Q16 results preview. Livechat had 16.4k subscribers on

average in 2Q16/17. Under our assumption of ARPU at USD93.5

(-0.5% y/y), the company should generate PLN17.9mn in

revenues, which translates into a 44% top-line growth y/y. On the

side of costs, we assume the sales costs at PLN2.0mn (10.5% of

sales), while G&A at PLN1.5mn (+30% y/y). Consequently,

Livechat should report another quarter of record-high earnings at

an excellent margin (EBITDA margin at 66%).

Valuation & Recommendation. We raise our DCF-based

valuation to PLN62.3 from PLN60.4. Since the new TP implies a

37% upside to the current valuation of the stock, we maintain our

Buy recommendation. Our comparative valuation points to

PLN62.2 per share.

STOCK PERFORMANCE





on issue date

12 month target


Buy 7-28-2016 46.9 60.4 0.6% -3.4

Buy 6-28-2016 42.5 60.4 10.4% 5.6

COMPANY DESCRIPTION

Developer of live chat application.


Mariusz Cieply 17.4

Jakub Sitarz 12.8

Maciej Jarzebowski 12.7

Copernicus Capital 9.5

Tar Heel Capital OS 7.3

NN pension fund 5.5

EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015/16 2016/17E 2017/18E 2018/19E Reuters/Bloomberg codes LVC.WA / LVC PW

Sales 53.0 74.2 96.2 117.0 Market capitalisation (PLNmn) 1,174


EBIT 34.9 46.1 61.0 75.0 Free float (%) 65.1%



1M 3M YTD


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56

Fig. 1. Livechat Software: 2Q16/17 results preview


Sales 4.2 4.5 6.5 6.1 8.2 8.2 10.5 11.2 12.4 13.7 15.6 16.6 17.9 43.8% 7.9%

EBITDA 3.1 3.1 3.8 4.3 5.5 6.9 7.3 7.9 8.5 9.8 10.0 11.6 11.7 38.5% 1.1%

EBITDA margin 75.3% 70.1% 58.1% 70.5% 67.4% 84.4% 69.1% 69.9% 68.1% 71.2% 64.4% 69.9% 65.6% -2.5 -4.4

EBIT 3.0 3.0 3.6 4.1 5.3 6.7 7.0 7.6 8.2 9.5 9.7 11.2 11.4 38.9% 1.1%

EBIT margin 71.9% 67.8% 55.1% 67.9% 65.0% 81.4% 66.8% 67.5% 65.8% 68.9% 62.3% 67.8% 63.6% -2.2 -4.2

Net profit 2.4 2.5 2.8 3.3 4.2 5.4 5.6 5.9 6.8 7.3 8.1 9.1 9.2 35.0% 1.3%

Net margin 57.3% 55.3% 42.5% 54.9% 50.5% 66.1% 53.6% 52.4% 54.8% 52.7% 52.0% 54.8% 51.5% -3.4 -3.3


Fig. 2. Livechat Software: Forecasts changes

PLNmn 2016/17E 2017/18E 2018/19E


Sales 74.2 75.0 -1% 96.2 97.6 -1% 117.0 119.0 -2%

EBITDA 47.6 46.2 3% 62.5 61.4 2% 76.6 75.6 1%

EBIT 46.1 44.9 3% 61.0 59.9 2% 75.0 74.2 1%


Fig. 3. Livechat Software: Valuation changes



Comparable valuation (based on 2016/17-2018/19E) 62.2 54.2 15% Source: Company data, DM BZ WBK estimates

Fig. 4. Livechat Software: Income statement forecast

PLNmn 2014/15 2015/16 2016/17E 2017/18E 2018/19E

Net sales 33.0 53.0 74.2 96.2 117.0

COGS 5.1 8.6 13.0 16.8 20.5

Gross profit 28.0 44.4 61.2 79.4 96.5

SG&A 4.7 9.5 15.1 18.4 21.5

Other operating income, net -0.1 0.0 0.0 0.0 0.0

EBITDA 24.0 36.2 47.6 62.5 76.6




Income tax 4.6 7.0 8.8 11.7 14.3

Net profit 18.6 28.1 37.6 49.7 61.1

Gross margin 84.6% 83.8% 82.5% 82.5% 82.5%

EBITDA margin 72.7% 68.2% 64.1% 65.0% 65.5%




Fig. 5. Livechat Software: Balance Sheet forecast

PLNmn 2014/15 2015/16 2016/17E 2017/18E 2018/19E

Current assets 17.4 26.5 36.6 49.0 60.7

Fixed assets 3.9 5.6 6.3 7.0 7.7

Total assets 21.3 32.1 42.8 56.0 68.4


bank debt 0.0 0.0 0.0 0.0 0.0


bank debt 0.0 0.0 0.0 0.0 0.0

Equity 19.7 29.5 39.3 51.4 62.8

share capital 0.5 0.5 0.5 0.5 0.5



Net debt -15.2 -23.2 -31.9 -43.0 -53.4


Fig. 6. Livechat Software: Cash flow forecast

PLNmn 2014/15 2015/16 2016/17E 2017/18E 2018/19E







57


MANGATA RECOMMENDATION

BUY (INITIATION)

Steady growth expected CURRENT PRICE: PLN110.6

TARGET PRICE: PLN142

Equity story. Mangata (previously Zetkama) is a capital group that specialises in the manufacturing of components for a wide range of industries: agriculture, automotive, energy, mining, railway, etc. FY16 brought a substantial top-line expansion (+79% 1H16 vs. 1H15) that was attributable to a number of acquisitions (in particular in the automotive segment) made in FY15. The EBITDA margin tracked the rising revenues (c+2p.p. y/y in 1H16). More importantly, the management is hungry for more and has expressed its desire to engage in new acquisition projects. This could materialise i.a. due to the low indebtedness level (FY16E net debt / EBITDA ratio at c0.3x). We also estimate that the company has not fully exploited its potential for organic growth, which should give an additional boost to profit growth in the coming years. In our opinion, Mangata enjoys sound geographical customer diversification as approx. 35% of its revenues are generated by the domestic market and c55% in the rest of the EU (share of other countries stood at c10% in 1H16).

Development of key segments / industry outlook. Despite the high diversification of industries, Mangata is exposed to a cyclical risk connected with demand for goods from the final customers (automotive segment) or investment outlays (both public and private) that drive the joined elements / industrial fittings segments (est. c40% in the sales mix in FY16E). The company keeps on benefitting from the growing EU automotive industry and the automakers’ new capacity developments in the CEE. We estimate that the automotive segment will be the key growth catalyst in the coming years. Assuming Kuznia Polska’s top-line CAGR 2016-19 at close to 6% and Masterform expanding at CAGR c14% in the respective period, we see the weighted average pace of growth at a high single-digit figure. Supplies to the industrial engineering and railway segment have recently expanded at a low single-digit pace of growth (2% in the 1H16). Looking forward, we see the unsupportive shift in the rebound of the investment outlays and, thus, assume flat segment performance in FY17. These are, however, an interesting growth option that could materialise in case of a revival in public investment outlays.

Triggers/risks. We expect the short-term, despite the appealing prospects in the mid- / long-term, to be burdened by a flat performance of the industrial engineering exposed segments. In general, the cyclical character of the business should be kept in mind, though, the market / industries diversification should keep working well, mitigating the negative effects. Volatility of the raw input materials is a significant business risk as well. A sweetener is the fact, however, that Mangata’s sensitivity to changes is <1 (we est. the parameter close to 0.5), which reflects its ability to transfer changes to the end customers. In other cases, the company recognises profits when prices fall and losses when feedstock prices grow. We associate the triggers and risks with the company’s potential acquisitions and the ability of the management to purchase companies at reasonable prices, allowing for synergies with no harm to Mangata’s multiples.

3Q16E Results’ Preview. We expect the company to report the following financial results in 3Q16E: sales – PLN138mn, EBITDA – PLN23mn (86% y/y; 16.6% margin), EBIT – PLN17mn (82% y/y; 12.5% margin) and net profit – PLN13.4mn (92% y/y; 9.7% margin). Outcome: POSITIVE

Valuation & Recommendation. Our DCF model points to a TP of PLN142 per share (28% upside potential). A comparative valuation points to PLN119. We, therefore, initiate our coverage with a Buy rating.

STOCK PERFORMANCE



COMPANY DESCRIPTION

Mangata (former Zetkama) is a capital group specialising in the manufacturing of components for a wide range of industries such as agriculture, automotive, energy, mining, railway.


Tomasz Jurczyk 10.77%

AVALLON MBO S.A. 10.40%

Maciej Jurczyk 9.76%

Jan Jurczyk 8.92%

NN PTE 6.36%

Jakub Jurczyk 5.97%

Zygmunt Mrożek 5.86%

EQUITY ANALYST

Michal Sopiel (+48) 22 586 82 33

[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes MGT.WA / MGT PW

Sales 377 598 624 656 Market capitalisation (PLNmn) 720


EBIT 38 68 71 78 Free float (%) 73.3%



1M 3M YTD

EV/EBITDA (x) 15.2 8.5 7.8 6.7 -7.5% -6.3% +14.7%


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Fig. 1. Mangata: DCF analysis

PLNmn 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Net sales 598 624 656 686 714 744 775 808 843 879

EBITDA 90 95 102 107 112 117 122 127 133 139

EBIT 68 71 78 84 88 93 97 102 107 112

Cash taxes on EBIT 10 11 12 17 19 20 21 22 24 25

NOPAT 58 60 66 66 70 73 76 79 83 86

Depreciation 23 24 24 23 24 24 25 25 26 27

Change in operating WC 8 5 6 5 5 5 6 6 6 6

Capital expenditure 41 53 33 23 23 24 24 25 26 27

FCF 31 27 52 62 65 68 71 74 77 80

WACC 8.3%

PV FCF 2016-2025 376

Terminal growth 1.0%

Terminal Value (TV) 1,106

PV TV 499

Total EV 875

Net debt (-) 55

Equity value 820

Current Equity Value (PLN) 876

Number of shares (mn) 6.7

Value per share (PLN, 1 Jan 2016) 131

Month 10

12M Target Price (PLN) 142

Source: BZ WBK Brokerage research Fig. 2. Mangata: Peer group multiples (prices as of 02/11/2016)

Market Cap P/E EV/EBITDA

Company Price Currency (EURm) 2016E 2017E 2018E 2016E 2017E 2018E

Mangata Holding SA 110.6 PLN 171 13.1 12.4 11.0 8.5 7.8 6.7

Polish peers

Inter Cars SA 263 PLN 862 16.7 14.0 12.2 12.9 10.9 9.7

Grupa Kety SA 386 PLN 844 13.3 16.0 14.8 10.3 9.6 8.8

Amica SA 191 PLN 344 10.6 10.7 10.7 7.7 7.3 6.8

Alumetal SA 61.29 PLN 218 10.9 10.4 10.3 8.1 7.6 7.7

Apator SA 28.32 PLN 217 13.0 11.8 12.1 8.6 7.8 7.8

Sanok Rubber Co SA 68.86 PLN 428 16.4 15.7 14.3 10.0 9.7 8.7

Elemental Holding SA 3.67 PLN 145 12.4 9.8 9.2 9.3 8.1 7.3

Stalprodukt SA 430.5 PLN 556 9.8 10.4 10.0 5.1 5.5 6.8

Median 12.7 11.2 11.4 8.9 7.9 7.7

Foreign peers

Crane Co 67.08 USD 3,529 16.1 15.2 13.9 9.3 8.9 8.3

Pentair PLC 53.92 USD 8,828 17.4 15.2 13.7 14.4 14.0 13.5

ITT Inc 34.36 USD 2,774 14.6 13.1 12.3 7.2 6.8 6.4

Exco Technologies Ltd 11.1 CAD 318 9.6 7.8 7.1 6.2 5.1 4.8

CIRCOR International Inc 52.43 USD 776 26.6 21.8 17.2 13.7 9.9 8.2

OC Oerlikon Corp AG 8.67 CHF 2,730 24.2 18.4 14.6 8.7 7.5 6.4

Median 16.7 15.2 13.8 9.0 8.2 7.3

Polish peers: Premium/discount vs. median 2.8% 10.1% -3.5% -5.4% -1.9% -13.6%

Foreign peers: Premium/discount vs. median -21.7% -18.6% -20.3% -6.4% -4.8% -8.6%

Source: Bloomberg, BZ WBK Brokerage research


59

Fig. 3. Mangata: 3Q16 results’ preview

PLNmn 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16E y/y q/q

Sales 77.3 80.8 78.5 69.7 83.7 83.1 90.7 119.6 147.5 150.9 138.0 64.8% 15.4%

EBITDA 12.8 12.3 11.4 7.7 12.3 10.8 14.4 14.8 25.8 21.5 22.9 85.8% 54.7%

EBITDA margin 16.6% 15.2% 14.6% 11.1% 14.7% 13.0% 15.9% 12.4% 17.5% 14.2% 16.6% 1.9 5.5

EBIT 10.5 9.9 8.9 5.0 9.5 8.0 11.2 9.7 19.8 16.0 17.3 81.7% 77.9%

EBIT margin 13.5% 12.2% 11.4% 7.2% 11.4% 9.6% 12.3% 8.1% 13.5% 10.6% 12.5% 1.2 5.4

Net profit 9.3 8.2 7.6 4.8 7.0 6.5 9.9 10.2 17.0 12.8 13.4 91.8% 32.0%

Net margin 12.1% 10.1% 9.6% 6.9% 8.3% 7.8% 10.9% 8.5% 11.5% 8.5% 9.7% 1.4 2.8


Fig. 4. Mangata: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 598 n.a. n.a. 624 n.a. n.a. 656 n.a. n.a.

EBITDA 90 n.a. n.a. 95 n.a. n.a. 102 n.a. n.a.

EBIT 68 n.a. n.a. 71 n.a. n.a. 78 n.a. n.a.

Net profit 57 n.a. n.a. 60 n.a. n.a. 67 n.a. n.a. Source: Company data, DM BZ WBK estimates

Fig. 5. Mangata: Valuation changes


DCF valuation 142 n.a. n.a.

Comparable valuation (based on 2016-2018E) 119 n.a. n.a.


Fig. 6. Mangata: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 306.3 377.1 598.3 623.9 656.0

COGS 231.1 292.6 461.4 481.0 501.9

Gross profit 75.3 84.6 136.8 142.8 154.0

SG&A 39.6 46.4 66.0 68.8 72.3

Other operating income, net -1.4 0.2 -3.1 -3.2 -3.4

EBITDA 44.3 52.4 90.5 94.6 102.4


Net financial income (costs) 1.6 -0.5 -1.2 -0.5 1.0


Income tax 6.1 4.4 10.0 10.6 11.9

Net profit 29.6 33.4 56.6 59.8 67.4

Gross margin 24.6% 22.4% 22.9% 22.9% 23.5%

EBITDA margin 14.4% 13.9% 15.1% 15.2% 15.6%




Fig. 7. Mangata: Balance Sheet forecast

2014 2015 2016E 2017E 2018E

Current assets 142 182 221 249 307

Fixed assets 155 357 374 402 410

Total assets 298 539 595 651 716


bank debt 11 12 10 9 8


bank debt 28 62 57 52 47

Equity 181 345 402 462 529

share Capital 1 1 1 1 1

Minorities 8 21 21 21 21


Net debt 6 55 24 -4 -58


Fig. 8. Mangata: Cash flow forecast

2014 2015 2016E 2017E 2018E




dividends 0 0 0 0 0




60

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61

Poland Health Care / IT

NOVEMBER 3, 2016 17:00

MEDICALGORITHMICS RECOMMENDATION

BUY (MAINTAINED)

Nearing end of US-business consolidation CURRENT PRICE: PLN285


Equity story. After several quarters of a dispute with AMI/Spectocor,

it now seems that Medicalgorithmics is close to achieving its goal. It

has completed the acquisition of Medi-Lynx and won its court case

against AMI, proving that US distribution was playing an unfair game.

Winning the dispute opens the window for the purchase of AMI

assets. Assuming the transaction multiples are similar to the Medi-

Lynx case, we believe the acquisition would be EPS positive and

value-creating for MDG’s shareholders. It would also eliminate the

risk of losing a large portion of the end-customers. Finally, without

any more disruptions, the company’s core business should return to

growth in 2017E.

Financials. We included in our model the recently acquired Medi-

Lynx. The acquisition adds cPLN20mn sin ales and cPLN6mn in EBIT

every quarter. Because of the cut in reimbursement rates, the results

of Medi-Lynx are c50% lower than in 2015. If MDG were to purchase

AMI assets, it would have a similar contribution both at the top- and

bottom-line. For 2017E we do not expect any legal/advisory costs

related to the dispute with AMI. The company’s growth pace remains

the key valuation driver for Medicalgorithmics. We see 15% growth in

the number of medical procedures that should translate into

PLN176mn in revenues and EBITDA at nearly PLN70mn.

3Q16 results preview. MDG’s clean results for 3Q16 should be

slightly closer to those in 2Q16 as the number of medical procedures

had fallen q/q, partially due to a seasonality effect but mostly due to

the company’s engagement in the dispute with AMI/Spectocor.

Moreover, we assume PLN5.0mn in lawyer and advisory costs vs

PLN2.5mn in 2Q16. All in all, we see the 3Q16 revenues at

PLN37.4mn, EBIT at PLN7.2mn (including PLN6.4mn at parent

company, PLN5.8mn at Medi-Lynx and PLN5.0mn one-off costs).


arrived at a 12-month TP of PLN340 per share. The TP implies a 19%

upside potential, which causes us to maintain our Buy

recommendation. In our model we do not include acquisition of

AMI/Spectocor assets. However, assuming the results and the

acquisition multiples are the same as in the case of Medi-Lynx

(PLN80mn including deduction of lawyer costs for 75% stake), the

acquisition of AMI/Spectocor adds PLN125/share. On the other hand,

the non-deal scenario (less likely in our view) takes out PLN32/share.

Our comparative valuation points to PLN251 per share.

STOCK PERFORMANCE





on issue date

12 month target


Buy 1-27-2016 213.0 300.0 31.5% 19.1

COMPANY DESCRIPTION

The Company is focused on the development of solutions and systems for signal and data processing in cardiac monitoring.



Marek Dziubinski 11.1

PZU mutual fund 9.5

New Europe Ventures 7.7

Nordea pension fund 7.1

BioInfoBank Seed Capital 6.1

EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes MDG.WA / MDG PW



EBIT 21.1 23.6 66.5 77.8 Free float (%) 70.9%



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62

Fig. 1. Medicalgorithmics: 3Q16 results preview


Sales 3.9 4.8 5.9 6.6 8.4 8.8 10.9 12.3 12.3 13.8 14.7 38.1 37.4 204.3% -1.8%

EBITDA 2.9 3.1 3.9 4.1 4.0 2.5 4.9 6.6 4.2 7.0 -5.6 13.1 8.0 88.0% -38.8%

EBITDA margin 76.5% 63.7% 65.7% 62.4% 48.1% 27.9% 45.1% 53.6% 34.6% 50.4% -38.3% 34.3% 21.4% -13.2 -12.9

EBIT 2.7 3.0 3.8 4.0 3.9 2.3 4.7 6.2 3.8 6.5 -6.1 12.3 7.2 91.3% -41.3%

EBIT margin 70.5% 61.1% 63.4% 60.1% 46.2% 26.1% 42.7% 50.4% 30.7% 46.9% -41.6% 32.3% 19.3% -11.4 -13.0

Net profit 2.8 3.0 3.8 3.9 4.1 2.8 5.1 5.2 2.8 0.9 -6.0 10.7 4.4 59.5% -58.8%

Net margin 73.3% 61.1% 63.5% 58.6% 49.0% 31.7% 46.3% 42.6% 22.5% 6.2% -40.6% 28.1% 11.8% -10.7 -16.3


Fig. 2. Medicalgorithmics: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 31.3 28.1 11% 49.2 41.7 18% 61.7 53.0 16%

EBITDA 16.8 17.1 -2% 27.3 25.0 9% 34.5 32.2 7%

EBIT 16.2 16.5 -2% 26.6 24.4 9% 33.8 31.6 7%

Net profit 15.8 16.1 -2% 23.8 22.5 6% 29.7 28.2 5% Source: Company data, DM BZ WBK estimates

Fig. 3. Medicalgorithmics: Valuation changes



Comparable valuation (based on 2016-2018E) 251 176 43% Source: Company data, DM BZ WBK estimates

Fig. 4. Medicalgorithmics: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 29.7 49.3 128.7 175.6 194.5

Opex 15.9 28.4 106.2 109.1 116.6


EBITDA 14.5 22.7 26.3 69.7 81.4


Net financial income (costs) 4.1 -3.8 0.7 -1.3 -1.2


Income tax 3.5 3.4 4.6 12.4 14.6

Net profit 14.5 13.9 19.7 52.8 62.1

EBITDA margin 48.8% 46.1% 20.4% 39.7% 41.9%




Fig. 5. Medicalgorithmics: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 43.4 54.7 61.8 96.3 133.7

Fixed assets 51.5 47.6 173.0 160.4 147.5

Total assets 94.9 102.3 234.7 256.6 281.2


bank debt 0.0 0.0 9.0 9.0 9.0


bank debt 0.0 0.0 50.0 50.0 50.0

Equity 90.8 99.2 132.2 158.6 189.7

share capital 0.3 0.3 0.4 0.4 0.4



Net debt -65.7 -70.1 18.7 -4.4 -31.7


Fig. 6. Medicalgorithmics: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E


CF from investment -18.6 2.3 -103.6 1.2 1.1

CF from financing -4.7 -5.5 78.8 -26.4 -31.1




63

Poland Retail

NOVEMBER 3, 2016, 17:00

MONNARI RECOMMENDATION

BUY (MAINTAINED)

Attractive valuation CURRENT PRICE: PLN10.00


Equity story. We maintain our Buy recommendation for Monnari and

cut our 12M TP to PLN19.2 on the back of 10%/7%/7% lower

EBITDA forecasts in 2016-18E, respectively. Our forecast revision is

purely caused by lower assumptions of the company’s sales/avg.

sqm, reduced to PLN8.2/8.3/8.4k vs previous PLN8.9k/8.8k/8.9k per

avg. sqm. in 2016-18E, respectively. Despite this, we remain buyers

on the stock as the recent falls in its share price have pushed the

valuation onto attractive levels with 2017E PE of 10x and 2017E

EV/EBITDA of 5x. We remain of the opinion that Monnari still has

room in Poland to develop its selling space at CAGR’16/19 of 7%, 2),

enjoys high ROE at 16% and 3) has plenty of net cash (PLN65mn as

of 2016E + real estate valued at PLN25mn). Moreover, we do think

that Monnari will be spending a great part of its cash on real estate on

Piotrowska street since the company’s CEO declared his maximum

engagement in the project at PLN10-25mn (including warehouse

construction) within a few years’ time. Other plots from 105k sqm

might be put up for sale to developers and the first 13-14k sqm plot

might be sold in 4Q16. We believe that Monnari’s investment in the

real-estate project on Piotrkowska street will be value-accretive for

the shareholders, especially taking into account the company’s

experience in this matter.

