small & mid cap coverage poland - ambra.com.pl · action 23.5% netia 2.1% apator 9.9 asseco see...

Dom Maklerski BZ WBK is a separated organizational unit of Bank Zachodni WBK S.A. seated in Wrocław at Rynek 9/11, 50-950 Wrocław, registered by the District Court for Wrocław-Fabryczna in Wrocław, 6th Business Division of the National Court Register, under KRS no. 0000008723, NIP: 896 000 56 73, share capital: PLN 992.345.340 paid up in full..The disclaimers concerning the nature of the published document are found on the last page of the document and constitute its integral part..

November 12, 2014

Small & Mid Cap coverage

Poland

Our Polish Small- & Mid-Caps coverage includes an overview of 58 names. With this report we are initiating coverage of 30 stocks and maintaining coverage of 28. Of the 30 newly covered stocks we are rating 21 as BUYs, 7 as HOLDs and 2 as SELLs. As for the already covered companies, we are making changes to price targets/recommendations for three names only. We are upgrading our target price and recommendation for Netia (Hold from SELL, TP raised to PLN 5.71), reducing target price for ABC Data (down 2% to PLN4, HOLD maintained) and re-initiating coverage of Work Service (Hold rating, Target Price set at PLN19.5).

Companies covered in the note are significantly diversified in terms of sectors, valuations and growth prospects. To make the research more user-friendly, pages 5-6 include a comparison of the stocks by valuation metrics (P/Es and EV/EBITDAs), estimated mid-term EPS/revenue growth and finally past share price performance.

Below we are listing the most expensive/cheap stocks as well as the names offering the strongest/weakest growth prospects.

2015E P/E (x) 2015E EV/EBITDA (x)

10 Highest 10 Lowest 10 Highest 10 Lowest

BPH 108.2 BOS 9.8 MW Trade 38.8 Farmacol 5.9

Voxel 97.0 MW Trade 9.0 Medicalalgorithmics 24.9 Open Finance 5.4

Medicalalgorithmics 31.0 Action 8.9 Work Service 11.1 Tesgas 5.2

Netia 29.2 Ovostar 8.4 CD Projekt 11.0 ZAP 5.2

Atrem 26.5 Pozbud 8.3 DOM Development 10.2 Ovostar 5.1

Emperia 23.9 Paged 8.2 PRESCO 10.1 Hawe 4.6

Budimex 19.5 AB 7.7 Apator 9.9 Asseco SEE 4.5

Pekaes 18.3 ZEPAK 7.7 Synektik 9.9 Emperia 4.5

Synektik 18.0 ABC Data 6.7 Ronson 9.8 Netia 4.4

Work Service 17.5 Hawe 5.4 Forte 9.6 ZEPAK 4.3 Source: DM BZ WBK estimates

2014-2017 EPS CAGR (%) 2014-2017E EBITDA CAGR (%)


Bytom 64% Budimex -5.4% CD Projekt 41% Unibep 2.2%

Ciech 48% Hawe -5.8% Medicalalg. 40% Pozbud 0.6%

CD Projekt 44% Wielton -6.4% Bytom 32% ZAP 0.4%

Atrem 40% Wojas -6.9% Elemental 28% Budimex -3.5%

PCE 33% Farmacol -7.5% Work Service 25% PRESCO -3.7%

Medicalalg. 33% Open Finance -7.5% PCE 22% Ovostar -3.7%

Work Service 31% Monnari -12% Ronson 22% Open Finance -5.4%

ACE 29% Ovostar -13% Atrem 21% Netia -5.9%

Gino Rossi 24% Echo -15% Tesgas 21% Monnari -5.9%

Alumetal 21% PHN -29% Pekaes 20% Hawe -6.7% Source: DM BZ WBK estimates

Research analysts:

Pawel Puchalski, CFA

+48 22 586 8095; [email protected]

Dariusz Gorski


Tomasz Kasowicz


Adrian Kyrcz


Tomasz Sokolowski


Lukasz Kosiarski


Andrzej Bieniek Securities broker, Investment advisor


Michal Sopiel


Tomasz Kucinski +48 22 534 1610; [email protected]