3Q16 preview. We expect Monnari to report weak results for 3Q16,

dragged down by weak sales in September due to a heat wave and

internal logistics problems. The company’s results should be boosted

by PLN1.1mn in a financial one-off in 3Q16. We expect an adj. net

loss of PLN0.9mn, an EBITDA at negative PLN0.3mn on sales of

PLN46mn (+9% y/y) in 3Q16. Monnari’s 3Q16 sales growth split

should equal to: LfL at -11% y/y and NSC at 20% y/y. The gross

margin should be flat y/y, while the OPEX/avg. sqm should fall 3.0%

y/y in 3Q16. Outcome: NEGATIVE. With regards to 4Q16, we expect

13% y/y (LfL at 0%m NSC at 13%y/y) growth of sales to PLN85mn,

50bps better gross margin y/y and 1.5% y/y decline of SG&A/sqm.

Based on these, we expect EBTIDA of PLN21mn and a net profit of

PLN17mn.


arrived at a 12-month TP of PLN19.2 per share, which implies a 79%

upside potential. Our comparable valuation points at PLN15.2/share.

STOCK PERFORMANCE





on issue date

12 month target


Buy 2/22/2016 14.8 22.1 -28.0% -33.8

Buy 1/27/2016 12.7 22.3 16.6% 10.4

Buy 8/13/2015 16.4 27.8 -22.6% -4.2

Buy 11/12/2014 10.5 13.5 56.2% 56.2

COMPANY DESCRIPTION

Monnari is a retail company selling women’s fashion mainly under the brand Monnari.


Mr. Miroslaw Misztal 22.4%

Fair Ltd. 14.1%

Union Investment 5.2%

EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes MONP.WA/MON PW

Sales 214 241 276 296 Market capitalisation (PLNm) 305.6


EBIT 31 31 36 39 Free float (%) 62.1%



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Fig. 1. Monnari: 3Q16 results preview

PLNmn 3Q'13 4Q'13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16E y/y (%) q/q (%)

Sales 33.6 49.1 35.1 40.6 36.0 61.6 43.8 50.7 42.0 75.3 52.6 57.4 45.7 9% -20%

EBITDA 2.3 12.0 4.1 7.2 4.9 16.8 4.2 12.1 1.3 17.2 5.1 8.3 -0.3 n.a. n.a.

EBITDA margin 7% 24% 12% 18% 13% 27% 10% 24% 3% 23% 10% 14% -1% (4) (15)

EBIT 1.8 11.4 3.4 6.3 4.0 15.9 3.4 11.2 0.5 16.2 4.3 7.4 -1.2 n.a. n.a.

EBIT margin 5% 23% 10% 16% 11% 26% 8% 22% 1% 22% 8% 13% -3% (4) (15)

Net profit 0.9 10.8 6.1 6.4 4.0 13.9 2.9 10.2 20.6 12.9 3.4 8.8 0.0 n.a. n.a.

Net margin 3% 22% 17% 16% 11% 23% 7% 20% 49% 17% 6% 15% 0% (49) (15)


Fig. 2. Monnari: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 241 263 -9% 276 297 -7% 296 320 -8%

EBITDA 36 40 -10% 41 44 -7% 44 48 -7%

EBIT 31 36 -16% 36 40 -8% 39 43 -7%


Fig. 3. Monnari: Valuation changes




Fig. 4. Monnari: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 175 214 241 276 296

COGS 70 97 108 124 133

Gross profit 105 117 132 151 162

SG&A 77 88 101 115 123

revenue tax 0 0 0 0 0


EBITDA 33 35 36 41 44


Net financial income (costs) -3 1 -3 -3 -3


Income tax 2 -16 5 7 8

Net profit 30 46 29 32 35

Gross margin 60.2% 54.8% 54.9% 54.9% 54.9%

EBITDA margin 18.8% 16.3% 15.0% 14.8% 15.1%




Fig. 5. Monnari: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 96 118 138 162 193


Total assets 139 195 221 253 284


bank debt 0 0 0 0 0


bank debt 0 0 0 0 0

Equity 119 166 189 215 243




Net debt -79 -74 -90 -103 -128


Fig. 6. Monnari: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E







65

Poland TMT

November 03, 2016 17:00

NETIA RECOMMENDATION

SELL (MAINTAINED)

Gloomy B2C, here comes NetFCF slide CURRENT PRICE: PLN4.60

TARGET PRICE: PLN4.24 (MAINTAINED)

Below we present excerpts from our recommendation as of 27/10/2016.

Equity story. The company reported a discouraging set of results

in 3Q16, including a quarterly erosion of its B2B and B2C

segments’ EBITDA by PLN3mn (down 5% q/q) and PLN5mn

(down a stunning 13% q/q), respectively. If this pace were

maintained, the B2C segment would cease to deliver a positive

EBITDA at the turn of 2017/18E. We had been earlier suggesting

that NetFCF in 2017-18E would be negative, but the scale of the

EBITDA erosion and the company’s pending outlays on three

new projects (FTTH, Netia Digital, Local Netia) may make Netia’s

NetFCF quite distressing already in 1Q17. Finally, we believe that

the CaTV merger might turn into a high risk factor for the large

cities-domiciled Netia.

Financials. 3Q16’s B2B and B2C segments’ EBITDA settled at

PLN3mn and PLN5mn lower q/q, respectively, and below our

expectations. These trends cause us to downgrade the 2016E

EBITDA and further widen into a sizeable EBITDA cut in 2018E.

With the new projects’ additional opex, we expect EBITDA to fall

12% y/y to PLN362mn in 2017E. Moreover, the company’s 3Q16

capex also came in at PLN62mn vs some PLN90mn in 1H16,

while Netia’s FY16E capex is likely to settle above PLN200mn,

excluding the FTTH investments.

Upsides & risks. UPC had officially announced it was in

negotiations to acquire Multimedia. Both CaTV naturally operate

in cities, which happen to be the key areas of Netia’s operations.

Netia initiates three large capex & opex-intensive projects at a

time, and likelihood of some failures comes natural.

Valuation & Recommendation. Netia’s very discouraging 3Q16

results have triggered a revision of our long-term results for the

company. These trim our DCF valuation by 15% to PLN3.55,

substantially below the current market price. The forecasts’ cut

also eroded the comparable valuation, down 8% to PLN6.32. Our

weighted valuation at PLN4.24 inclines us to maintain Netia as

Sell.

STOCK PERFORMANCE





on issue date

12 month target


Sell 10-27-2016 4.85 4.24 0.0% 0.0

Hold 10-12-2016 4.79 4.83 1.9% 0.8

Hold 6-22-2016 4.31 4.65 11.1% 7.4

Sell 3-7-2016 4.48 4.44 -3.8% -2.4

Hold 1-27-2016 5.49 5.82 -18.4% -26.7

COMPANY DESCRIPTION

Netia is the largest alternative fixed line telecommunication service provider in Poland.


FIP 11 FIZAN 20.0

Mennica SA 16.0

SISU Capital 12.7

PZU Pension Fund 10.0

NN Pension Fund 9.6

AVIVA Pension Fund 5.8

Netia S.A. 1.7

EQUITY ANALYST

Pawel Puchalski, CFA (+48) 22 586 80 95

[email protected]

Company Data

PLNm 2015 2016E 2017E 2018E Reuters/Bloomberg codes NET.WA / NET PW

Sales 1,572 1,518 1,421 1,363 Market capitalisation (PLNm) 1,602


EBIT 28 11 -2 7 Free float (%) 84.1%

Net income 2 23 -13 -8 Avg. daily turnover 3M (PLNm) 0.7

P/E (x) 712.9 69.1 n.a. n.a. Price performance

1M 3M YTD


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Fig. 1. Netia: 3Q16 results review


Sales 457.1 450.8 434.4 422.2 413.4 404.1 388.7 380.3 400.4 402.8 390.5 386.9 372.9 -6.9% -3.6%

EBITDA 142.5 115.2 126.0 119.8 109.4 226.1 111.5 112.6 122.9 102.0 107.2 114.8 102.9 -16.3% -10.4%

EBITDA margin 31.2% 25.6% 29.0% 28.4% 26.5% 56.0% 28.7% 29.6% 30.7% 25.3% 27.5% 29.7% 27.6% -3.1 -2.1

EBIT 32.8 6.2 20.7 14.2 3.1 119.3 6.0 10.2 20.2 -8.5 0.2 12.7 5.3 -73.8% -58.3%

EBIT margin 7.2% 1.4% 4.8% 3.4% 0.7% 29.5% 1.5% 2.7% 5.0% -2.1% 0.1% 3.3% 1.4% -3.6 -1.9

Net profit 14.1 10.5 11.0 8.3 -4.4 160.0 1.3 6.5 8.3 -13.9 -10.2 23.7 16.8 102.4% -29.1%

Net margin 3.1% 2.3% 2.5% 2.0% -1.1% 39.6% 0.3% 1.7% 2.1% -3.5% -2.6% 6.1% 4.5% 2.4 -1.6

Source: Company data, DM BZ WBK estimates.

Fig. 2. Netia: Forecasts changes

PLNmn 2016E 2017E 2018E


Sales 1,518 1,518 0% 1,421 1,421 0% 1,363 1,363 0%

EBITDA 413 413 0% 362 362 0% 350 350 0%

EBIT 11 11 0% -2 -2 0% 7 7 0%

Net profit 23 23 0% -13 -13 0% -8 -8 0% Source: Company data, DM BZ WBK estimates

Fig. 3. Netia: Valuation changes



DDM valuation 2.03 2.03 0%

Comparable valuation 6.32 6.32 0%

Weighted valuation* 4.24 4.24 0% Source: Company data, DM BZ WBK estimates. * 50% DCF, 50% comparable valuation.

Fig. 4. Netia: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales, incl.: 1,675 1,572 1,518 1,421 1,363

Voice Revenues 684 559 477 403 352

Data Revenues 708 686 677 621 575

Other Revenues 283 327 364 394 421

COGS, incl.: -1,520 -1,544 -1,507 -1,423 -1,356 Sales & mgm (ex. wages / restruct. / deprec. ) -224 -213 -201 -189 -184

Depreciation -424 -421 -402 -364 -343 One-offs (provisions & restructuring) 112 -3 -16 -3 10

EBITDA 579 449 413 362 350

Operating profit 155 28 11 -2 7


Profit before tax 124 21 4 -13 -8

Income tax -48 19 -18 0 0

Net profit 173 2 23 -13 -8

EBITDA margin 34.6% 28.6% 27.2% 25.5% 25.7%

EBITDA margin, ex. one-offs 27.9% 28.7% 28.3% 25.7% 25.0%

Operating margin 9.3% 1.8% 0.8% -0.1% 0.5%

Net profit margin 10.3% 0.1% 1.5% -0.9% -0.6%


Fig. 5. Netia: Balance sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 483 290 323 369 352

Fixed assets 2,408 2,399 2,221 2,234 2,289

Total assets 2,891 2,689 2,543 2,604 2,641


bank debt 100 67 67 100 100


bank debt 201 268 370 560 650

Equity 2,243 2,036 1,800 1,656 1,616

share capital 348 348 326 326 326



Net debt 93 253 315 481 581


Fig. 6. Netia: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E



CF from financing, incl. -230 -174 -147 93 57

dividends paid 146 209 237 131 33

Net change in cash 114 -125 39 58 -10



67


NOVEMBER 3, 2016, 17:00

NEUCA RECOMMENDATION

BUY (MAINTAINED)

Bright vision for the future growth CURRENT PRICE: PLN383.90


Equity story: We uphold our Buy recommendation and slightly

raise our12-month Target Price to PLN458 per share, which

implies a 19% upside potential vs the current price. Neuca

remains our most preferred stock in the sector. Our reasons for

this have been the same for quite some time now and include: (1)

the company has a leading position in the pharma wholesale

industry, which creates a ‘scale’ advantage over the competitors,

implies a premium over the pack, (2) the pharma wholesale

market continues to grow(c5%-6%pa), which, combined with the

restructured operating costs, results in operating leverage

benefits, (3) Synoptis Parma’s results keep on evolving.

Moreover, the company’s new business ideas offer exposure to

more technologically advanced niches of the medical market,

such as telemedicine, and create new opportunities for Neuca.

This should make a more visible impact on the company’s

financial results in 2017-18.

New business ideas: We like the way Neuca is diversifying its

business and is shifting towards the more profitable niches of the

medical industry. Many years ago, Neuca had said it was

searching for a more profitable business, which might offer

synergies for its more and more challenging core activity, namely

drug wholesale. Following the success of its own brand of drug

production, it is time for a private clinic chain, which will be linked

with Neuca’s pharmacy franchising chain ‘Swiat Zdrowia’ and is

projected to be a kind of a platform for the implementation of

start-ups (the newest project) in telemedicine (Diabdis), clinical

trials or Ortopedio.pl. As for now, Neuca has 42 clinics, while its

planned CAPEX for its development settles at PLN30mn in 2016.

We assumed that this segment should contribute more to profits

in 2018 (PLN13mn of EBITDA).

3Q16 preview: We expect 3Q16 to bring in flat results y/y due to

high comps. It does not change our FY16E forecast as 4Q16 is

expected to come in much stronger y/y. Please note that

seasonatliy was atypical last year with 3Q being stronger that

4Q15. This year, seasonality should take its regular form again, in

our view. Outcome: NEGATIVE.

Valuation & Recommendation. Our DCF-based valuation points

to PLN458. Comparative valuation against the Polish peers points

to PLN249/share.

STOCK PERFORMANCE





on issue date

12 month target


Buy 7/27/2016 348.4 456.0 9.1% 5.3

Buy 1/27/2016 323.6 422.0 7.6% -0.6

Buy 8/17/2015 313.6 403.0 3.2% 20.2

Buy 2/15/2015 270.0 377.0 16.2% 16.7


Mr. K. Herba 23.9%

Mr. W. Herba 23.1%

FPT Foundation 10.6%

Neuca 0.9%

COMPANY DESCRIPTION

Neuca is the largest Polish pharmaceutical distributor, with rising exposure in drug production.

EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes NEUP.WA / NEU PW

Sales 6,569 6,946 6,939 7,383 Market capitalisation (PLNm) 1,706


EBIT 77 119 138 146 Free float (%) 38.2%



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Fig. 1. Neuca: 3Q16 results preview


Sales 1,435 1,410 1,497 1,555 1,737 1,780 1,885 1,698 1,648 1,714 1,859 1,675 1,657 0.5% -1.1%

EBITDA 28.5 23.1 34.0 20.8 21.1 28.6 45.9 33.8 36.9 32.1 52.3 36.5 35.7 -3.3% -2.3%

EBITDA margin 2.0% 1.6% 2.3% 1.3% 1.2% 1.6% 2.4% 2.0% 2.2% 1.9% 2.8% 2.2% 2.2% -9 -3

EBIT 22.6 17.1 28.1 13.8 15.3 19.4 38.8 25.8 30.1 24.7 45.0 28.9 28.7 -4.7% -1.0%

EBIT margin 1.6% 1.2% 1.9% 0.9% 0.9% 1.1% 2.1% 1.5% 1.8% 1.4% 2.4% 1.7% 1.7% -9 0

Net profit 19.7 13.1 36.3 10.8 11.8 34.1 32.1 21.5 24.8 22.9 35.2 21.6 24.0 -2.9% 11.2%

Net margin 1.4% 0.9% 2.4% 0.7% 0.7% 1.9% 1.7% 1.3% 1.5% 1.3% 1.9% 1.3% 1.5% -5 16


Fig. 2. Neuca: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 6,939 7,088 -2.1% 7,383 7,383 0.0% 7,689 7,689 0.0%

EBITDA 168 166 1.0% 178 178 0.0% 198 198 0.0%

EBIT 138 136 1.6% 146 146 0.3% 165 164 0.3%

Net profit 111 111 -0.8% 116 118 -1.6% 132 134 -1.7% Source: Company data, DM BZ WBK estimates Fig. 3. Neuca: Valuation changes In PLN per share, unless otherwise stated


DCF valuation 458 456 0.5%

Comparable valuation (based on 2016-2018E) 249 250 -0.5% Source: Company data, DM BZ WBK estimates

Fig. 4. Neuca: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 6,569 6,946 6,939 7,383 7,689

COGS 5,983 6,269 6,239 6,660 6,932

Gross profit 586 677 700 723 757

SG&A 495 537 542 568 585


EBITDA 105 149 168 178 198


Net financial income (costs) -2 -2 1 3 2


Income tax -15 20 26 27 31

Net profit 93 101 111 116 132

Gross margin 8.9% 9.7% 10.1% 9.8% 9.8%

EBITDA margin 1.6% 2.1% 2.4% 2.4% 2.6%




Fig. 5. Neuca: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 2,049 2,092 2,086 2,203 2,342

Fixed assets 518 590 619 624 629

Total assets 2,567 2,681 2,705 2,826 2,971

Current liabilities 1,929 2,031 2,009 2,084 2,171

bank debt 54 70 50 0 0


bank debt 167 120 80 40 0

Equity 455 517 602 689 786




Net debt 189 118 62 -16 -106


Fig. 6. Neuca: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E



CF from financing 11 -69 -86 -120 -74

Net change in cash 28 40 -4 -12 50



69

Poland Industrials

NOVEMBER 3, 2016, 17:00

ORZEŁ BIAŁY RECOMMENDATION

SELL (INITIATION)

So far so good, but uncertainty weighs


TARGET PRICE: PLN7.73

Equity story. The company acts as one of the national lead-acid

battery recyclers and thus is obliged to recycle used batteries, using the recovered materials to produce finished products, mainly lead alloys. The company purchases used lead-acid batteries from its suppliers, which are separated into electrolyte, crude lead, and polypropylene products (the process is conducted in a “Breaker”). Crude lead is used to produce refined lead, the main activity and source of profits for the company. The company managed to improve its sales mix as the share of advanced lead alloys has grown. Orzeł Biały’s constant efforts to improve the quality of the delivered alloys aim at meeting rising customer needs and strengthening of its strong market position. Low level of standardisation of the raw material market is Orzeł Biały’s main headache. Availability of feedstock is hardly predictable (mainly due to high LME lead price volatility), which makes inventory management very challenging. This may become even more complicated due to a new law that is to come into force in January 2017, which will liberalise the lead recycling market, affecting batteries and accumulators. This bears the risk of a lower supply (and higher prices) of battery scrap, which in turn may lead to high results volatility and unpredictability.

3Q preview. We expect the company’s 3Q16 sales to be higher

q/q, mainly due to higher on average LME lead prices in PLN terms (PLN7310 in 3Q16 vs PLN6671 in 2Q16). EBITDA margin should be lower q/q as the published scrap battery prices rose more in comparison to the LME lead prices. We expect to see negative results on hedging in 3Q16, which burdened the top line. We forecast the net profit at PLN1.7mn.

Earnings outlook. In our opinion the new market-liberalising law

may lead to a strong results’ downside because it would allow processors of spent batteries to conduct part of the recycling process without having a lead smelter (that recycles lead indeed) and a PP recycling plant. It may also limit availability of used batteries and, in turn, raise their prices (negative impact on Orzeł Biały’s production costs). It is worth highlighting that the feedstock structure would be volatile, difficult to forecast, which might have a significant impact on the company’s operational results.

Valuation & Recommendation. We initiate our coverage of

Orzeł Biały with a Sell recommendation and TP at PLN7.73 (3% downside) that reflects our DCF valuation. We applied unlevered beta of 1.2 to reflect the possibly high results volatility and unpredictability. The comparable valuation, in turn, implies a fair value of PLN12.10/sh, which implies a huge discount of Orzeł Biały to its peer group. However, it seems to be justified as the company’s results may be subject to significant swings.

STOCK PERFORMANCE



COMPANY DESCRIPTION

Orzeł Biały specialises in the recycling of lead-acid batteries and other lead-bearing materials.


NEF Battery Holdings 60.6%

PZU Pension Fund 11.2%

ANALYST


+48 22 534 16 10

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes OBL.WA / OBL PW



EBIT 16.5 15.0 20.2 18.0 Free float (%) 39.4%



1M 3M YTD

EV/EBITDA (x) 5.6 5.4 4.5 4.4 -20.6% 25.0% 30.2%


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Fig. 1. Orzeł Biały: DCF analysis

PLNmn 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E

Net sales 519.1 575.9 559.9 560.9 542.4 545.9 551.4 556.9 562.4 568.1 573.7

EBIT 15.0 20.1 17.8 17.3 16.6 15.1 15.4 15.8 16.2 16.6 17.0

Cash taxes on EBIT -2.9 -3.8 -3.4 -3.3 -3.1 -2.9 -2.9 -3.0 -3.1 -3.1 -3.2

NOPAT 12.2 16.3 14.5 14.0 13.4 12.2 12.5 12.8 13.1 13.4 13.7

Depreciation 8.8 8.6 8.6 8.6 8.6 8.6 8.6 8.6 8.6 8.6 8.6

Change in operating WC -28.6 -9.3 2.6 -0.2 3.0 -0.6 -0.9 -0.9 -0.9 -0.9 -0.9

CAPEX -7.8 -8.6 -8.6 -8.6 -8.6 -8.6 -8.6 -8.6 -8.6 -8.6 -8.6

Free cash flow -15.5 7.1 17.2 13.9 16.5 11.7 11.7 12.0 12.3 12.6 12.9

WACC 9.2%

PV FCF 2016-2026E 60


Terminal Value (TV) 152

PV TV 58

Total EV 118

Net debt* 9

Equity value 108

Minorities 0

Equity value (adj. by minorities) 108

Number of shares (mn) 16.7

Value per share (PLN, Jan 2016) 6.51

Month 10

Current value per share (PLN) 7.04

12M target price (PLN) 7.73

Source: BZ WBK Brokerage research Fig. 2. Orzeł Biały: Peer group multiples (as of 27/10/2016)

Market Cap P/E EV/EBITDA

Company Price Currency (EURm) 2016E 2017E 2018E 2016E 2017E 2018E

Orzel Bialy SA 7.94 PLN 34 11.6 8.4 9.4 5.4 4.5 4.4

Peer group

Krynicki Recykling SA 7.28 PLN 29 18.2 12.1 10.4 8.8 7.7 7.1

Elemental Holding SA 3.78 PLN 149 12.7 10.0 9.4 9.7 8.4 7.6

IZO-Blok SA 181.35 PLN 53 11.2 10.4 n.a. 8.1 6.4 5.9

Stalprodukt SA 444.75 PLN 572 11.7 13.7 10.4 5.9 6.5 9.2

Grupa Kety SA 375.55 PLN 819 13.4 16.1 14.9 10.1 9.4 8.6

Alumetal SA 58.5 PLN 207 10.1 9.9 9.9 7.8 7.4 7.5

UNIWHEELS AG 199 PLN 569 11.6 9.9 9.8 10.4 9.0 9.0

Wielton SA 13.08 PLN 182 17.5 16.6 14.5 10.7 9.8 8.3

Johnson Controls International 44.01 USD 37 812 11.3 15.1 13.7 n.a. 8.7 8.0

Toho Zinc Co Ltd 359 JPY 425 17.6 13.0 13.3 10.3 9.7 10.1

EnerSys 64.01 USD 2 552 14.6 13.6 13.6 8.7 8.2 7.8

Median 12.7 13.0 11.9 9.2 8.4 8.0

Premium/discount vs. median -9.5% -54.8% -26.6% -70.3% -86.7% -81.8%

Source: Bloomberg, BZ WBK Brokerage research


71

Fig. 3. Orzeł Biały: 3Q16 results’ preview

PLNmn 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16E y/y q/q

Sales 100.7 110.3 122.0 125.5 121.1 125.1 137.7 124.7 114.9 126.3 133.7 -2.9% 5.9%

EBITDA 4.8 2.1 2.7 -1.6 3.5 -1.4 9.0 14.3 6.2 6.4 4.4 -50.6% -30.8%

EBITDA margin 4.7% 1.9% 2.2% -1.3% 2.9% -1.1% 6.5% 11.4% 5.4% 5.1% 3.3% -3.2 -1.8

EBIT 3.1 0.1 0.8 -4.1 1.3 -3.6 6.8 12.1 4.0 4.1 2.3 -66.2% -44.6%

EBIT margin 3.1% 0.1% 0.7% -3.2% 1.1% -2.9% 4.9% 9.7% 3.5% 3.3% 1.7% -3.2 -1.6

Net profit 2.6 0.7 -0.5 -2.4 -0.4 -1.7 4.1 11.1 2.6 3.4 1.7 -59.2% -51.0%

Net margin 2.6% 0.6% -0.4% -1.9% -0.3% -1.4% 3.0% 8.9% 2.2% 2.7% 1.3% -1.7 -1.5 Source: Company data, DM BZ WBK estimates

Fig. 4. Orzeł Biały: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 519.1 NA NA 575.9 NA NA 559.9 NA NA

EBITDA 23.8 NA NA 28.8 NA NA 26.6 NA NA

EBIT 15.0 NA NA 20.2 NA NA 18.0 NA NA

Net profit 11.4 NA NA 15.7 NA NA 14.1 NA NA


Fig. 5. Orzeł Biały: Valuation changes


DCF valuation 7.73 NA NA

Comparable valuation (based on 2016-2018E) 12.10 NA NA


Fig. 6. Orzeł Biały: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 459 509 519 576 560

COGS 436 475 480 531 517

Gross profit 23 33 39 45 43

SG&A 27 25 24 25 25

EBITDA 8 25 24 29 27


Net financial income (costs) 1 -1 -1 -1 0


Income tax -1 -3 -2 -4 -3

Net profit 0 13 11 16 14

Gross margin 4.9% 6.5% 7.5% 7.8% 7.7%

EBITDA margin 1.7% 5.0% 4.6% 5.0% 4.7%




Fig. 7. Orzeł Biały: Balance Sheet forecast

2014 2015 2016E 2017E 2018E

Current assets 212 178 205 230 235

Fixed assets 161 168 165 165 165

Total assets 373 346 370 396 400


bank debt 30 9 23 32 29


bank debt 23 17 13 13 13

Equity 239 247 261 273 281


Net debt 32 9 -4 -3 -15


Fig. 8. Orzeł Biały: Cash flow forecast

2014 2015 2016E 2017E 2018E



CF from financing 3 -29 9 5 -8

Net change in cash -26 -4 23 8 10



72



73


PAGED RECOMMENDATION

BUY (MAINTAINED)

Forecast cut CURRENT PRICE: PLN49.0

TARGET PRICE: PLN60.6 (PREV. PLN66)

Equity story. 2016 has proven not to be very successful for Paged so far. The group suffered from a hiccup in the plywood segment amplified by difficulties with the rump-up of MIRROR plywood production. The change of CEO in the middle of the year must have also interfered with a variety of processes in the company. We believe, however, that it is high time the company proved its ability to improve its operational / financial performance in a sustainable way. We reckon there are still some challenges left to be dealt with, though we are quite positive about the coming quarters. In general, we lowered our outlook for the MIRROR plywood segment to c18 km3 in FY16 (c80% y/y growth expected in FY17). We also await an action plan for the furniture segment so it can positively contribute to the consolidated EBITDA on a regular basis. As far as Ivopol and Europa Systems are concerned, we stick to our current forecasts that assume further business expansion in the coming years (approx. PLN10mn EBITDA growth by the ned of 2018E). We remain, however, quite sceptical about the planned acquisitions worth PLN100-300mn, which would shift the group’s net debt/EBITDA ratio close to 3.5x. Finally, we are looking forward to the release of the company’s long-term strategy (it could be made public by the end of 2016).

Potential for organic growth still ahead. Paged will be able to base c25% of its plywood production on coniferous wood (so far only broadleaved), which will likely mitigate the risk of output contraction in case of broadleaved wood shortages or a margins’ squeeze. Beyond that, Paged plans to invest PLN25mn in filmed plywood capacities in FY17 aimed at margin expansion. Ivopol and Europa Systems are performing well and still offer satisfactory growth potential. The furniture segment is getting restructured, though no significantly positive impact is expected on the P&L in the nearest future.

Triggers/risks. We believe that the market environment for the plywood producers remains supportive – prices of chemicals and wood remain low. Price pressure in the unprocessed plywood segment remains in place, though we expect the company to report the first positive symptoms of higher prices (which were implemented) in mid-2016. The negative effect coming from the MIRROR segment should finally ease as well. We associate, however, major risks with the fluctuations of raw material prices (especially of broadleaved wood). Price pressure from the Eastern Europe-based producers so far harmed the company’s profitability and we think this should not be the case in 2H16.

Changes in Forecasts. Following the uninspiring financial performance in 1H16 (attributable i.a. to turbulences with the MIRROR plywood production and net loss of the furniture segment), we lowered our forecasts both for FY16 and the consecutive years. We expect the FY16 nominal EBITDA of PLN124mn (PLN139mn previously). Our figures point to a FY17 EBITDA of PLN144mn.

3Q16E Results’ Preview. We expect the company to report the following financial results in 3Q16E: sales – PLN200mn (-5.5% y/y), EBITDA – PLN36.5mn (-24% y/y; 18.2% margin), EBIT – PLN27mn (-31% y/y; 13.5% margin) and net profit – PLN20mn (-17% y/y; 10% margin). Outcome: POSITIVE

Valuation & Recommendation. Based on our DCF model, we arrived at a 12-month TP of PLN60.6 per share, which implies a 24% upside potential. A comparable valuation points to PLN55.5 per share. We keep our Buy recommendation intact.

STOCK PERFORMANCE





on issue date

12 month target


Buy 8-5-2016 53.2 66.0 -8.5% -10.7

Buy 4-29-2016 52.0 63.8 2.3% 2.4

Buy 1-27-2016 51.3 66.0 1.4% -8.8

COMPANY DESCRIPTION

Paged is the leading plywood producer in Poland. It also manufactures wooden furniture.


Mespila Inv. 61.00%

CC14 FIZ 9.66%

Lasy Panstwowe 8.16%

Yawal S.A. 5.81%

Paged S.A. 5.00%

EQUITY ANALYST

Michal Sopiel (+48) 22 586 82 33

[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes PGDP.WA / PGD PW

Sales 821 792 874 933 Market capitalisation (PLNm) 759


EBIT 121 87 105 114 Free float (%) 16.8%



1M 3M YTD

EV/EBITDA (x) 8.3 9.3 7.7 6.7 0.0% -8.6% -4.9% Source: Company data, DM BZ WBK estimates

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Fig. 1. Paged: 3Q16E results preview


Sales 187.0 87.2 158.2 171.9 194.2 186.6 203.7 200.9 212.0 204.3 204.2 170.6 200.5 -5.4% 17.5%

EBITDA 27.6 16.7 23.6 29.7 37.4 29.6 39.1 33.7 48.1 35.1 30.7 29.0 36.5 -24.2% 25.8%

EBITDA margin 14.7% 19.1% 14.9% 17.3% 19.2% 15.9% 19.2% 16.8% 22.7% 17.2% 15.0% 17.0% 18.2% -4.5 1.2

EBIT 23.0 12.1 18.8 24.7 31.3 21.1 30.5 25.1 39.2 26.3 22.3 20.5 27.1 -30.7% 32.5%

EBIT margin 12.3% 13.9% 11.9% 14.4% 16.1% 11.3% 15.0% 12.5% 18.5% 12.9% 10.9% 12.0% 13.5% -4.9 1.5

Net profit 21.5 8.9 15.4 14.7 21.3 9.3 25.9 12.5 24.4 14.2 26.5 -1.1 20.2 -17.4% n.a.

Net margin 11.5% 10.2% 9.7% 8.6% 11.0% 5.0% 12.7% 6.2% 11.5% 6.9% 13.0% -0.6% 10.1% -1.5 10.7


Fig. 2. Paged: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 792 822 -4% 874 898 -3% 933 946 -1%

EBITDA 124 139 -11% 144 157 -8% 156 166 -6%

EBIT 87 100 -13% 105 115 -8% 114 123 -7%


Fig. 3. Paged: Valuation changes




Fig. 4. Paged: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 710.9 820.9 792.2 874.1 933.3

COGS 510.0 573.0 584.8 639.4 682.2

Gross profit 200.9 248.0 207.4 234.7 251.1

SG&A 103.0 128.5 117.0 125.6 132.2

Other operating income, net -2.1 1.6 -3.0 -3.8 -4.4

EBITDA 120.2 156.0 123.9 143.9 155.7




Income tax 4.1 10.7 2.6 7.2 13.2

Net profit 60.8 24.2 58.0 72.9 78.1

Gross margin 28.3% 30.2% 26.2% 26.9% 26.9%

EBITDA margin 16.9% 19.0% 15.6% 16.5% 16.7%




Fig. 5. Paged: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 417.2 487.8 477.1 544.1 589.4

Fixed assets 644.8 698.2 641.4 655.0 666.4

Total assets 1,062.0 1,186.0 1,118.5 1,199.1 1,255.8


bank debt 86.7 151.4 156.5 148.1 140.2


bank debt 97.8 172.1 136.2 145.3 126.3

Equity 437.5 458.9 516.9 589.9 668.0

share capital 37.1 37.1 37.1 37.1 37.1


Total liabilities 1,062.0 1,186.0 1,118.5 1,199.1 1,255.8

Net debt 310.1 414.5 362.6 313.7 254.0


Fig. 6. Paged: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E


CF from investment -137.4 -130.9 20.3 -52.3 -52.6

CF from financing, incl. 144.2 154.5 -119.2 0.7 -27.0

dividends 0.0 -3.4 0.0 0.0 0.0




75


NOVEMBER 3, 2016, 17:00

PELION RECOMMENDATION

BUY (MAINTAINED)

Hope for lasting improvement CURRENT PRICE: PLN54.50


Equity story: We uphold our Buy recommendation and slightly

raise the 12-month Target Price to PLN71 on a 4.5% increase of

the FY16E EBITDA forecast (better margins in retail in 3Q/4Q16).

Following the endless restructuring of the retail segment in

2014/15 that dragged down the consolidated EBIT by PLN22mn

and PLN33mn in the respective years, the company finally started

to show signs of life. Pelion has been constantly working on its

cost base effectiveness, logistics and sales growth, which was

difficult following the implementation of the ban on pharmacies’

advertising. In response, Pelion cut prices in 2015, which boosted

its sales growth, but had an adverse effect on the gross margin.

At the same time, it notably lifted penetration of its pharmacies

with its own brand, which helped cover the weaker gross margin

and, along with the still growing sales, regain retail segment

profitability. We assume that fundamentals of the recent

improvement will prove to be more solid than was the case before

and will bear fruit for investors.

Risks: We need to point out the legal changes that could reshape

the pharma industry. They might be potentially harmful for

Pelion’s business. In contrast, liberalisation of the law that makes

it now impossible for pharmacy chains to advertise would be very

good news for Pelion’s retail chain. Also, potential goodwill write-

off poses a significant risk to Pelion’s balance sheet, though the

improving profitability of the retail chain is somewhat mitigating

this risk.

3Q16 results preview. We expect Pelion’s financial results to

continue improving y/y in 3Q16 on 9% y/y growth in sales, which

should lead to a visible rebound of the retail arm’s performance.

While we expect a similar gross margin y/y, we expect a 22bps

lower SG&A/sales ratio due to lower costs (better deleverage) in

retail (the expected EBIT at PLN5mn vs PLN12mn loss last year).

We do not expect any major oneoffs vs PLN5mn in other

operating loss last year. Outcome: POSITIVE.

Valuation & Recommendation. Our 12-month TP was lifted a bit

by 2% to PLN71/share. Comparative valuation against the Polish

peers points to PLN74/share.

STOCK PERFORMANCE





on issue date

12 month target


Buy 9/2/2016 57.0 70.0 -4.0% -6.4

Hold 7/27/2016 44.5 50.0 28.1% 26.8

Hold 1/27/2016 53.8 57.0 -17.2% -25.5

Hold 2/16/2015 89.2 88.5 -39.7% -21.9


Mr. J. Szwajcowski 32.1%

Mr. Z. Molenda 16.9%

Aviva pension fund 8.2%

NN mutual fund 6.1%

KIPF 5.2%

FMR LLC 5.4%

COMPANY DESCRIPTION

Pelion is one of the largest Polish pharmaceutical distributors controlling a ca. 20% market share and with exposure in the retail segment.

EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes PELIO.WA / PEL PW



EBIT 150 104 116 125 Free float (%) 87.3%



1M 3M YTD

EV/EBITDA (x), adj. 12.9 8.3 7.1 6.1 -0.4% 23.9% 0.4% Source: Company data, DM BZ WBK estimates

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Fig. 1. Pelion: 3Q16E results preview

PLNmn 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16E y/y (%) q/q (%)

Sales 1,780 1,831 1,947 1,852 1,853 2,047 2,174 2,050 2,099 2,135 2,364 2,265 2,294 9.3% 1.3%

EBITDA 30.7 28.0 46.6 20.0 29.2 57.0 44.3 28.8 26.8 97.8 45.3 32.0 39.0 45.4% 21.9%

EBITDA margin 1.7% 1.5% 2.4% 1.1% 1.6% 2.8% 2.0% 1.4% 1.3% 4.6% 1.9% 1.4% 1.7% 42 29

EBIT 21.7 18.7 36.6 11.2 20.0 45.6 32.2 16.5 14.3 84.8 32.0 17.0 25.0 75.0% 47.0%

EBIT margin 1.2% 1.0% 1.9% 0.6% 1.1% 2.2% 1.5% 0.8% 0.7% 4.0% 1.4% 0.8% 1.1% 41 34

Net profit 11.6 32.4 24.5 2.0 4.2 25.2 13.9 4.9 0.7 65.9 17.2 4.4 14.1 18x 2x

Net margin 0.7% 1.8% 1.3% 0.1% 0.2% 1.2% 0.6% 0.2% 0.0% 3.1% 0.7% 0.2% 0.6% 58 42


Fig. 2. Pelion: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 9,271 9,271 0.0% 9,988 9,988 0.0% 10,782 10,782 0.0%

EBITDA 161 154 4.5% 177 177 0.0% 195 195 0.2%

EBIT 104 98 6.5% 116 116 -0.1% 125 125 0.2%

net profit 65 60 8.9% 76 76 -0.5% 87 87 -0.5% Source: Company data, DM BZ WBK estimates

Fig. 3. Pelion: Valuation changes




Fig. 4. Pelion: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 7,693 8,458 9,271 9,988 10,782

COGS 6,844 7,471 8,196 8,819 9,510

Gross profit 849 987 1,075 1,168 1,272

SG&A 750 917 969 1,052 1,147


EBITDA 154 200 161 177 195

EBITDA adj. 126 122 161 177 195




Income tax 26 36 23 18 21

Net profit 58 88 55 76 87

Net profit adj. 36 25 65 76 87

Gross margin 11.0% 11.7% 11.6% 11.7% 11.8%

EBITDA margin 2.0% 2.4% 1.7% 1.8% 1.8%




Fig. 5. Pelion: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 2,167 2,139 2,298 2,492 2,627

Fixed assets 1,176 1,277 1,262 1,243 1,256

Total assets 3,343 3,416 3,560 3,735 3,883


bank debt 210 306 306 306 306


bank debt 615 474 400 350 250

Equity 615 681 715 778 847




Net debt 726 763 711 626 567

Source: Company data, DM BZ WBK estimates,

Fig. 6. Pelion: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E




Net change in cash 105 -81 -21 36 -40



77


PFL GROUP RECOMMENDATION

BUY (MAINTAINED)

One-offs to give away soon CURRENT PRICE: PLN34.0


Equity story. Pfleiderer Grajewo successfully completed the process of its re-IPO in January 2016, which allowed for the full integration with Core West (the entity operating five production sites in Germany) and the Group’s debt reduction. The idea of creating an united Pfleiderer was based on a detailed and balanced strategy of further organic business growth. On the one hand, the Pfleiderer Group targets output growth due to rising capacity both in Core East and Core West (additional 150k m3 of raw particleboard production capabilities), further optimisation and product offer diversification. On the other hand, the integrated company is increasing its cross-selling potential between Core East and Core West through the introduction of a comprehensive product offer. The plan assumes up to EUR30mn in synergies per annum by the end of 2018 (the first effects should be visible already in 2016). Pfleiderer is currently a group, which is one of the largest manufacturers of wood-based materials in Europe with a wide range of different products offered on the fast-growing market. The subsequent years should bring further synergies from the recent merger of Core West (CW) & Core East (CE) – our estimates point to EUR18mn from FY18 on.