Polish Equity Research

2

Contents SMC Radar: A stock – picking tool .......................................................................................................... 5

AB .......................................................................................................................................................... 7 ABC DATA ............................................................................................................................................... 9 ACE .......................................................................................................................................................11 ACTION ...................................................................................................................................................15 ALUMETAL ...............................................................................................................................................17 AMBRA ....................................................................................................................................................21 AMICA .....................................................................................................................................................25 APATOR ..................................................................................................................................................29 ASSECO SEE ..........................................................................................................................................33 ASSECO BUSINESS SOLUTIONS ................................................................................................................37 ATREM ....................................................................................................................................................41 BANK BPH ..............................................................................................................................................43 BENEFIT SYSTEMS ...................................................................................................................................47 BOS BANK ..............................................................................................................................................49 BUDIMEX .................................................................................................................................................53 BYTOM ....................................................................................................................................................55 CD PROJEKT ...........................................................................................................................................59 CIECH .....................................................................................................................................................61 DOM DEVELOPMENT ................................................................................................................................63 ECHO INVESTMENT ..................................................................................................................................65 ELEMENTAL HOLDING...............................................................................................................................67 EMPERIA .................................................................................................................................................71 ERBUD ....................................................................................................................................................73 EUCO ....................................................................................................................................................77 FARMACOL ..............................................................................................................................................79 FORTE ....................................................................................................................................................81 GINO ROSSI ............................................................................................................................................85 GRAJEWO ...............................................................................................................................................89 HAWE ....................................................................................................................................................93 GRUPA KETY ...........................................................................................................................................97 MEDICALGORITHMICS ...............................................................................................................................99 MIDAS ................................................................................................................................................... 103 MONNARI .............................................................................................................................................. 105 MW TRADE ........................................................................................................................................... 109 NETIA ................................................................................................................................................... 113 NEUCA .................................................................................................................................................. 115 OPEN FINANCE ...................................................................................................................................... 117 OVOSTAR UNION ................................................................................................................................... 119 PAGED .................................................................................................................................................. 121 PRIME CAR MANAGMENT........................................................................................................................ 125 PEKAES ................................................................................................................................................ 129 PELION ................................................................................................................................................. 133 PHN ..................................................................................................................................................... 135 POZBUD ................................................................................................................................................ 137 PRESCO ............................................................................................................................................. 139 RONSON ............................................................................................................................................. 143 SYNEKTIK .............................................................................................................................................. 147 TESGAS ................................................................................................................................................ 149 TRAKCJA ............................................................................................................................................... 151 UNIBEP ................................................................................................................................................. 153 VOTUM ................................................................................................................................................. 157 VOXEL .................................................................................................................................................. 161 WIELTON............................................................................................................................................... 165 WOJAS ................................................................................................................................................ 169 WORK SERVICE ..................................................................................................................................... 173 ZA PULAWY .......................................................................................................................................... 175 ZCH POLICE ......................................................................................................................................... 177 ZE PAK ................................................................................................................................................ 179