Organic growth due to capex. We expect cEUR40mn in sales’ growth by YE18E due to the company’s capex programme. An expansion of the (1) raw particleboard capacities (+150k m3 by mid-2016), (2) development of a kitchen countertop production line (already in place) and (3) enhancement of the MDF/HDF back-wall panel production capabilities are the key momentum drivers. Total capex expenditures should amount to cEUR54mn in FY16E. All of the targeted (management’s assumptions) cEUR30mn in EBITDA synergies should be possible thanks to (1) top-line improvement, (2) cost reduction and, finally, (3) cash flow optimisation. In the short term, some one-off expenses, estimated at EUR6mn – EUR7mn, will be needed to reach the assumed full scale of synergies.

Financials. Pfleiderer’s revenues should grow at 2.5% CAGR in 2016-18E, while adj. EBITDA at 5% CAGR to EUR153mn. On our forecasts, the company trades at an undemanding FY17E P/E of 11.2x and EV/EBITDA of 5.4x. 2016 should bring 9% y/y growth of the adj. EBITDA thanks to a combination of (1) cost efficiency improvement, (2) second stage of synergies (cEUR14mn) and (3) low feedstock prices (wood and chemicals are the cheapest since 2014).

Triggers/risks. Key risks include top-line pressures in CE due to raw PB oversupply from the Eastern producers. These should be neutralised by the good growth in CW and continued increase of the share of value added products (65% in the product mix in FY15 from 62% in FY14). The potential debt refinancing should bring in also significant boost to the bottom line momentum (cEUR9mn). We anticipate this already in 2016.

3Q16E Results’ Preview. We expect the company to report the following financial results in 3Q16E: sales – EUR264mn (196% y/y), EBITDA – EUR27.5mn (151% y/y; 10.4% margin), EBIT – EUR10.5mn (42% y/y; 4% margin) and net profit – EUR3mn (-45% y/y; 1.1% margin). Outcome: NEUTRAL.

Valuation & Recommendation. Our DCF-driven valuation points to a valuation of PLN41.9 /sh, whereas the 2016 – 2018E peers’ valuation suggests a valuation of PLN37.8 /sh. Based on the DCF approach, we arrived at the 12M TP at PLN41.9 (23% upside potential). We are reinstating our coverage with Buy rating.

STOCK PERFORMANCE





on issue date

12 month target


Buy 9-7-2016 34.5 42.4 -3.7% -4.1

COMPANY DESCRIPTION

PFL Group is the leading plywood producer in Poland. It also manufactures wooden furniture.


Strategic Value Partners LLC 25.92%

Atlantik S.A. 25.31%

NN PTE 9.89%

Aviva BZ WBK 9.27%

EQUITY ANALYST

Michal Sopiel (+48) 22 586 82 33

[email protected]

Company Data

EURmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes PFL.WA / PFL PW

Sales 984 1,000 1,025 1,036 Market capitalisation (PLNm) 2,200


EBIT 71 45 80 83 Free float (%) 50.0%



1M 3M YTD


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Fig. 1. PFL Group: 3Q16E results preview

EURmn 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16E y/y q/q

Sales 89.5 92.3 94.8 91.4 88.9 88.8 96.2 93.7 89.4 94.8 215.5 242.9 264.1 195.6% 8.7%

EBITDA 10.4 13.2 10.0 12.6 11.9 12.1 12.4 13.4 11.0 13.3 19.3 30.8 27.5 150.7% -10.7%

EBITDA margin 11.6% 14.3% 10.6% 13.8% 13.4% 13.6% 12.9% 14.3% 12.3% 14.1% 9.0% 12.7% 10.4% -1.9 -2.3

EBIT 7.8 9.5 7.2 9.6 8.6 8.7 8.8 9.9 7.4 9.6 2.6 13.5 10.5 42.0% -22.2%

EBIT margin 8.7% 10.3% 7.6% 10.6% 9.7% 9.8% 9.1% 10.6% 8.3% 10.1% 1.2% 5.5% 4.0% -4.3 -1.6

Net profit 4.1 6.0 4.9 7.1 6.2 6.5 7.0 7.5 5.4 7.0 4.3 2.8 3.0 -45.1% 4.1%

Net margin 4.6% 6.5% 5.1% 7.8% 7.0% 7.3% 7.2% 8.0% 6.0% 7.3% 2.0% 1.2% 1.1% -4.9 0.0


Fig. 2. PFL Group: Forecast changes

EURmn 2016E 2017E 2018E


Sales 1,000 1,015 -1% 1,025 1,045 -2% 1,036 1,057 -2%

EBITDA 113 123 -9% 148 148 0% 154 153 0%

EBIT 45 55 -19% 80 80 0% 83 83 0%

Net profit 8 15 -50% 46 46 0% 50 50 0% Source: Company data, DM BZ WBK estimates

Fig. 3. PFL Group: Valuation changes




Fig. 4. PFL Group: Income statement forecast

EURmn 2014 2015 2016E 2017E 2018E

Net sales 959.9 984.5 999.9 1,025.1 1,035.7

COGS 732.4 754.8 771.8 781.9 786.0

Gross profit 227.5 229.7 228.1 243.2 249.7

SG&A 165.8 158.9 161.8 163.9 166.6

Other operating income, net 14.9 0.4 -21.3 0.4 0.4

EBITDA 117.1 119.3 112.6 148.2 153.5




Income tax 12.8 11.8 3.1 18.8 20.6

Net profit 19.3 7.0 7.6 45.6 50.0

Gross margin 23.7% 23.3% 22.8% 23.7% 24.1%

EBITDA margin 12.2% 12.1% 11.3% 14.5% 14.8%




Fig. 5. PFL Group: Balance Sheet forecast

EURmn 2014 2015 2016E 2017E 2018E

Current assets 231.2 255.2 232.6 279.0 281.6

Fixed assets 646.4 639.8 703.9 684.3 665.3

Total assets 877.6 895.0 936.5 963.3 946.9


bank debt 52.8 15.8 9.2 8.8 8.3


bank debt 325.4 314.6 305.0 320.0 304.0

Equity 219.5 223.8 301.3 330.0 333.7

share capital n.a. n.a. n.a. n.a. n.a.



Net debt 393.7 313.5 322.4 297.2 281.8


Fig. 6. PFL Group: Cash flow forecast

EURmn 2014 2015 2016E 2017E 2018E



CF from financing, incl. -54.6 -52.7 3.1 9.2 -48.4

dividends 0.0 -15.2 -4.9 -5.3 -31.9

Net change in cash 27.0 32.4 -25.0 39.7 -1.0



79


November 3, 2016 17:00

PHN RECOMMENDATION

BUY (MAINTAINED)

Discount started to disappear CURRENT PRICE: PLN16.50


Equity story. We slightly decrease our Target Price for PHN to

PLN26.5, which is still offering over 50% upside. PHN is one of

the cheapest RE names listed on the WSE. It is trading at P/BV of

0.36x, offering deep discount to WSE and foreign peers. In our

opinion the current valuation of PHN does not discount fat

pipeline of office & residential developments, so we see limited

downside and huge upside potential. In our financial forecast we

include only development of two residential projects: Yacht Park

covering 139 units and Prymasa Tysiaclecia of 435 units. The

probability of projects start is high, as we see it due to strong

uptrend in demand on homes in Poland. We do not account for a

number of distanced commercial projects in our

forecasts/valuation (scheduled to start not before 2017-2018), the

major of which are 1) Yacht Park 71k office space, 2) Intraco City

10k sqm office building, 3) City Tower 40k sqm office, and 4)

Wilanowska hotel/office building (23k sqm). Inclusion of any of

these projects into calculation could produce upside to our

forecasts/valuation of PHN, but we cannot exclude further delays

in projects start.

Triggers/Risks. Risk factors: 1) low quality assets portfolio

producing risk of tenants relocation and rise in vacancy rate, 2)

pressure on rents in Warsaw, 3) high supply of modern office

space delaying start of PHN’s core investments, 4) possible

further delays in pipeline projects’ development, 5) high portfolio

concentration in non-rent generating assets, 6) possible

properties’ book value write-offs. Triggers: 1) possible

cooperation/space leasing to State-owned companies, 2) pipeline

projects development, 3) divestments.

Strategy update. Management should announce strategy update

in coming months. We think it may include more market fitting initiatives incl. focus on the residential business, originally planned for discontinuation.

Change in forecasts. We have upped our 2016-18E financial

forecasts, which come from 1) higher than originally expected

1H16 results), 2) introduction into our forecasts new projects

development.

Change in Valuation & Recommendation. We keep Buy rating

on PHN, with a Traget Price set at PLN26.5.

STOCK PERFORMANCE





on issue date

12 month target


Buy 1-27-2016 17.8 27.8 -7.4% -19.8

Buy 10-26-2015 20.4 27.8 -12.8% 2.8

Buy 8-20-2015 21.5 27.8 -4.9% -2.5

COMPANY DESCRIPTION

PHN is a real estate developer.


Treasury 69.9%



EQUITY ANALYST

Adrian Kyrcz (+48) 22 586 81 59

[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes PHN.WA / PHN PW


EBITDA -10.7 81.1 54.2 58.0 Number of shares (m) 46.7

EBIT -12.1 79.7 52.8 56.6 Free float (%) 29.8%



1M 3M YTD

P/BV (x) 0.40 0.39 0.39 0.38 10.4% 15.6% -12.8% Source: Company data, DM BZ WBK estimates

PHN

TP

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80

Fig. 1. PHN: 3Q16 results preview


Sales 37.4 35.6 42.2 44.5 40.6 48.0 40.4 35% 18%

Rental business 30.3 30.1 32.5 34.5 33.6 40.4 40.4 34% 20%

Residential business 7.1 3.9 7.6 8 5.4 5.3 0 36% -2%

Other 0 1.6 2.1 2 1.6 2.3 0 44% 44%

Gross profit 15.2 15.9 17.3 21.9 16.7 23.4 21.7 47% 40%

Rental business 13.7 14.3 15.3 16.8 15.4 21.7 21.7 52% 41%

Residential business 1.6 1.2 1.4 4.5 1.2 1.1 0.0 -8% -8%

Other -0.1 0.4 0.6 0.6 0.1 0.6 0.0 50% n.m.

Revaluation gain/loss -3.8 -6.6 1.3 -81.5 2.5 20.9 0.0 n.m. n.m.

EBITDA 11.1 21.4 17.0 -60.0 13.7 40.6 13.7 90% 196%

EBIT 10.9 21.0 16.5 -60.5 13.2 40.1 13.2 91% 204%

Adj EBIT 14.7 27.6 15.2 21.0 10.7 19.2 13.2 -30% 79%

Net profit 12.4 16.3 37.0 -16.6 8.2 31.5 7.5 93% 284% Source: Company data, DM BZ WBK estimates

Fig. 2. PHN: Forecasts changes

PLNmn 2016E 2017E 2018E


Sales 169 137 24% 162 134 21% 189 132 43%

EBITDA 81 38 113% 54 37 46% 58 36 63%

EBIT 80 37 115% 53 36 47% 57 34 65%

Net profit 51 28 81% 22 27 -19% 25 26 -3% Source: Company data, DM BZ WBK estimates

Fig. 3. PHN: Valuation changes


SOTP valuation 26.5 27.8 -5%

Comparable valuation (based on P/BV) 31.3 35.5 -12% Source: Company data, DM BZ WBK estimates

Fig. 4. PHN: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 166.5 159.7 169.4 161.6 188.6

COGS -100.1 -89.4 -85.9 -74.8 -98.0

Gross profit 66.4 70.3 83.5 86.8 90.6

SG&A 38.5 38.4 32.2 34.0 34.0


EBITDA 13.8 -10.7 81.1 54.2 58.0

Operating profit 12.5 -12.1 79.7 52.8 56.6

Net financial income (costs) 1.2 -10.7 -20.8 -25.7 -25.7

Profit before tax 13.7 -22.8 58.9 27.2 30.9

Income tax 94.3 0.8 -6.3 -5.2 -5.9

Net profit 105.1 49.1 50.7 22.0 25.1

Gross margin 39.9% 44.0% 49.3% 53.7% 48.0%

EBITDA margin 8.3% -6.7% 47.9% 33.5% 30.7%

Operating margin 7.5% -7.6% 47.0% 32.7% 30.0%



Fig. 5. PHN: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 305 370 307 325 347

Fixed assets 1979 2144 2439 2442 2446

Total assets 2283 2514 2745 2767 2792


bank debt 15 305 505 505 505


bank debt 0 8 8 8 8

Equity 2001 1983 2014 2036 2061


Net debt -121 187 450 431 410


Fig. 6. PHN: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E



CF from financing -86.0 80.7 159.6 -25.7 -25.7




81

Poland Utilities

November 03, 2016 17:00

POLENERGIA RECOMMENDATION

BUY (MAINTAINED)

Much more than pure on-shore wind player CURRENT PRICE: PLN10.67


Equity Story. The recent changes to the Polish renewable law,

clearly contradictory to the EU policies, depressed the green

certificate price to PLN40. So far Polish banks, EBRD fund, European

policymakers, Polish individuals and local entrepreneurs have all

been clearly against the new law, and this pressure might prove

overwhelming for the Polish regulators. We conservatively assume

that the green certificate price will remain flat until 2020, when it

grows to PLN100, but we would not be surprised to see the price

recovering substantially if Poland alters its approach to green energy.

In the meantime, all signs point to off-shore becoming reality, and

Polenergia’s 1,200MW in Poland-unique projects turn valuable. The

company’s distribution and gas-fired unit guarantee a long-term boost

to the group’s EBITDA and cash flow generation. Finally, Polenergia

initiated dividend pay-outs in 2016 (DY at 3.3%) and the company

could become Poland’s sole divided-paying utility.

Financials. Our assumptions for black (PLN160/MWh terminally) and

green electricity (PLN40 till 2019E, PLN100 afterwards) lead to

2016E EBITDA at PLN231mn and PLN203mn in 2017E (full impact of

the low price). On the other hand, EBITDA settling above PLN200mn

in the most adverse conditions clearly highlights Polenergia’s

resilience (distribution and gas unit-driven). The company has already

announced +PLN100mn one-offs depressing its 2016 bottom line, but

we believe that its minor capex and solid EBITDA should let it repay

debt and pay dividends at the same time.

Triggers / Risks. Future massive auctions for biomass co-burning

could terminally set the green certificates’ price at PLN20. EU’s

continuing de-carbonisation policy stands for a major upside and

substantial growth to prices of either CO2 or the green certificates (or

both) would be a major value booster. Auctions for existing wind

capacity, new capacity auctions and hybrid auctions all represent

upside to Polenergia. Finally, our TP includes only a tiny part of the

potential off-shore upside.

Valuation & Recommendation. Polenergia’s high-load factors and

low opex both cause a positive value of the on-shore segment in our

valuation. The gas-fired unit and distribution stand for PLN6.4 and

PLN3.0 a share, respectively. Skilful trading adds its part too, and our

SoTP valuation includes PLN4.4 a share from the disposal of the half-

developed off-shore project. Our comparable valuation implies

PLN16.7 a share. We maintain the stock as Buy

STOCK PERFORMANCE





on issue date

12 month target


Buy 1-27-2016 24.5 36.2 -54.2% -66.3

Buy 1-22-2016 23.3 36.2 4.9% 4.5

COMPANY DESCRIPTION

POLENERGIA, an independent vertically integrated utility player, specializes in renewable energy production. It holds 245MW operational on-shore wind farms, with another 267MW in pipeline, 30MW in biomass-fired unit and 1,200MW in off-shore wind.


Mansa Investments 50.2

Capedia Holding Ltd. 16.0

AVIVA Pension Fund 6.7

Generali Pension Fund 6.5

NN Pension Fund 5.7

EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes PEPP.WA / PEP PW



EBIT 133 -4 85 91 Free float (%) 33.8%

Net income 68 -70 29 38 Avg. daily turnover 3M (PLNm) 0.1

P/E (x) 7.8 -7.6 18.2 13.8 Price performance

1M 3M YTD


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82

Fig. 1. Polenergia: 3Q16 results preview


Sales 28.7 41.2 648.5 796.1 569.1 614.0 677.8 677.5 677.0 739.7 722.5 644.0 641.7 -5.2% -0.4%

EBITDA 8.8 13.3 51.2 35.3 32.9 53.9 64.7 44.2 52.6 58.8 87.8 31.4 44.2 -16.0% 40.8%

EBITDA margin 30.6% 32.4% 7.9% 4.4% 5.8% 8.8% 9.5% 6.5% 7.8% 7.9% 12.2% 4.9% 6.9% -0.9 2.0

EBIT 2.3 5.4 30.9 14.3 11.8 30.2 43.9 23.5 31.0 34.2 61.1 -50.7 -28.2 n.a. n.a.

EBIT margin 7.9% 13.2% 4.8% 1.8% 2.1% 4.9% 6.5% 3.5% 4.6% 4.6% 8.5% -7.9% -4.4% -9.0 3.5

Net profit 0.7 1.7 20.2 8.4 4.5 16.2 26.6 9.4 16.7 14.7 36.4 -61.4 -39.2 n.a. n.a.

Net margin 2.6% 4.0% 3.1% 1.1% 0.8% 2.6% 3.9% 1.4% 2.5% 2.0% 5.0% -9.5% -6.1% -8.6 3.4


Fig. 2. Polenergia: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 2,738 2,391 14% 2,796 2,335 20% 2,798 2,606 7%

EBITDA 231 246 -6% 203 245 -17% 208 527 -61%

EBIT -4 126 n.a. 85 125 -32% 91 317 -71%

Net profit -70 77 n.a. 29 58 -50% 38 190 -80% Source: Company data, DM BZ WBK estimates

Fig. 3. Polenergia: Valuation changes



Comparable valuation (based on 2016-2018E)* 16.7 32.0 -48% Source: Company data, DM BZ WBK estimates. * based on renewable players: 25% P/E, 25% P/CE, 50% EV/EBITDA.

Fig. 4. Polenergia: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales, incl.: 2,659 2,772 2,738 2,796 2,798

Trading 2,002 2,073 2,084 2,180 2,160

Wind 81 152 156 126 127

Conventional generation 366 328 299 291 312

Others 211 64 55 55 55

COGS, excl. depreciation 2,487 2,553 2,624 2,593 2,590



EBITDA 172 219 231 203 208

Trading 7 7 16 18 18

Wind 69 125 113 82 81

Conventional generation 88 87 82 81 89

Others 8 -15 1 0 0

Operating profit 86 133 -4 85 91


Profit before tax 60 91 -52 36 47


Net profit 52 68 -70 29 38

Gross margin 6.5% 7.9% 12.8% 7.3% 7.4%

EBITDA margin 6.5% 7.9% 8.5% 7.3% 7.4%

Operating margin 3.2% 4.8% -0.2% 3.0% 3.2%

Net profit margin 2.0% 2.4% -2.5% 1.0% 1.4%


Fig. 5. Polenergia: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 764 752 605 596 589

Fixed assets 1,968 2,448 2,346 2,233 2,121

Total assets 2,732 3,199 2,951 2,830 2,711


bank debt 92 121 121 121 121

Long-term liabilities 865 1,303 1,193 1,085 984

bank debt 695 1,027 917 808 708

Equity 1,334 1,397 1,305 1,323 1,351




Net debt 370 785 801 680 585


Fig. 6. Polenergia: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E


CF from investment -1,495 -565 -17 -5 -5

CF from financing, incl. 1,231 356 -132 -120 -111

dividends 0 0 -23 -11 -10

Net change in cash 209 -54 -126 13 -6



83

Poland Servises

NOVEMBER 3, 2016, 17:00

RAINBOW RECOMMENDATION

BUY (INITIATION)

Emerging leader of Polish tourism CURRENT PRICE: PLN23.56

TARGET PRICE: PLN40 (N.A.)

Equity story. We initiate coverage of Rainbow with a Buy recommendation

and a 12M TP of PLN40 (72% upside). We believe that the many headwinds

(fears of terrorism, big sport events, weak PLN), they are likely to soften in

2017 as Poles are getting used to the possible risks of terrorism and,

disappointed with a cold-wave in the summer months of 2016 in Poland,

should return to the tour operators. Rainbow also believes that early success of

the ‘Polish Village’ project in Kokkino Nero will spread to other destinations.

Also, the 2017 calendar does not include any major sport events, which, with a

stabilised PLN, should support a rebound in 2017. Assuming these factors

materialise, Rainbow expects 30% y/y sales growth in 2017. The rule of thumb

in the industry is that the correct prediction of the scale of the holiday offers to

demand usually results in better margins. Assuming that Rainbow properly

estimates the market in 2017, its margins should also grow reasonably.

Long-term outlook: According to the Polish Tourism Chamber, Rainbow

notably outperforms the industry in terms of sales growth in 2016. In 2015,

Rainbow had a 19% market share, still behind the leading Itaka (34%), but

ranked ahead of TUI (17%). The remaining 30% share or PLN1.4bn are

controlled by smaller names. Rainbow wants to successfully conquer the

remaining 30% of the market share and try to catch up with the market leader.

On the developed markets (i.e. Germany), there are usually 3 dominant

players followed by small ‘boutique’ names specialising in specific destinations.

The Polish market is set to converge in that direction.

Financials. We assume that Rainbow could earn PLN29mn (-13% y/y), post

an EBTIDA of PLN38mn (-12% y/y) on sales of PLN1,222mn (+10% y/y) in

2016. We expect a notable rebound of sales next year and significantly better

margins on better cost leverage and sales mix (lower share of agency

services). As a result, we exepect sales at PLN1,422mn (+16% y/y), EBTIDA

at PLN51mn (+34% y/y, margin +48bps to 3.6%) and the net profit at

PLN37mn (+25% y/y) in 2017E.

3Q16 results preview. We expect the net profit at PLN28mn (+5% y/y),

EBTIDA at PLN35mn (+4% y/y) on sales of PLN588mn (+11%). The

company’s results should be driven by a rebound of the sales and margins in

the summer. Outcome: POSITIVE.

Valuation & Recommendation. Based on our DCF model, we arrived at a 12-

month TP of PLN40 per share. Comparable valuation based on TUI multiples

(PE16/18E at11x/10x/9x; EV/EBITDA16/18E at 4x) points to PLN22/share.

STOCK PERFORMANCE



Mr. G. Baszczynski 19.5%

Mr. R. Talarek 17.3%

Mr. T. Czapla 17.0%

Mr. S. Wysmyk 16.2%


COMPANY DESCRIPTION

Rainbow is the second largest tour operator on Polish market, with 19% market share.

EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes RBW.WA / RBW PW

Sales 1,116 1,222 1,422 1,599 Market capitalisation (PLNm) 342.8


EBIT 42 36 46 50 Free float (%) 79.9%



1M 3M YTD


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84

Fig. 1. Rainbow: 3Q16 results preview

PLNmn 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16E y/y q/q

Sales 225.5 447.4 152.6 173.5 251.7 531.6 160.3 187.9 267.2 588.4 10.7% 120.2%

EBITDA 7.8 33.7 -3.8 1.7 7.9 33.8 0.9 3.6 3.4 35.2 4.0% 941.8%

EBITDA margin 3.5% 7.5% -2.5% 1.0% 3.1% 6.4% 0.6% 1.9% 1.3% 6.0% -38 472

EBIT 7.5 33.3 -4.1 1.4 7.5 33.4 0.2 3.1 2.7 34.8 4.1% 1181.0%

EBIT margin 3.3% 7.5% -2.7% 0.8% 3.0% 6.3% 0.1% 1.7% 1.0% 5.9% -37 490

Net profit 6.1 27.4 -3.4 1.1 5.8 26.9 0.5 2.5 2.0 28.2 4.8% 1313.7%

Net margin 2.7% 6.1% -2.2% 0.6% 2.3% 5.1% 0.3% 1.3% 0.7% 4.8% -27 404


Fig. 2. Rainbow: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 1,222 n.a. n.a. 1,472 n.a. n.a. 1,657 n.a. n.a.



Net profit 29 n.a. n.a. 39 n.a. n.a. 42 n.a. n.a. Source: Company data, DM BZ WBK estimates

Fig. 3. Rainbow: Valuation changes


DCF valuation 40 n.a. n.a.

Comparable valuation (based on 2016-2018E) 22 n.a. n.a. Source: Company data, DM BZ WBK estimates

Fig. 4. Rainbow: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 956 1,116 1,222 1,472 1,657

COGS 811 961 1,051 1,257 1,415

Gross profit 146 155 172 215 242

SG&A 105 112 136 168 190


EBITDA 40 43 38 53 60





Net profit 32 34 30 39 42

Gross margin 15.2% 13.9% 14.0% 14.6% 14.6%

EBITDA margin 4.2% 3.9% 3.1% 3.6% 3.6%




Fig. 5. Rainbow: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 189 207 225 242 259


Total assets 213 246 269 307 342


bank debt 1 1 1 0 0


bank debt 0 3 3 0 0

Equity 79 101 116 136 155




Net debt -84 -76 -82 -75 -70


Fig. 6. Rainbow: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2017E


CF from investment 5 9 -7 -26 -26


Net change in cash 14 -5 6 -11 -4



85

Fig. 4. Rainbow: DCF valuation

PLNmn 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Net sales 1,222 1,422 1,599 1,759 1,935 2,129 2,235 2,347 2,464 2,588

EBITDA 38 51 58 58 58 60 58 56 54 52

EBIT 36 46 50 50 49 50 48 46 43 40

Cash taxes on EBIT 7 9 10 10 9 10 9 9 8 8

NOPAT 29 37 41 41 40 41 39 37 35 33

Depreciation 2 6 8 8 9 10 10 10 11 12

Change in operating WC 4 8 7 6 7 8 4 5 5 5

Capital expenditure 7 26 26 7 8 9 9 9 10 13

Free cashflow 20 8 15 35 34 34 36 34 31 26

WACC 8.0%

PV FCF 2016-2025 175


Terminal Value (TV) 541

PV TV 250

Total EV 425

Net debt -76

Equity Value 501

Number of shares (m) 15

Value per share (PLN, 1 Jan 2016) 34

Month 11

Current Value per share (PLN) 37

12M target price (PLN) 40

Revenue growth 9% 16% 13% 10% 10% 10% 5% 5% 5% 5%

EBITDA growth -12% 34% 12% 1% 0% 3% -2% -3% -4% -5%

NOPAT growth -13% 26% 10% 0% -2% 1% -4% -5% -6% -7%

FCF growth -26% -58% 85% 129% -3% 0% 6% -6% -7% -17%

EBITDA margin 3% 4% 4% 3% 3% 3% 3% 2% 2% 2%

NOPAT margin 2% 3% 3% 2% 2% 2% 2% 2% 1% 1%

Capex/Revenues 1% 2% 2% 0% 0% 0% 0% 0% 0% 1%

Change in WC/Revenues 0% 1% 0% 0% 0% 0% 0% 0% 0% 0% Source: Company data, DM BZ WBK estimates


86



87


November 3, 2016 17:00

RONSON RECOMMENDATION

HOLD (MAINTAINED)

Fairly valued CURRENT PRICE: PLN1.30


Equity Story. We maintain our Target Price for Ronson and the

Hold recommendation intact. The company is trading with a

discount to its last reported BVPS, which we think is fully justified.

This is because the estimated 2016-17E ROE is below its cost of

capital. The company delivered a lower y/y apartment pre-sale

volume in spite of the booming residential market in Poland. The

management cut its FY16 volume target by 100 units to 800,

however, the annualized 9M16 volume is still below the new

guidance. On the other hand, 2H16 should bring a strong profit

recovery on a rising volume of transferred units to clients. Overall,

with respect to the Target Price being close to the market share

price, we maintain our neutral view on the stock.

3Q16E Results Preview. The company handed over to clients

239 apartments in 3Q16, up 40% q/q and 31% y/y. There was a

significant contribution from the high margin Moko project, which

should allow the company to recognise a relatively high gross

margin of 23% in the quarter. At the bottom line, we forecast a

profit of PLN10.7mn, much higher y/y and q/q.

Financials. We have fine-tuned our financial forecasts for

Ronson. We expect a rise in the volume of units handed over to

clients in 2H16, bringing the FY volume to above 900 and the net

profit to PLN34mn (lower than expected originally). In 2017, the

volume should grow to 1000 units, but a lower y/y margin should

lead to a lower y/y net profit.

Pre-sale volume. The company did poorly at pre-selling

apartments in 9M16. It had pre-sold only 545 units, which was

17% y/y lower, despite the record-high aggregate volume of the

WSE residential developers. The company’s annualised FY16

volume of Ronson at 727 units settles below the recently

downgraded by the management target to 800 units.

Triggers/risks. Risks: 1) possible slowdown in apartment

volumes beyond 2017-18, 2) full utilisation of the MdM scheme in

2017, 3) growth in interest rates in 2018, 4) market slowdown and

possible profit contraction post 2018, 5) lower LTV offered by

banks from January 2017.


arrived at a 12-month TP of PLN1.37 per share.

STOCK PERFORMANCE





on issue date

12 month target


Hold 1-27-2016 1.30 1.37 3.1% -9.3

Hold 10-26-2015 1.37 1.41 -5.1% 10.5

Hold 8-20-2015 1.33 1.41 3.0% 5.4

COMPANY DESCRIPTION

Ronson is a residential developer.


I.T.R Dori BV 39.8%

I.T.R 2012 BV 39.8%


EQUITY ANALYST

Adrian Kyrcz (+48) 22 586 81 59

[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes RONO.WA / RON PW

Sales 281.4 341.0 370.5 360.1 Market capitalisation (PLNm) 354


EBIT 27.6 49.0 45.2 43.0 Free float (%) 20.4%

Net profit 19.8 34.0 31.2 31.5 Avg. daily turnover 3M (PLNm) 0.0


1M 3M YTD


RON

TP

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88

Fig. 1. Ronson: 3Q16 results preview


Sales 40.4 53.8 68.4 118.8 41.9 69.4 94.3 38% 36%

Apartments handed over to clients 121 148 182 245 105 171 239 31% 40%

Avg. revenue per unit 334 364 376 485 399 406 395 5% -3%

Apartments pre-sale volume (in units) 186 224 248 248 206 156 183 -26% 17%

Gross profit on sales 4.6 12.3 7.2 27.2 4.0 15.9 21.7 202% 36%

Goss margin 11.4% 22.8% 10.5% 22.9% 9.5% 22.9% 23.0% - -

EBITDA -2.2 8.0 1.1 19.5 -3.8 8.6 15.4 n.m. 80%

EBIT -2.4 7.9 1.1 19.8 -4.0 8.3 15.2 n.m. 83%

Net profit -2.7 5.2 -0.4 17.3 -4.2 5.5 10.7 n.m. 94% Source: Company data, DM BZ WBK estimates

Fig. 2. Ronson: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 341 370 -8% 371 352 5% 360 342 5%

EBITDA 50 54 -8% 46 48 -4% 44 43 1%

EBIT 49 54 -9% 45 47 -4% 43 43 1%


Fig. 3. Ronson: Valuation changes



Comparable valuation (based on last reported P/BV) 1.93 1.34 44% Source: Company data, DM BZ WBK estimates

Fig. 4. Ronson: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 153 281 341 371 360

COGS 141 230 265 298 290


SG&A 25 25 27 27 27

Other operating income, net -3 2 0 0 0

EBITDA -15 28 50 46 44

Operating profit -16 28 49 45 43


Profit before tax -19 21 42 39 39

Income tax 3 -1 -8 -7 -7

Net profit -15 20 34 31 31

Gross margin 7.8% 18.2% 22.3% 19.5% 19.5%

EBITDA margin -9.9% 10.0% 14.6% 12.4% 12.1%

Operating margin -10.3% 9.8% 14.4% 12.2% 11.9%

Net profit margin -10.1% 7.0% 10.0% 8.4% 8.7%


Fig. 5. Ronson: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 791 815 838 874 717


Total assets 841 865 889 924 767


bank debt 1 1 1 1 1


bank debt 235 235 235 235 50

Equity 451 460 472 504 535


Net debt 166 114 112 79 47


Fig. 6. Ronson: Cash flow forecast

PLNmn 2013 2014 2015E 2016E 2017E


CF from investment -1 2 2 2 1


Net change in cash 18 52 2 33 -153



89

Poland Industrials

NOVEMBER 3, 2016, 17:00

SNIEZKA RECOMMENDATION

BUY (MAINTAINED)

Tempting DY in steady growing business CURRENT PRICE: PLN53.0

TARGET PRICE: PLN60.9 (PREV. 74.4)

Equity Story. The company’s revenues are relatively highly

correlated with GDP. Decorative paints are, in particular, connected with house renovations and new housing market activity. The domestic market is clearly the most important for Śnieżka’s performance as it accounts for c77% of the group’s revenues (FY2015). Poland’s market still seems to be far from being saturated, especially when compared with its Western counterparts. Nevertheless, we took into consideration the intensified competition on the Polish paint market that emerged in 2Q16 (flat Polish segment sales y/y in 2Q16). This also affects the cost of sales, which grew remarkably when compared to FY2015. We assume this situation will be present in the following years and the cost of sales / revenues ratio will be higher permanently (c15% in 2015 vs anticipated c17% in 2016 and later). In Ukraine, we expect Śnieżka’s position to recover further since an upturn was already visible in 1-3Q16 (revenues up 12% y/y. All in all, the company’s shares suffered a c10% drop in the last 3 month, reflecting risks of weakening sales in Poland and increased marketing spending. The falls in the share price were, in our view, were excessive, especially in light of the decent dividend outlook with DY2016/17 at 6.1/6.2%.

3Q review. In 3Q16 we expect Śnieżka reported revenues at

PLN178.7mn, up 6% in y/y terms. EBITDA / EBIT came in at PLN31.3mn (17.5% margin) / PLN26.8mn (15.0% margin), respectively. The bottom line came in close to PLN21.4mn (12.0% margin). Śnieżka reported a positive growth rate in Poland and further rebound in Ukraine and Russia. The company’s margins were stable y/y despite higher marketing expenditures that were offseted by lower feedstock prices.

Earnings outlook. In the following years we expect the growing

streak of the company’s financial results to continue. Steady revenue expansion should be supported by stable GDP growth in Poland, the thriving conditions of the Polish housing market and further rebound on the Eastern markets. We expect the marketing costs to be permanently higher starting with 2016, which marks the biggest difference against our previous forecasts and is mostly responsible for the significantly lower valuation.

Valuation & Recommendation. A blend of DCF, comparative

valuations and DDM (1/3 each) has yielded the 12-month TP at PLN60.9 (15% upside potential). The DCF valuation indicates that Śnieżka’s share price should be at PLN61.3, while DDM points to PLN59.5 and the comparative valuation suggests PLN61.8.

STOCK PERFORMANCE





on issue date

12 month target


Buy 8-5-2016 60.0 74.4 -11.8% -13.9

Buy 6-22-2016 58.0 72.2 3.4% 0.4

COMPANY DESCRIPTION

Śnieżka is one of the leading Polish manufactures of paints and varnishes. The company operates in Poland, Ukraine, Belarus and other CEE markets.


Stanisław Cymbor 22.0%

Jerzy Pater 22.0%

Piotr Mikrut 12.2%

Rafał Mikrut 8.6%

MetLife Pension Fund 8.6%

Aviva BZ WBK Pension Fund 5.4%

ANALYST


+48 22 534 16 10

[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes SKA.WA / SKA PW

Sales 550.2 578.1 603.7 621.1 Market capitalisation (PLNmn) 668.7


EBIT 65.3 60.8 57.5 63.0 Free float (%) 40.9%



1M 3M YTD

EV/EBITDA (x) 8.6 9.1 9.5 8.7 1.0% -10.2% -3.6%


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Fig. 1. Śnieżka: 3Q16 results’ review/ 4Q16E-2Q17E results’ preview

PLNmn 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 y/y q/q 4Q16E 1Q17E 2Q17E

Sales 171.5 91.1 112.1 177.1 169.0 91.9 124.2 178.9 178.7 5.7% -0.2% 96.3 136.1 186.8

EBITDA 29.0 13.3 15.3 27.7 31.8 8.4 19.7 22.0 31.3 -1.5% 42.7% 6.3 21.3 20.6

EBITDA margin 16.9% 14.6% 13.7% 15.6% 18.8% 9.1% 15.9% 12.3% 17.5% -1.3 5.3 6.5% 15.7% 11.0%

EBIT 24.4 9.1 10.9 23.2 27.3 3.8 15.3 17.3 26.8 -1.9% 55.2% 1.4 16.5 15.7

EBIT margin 14.2% 10.0% 9.7% 13.1% 16.2% 4.2% 12.3% 9.7% 15.0% -1.2 5.4 1.5% 12.1% 8.4%

Net profit 17.2 4.8 3.0 19.8 21.4 3.8 11.8 15.0 21.4 -0.2% 42.7% 1.3 13.3 12.6

Net margin 10.0% 5.2% 2.7% 11.2% 12.7% 4.1% 9.5% 8.4% 12.0% -0.7 3.6 1.4% 9.7% 6.8%


Fig. 2 Śnieżka: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 578.1 596.5 -3% 603.7 627.1 -4% 621.1 644.9 -4%

EBITDA 79.3 90.2 -12% 77.6 91.2 -15% 85.0 96.7 -12%

EBIT 60.8 72.1 -16% 57.5 71.9 -20% 63.0 76.0 -17%

Net profit 49.5 58.3 -15% 46.4 58.9 -21% 50.7 62.3 -19%


Fig. 3. Śnieżka: Valuation changes



Comparable valuation (based on 2016-2018E) 61.8 76.7 -19%

DDM 59.5 NA NA

Weighted valuation* 60.9 4.24 0% Source: Company data, DM BZ WBK estimates, * - 33.3% each, * - 50% each

Fig. 4. Śnieżka: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 546 550 578 604 621

COGS 344 340 353 376 383

Gross profit 202 210 225 227 238

SG&A 141 143 163 170 175

Other operating income, net -3 -1 -2 0 0

EBITDA 76 83 79 78 85




Income tax -7 -8 -9 -7 -8

Net profit 41 48 49 46 51

Gross margin 37.1% 38.2% 39.0% 37.7% 38.3%

EBITDA margin 14.0% 15.1% 13.7% 12.9% 13.7%




Fig. 5. Śnieżka: Balance Sheet forecast

2014 2015 2016E 2017E 2018E

Current assets 157 155 189 177 175

Fixed assets 175 167 175 189 204

Total assets 333 322 364 366 379


bank debt 72 57 91 84 82


bank debt 4 0 1 1 1

Equity 203 203 188 193 205


Net debt 63 46 48 59 63


Fig. 6. Śnieżka: Cash flow forecast

2014 2015 2016E 2017E 2018E



CF from financing -55 -65 47 -48 -42

dividends -33 -39 -41 -41 -40

Net change in cash -10 -1 34 -18 -5



91

Poland Industrials

NOVEMBER 3, 2016, 17:00

STALPRODUKT RECOMMENDATION

BUY (MAINTAINED)

Long live zinc CURRENT PRICE: PLN430.5

TARGET PRICE: PLN545 (MAINTAINED)

Below we present excerpts from our recommendation as of 27/10/2016.

Equity story. The outlook for the zinc segment is significantly

improving, we think. First, the inevitable depletion of the concentrate in Stalprodukt’s ‘Pomorzany’ mine no longer represents a risk factor of high significance. This is due to the fact that a large part of the segment’s results are, it seems, generated by the smelting business, which is insensitive to ‘Pomorzany’s closure. Second, the just published new strategy for the zinc segment secures l-t outlook as it is based on guaranteed concentrate supplies (details below). 2Q16 was the last robust quarter for the electrical sheets segment though and we expect significant deterioration in 2H16. The European electrical sheets producers face significant problems due to low-priced (dumping) steel imports from the East, mainly China. The same problems apply to the profile segment, whose results are expected to slide.

3Q preview. Preliminary results released yesterday (EBIT:

PLN91.8mn, net profit:PLN74.6mn) suggest a decent quarter. We expect the company’s revenues at PLN791m, EBITDA at PLN130mn and EBITDA margin at 16.4%. We believe that 2H16 will be weaker mainly due to the deteriorating electrical sheets and profiles performance after their decent contribution in 1H16. Nevertheless, the zinc segment should keep the company’s operational results at a decent level.

Earnings outlook. We are increasing our estimates of the zinc

segment’s results after the ‘Pomorzany’ mine’s closure. Simultaneously, we are more turning sceptical on the electrical sheets and profiles segments due to the significant low-priced (dumping) steel imports from the East. All in all, while we are cutting EBITDA/EPS estimates for 2016/17E, our 2018E estimates are a tad higher.

Valuation & Recommendation. The zinc market’s attractive

prospects prompt us to maintain our Buy recommendation with TP at PLN545 (50/50 blend of DCF and comparative valuation methods). The DCF method points to a TP of PLN550 and the comparative valuation to PLN540.

STOCK PERFORMANCE





on issue date

12 month target


Hold 8-5-2016 429.0 454.0 3.7% 1.5

Buy 4-29-2016 292.0 351.0 46.9% 47.0

Buy 3-9-2016 272.3 321.0 7.2% 4.7

COMPANY DESCRIPTION

Stalprodukt is a leading manufacturer and exporter of highly processed steel products: electrical sheets, cold formed sections, road barriers and toroidal cores. It began to expand its business activities in 2013 with zinc and lead mining and production.