3

Throughout the report we use share prices as of November 5, 2014


4

Fig. 1. BZ WBK coverage: Initiations of coverage

Company Recomemndation 12M Target Price

current previous change current previous chng. % upside % ACE Buy n.a. - 16.50 n.a. n.a. 54% Alumetal Buy n.a. - 52.40 n.a. n.a. 19% Ambra Buy n.a. - 12.00 n.a. n.a. 36% Amica Buy n.a. - 149.00 n.a. n.a. 37% Apator Hold n.a. - 42.40 n.a. n.a. 12% Asseco BS Buy n.a. - 10.30 n.a. n.a. 37% Asseco SEE Buy n.a. - 16.40 n.a. n.a. 33% Bank BPH Buy n.a. - 59.75 n.a. n.a. 15% BOS Bank Buy n.a. - 49.10 n.a. n.a. 18% Bytom Buy n.a. - 2.00 n.a. n.a. 43% Elemental Holding Buy n.a. - 3.90 n.a. n.a. 35% Erbud Hold n.a. - 29.60 n.a. n.a. 12% Forte Buy n.a. - 67.60 n.a. n.a. 19% Gino Rossi Buy n.a. - 4.00 n.a. n.a. 29% Grajewo Buy n.a. - 35.50 n.a. n.a. 16% HAWE Buy n.a. - 4.40 n.a. n.a. 75% Medicalgorythmics Hold n.a. - 230.00 n.a. n.a. 13% Monnari Buy n.a. - 13.50 n.a. n.a. 42% MW Trade Buy n.a. - 21.60 n.a. n.a. 16% Paged Buy n.a. - 67.00 n.a. n.a. 62% PCM Buy n.a. - 59.70 n.a. n.a. 18% Pekaes Buy n.a. - 10.57 n.a. n.a. 17% Presco Sell n.a. - 3.10 n.a. n.a. -18% Ronson Sell n.a. - 1.53 n.a. n.a. -10% Unibep Buy n.a. - 9.20 n.a. n.a. 16% Votum Buy n.a. - 9.90 n.a. n.a. 32% Voxel Hold n.a. - 12.50 n.a. n.a. 11% Wielton Hold n.a. - 6.00 n.a. n.a. 7% Wojas Hold n.a. - 8.40 n.a. n.a. 5% ZE PAK Hold n.a. - 31.90 n.a. n.a. 7% Source: DM BZ WBK estimates

Fig. 2. BZ WBK coverage: Changes to valuations & recommendations

Company Recomemndation 12M Target Price current previous change current previous chng. % upside % AB Buy Buy ► 43.00 43.00 0% 33% ABC Data Hold Hold ► 4.00 4.10 -2% 4% Action Buy Buy ► 69.70 69.70 0% 50% Atrem Buy Buy ► 7.10 7.10 0% 45% Benefit Systems Buy Buy ► 391.00 391.00 0% 30% Budimex Hold Hold ► 153.00 153.00 0% 13% CD Projekt Buy Buy ► 18.00 18.00 0% 8% Ciech Buy Buy ► 51.40 51.40 0% 22% Dom Development Hold Hold ► 45.10 45.10 0% 0% Echo Investment Buy Buy ► 7.65 7.65 0% 18% Emperia Buy Buy ► 81.00 81.00 0% 65% EuCO Buy Buy ► 31.70 31.70 0% 20% Farmacol Buy Buy ► 66.00 66.00 0% 31% Kety Buy Buy ► 311.00 311.00 0% 12% Midas Buy Buy ► 1.39 1.39 0% 132% Netia Hold Sell ▲ 5.71 4.95 15% 3% Neuca Buy Buy ► 376.00 376.00 0% 63% Open Finance Buy Buy ► 7.00 7.00 0% 23% Ovostar Hold Hold ► 75.00 75.00 0% 7% Pelion Hold Hold ► 79.00 79.00 0% 5% PHN Buy Buy ► 29.10 29.10 0% 15% Pozbud Buy Buy ► 7.70 7.70 0% 71% Synektik Buy Buy ► 32.50 32.50 0% 38% Tesgas Buy Buy ► 7.40 7.40 0% 64% Trakcja Buy Buy ► 1.22 1.22 0% 6% Work Service Hold Restricted - 19.50 Restricted - 3% ZA Pulawy Buy Buy ► 170.40 170.40 0% 17% ZCH Police Sell Sell ► 11.60 11.60 0% -46% Source: DM BZ WBK estimates


5

SMC Radar: A stock – picking tool

Fig. 3. Small& Mid caps – Value Radar 2015E P/E (x) 2015E Net debt to Equity (x)