Shareholders agreement 65,9%

ArcelorMittal Poland 12.9%

ANALYST


+48 22 534 16 10

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes STP.WA / STP PW

Sales 3 128 3 080 3 166 3 180 Market capitalisation (PLNmn) 2 402


EBIT 292 379 299 241 Free float (%) 24.9%



1M 3M YTD

EV/EBITDA (x) 5.5 4.6 5.3 5.9 6.8% 20.6% 44.0%


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Fig. 1. Stalprodukt: 3Q16-2Q17 results’ preview


Sales 741.3 752.1 751.1 793.4 800.7 783.0 679.7 811.3 791.2 -1.2% -2.5% 797.6 791.6 791.6

EBITDA 89.0 63.5 110.2 108.8 121.0 95.5 114.2 174.0 129.6 7.2% -25.5% 118.9 114.1 113.1

EBITDA margin 12.0% 8.4% 14.7% 13.7% 15.1% 12.2% 16.8% 21.4% 16.4% 1.3 -5.1 14.9% 14.4% 14.3%

EBIT 55.1 29.5 74.5 73.0 85.1 59.7 80.2 136.5 91.8* 7.9% -32.8% 80.9 76.0 74.4

EBIT margin 7.4% 3.9% 9.9% 9.2% 10.6% 7.6% 11.8% 16.8% 11.6% 1.0 -5.2 10.1% 9.6% 9.4%

Net profit 26.0 24.6 42.0 60.2 66.0 51.8 65.7 114.5 71.6* 8.6% -37.4% 62.5 55.9 57.7

Net margin 3.5% 3.3% 5.6% 7.6% 8.2% 6.6% 9.7% 14.1% 9.1% 0.8 -5.1 7.8% 7.1% 7.3%

Source: Company data, DM BZ WBK estimates, * - published preliminary resutls

Fig. 2 Stalprodukt: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 3080 3080 0% 3166 3166 0% 3180 3180 0%

EBITDA 536.7 536.7 0% 456.4 456.4 0% 407.1 407.1 0%

EBIT 389.5 389.5 0% 300.3 300.3 0% 241.2 241.2 0%

Net profit 314.3 314.3 0% 229.7 229.7 0% 188.1 188.1 0%


Fig. 3. Stalprodukt: Valuation changes



Comparable valuation (based on 2016-2018E) 540 540 0%

Weighted valuation 545* 545* 0%

Source: Company data, DM BZ WBK estimates, * - DCF 50/ comparable 50

Fig. 4. Stalprodukt: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 2859 3128 3080 3166 3180

COGS 2499 2580 2488 2677 2749

Gross profit 360 548 592 490 431

SG&A -206 -214 -201 -205 -205

EBITDA 279 435 537 456 407


Net financial income (costs) -8 -4 16 -1 1


Income tax -36 -60 -76 -60 -46

Net profit 89 220 314 230 188

EBITDA margin 9.8% 13.9% 17.4% 14.4% 12.8%




Fig. 5. Stalprodukt: Balance Sheet forecast

2014 2015 2016E 2017E 2018E

Current assets 1211 1323 1448 1480 1510

Fixed assets 1934 1983 1972 2093 2189

Total assets 3145 3306 3420 3573 3699


bank debt 134 111 151 123 100


bank debt 92 84 78 78 78

Equity 1740 1964 1957 2121 2262


Net debt 57 -72 -46 -79 -126


Fig. 6. Stalprodukt: Cash flow forecast

2014 2015 2016E 2017E 2018E




Net change in cash -4 -27 -17 -66 -48



93

Poland Health Care

NOVEMBER 3, 2016 17:00

SYNEKTIK RECOMMENDATION

HOLD (PREV. BUY)

Weak radiopharma market CURRENT PRICE: PLN18.0


Equity story. A significant fall in the number of new tenders and

uncertainty among private healthcare service providers about the

future has caused a large drop in the market of diagnostic

devices. The whole market is c30% down y/y, which is bad news

for Synektik. Additionally, some tenders may be delayed till 1H17.

In the company’s second core segment – radiopharma - the

market seems to be stabilising, but at a low level. The new

PET/CT clinics are operating without or with small contracts, while

competition remains high. Moreover, the state’s NFZ fund is

differentiating reimbursements for radiopharma – the price for a

procedure using FDG is down to PLN2.7k from PLN3.0k, while

reimbursement for the procedures using ‘special’ radiopharma

settles at PLN4.0k. This should be positive for Synektik that has

the broadest portfolio of ‘special’ radiopharmaceuticals.

Financials. Following the 3Q16 results’ release, we cut our

forecasts for Synektik for 2016E (mostly in the distribution / IT

segment) and the coming years. We expect the distribution

segment to rebound in 2017-18. The radiopharma segment

should report a moderate growth rate in 2017 on a higher number

of procedures overall, better price of the ‘special’

radiopharmaceuticals and higher export sales.

3Q16 results review. The radiopharmacy segment reported

much better y/y results: sales reached PLN4.1mn (+35% y/y),

while EBITDA reached PLN1.3mn vs PLN0.4mn in 3Q15. The

gross margin stood at 39.9%. Distribution / IT segment sales

reported very weak results, visibly lower y/y - PLN9.9mn

revenues (-73% y/y) and EBITDA of PLN0.6mn vs PLN3.0mn in

3Q15. Operating CF in 3Q16 stood at a negative PLN3.5mn.



4% upside potential and causes us to cut our recommendation for

the stock to Hold. Our comparative valuation points to PLN11.4

per share.

STOCK PERFORMANCE





on issue date

12 month target


Buy 1-27-2016 17.9 22.0 -1.1% -13.4

COMPANY DESCRIPTION

Synektik is a healthcare company focused on radiology segment.


Melhus Company Limited 25.0

Altus mutual fund 15.7

Templeton Asset Management 10.0


Trigon mutual fund 7.8

PZU mutual fund 5.3

EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes SNTP.WA / SNT PW



EBIT -0.5 4.3 4.1 4.6 Free float (%) 68.5%

Net income -1.2 2.3 3.4 3.8 Avg. daily turnover 3M (PLNmn) 0.1

P/E (x) n.a. 65.6 44.5 40.6 Price performance

1M 3M YTD


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Fig. 1. Synektik: 3Q16 results preview


Sales 24.3 32.2 9.3 18.7 20.7 30.6 10.1 7.0 40.9 25.6 7.9 12.6 14.7 -64.0% 16.6%

EBITDA 4.2 7.0 1.0 2.0 2.3 3.3 0.3 -1.5 3.3 1.9 0.6 0.9 1.2 -64.9% 35.7%

EBITDA margin 17.2% 21.8% 11.2% 10.6% 11.4% 10.9% 2.7% -22.1% 8.0% 7.3% 7.4% 6.8% 7.9% -0.2 1.1

EBIT 3.4 6.2 0.3 0.5 1.3 2.7 -0.8 -2.6 2.2 0.8 0.0 0.3 0.6 -71.7% 78.3%

EBIT margin 13.9% 19.4% 2.9% 2.8% 6.2% 9.0% -8.1% -37.7% 5.3% 3.1% 0.5% 2.8% 4.2% -1.1 1.5

Net profit 2.9 4.7 0.3 0.4 0.8 1.6 -1.0 -2.9 2.5 0.3 -0.3 -0.3 0.4 -83.9% n.a.

Net margin 11.8% 14.7% 2.9% 2.3% 4.1% 5.3% -10.2% -41.6% 6.0% 1.1% -3.4% -2.4% 2.7% -3.3 5.1


Fig. 2. Synektik: Forecasts changes

PLNmn 2016E 2017E 2018E


Sales 57.5 87.8 -35% 75.7 91.4 -17% 81.8 102.4 -20%

EBITDA 6.4 7.9 -19% 6.3 9.3 -32% 6.8 10.3 -34%

EBIT 4.3 3.2 33% 4.1 4.4 -6% 4.6 5.2 -12%


Fig. 3. Synektik: Valuation changes




Fig. 4. Synektik: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 78.1 83.6 57.5 75.7 81.8

COGS 62.6 73.8 44.4 59.4 64.5

Gross profit 15.4 9.8 13.1 16.3 17.3

SG&A 10.6 10.7 10.8 12.2 12.8

Other operating income, net -0.1 0.4 2.0 0.0 0.0

EBITDA 8.7 3.9 6.4 6.3 6.8

Operating profit 4.8 -0.5 4.3 4.1 4.6

Net financial income (costs) -0.6 -0.6 -0.3 0.1 0.1

Profit before tax 4.2 -1.1 3.9 4.3 4.7

Income tax 1.1 0.1 1.6 0.8 0.9

Net profit 3.1 -1.2 2.3 3.4 3.8

Gross margin 19.8% 11.8% 22.7% 21.5% 21.2%

EBITDA margin 11.1% 4.7% 11.1% 8.3% 8.3%

Operating margin 6.1% -0.5% 7.4% 5.4% 5.6%

Net profit margin 4.0% -1.4% 4.1% 4.6% 4.6%


Fig. 5. Synektik: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 52.9 42.4 27.3 37.0 43.1

Fixed assets 53.4 62.0 66.9 67.0 66.9

Total assets 106.3 104.4 94.2 104.1 110.0


bank debt 4.7 4.1 4.1 4.1 4.1


bank debt 7.6 4.4 3.6 3.6 3.6

Equity 57.8 56.6 59.0 62.4 66.2

share capital 4.3 4.3 4.3 4.3 4.3



Net debt -18.8 -11.8 -4.5 -9.4 -13.8


Fig. 6. Synektik: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E

CF from operations 5.1 5.4 -0.4 7.3 6.6


CF from financing 0.7 -3.8 -0.8 0.0 0.0




95


November 3, 2016 17:00

TORPOL RECOMMENDATION

HOLD (MAINTAINED)

Backlog still tiny CURRENT PRICE: PLN11.32


Equity story. We raise our TP for Torpol by 13% and maintain

our Hold recommendation. The company is still suffering from a

tiny backlog. This is why 3Q16 results were uninspiring and we

also cut our profits projections for 2016 and 2017. On the other

hand, PKP PLK has recently started to distribute small- and mid-

sized railway contracts for railway bypass construction. This

shows that the long-awaited large-size deals for track

modernisation should finally get distributed to contractors. This is

why we think that the coming months might bring a backlog

recovery for Torpol. We also think the company should shortly

complete a dispute and cash in compensation from PKP PLK and

the city of Lodz (connected with delayed construction of the Lodz

Fabryczna project). Overall, Torpol’s outlook is mixed at the

moment, with uninspiring 2H16 and 2017 results prospects on the

one hand and possible backlog recovery (which may translate

into good results post 2017), and one-off gains on the other.

Financial forecast. We estimate the current backlog at

cPLN550-600mn, including PLN247mn in a contract likely to be

signed soon (best offer submitted). The weaker than originally

expected 9M16E margin is why we cut our profit projections for

2016E. Torpol’s tiny backlog is why we cut our sales and profit

estimates also for 2017. We continue to expect a negative

Operating CF this year, but much lower than originally expected.

Risks. Risks: 1) low backlog, 2) growth in construction material

prices at times of an accumulation of construction projects in the

railway sector, 3) foreign contractors putting pressure on margins

in the sector, 4) PKP PLK’s inefficiency in utilising EU funds and

distributing contracts to contractors, 5) low margins of newly

signed contracts, 6) results contraction post EU 2014-20 funds

utilisation.

Change in Valuation & Recommendation. We raise our TP for

Torpol to PLN11.4 as a net result of 1) the valuation horizon’s

forward shift, 2) changes in financial forecasts and cash flow

estimates, 3) incorporation into our valuation of the expected

PLN0.5 per share cash inflow as we expect that the company’s

dispute with PKP PLK and the city of Lodz about the Lodz

Fabryczna contract to end.

STOCK PERFORMANCE





on issue date

12 month target


Hold 8-9-2016 10.87 10.30 8.6% 7.9

Sell 5-5-2016 10.47 10.00 3.8% -0.1

COMPANY DESCRIPTION

Torpol is a contractor with focus on building railways.


Towarzystwo Finansowe Silesia 38.0

Nationale-Nederlanden pension fund 9.6

PKO mutual fund 8.6

ANALYST

Adrian Kyrcz (+48) 22 586 81 59

[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes TOR.WA / TOR PW

Sales 1,237.1 656.5 566.0 816.0 Market capitalisation (PLNm) 260


EBIT 43.3 11.3 6.7 22.8 Free float (%) 61.9%



1M 3M YTD


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Fig. 1. Torpol: 3Q16 results review


Sales 156.0 287.7 399.1 395.4 146.6 189.6 161.0 -60% -15%

GPOS 10.8 8.9 31.6 16.5 9.6 7.9 - - -

Margin 6.9% 3.1% 7.9% 4.2% 6.5% 4.2% - - -

EBITDA 7.8 7.3 28.0 12.7 7.1 3.4 - - -

EBIT 4.9 4.3 24.7 9.3 3.7 0.1 3.1 -78% -11%

Net profit 4.4 2.8 19.3 5.4 3.2 -0.6 1.3 -93% n.m.


Fig. 2. Torpol: Forecasts changes

2016E 2017E 2018E


Sales 656.5 656.5 0% 566.0 666 -15% 816.0 816.0 0%

EBITDA 25.1 32 -22% 21.6 29.6 -27% 37.8 38.4 -2%

EBIT 11.3 18.3 -38% 6.7 14.6 -54% 22.8 23.4 -2%

Net profit 7.7 12.7 -39% 3.0 8.5 -65% 16.4 16.3 1% Source: Company data, DM BZ WBK estimates

Fig. 3. Torpol: Valuation changes



Comparable valuation 4.8 7.3 -34% Source: Company data, DM BZ WBK estimates

Fig. 4. Torpol: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 771 1237 657 566 816

COGS 722 1169 624 537 771


SG&A 16 25 22 22 22


EBITDA 43 56 25 22 38




Income tax -5 -8 -2 -1 -4

Net profit 25 32 8 3 16

Gross margin 6.3% 5.5% 5.0% 5.1% 5.5%

EBITDA margin 5.6% 4.5% 3.8% 3.8% 4.6%




Fig. 5. Torpol: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 649 520 400 363 434

Fixed assets 116 156 166 164 162

Total assets 765 676 565 527 596


bank debt 46 20 20 0 0


bank debt 27 80 80 80 80

Equity 203 223 231 234 245


Net debt -120 -242 -54 -71 -51


Fig. 6. Torpol: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E

CF from operations 75 160 -162 33 -2



Net change in cash 95 149 -188 -3 -21



97


November 3, 2016 17:00

TRAKCJA RECOMMENDATION

BUY (MAINTAINED)

Growing contracts’ supply CURRENT PRICE: PLN12.52


Equity story. We remain positive on Trakcja. The sector’s key

investor, PKP PLK, has recently started the distribution process of

long awaited railway contracts. So far only a few mid-size

contracts had been distributed, however, it shows that the period

of contract shortage has probably come to an end. We think the

coming months might finally bring acceleration in the contract

distribution and, in turn, growth in Trakcja’s backlog. As we

expect most contracts to be structured based on the design&build

formula, we continue to believe that 2017 might bring y/y

contraction of the company’s recurring profits, with a visible

recovery already in 2018E. We cannot rule out, however, positive

one-offs in 2017E, including extra revenues connected with the

pending contracts, which might positively affect both cash flow

and profits next year.

3Q16E results preview. We expect Trakcja to post good results.

The company had already announced a PLN3.9mn provision that

was created in 3Q16 (headcount restructuring). Nevertheless, we

expect PLN19.5mn in net profit in 3Q16 (broadly the same y/y),

which is a solid profit level. Trakcja’s operating cash flow should

remain negative.

Financial forecast. We maintain our financial forecasts intact.

We do not include any-offs in 2017 in our projections. We think,

however, that the company might recognise some gains next year

due to 1) a release of provision connected to contacts and 2)

investor claims.

Triggers & Risks. Potential triggers: 1) signing new contracts

(PKP PLK has accelerated contract distribution), 2) expansion

onto new foreign markets (Scandinavia, Belarus), 3) one-off gains

(claims, provisions release). 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, 4) low

margin at the newly signed road contracts, 5) results contraction

post EU 2014-20 funds utilisation.

Change in Valuation & Recommendation. We increase our TP

for Trakcja by 2% to PLN14.4 as a result of the valuation’s

horizon shift forward. We see a fundamental upside, we maintain

our Buy recommendation.

STOCK PERFORMANCE





on issue date

12 month target


Buy 8-9-2016 12.30 14.10 5.8% 5.1

Buy 5-5-2016 12.10 15.50 1.7% -2.3

Buy 3-7-2016 12.60 15.50 -4.0% -3.1

Buy 1-27-2016 12.4 14.0 1.6% -6.7

Buy 11-23-2015 11.9 14.0 4.2% 15.2

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.


Comsa 30.8

Nationale-Nederlanden pension fund 9.95

PZU pension fund 8.5


EQUITY ANALYST

Adrian Kyrcz (+48) 22 586 81 59

[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes TRKP.WA / TRK PW

Sales 1,329.2 1,400.0 1,100.0 1,800.0 Market capitalisation (PLNm) 658


EBIT 76.7 70.6 46.3 85.6 Free float (%) 62.1%



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98

Fig. 1. Trakcja: 3Q16 results preview


Sales 231 334 332 433 140 339 398 1% 141%

GPOS 22.4 41.8 36.1 65.9 16.6 39.8 42.6 -5% 140%

Margin 9.7% 12.5% 10.9% 15.2% 11.8% 11.8% 10.7% - -

EBITDA 9.2 26.5 31.8 31.4 7.0 29.2 25.1 10% 315%

EBIT 3.1 20.4 25.3 27.8 1.5 23.7 25.1 16% n.m.

Net profit 1.5 15.9 19.8 14.5 0.4 17.6 19.5 11% n.m. Source: Company data, DM BZ WBK estimates

Fig. 2. Trakcja: Forecasts changes

2016E 2017E 2018E


Sales 1400 1400 0% 1100 1100 0% 1800 1800 0%

EBITDA 95 95 0% 72 72 -1% 112 112 0%

EBIT 71 71 -1% 46 46 1% 86 86 0%


Fig. 3. Trakcja: Valuation changes



Comparable valuation 13.0 12.8 2% Source: Company data, DM BZ WBK estimates

Fig. 4. Trakcja: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 1602 1329 1400 1100 1800

COGS 1400 1163 1270 1007 1638

Gross profit 202 166 130 93 162

SG&A 72 77 59 47 76


EBITDA 110 101 95 72 112




Income tax -18 -21 -12 -7 -15

Net profit 50 52 50 30 62

Gross margin 12.6% 12.5% 9.3% 8.5% 9.0%

EBITDA margin 6.8% 7.6% 6.8% 6.5% 6.2%




Fig. 5. Trakcja: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 726 792 826 722 1057

Fixed assets 720 713 720 715 710

Total assets 1446 1505 1547 1438 1767


bank debt 101 100 100 100 100


bank debt 101 80 80 80 80

Equity 675 726 761 771 818


Net debt 141 -67 29 24 43


Fig. 6. Trakcja: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E




Net change in cash 71 185 -96 5 -19



99


November 3, 2016 17:00

UNIBEP RECOMMENDATION

BUY (MAINTAINED)

Solid 2016-17E EPS momentum CURRENT PRICE: PLN 10.94

TARGET PRICE: PLN 12.5 (MAINTAINED)

Equity Story. The company is on good track to deliver our FY16

profit assumptions and beat projections for 2017E. Its well-

developed backlog and cost control should stay behind the net

profit’s 26% y/y growth in 2H16. In 2017 in turn, the company

should increase its net profit by a healthy 14% y/y, thanks to a

higher y/y contribution from the residential business. Overall, the

company is benefiting from the quite well performing general

construction business (in Poland and export markets), including

the booming residential construction market (Unibep is one of the

preferred contractors for the WSE developers). Signing two large-

size conditional contracts worth EUR94.6mn in Belarus is getting

delayed. However, we believe the deal’s finalisation will come

sooner rather than later. If so, the deal would constitute a

potential upside to our forecasts for 2017. Overall, we continue to

be positive on the stock.

3Q16E Results Preview. We expect Unibep to post good results

in 3Q16. We project flattish y/y sales and the margin at its 2Q16

level, which translates into a healthy 27% y/y net profit growth in

3Q16.

Financials. We maintain our financial forecasts intact. In 2H16

we forecast 26% y/y profit growth. In 2017, we project higher y/y

sales from the residential business and margins, implying 14%

rise of the bottom line. We estimate the company’s current

backlog to be recognised in 2017 at cPLN1.1bn. This is below our

next year’s sales projection, although we do expect the company

to sign new contracts in the coming months.

Triggers/Risks. Triggers: 1) the signing of new large-size

contracts in Belarus or Poland, 2) gradual profit improvement in

2016-17E, 3) entering new markets/countries. Risks: 1)

profitability of export contracts, especially in Germany and

Norway, for which Unibep had created provisions. Workforce

shortages are the main risk factor for the company because they

could exert pressure on its margin in the mid-term.


arrived at a 12-month TP of PLN12.5 per share. We maintain our

Buy recommendation.

STOCK PERFORMANCE





on issue date

12 month target


Buy 8-9-2016 11.6 12.5 -5.3% -6.0

Buy 5-5-2016 10.4 12.5 12.3% 8.3

Buy 1-27-2016 9.6 12.5 8.2% 0.8

Buy 10-30-2015 11.3 12.5 -15.3% -1.3

COMPANY DESCRIPTION

Unibep is a general contractor and residential projects developer. Company is focusiing on general construction works and roads construction.


Ms. Zofia Mikoluszko 25.1%

Ms. Zofia Iwona Skowronska 16.5%

Ms. Beata Maria Stajkowska 14.2%



EQUITY ANALYST

Adrian Kyrcz (+48) 22 586 81 59

[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes UNIP.WA / UNI PW

Sales 1,242.9 1,344.2 1,374.2 1,352.5 Market capitalisation (PLNm) 383.7


EBIT 23.5 39.7 45.5 41.1 Free float (%) 41.9%



3M 3M YTD


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Fig. 1. Unibep: 3Q16 results preview


Sales 249 326 309 359 221 280 309 0% 10%

GPOS 12.6 13.8 12.7 28.1 14.4 18.0 20.1 58% 11%

EBITDA 8.9 7.6 7.9 6.8 10.0 9.6 13.6 72% 42%

EBITDA margin 3.6% 2.3% 2.6% 1.9% 4.5% 3.4% 4.4% - -

EBIT 7.1 5.7 6.0 4.6 7.9 7.5 11.5 91% 54%

EBIT margin 2.9% 1.8% 2.0% 1.3% 3.6% 2.7% 3.7% - -

Net profit 4.8 5.3 6.1 7.1 5.2 8.8 7.7 27% -13%

Net margin 1.9% 1.6% 2.0% 2.0% 2.4% 3.2% 2.5% - - Source: Company data. DM BZ WBK estimates

Fig. 2. Unibep: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 1344 1344 0% 1374 1374 0% 1353 1352 0%

EBITDA 46 45.9 0% 52 51.7 0% 47 47 0%

EBIT 40 39.7 0% 45 45.5 0% 41 41 0%

Net profit 31 30.7 0% 35 35 0% 32 32 0%


Fig. 3. Unibep: Valuation changes




Fig. 4. Unibep: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 1080 1243 1344 1374 1353

COGS 1013 1176 1264 1287 1269


SG&A 35 40 41 41 42


EBITDA 32 31 46 52 47


Net financial income (costs) 2 6 -2 -2 -2


Income tax -7 -6 -7 -8 -7

Net profit 21 23 31 35 32

Gross margin 6.2% 5.4% 6.0% 6.3% 6.2%

EBITDA margin 3.0% 2.5% 3.4% 3.8% 3.5%




Fig. 5. Unibep: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 494 557 586 617 632

Fixed assets 172 210 215 215 215

Total assets 666 767 800 832 847


bank debt 28 22 22 22 22


bank debt 38 58 58 58 58

Equity 203 217 246 271 291


Net debt -60 -50 3 -18 -41


Fig. 6. Unibep: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E




Net change in cash -22 0 -53 21 23



101

Poland Industrials

NOVEMBER 3, 2016 17:00

UNIWHEELS RECOMMENDATION

BUY (MAINTAINED)

Moved up a gear CURRENT PRICE: PLN194


Equity story. Uniwheels is one of Europe’s leading manufacturers of alloy wheels for the automotive industry (3rd player in Europe in terms of turnover) and for the aftermarket (European leader). The automotive segment secures roughly 80% of the company’s sales, whereas the accessory segment (aftermarket) the remaining 20%. Taking advantage of the expanding EU automotive industry, the company caught the wave of opportunity and is riding it high. The expected strong FY16E financial performance with more to come in FY17E supports the thesis. We expect Uniwheels to benefit from both (1) new capacity expansion (full year impact already in 2017), (2) product mix shift towards more complex alloy wheels and (3) better production effciency The brand new production plant started to contribute to the total wheel output in May 2016. The estimated production output for 2016 totals c0.5mn units. Next year, the company plans to reach almost 2mn units in output, which would bring the group’s total wheel output close to 10mn units, we estimate. 3Q16 should be inflated by additional c200k in wheel output from the new factory. We expect the remaining 300k wheels to be manufactured in 4Q16. Dilution of fixed costs is attributable to the economy of scale.

European automotive sector. The OEM-dedicated alloy wheel market is growing thanks to a rebound in car sales in Europe and the process of substituting steel wheels with aluminium. The European auto market maintained its solid pace of growth as the new passenger car registrations in the EU rose 4.8% y/y in 3Q16 and +8% y/y on a ytd basis. In nominal terms, 3.4mn units were registered in 3Q16 (11.2mn units ytd). So far there were no obvious signs of contracting car demand from the UK customers (following the decision to leave the EU in June 2016). Such a pace of growth might be difficult to be maintained and we consistently argue that even a flattish market allows Uniwheels to successfully utilise its capacities. Beyond that, the company is currently mulling new potential locations for a new factory with an estimated annual 2mn in wheel capacities. That, in the long run, should allow for geographical diversification and further top-line expansion.

Strategic review of the controlling shareholder. The majority shareholder is reviewing strategic options regarding the controlling stake (61.29%) in the company. All scenarios are possible, which might put pressure on the market price, though we expect a happy end at the end of a day (possible purchase by a new industry investor).

Changes in Forecasts. We left our top-line assumptions (both for FY16 and subsequent years) roughly intact compared with our recent forecasts. As far as the lower lines of P&L are concerned, we raise our estimates due to the better-than-anticipated raw material prices (strong aluminum price falls reported in 2Q16). We expect this to inflate the 2H16 profitability and, to some extent, transfer the FY17E and onward. That said, we forecast FY17E EBITDA at EUR84mn, which paired with the forecast net debt at cEUR35mn at the end of 2016E, implies FY17E EV/EBITDA ratio at 6.8x.

3Q16E Results’ Preview. We expect the company to report the following financial results in 3Q16E: sales – EUR111mn (8% y/y), EBITDA – EUR16mn (18% y/y; 14.6% margin), EBIT – EUR12mn (21.5% y/y; 11% margin) and net profit – EUR8.4mn (-1.8% y/y; 7.5% margin). Outcome: POSITIVE

Valuation & Recommendation. We raise our DCF-derived 12-month TP to PLN222 per share, which implies a 15% upside potential. A comparable valuation points to PLN220 per share. We thus maintain our Buy recommendation.

STOCK PERFORMANCE





on issue date

12 month target


Buy 8-5-2016 160.0 178.0 24.4% 22.2

Hold 4-29-2016 145.0 158.0 10.3% 10.4

Buy 1-27-2016 122.5 150.0 18.4% 8.2

COMPANY DESCRIPTION

Uniwheels is one of the leading manufacturers of alloy wheels to the automotive industry and for the aftermarket.


Uniwheels Holding Ltd 61.29%

EQUITY ANALYST

Michal Sopiel (+48) 22 586 82 33

[email protected]

Company Data

EURmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes UNW.WA / UNW PW



EBIT 43.9 53.9 64.0 65.5 Free float (%) 38.7%



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Fig. 1. Uniwheels: 3Q16E results preview

EURmn 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16E y/y q/q

Sales 85.7 85.5 92.2 99.2 104.8 112.2 103.1 116.3 109.1 113.9 111.3 7.9% -2.3%

EBITDA 9.5 11.9 10.1 14.4 13.2 14.7 13.7 17.1 14.1 22.1 16.2 18.3% -26.7%

EBITDA margin 11.0% 14.0% 10.9% 14.5% 12.6% 13.1% 13.3% 14.7% 12.9% 19.4% 14.6% 1.3 -4.8

EBIT 6.5 7.8 6.6 10.9 9.6 10.9 10.0 13.3 10.2 18.2 12.2 21.5% -32.9%

EBIT margin 7.5% 9.1% 7.1% 11.0% 9.2% 9.7% 9.7% 11.5% 9.3% 16.0% 11.0% 1.2 -5.0

Net profit 4.4 7.2 4.3 6.9 13.4 5.9 8.5 12.8 10.5 18.6 8.4 -1.8% -54.9%

Net margin 5.1% 8.4% 4.6% 7.0% 12.8% 5.3% 8.3% 11.0% 9.6% 16.3% 7.5% -0.7 -8.8


Fig. 2. Uniwheels: Forecasts changes

EURmn 2016E 2017E 2018E


Sales 456 465 -2% 526 519 1% 573 549 4%

EBITDA 71 64 12% 84 76 11% 86 78 10%

EBIT 54 46 16% 64 56 15% 65 58 13%

Net profit 51 44 17% 61 53 15% 63 55 14%


Fig. 3. Uniwheels: Valuation changes



Comparable valuation (based on 2016-2018E) 220 171 29%


Fig. 4. Uniwheels: Income statement forecast

EURmn 2014 2015 2016E 2017E 2018E

Sales revenues 363 436 456 526 573


EBITDA 46 59 71 84 86





Net profit 23 41 51 61 63

EBITDA margin 12.7% 13.5% 15.6% 16.0% 15.0%




Fig. 5. Uniwheels: Balance sheet forecast

EURmn 2014 2015 2016E 2017E 2018E

Current assets 105 138 136 186 231

Fixed assets 158 186 234 218 202

Total assets 263 324 370 404 433


bank debt 38 10 14 14 63


bank debt 73 40 59 54 0

Equity 83 200 231 266 298

share capital 115 198 167 193 223



Net debt 90 10 34 -6 -45


Fig. 6. Uniwheels: Cash flow forecast

EURmn 2014 2015 2016E 2017E 2018E



CF from financing, incl. 3 7 3 -31 -36

dividends paid 0 0 -20 -25 -31

Net change in cash 12 19 0 35 33



103

Poland Health Care

NOVEMBER 3, 2016 17:00

VOXEL RECOMMENDATION

BUY (MAINTAINED)

On the right path CURRENT PRICE: PLN19.75


Equity story. Speculations about a possible new majority

shareholder and tender call for Voxel have not materialised

(maybe yet), but meanwhile the company has stabilised its

financial results and visibly reduced its net debt. In our view , its

stable and high OpCF, together with a lower debt level, offers

some space for potential acquisitions and/or dividend payout.

Moreover, the company should soon decide on its subsidiary

Exira – potential divestment would be, in our view, positive as the

Gamma Knife device has been underutilised so far. We see the

biggest risk for Voxel in changes to public healthcare financing,

but due to the capex-intensive nature of the diagnostics business,

there is little chance that public clinics will replace 100% of their

private counterparts.

Financials. We assume Voxel will manage to secure NFZ

contracts for Katowice (in 2017E) and Opole (in 2018E). We

expect Voxel to perform 8.0k PET-CT procedures in 2017E

(including 0.8k in Katowice) and 8.9k procedures in 2018E

(including 0.8k in Opole). In the distribution / IT business, after a

very weak 2016 (market c30% down y/y), we expect a rebound in

2017E. Overall, we expect the EBITDA margin to be stable at 22-

23% with some upside related to better utilisation of the devices.

The company trades at a 2017E and 2018E EV/EBITDA of 6.0x

and 5.4x, which is undemanding, in our view. It trades at a

discount to Synektik and at an average multiple of recent

transactions.

3Q16 results preview. We expect a solid set of quarterly results,

especially in the medical services segment (settlement of surplus

services), but slightly weaker y/y on behalf of the lower sales in

the Alteris subsidiary (difficult public market, much lower number

of tenders for new diagnostic devices). We see PLN21.2mn (+3%

y/y) in sales and 27.5% gross margin in the medical services

segment and PLN7.7mn in revenues (-30% y/y) delivered by

Alteris. We assume the SG&A costs at PLN4.2mn vs PLN4.0mn

in 3Q15.


arrived at a 12-month TP of PLN25.8 per share. The TP implies a

31% upside potential, which caused us to maintain our Buy

recommendation. Our comparative valuation points to PLN29.9

per share.

STOCK PERFORMANCE





on issue date

12 month target


Buy 1-27-2016 21.4 26.6 -7.2% -19.6

COMPANY DESCRIPTION

Operator of medical diagnostic clinics and distributor of radiology devices.


Voxel International 60.5

PZU mutual fund 7.4

First Private Equity Fund 4.9

Allianz pension fund 5.1

EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes VOXP.WA / VOX PW



EBIT 20.4 17.0 21.4 22.1 Free float (%) 67.0%



1M 3M YTD

EV/EBITDA (x) 7.0 7.5 6.0 5.4 7.4% 11.4% -5.5% Source: Company data, DM BZ WBK estimates

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Fig. 1. Voxel: 3Q16 results preview


Sales 32.9 25.7 21.4 22.7 25.2 33.6 26.0 30.6 30.4 45.1 28.7 30.8 29.9 -1.6% -2.9%

EBITDA 3.6 4.3 5.0 2.9 2.6 1.4 7.0 9.1 8.3 9.2 5.7 7.3 7.7 -6.7% 5.8%

EBITDA margin 10.9% 16.7% 23.6% 12.6% 10.5% 4.1% 26.8% 29.7% 27.3% 20.4% 20.0% 23.8% 25.9% -1.4 2.1

EBIT 1.0 1.7 2.4 0.1 -0.2 -1.3 4.1 5.2 5.0 6.0 2.6 4.2 4.6 -7.8% 10.0%

EBIT margin 3.1% 6.6% 11.1% 0.4% -0.7% -3.9% 15.7% 17.0% 16.6% 13.4% 9.1% 13.7% 15.5% -1.0 1.8

Net profit 0.4 0.6 1.3 -0.9 -1.1 -3.9 3.2 3.3 3.6 4.3 1.5 2.9 3.1 -14.5% 6.6%

Net margin 1.3% 2.5% 6.2% -3.7% -4.5% -11.5% 12.2% 10.6% 12.0% 9.5% 5.3% 9.5% 10.4% -1.6 0.9


Fig. 2. Voxel: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 125.3 132.1 -5% 144.8 148.4 -2% 154.2 157.1 -2%

EBITDA 29.4 28.9 2% 34.0 33.3 2% 35.0 35.2 -1%

EBIT 17.0 15.4 11% 21.4 19.5 10% 22.1 21.1 5%


Fig. 3. Voxel: Valuation changes




Fig. 4. Voxel: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 102.9 132.0 125.3 144.8 154.2

COGS 83.3 96.1 88.8 102.7 110.8

Gross profit 19.6 36.0 36.5 42.0 43.4

SG&A 19.9 18.5 20.9 20.6 21.3


EBITDA 11.9 33.5 29.4 34.0 35.0



Profit before tax -3.7 17.8 14.2 18.4 19.8

Income tax 0.8 3.4 2.9 3.5 3.8

Net profit -4.5 14.3 11.4 14.9 16.0

Gross margin 19.1% 27.2% 29.1% 29.0% 28.1%

EBITDA margin 11.6% 25.4% 23.5% 23.5% 22.7%


Net profit margin -4.4% 10.9% 9.1% 10.3% 10.4%


Fig. 5. Voxel: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 42.6 45.7 86.2 96.2 105.3

Fixed assets 172.0 166.4 161.6 158.1 154.7

Total assets 214.6 212.1 247.8 254.2 259.9


bank debt 21.1 33.5 33.5 33.5 33.5


bank debt 35.3 7.4 35.0 25.0 15.0

Equity 97.6 111.1 122.5 137.5 153.5

share capital 10.5 10.5 10.5 10.5 10.5



Net debt 50.4 27.4 12.9 -2.3 -19.1


Fig. 6. Voxel: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E

CF from operations -1.7 26.1 22.1 24.4 26.3

CF from investment 1.6 -5.1 -7.6 -9.1 -9.5

CF from financing 0.2 -16.3 27.6 -10.0 -10.0




105

Poland Industrials

NOVEMBER 3, 2016 17:00

WIELTON RECOMMENDATION

BUY (MAINTAINED)

Increased bet CURRENT PRICE: PLN12.55


Equity story. Following Fruehauf’s acquisition in 2015, Wielton entered a growing path of operational performance, which translated into a solid financial performance in 1H16. We expect this positive momentum to stay in place in 2H16 as well. Based on our assumptions, the company has still room for organic growth thanks to bigger capacities. Statistics data point to a positive market environment. Based on the figures revealed by PZPM, first registrations of trailers and semi-trailers (in the segment of gross combination mass of over 3.5kt) grew c28% y/y in Poland in 2016. Wielton’s y/y growth pace exceeded the market’s and amounted to c39% y/y (accounting for a market share of c15.5%). As far as the EU27 market is concerned, data presented by ACEA point to an approx. 19% y/y rise in HCV first registrations, which should drive sale volumes of trailers and semi-trailers. We anticipate further sales growth as Wielton eyes growth in its market share in Italy to 20% (currently 4.4%) within five years. Moreover, Southern European countries are among the new potential target markets with potential growth options embedded in Eastern European sales. These should be additionally supported by broadening of the product portfolio and the company taking advantage of sales synergies between Fruehauf and Wielton.

Growing by innovation. Wielton counts on its innovative products as the main pillar for ensuring its offer’s competitiveness. The planned (1) automated welding positions, (2) KLT anticorrosive and painting and (3) assembly lines are expected to allow for higher sales volumes i.a. due to the extended product portfolio. Total CAPEX should total close to PLN40mn and should be incurred in FY16, while the new anticorrosion and welding lines should come into operations already in FY17.

Triggers/risks. On the side of opportunities, we would like to point out the possible shift in the sales mix towards more profitable products. The company might consider an acquisition or any other form of cooperation allowing for the introduction to the offer of refrigerated semi-trailers. There are also some unexplored, though very competitive and tough markets (for instance, Germany). Any significant rise in volumes on one of these might have a positive effect on both the group’s operational and financial performance. We attribute the key risks to contraction of demand for HCV and significant PLN strengthening vs EUR, which would undermine Wielton’s product competitiveness.

Changes in Forecasts. We adjusted our forecasts for the full consolidation of Fruehauf. Taking into account the company’s higher-than-expected operational performance in 1H16, we increased our FY16E assumptions on production output, which positively affected the forecast financials starting with 2016.

3Q16E Results’ Preview. We expect the company to report the following financial results in 3Q16E: sales – PLN343mn (103% y/y), EBITDA – PLN30mn (94% y/y; 8.7% margin), EBIT – PLN23.6mn (108% y/y; 6.9% margin) and net profit – PLN16.8mn (134% y/y; 4.9% margin). Outcome: POSITIVE

Valuation & Recommendation. We raise our DCF-derived 12-month TP to PLN16.5 per share, which implies a 30% upside potential. A comparable valuation points to PLN13.3 per share. We thus reiterate our Buy recommendation for the stock.

STOCK PERFORMANCE





on issue date

12 month target


Buy 8-5-2016 9.3 10.4 40.5% 38.3

Hold 4-29-2016 8.2 8.5 14.2% 14.3

Buy 4-7-2016 7.3 8.5 12.1% 11.2

Hold 1-27-2016 6.3 7.3 15.4% 6.2

COMPANY DESCRIPTION

Wielton is Poland biggest’s semi-trailers and trailers producer and one of the 10 leading producers in Europe.


MP Inwestors FIZAN 37.62%

MPSZ Sp. z o.o. 13.35%

VESTA FIZAN 10.68%

Łukasz Tylkowski 9.72%

AVIVA Investors TFI 6.62%

EQUITY ANALYST

Michal Sopiel (+48) 22 586 82 33

[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes WLTP.WA / WLT PW

Sales 630 1187 1417 1478 Market capitalisation (PLNmn) 757.7


EBIT 45 81 90 93 Free float (%) 37.9%



1M 3M YTD


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Fig. 1. Wielton: 3Q16E results preview

PLNmn 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16E 3Q16E y/y q/q

Sales 164.6 150.6 147.4 158.8 158.3 119.7 138.4 180.8 168.7 142.4 175.2 376.6 342.7 103.1% -9.0%

EBITDA 17.0 11.6 10.4 11.3 14.9 4.4 7.4 11.0 15.4 27.3 18.7 37.5 29.9 93.7% -20.2%

EBITDA margin 10.3% 7.7% 7.1% 7.1% 9.4% 3.6% 5.3% 6.1% 9.2% 19.2% 10.7% 10.0% 8.7% -0.4 -1.2

EBIT 13.2 8.0 6.8 7.6 11.3 0.7 3.6 7.0 11.3 23.0 14.3 31.2 23.6 108.4% -24.3%

EBIT margin 8.0% 5.3% 4.6% 4.8% 7.2% 0.6% 2.6% 3.8% 6.7% 16.2% 8.1% 8.3% 6.9% 0.2 -1.4

Net profit 10.6 5.4 2.7 8.7 7.2 5.9 2.9 3.1 7.2 20.4 10.0 24.2 16.8 133.9% -30.4%

Net margin 6.5% 3.6% 1.9% 5.5% 4.5% 4.9% 2.1% 1.7% 4.3% 14.4% 5.7% 6.4% 4.9% 15.2% -23.5%


Fig. 2. Wielton: Forecasts changes

PLNmn 2016E 2017E 2018E


Sales 1186.5 728.6 63% 1416.7 799.7 77% 1477.7 842.0 75%

EBITDA 103.9 72.9 43% 116.2 81.0 44% 120.3 91.3 32%

EBIT 81.4 54.0 51% 89.8 59.7 50% 93.2 69.5 34%

Net profit 53.9 40.2 34% 57.4 43.7 31% 65.1 52.3 25%


Fig. 3. Wielton: Valuation changes




Fig. 4. Wielton: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 584 630 1187 1417 1478

COGS 493 543 1005 1200 1253

Gross profit 91 87 181 216 225

SG&A 66 65 105 126 131

Other operating income, net 1 23 6 -1 -1

EBITDA 41 61 104 116 120




Income tax -17 4 18 20 21

Net profit 25 34 54 57 65

Gross margin 15.6% 13.8% 15.3% 15.3% 15.2%

EBITDA margin 7.0% 9.7% 8.8% 8.2% 8.1%




Fig. 5. Wielton: Balance sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 210 213 525 441 504

Fixed assets 172 276 323 319 329

Total assets 382 489 848 759 833


bank debt 22 51 55 52 50


bank debt 52 85 81 78 106

Equity 182 216 268 290 326



Net debt 63 130 73 85 64


Fig. 6. Wielton: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E



CF from financing, incl. -25 32 -11 -83 -3

dividends paid -18 -14 -17 -27 -29

Net change in cash -7 -7 58 -19 47



107


November 3, 2016 17:00

WORK SERVICE RECOMMENDATION

HOLD (MAINTAINED)

Waiting for improvement CURRENT PRICE: PLN11.00


Equity story: We uphold our Hold recommendation and cut by 14%

our 12M TP to PLN12.6 on the back of 13%/8% lower EBITDA

forecasts in 2016/17, respectively. Work Service continues to struggle

to meaningfully cut its SG&A costs, which hamper its profitability.

Following the completion of several takeovers in 2013/15, Work

Service failed to deliver all the expected synergies. Its total gross

margin fell 59/57bps in 2014/15 and the company lost control over its

operating costs due to a fast rollout of its business structure. In this

way, the EBITDA margin fell to just 4.0% in 2016E. Despite this, Work

Service should further benefit from the double-digit growth of the CEE

temporary job market. The company is still likely to suffer from its

inefficient business structure though. Nevertheless, we expect some

improvement in this matter, although not enough to justify the current

valuation of 2017E PE at 19x and 2017E EV/EBITDA at 8x , in our

view.

Financials: We expect Work Service to grow its top line by 15% y/y

to PLN3.0bn and PLN3.4bn in 2017/18E, respectively. While we

expect the gross margin to gradually decline 20bps in both years, we

implemented some effects of the on-going reorganisation, which

should lead to a 10bps decrease of the SG&A/sales ratio in

2017/18E, respectively. Overall, we do not expect a significant

improvement of EBITDA and the net profit margin until we see a sign

of a notable margin rebound in the quarterly results.

3Q16 preview. We expect Work Service to report a 20% y/y growth

in sales to PLN659mn. The gross profit margin should rise 30bps to

11.6%, in line with the previous quarterly trends, leading to a gross

profit of PLN76mn (+23% y/y). We assumed that the ineffective

business structure should still generate additional costs, thus we

expect the SG&A/sales ratio to grow 40bps to 7.5% in 3Q16. We

expect the company’s financial costs to remain high at PLN8mn, the

minorities share at PLN5mn. This means that the net profit should

come in at a low level again of just PLN10mn (+18% y/y; margin just

at 1.5%). Outcome: NEUTRAL.

Change in valuation & recommendation. Our DCF model points to

a 12-month TP of PLN12.6/share. Our comparable valuation points to

PLN11.5/share.

STOCK PERFORMANCE





on issue date

12 month target


Hold 1/27/2016 12.6 14.6 -11.0% -23.3

Hold 11/14/2014 18.8 19.0 -32.9% -14.2

U/R 10/28/2014 18.0 n.a. 4.2% 5.3

Buy 6/8/2014 15.3 19.0 17.9% 16.9


ProLogics 28.4%

WS Invest. 21.1%

Mr. Tomasz Misiak 14.7%

Mr. T. Hanczarek 5.0%

MetLife pension fund 5.0%

COMPANY DESCRIPTION

Work Service is the largest HR services company in Poland, with rising regional exposition in CEE and Germany.

EQUITY ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes WSE.WA / WSE PW



EBIT 92 87 100 111 Free float (%) 30.6%



1M 3M YTD

EV/EBITDA (x), adj. 16.2 9.0 7.8 6.6 -5.9% 9.3% -24.0% Source: Company data, DM BZ WBK estimates

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Fig. 1. Work Service: 3Q16 results preview

PLNmn 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16E y/y (%) q/q (%)

Sales 239 269 346 390 488 516 475 503 549 611 592 611 659 20.0% 7.7%

EBITDA 13 20 18 18 24 39 19 19 28 37 20 20 30 7.5% 54.5%

EBITDA margin 5.2% 7.6% 5.2% 4.7% 4.8% 7.5% 4.0% 3.9% 5.2% 6.1% 3.4% 3.2% 4.6% -54 140

EBIT 11 19 16 16 21 36 16 17 25 33 17 15 26 3.2% 68.5%

EBIT margin 4.7% 7.1% 4.7% 4.1% 4.3% 6.9% 3.4% 3.3% 4.6% 5.5% 2.8% 2.5% 4.0% -64 143

Net profit 4 14 11 3 5 16 10 0 8 9 2 1 10 17.5% 7x

Net margin 1.9% 5.1% 3.3% 0.8% 1.1% 3.2% 2.1% 0.0% 1.5% 1.6% 0.3% 0.2% 1.5% -3 123


Fig. 2. Work Service: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 2,576 2,307 11.7% 2,963 2,458 20.6% 3,407 2,624 29.8%

EBITDA 104 120 -13.4% 118 128 -7.6% 131 132 -0.1%

EBIT 87 107 -18.5% 100 113 -12.0% 111 116 -3.9%

Net profit 24 52 -54.0% 39 59 -34.1% 48 62 -22.3% Source: Company data, DM BZ WBK estimates

Fig. 3. Work Service: Valuation changes




Fig. 4. Work Service: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 1,740 2,137 2,576 2,963 3,407

COGS 1,536 1,899 2,279 2,627 3,027

Gross profit 203 238 297 336 380

SG&A 112 160 208 236 268

Other operating income, net 2 (14) 2 - -

EBITDA 99 104 104 118 131




Income tax 26 38 33 35 43

Net profit 36 28 24 39 48

Gross margin 11.7% 11.1% 11.5% 11.3% 11.1%

EBITDA margin 5.7% 4.9% 4.0% 4.0% 3.9%




Fig. 5. Work Service: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Currentassets 455 532 672 756 848

Fixedassets 420 589 599 603 609

Totalassets 875 1,121 1,271 1,359 1,457

Currentliabilities 435 500 628 705 794

bankdebt 70 84 84 84 84

Long-termliabilities 97 292 292 264 224

bankdebt 9 148 148 120 80

Equity 307 286 308 347 395

sharecapital 7 8 7 7 7

MinorityInterest 36 44 44 44 44

Totalliabilities 875 1,121 1,271 1,359 1,457

Netdebt 94 318 242 203 157


Fig. 6. Work Service: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E







109

Poland Utilities

November 03, 2016 17:00

ZE PAK RECOMMENDATION

HOLD (PREV. U/R)

In the limbo CURRENT PRICE: PLN12.35

TARGET PRICE: PLN13.20 (PREV. U/R)

Equity Story. ZE PAK operates the old and dirty (both negative)

lignite-fired units, some of which must be shut down soon. ZE

PAK’s capacity is set to shrink 24% in 2018 and further 26% by

2020. The company has achieved substantial progress in cost

optimisation and today is exploiting its lignite units extensively,

allowing for today’s strong set of results. However, ZE PAK,

which owns 7% of the Polish generation fleet, spends nothing on

capex (it had just called off its gas-fired investment), so that we

are convinced that the company’s current positive cash flows are

just a diversion from a likely heavy-capex cycle. Finally, the

privately-owned lignite-fired units of ZE PAK are effectively eating

up other state utilities’ margins – in light of official trend aimed at

the state taking control of the whole utility sector, changes in ZE

PAK’s shareholder structure would not come surprising to us.

Financials. We apply a stable price of electricity at PLN160/MWh

in the entire forecasting period, just as the CO2 certificate price at

EUR6/t. Exploitation of the soon-to-be-closed units allows for a

temporarily high EBITDA, seen to fall 35% in 2018E. In the

meantime, the real lack of capex should trigger in 2016-18E

decent NetFCF, resulting in ZE PAK’s YE2018E net debt at a

mere PLN42mn. While 3Q16E should come in barely changed

q/q (EBITDA at PLN150mn), repairs of Patnow II in 4Q16 should

erode ZE PAK’s 4Q16E EBITDA by some PLN40mn q/q –

investors should be prepared for a small disappointment, ahead

of the last strong year 2017.

Triggers / Risks. Implementation of market support schemes

should be viewed as a major risk to ZE PAK, as these may erode

the wholesale electricity price. The CO2 price had recently rallied

50% from its bottom at EUR4/t and any further growth would be

very bad news for the company.

Valuation & Recommendation. DCF model implies ZE PAK’s

12-month TP at PLN13.2 per share, which implies a 5% upside

potential. Our comparative valuation points to ZE PAK’s share

price of PLN34, but we disregard this because of the unique

character of the 2016-18 period. We reinstate the stock as Hold.

STOCK PERFORMANCE





on issue date

12 month target


Under Review 5-16-2016 11.7 n.a. 7.7% 4.2

Sell 1-27-2016 8.1 6.5 45.2% 36.9

Sell 1-22-2016 8.3 6.5 -2.3% -2.8

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.


Zygmunt Solorz-Żak 51.55%

ING Pension Fund 9.97%

ANALYST


[email protected]

Company Data

PLNmn 2015 2016E 2017E 2018E Reuters/Bloomberg codes ZEP.WA / ZEP PW



EBIT 116 366 413 227 Free float (%) 48.4%



1M 3M YTD

EV/EBITDA (x) 3.9 2.8 2.1 3.3 8,8% 4.7% 37.2% Source: Company data, DM BZ WBK estimates

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Fig. 1. ZE PAK: 3Q16 results preview


Sales 690 747 668 677 627 709 755 752 747 693 680 687 679 -9.1% -1.1%

EBITDA 216 46 169 141 80 117 130 93 115 156 175 153 150 30.2% -2.0%

EBITDA margin 31.3% 6.1% 25.4% 20.8% 12.7% 16.6% 17.2% 12.4% 15.4% 22.5% 25.7% 22.3% 22.1% 6.7 -0.2

EBIT 128 46 80 49 -11 34 38 -4 20 46 114 105 102 405.0% -2.9%

EBIT margin 18.6% 6.1% 12.0% 7.3% -1.7% 4.9% 5.0% -0.6% 2.7% 6.6% 16.8% 15.3% 15.0% 12.3 -0.3

Net profit 103 19 54 38 -19 10 34 -20 6 29 75 65 63 935.7% -2.8%

Net margin 14.9% 2.5% 8.0% 5.6% -3.1% 1.3% 4.5% -2.6% 0.8% 4.2% 11.0% 9.5% 9.3% 8.5 -0.2

Source: Company data, BZWBK Brokerage estimates

Fig. 2. ZE PAK: Forecast changes

PLNmn 2016E 2017E 2018E


Sales 2,863 n.a. n.a. 2,920 n.a. n.a. 2,374 n.a. n.a.



Net profit 248 n.a. n.a. 315 n.a. n.a. 169 n.a. n.a. Source: Company data, BZWBK Brokerage estimates

Fig. 3. ZE PAK: Valuation changes


DCF valuation 13.2 n.a. n.a.

Comparable valuation (based on 2016-2018E)* 33.7 n.a. n.a. Source: Company data, BZWBK Brokerage estimates. * we disregard implications of comparable valuation due to unique character of years 2016-17 – lack of capex whatsoever, units closing in 2017.

Fig. 4. ZE PAK: Income statement forecast

PLNmn 2014 2015 2016E 2017E 2018E

Net sales 2,680 2,978 2,863 2,920 2,374

COGS 2,172 2,483 2,286 2,302 1,975

Gross profit 508 495 577 617 400

EBITDA 508 495 577 617 400




Income tax 20 17 63 75 40

Minorities -4 11 3 5 3

Net profit 82 61 248 315 169

EBITDA margin 18.9% 16.6% 20.2% 21.1% 16.8%




Fig. 5. ZE PAK: Balance Sheet forecast

PLNmn 2014 2015 2016E 2017E 2018E

Current assets 1,182 1,439 1,230 1,372 1,422

Fixed assets 5,686 5,730 5,622 5,566 5,516

Total assets 6,868 7,168 6,852 6,938 6,939


bank debt 349 349 349 349 349

Long-term liabilities 1,842 2,083 1,542 1,362 1,364

bank debt 867 1,000 500 300 500

Equity 3,820 3,819 4,068 4,322 4,430

share capital 102 102 102 102 102


Net debt 755 686 373 42 91


Fig. 6. ZE PAK: Cash flow forecast

PLNmn 2014 2015 2016E 2017E 2018E



CF from financing, incl. 116 61 -503 -266 136

dividends -35 -61 0 -61 -61




111

Dom Maklerski BZ WBK

Jana Pawla II Avenue 17 00-854 Warszawa

fax. (+48) 22 586 81 09

Equity Research Department

Dariusz Górski, Director, Equity Research tel. (+48) 22 586 81 00 [email protected] Strategy, Banks, Financials Paweł Puchalski, CFA, Head of Equity Research Team tel. (+48) 22 586 80 95 [email protected] Telecommunications, Metals & Mining, Power

Grzegorz Balcerski, Securities Broker, Investment Adviser tel. (+48) 22 534 16 10 [email protected] Research Associate Tomasz Kasowicz, Equity Analyst [email protected] Oil&Gas, Chemicals Łukasz Kosiarski, Equity Analyst tel. (+48) 22 586 82 25 [email protected] Media, IT, IT distribution, Video Games, Health Care

Adrian Kyrcz, Equity Analyst tel. (+48) 22 586 81 59 [email protected] Construction, Real Estate

Adam Milewicz, Equity Analyst, Securities Broker tel. (+22) 22 586 81 55 [email protected] Oil&Gas, Chemicals Tomasz Sokołowski, Equity Analyst tel. (+48) 22 586 82 36 [email protected] Pharma, Retail Michał Sopiel, Equity Analyst tel. (+48) 22 586 82 33 [email protected] Industrials, TSL, Quantitative Analysis

Sales & Trading Department

Piotr Żagan, Head tel. (+48) 22 586 80 84 [email protected]

Robert Chudala tel. (+48) 22 586 85 14 [email protected] Alex Kamiński tel. (+48) 22 586 80 63 [email protected]

Marcin Kuciapski, Securities Broker tel. (+48) 22 586 80 96 [email protected] Błażej Leśków, Securities Broker tel. (+48) 22 586 80 83 [email protected]

Michał Stępkowski, Securities Broker tel. (+48) 22 586 85 15 [email protected] Marek Wardzyński, Securities Broker tel. (+48) 22 586 80 87 [email protected] Wojciech Wośko, Securities Broker tel. (+48) 22 586 80 82 [email protected]


112

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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 with its headquarters in Warsaw, Plac Powstańców Warszawy 1, 00-030 Warszawa, NIP 521-340-29-37.

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In BZ WBK there are implemented internal regulations, which are designed to prevent conflicts of interest concerning recommendations. Physical and logic barriers are established, and the principles of documentation adequate to the type of BZ WBK operations are implemented. Additionally, BZ WBK introduced a number of obligations and restrictions relating to the protection of confidential information flow between organizational units. The date and time on the first page of this report is the date and time of preparation of the report. The document is disseminated on the same day after the trading day, and no later than before the opening of the next trading day. All the prices of financial instruments which have been mentioned in the report correspond to the rates at which the last transactions on these financial instruments were realized during a given day. ANY PERSON WHO ACCEPTS THIS DOCUMENT AGREES TO BE BOUND BY THE FOREGOING DISCLAIMER AND LIMITATIONS. 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., Alumetal S.A., Ambra S.A., Amica Wronki S.A., Apator S.A., Asseco Business Solutions S.A., Asseco South Eastern Europe S.A., Auto Partner S.A., Benefit Systems S.A., Budimex S.A., Bytom S.A., CI Games S.A., Comarch S.A., Dom Development S.A., Echo Investment S.A., Elemental Holding S.A., Emperia Holding S.A., Erbud S.A., Fabryka Farb i Lakierów Śnieżka S.A., Fabryka Mebli Forte S.A., Gino Rossi S.A., Grupa Kęty S.A., Izo-Blok S.A., LIVECHAT Software S.A., Mangata Holding S.A., Medicalgorithmics S.A., Monnari Trade S.A., Netia S.A., Neuca S.A., Orzeł Biały S.A., Paged S.A., Pelion S.A., Pfleiderer Grajewo S.A., Polenergia S.A., Polski Holding Nieruchomości S.A., Rainbow Tours S.A., Ronson Europe NV, Stalprodukt S.A., Synektik S.A., Torpol S.A., TRAKCJA PRKII S.A., Unibep S.A., Uniwheels AG, Wielton S.A., Work Service S.A., Voxel 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:

1) discounted cash flows (DCF), 2) comparative, 3) mid-cycle, 4) dividend discount model (DDM), 5) residual income, 6) warranted equity method (WEV), 7) SOTP valuation, 8) 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. Global statistics:

% of Companies

Rating Covered with This Rating Provided with Investment Banking in Past 12M

Buy 50,56 15,56

Hold 30,34 0,00

Sell 13,48 8,33

Under Review 5,62 60,00

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.

Members of the Issuer’s authorities or their relatives may be members of the management board or supervisory board of BZ WBK S.A. Persons engaged in preparing the report or their relatives may be the members of the Issuer’s authorities and may hold management position in this entity or may be party to any agreement with the Issuer, which would be concluded on different basis than agreements between Issuer and consumers. BZ WBK Group, its affiliates, representatives or employees may occasionally undertake transactions or may be interested in acquiring securities of companies 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 Auto Partner S.A., Izo-Blok S.A. DM BZ WBK acts as market maker, on principles specified in the Regulations of the Warsaw Stock Exchange, for the shares of AB S.A., ABC Data S.A., Amica Wronki S.A., Auto Partner S.A., Benefit Systems S.A., Budimex S.A., Erbud S.A., Grupa Kęty S.A., Izo-Blok S.A., Mangata Holding S.A., Netia S.A., Pelion S.A., Polenergia S.A., Polski Holding Nieruchomości S.A., TRAKCJA PRKII S.A., Work Service S.A. DM BZ WBK acts as issuer’s market maker, on principles specified in the Regulations of the Warsaw Stock Exchange, for the shares of AB S.A., ABC Data S.A., Auto Partner S.A., Benefit Systems S.A., Dom Development S.A., Erbud S.A., Izo-Blok S.A., Mangata Holding S.A., Monnari Trade S.A., Pelion S.A., Polenergia S.A., Polski Holding Nieruchomości S.A., Work Service S.A., DM BZ WBK is not a party to the agreement with the Issuer related to issuing recommendations. During the last 12 months DM BZ WBK has received remuneration for providing services for the Issuer. These services covered acting as issuer’s market maker for AB S.A., ABC Data S.A., Auto Partner S.A., Benefit Systems S.A., Dom Development S.A., Erbud S.A., Izo-Blok S.A., Mangata Holding S.A., Monnari Trade S.A., Pelion S.A., Polenergia S.A., Polski Holding Nieruchomości S.A., Work Service S.A., offering financial instruments issued by Auto Partner S.A., Izo-Blok S.A., acting as an issue sponsor for Amica Wronki S.A.,


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Apator S.A., acting as issuing agent for Monnari Trade S.A., conducting of buy back of Benefit Systems S.A., conducting mandatory share redemption for Neuca S.A., managing the deposit of third party shares for ABC Data S.A. During the last 12 months BZ WBK has received remuneration for providing investment banking services for Budimex S.A. BZ WBK has an agreement for realization of managerial scheme for AB SA, CI Games SA, from which in the past 12 months did not receive any remuneration. The Issuer may hold shares of BZ WBK S.A. BZ WBK is indirectly connected with the AB S.A., ABC Data S.A., Alumetal S.A., Ambra S.A., Asseco Business Solutions S.A., Asseco South Eastern Europe S.A., Budimex S.A., Bytom S.A., Dom Development S.A., Echo Investment S.A., Emperia Holding S.A., Erbud S.A., Fabryka Farb i Lakierów Śnieżka S.A., Fabryka Mebli Forte S.A., Grupa Kęty S.A., Netia S.A., Pelion S.A., Pfleiderer Grajewo S.A., Polenergia S.A., Polski Holding Nieruchomości S.A., Unibep S.A. and indirectly holds shares of these issuers, in the amount reaching at least 5% of the share capital. BZ WBK does not hold financial instruments issued by the Issuer or financial instruments whose value depends on the value of financial instruments issued by the Issuer (except on the basis of being market maker and issuer’s market maker). BZ WBK has a financial pledge on the shares of Netia S.A. due to the existing funding. BZ WBK S.A. 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. Subject to the above, the Issuer is not bound by any contractual relationship with BZ WBK, which might influence the objectivity of the recommendations contained in this document. 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. A list of all recommendations on any financial instrument or issuer that were prepared by the Analysts who also prepared this document that were disseminated during the preceding 12 month period is available at www.dmbzwbk.pl/analizy-i-komentarze/produkty-analityczne/rekomendacje/rekomendacje.html#tab_2.

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