BPH 108.2 BOS 9.8 MW Trade 8.6 Asseco BS -0.2

Voxel 97.0 MW Trade 9.0 Midas 5.0 Bytom -0.2

Medicalalgorithmics 31.0 Action 8.9 PCM 1.4 Tesgas -0.3

Netia 29.2 Ovostar 8.4 Ciech 1.3 Benefit -0.3

Atrem 26.5 Pozbud 8.3 Echo 0.7 Votum -0.3

Emperia 23.9 Paged 8.2 Pelion 0.7 Medicalalgorithmics -0.3

Budimex 19.5 AB 7.7 ABC Data 0.6 Synektik -0.4

Pekaes 18.3 ZE Pak 7.7 Presco 0.6 CD Projekt -0.4

Synektik 18.0 ABC Data 6.7 Voxel 0.5 Monnari -0.5

Work Service 17.5 HAWE 5.4 Paged 0.5 Budimex -2.1 Source: DM BZ WBK estimates

2015E ROE (%) 2015E EV/EBITDA (x)


CD Projekt 45.3% ZE PAK 5.1% MW Trade 38.8 Farmacol 5.9

EuCO 36.1% Pekaes 4.9% Medicalalgorithmics 24.9 Open Finance 5.4

Budimex 33.2% Tesgas 4.4% Work Service 11.1 Tesgas 5.2

Bytom 32.0% Trakcja 4.4% CD Projekt 11.0 ZAP 5.2

Votum 31.8% Emperia 4.0% Dom Development 10.2 Ovostar 5.1

Benefit 29.2% Atrem 2.6% Presco 10.1 Hawe 4.6

Action 23.5% Netia 2.1% Apator 9.9 Asseco SEE 4.5

MW Trade 23.1% PHN 1.4% Synektik 9.9 Emperia 4.5

Medicalalgorithmics 22.9% Voxel 1.1% Ronson 9.8 Netia 4.4

Forte 22.0% BPH 0.7% Forte 9.6 ZE PAK 4.3 Source: DM BZ WBK estimates

2014-2017E EPS CAGR (%) 2015E Net margin (%)


Bytom 64.1% Budimex -5.4% Medicalalgorithmics 54.0% Erbud 1.7%

Ciech 47.6% Hawe -5.8% Echo 39.9% Neuca 1.7%

CD Projekt 44.3% Wielton -6.4% CD Projekt 30.7% Atrem 1.5%

Atrem 39.6% Wojas -6.9% Euco 24.2% Action 1.4%

Police 33.1% Farmacol -7.5% MW Trade 22.0% Emperia 1.4%

Medicalalgorithmics 32.7% Open Finance -7.5% Hawe 20.7% ABC Data 1.2%

Work Service 31.3% Monnari -11.6% Asseco BS 18.4% Voxel 1.1%

ACE 29.1% Ovostar -12.5% PHN 17.0% Pelion 1.1%

Gino Rossi 24.2% Echo -14.5% Ovostar 15.1% AB 1.0%

Alumetal 20.5% PHN -28.7% Apator 14.4% Midas 1.0% Source: DM BZ WBK estimates

2014-2017E EBIT CAGR (%) 2014-2017E EBITDA CAGR (%)


Bytom 62.2% Pelion 0.4% CD Projekt 40.9% Unibep 2.2%

Ciech 47.6% Pozbud 0.2% Medicalalgorithmics 39.7% Pozbud 0.6%

CD Projekt 45.2% Wojas 0.1% Bytom 32.0% ZAP 0.4%

Tesgas 44.2% Presco -2.5% Elemental 28.1% Budimex -3.5%

Police 39.7% Budimex -4.1% Work Service 25.0% PRESCO -3.7%

Medicalalgorithmics 39.6% Echo -5.8% PCE 22.0% Ovostar -3.7%

Atrem 33.1% Monnari -8.3% Ronson 21.5% Open Finance -5.4%

Work Service 25.6% Ovostar -9.1% Atrem 20.8% Netia -5.9%

Alumetal 22.7% Hawe -10.0% Tesgas 20.8% Monnari -5.9%

Votum 22.3% Open Finance -12.4% Pekaes 20.1% Hawe -6.7% Source: DM BZ WBK estimates


6

2015E EBITDA Margin (%) 2014-2017E Revenues CAGR (%)


Echo 71.4% Atrem 4.0% Medicalalgorithmics 41.3% ACE 1.2%

Medicalalgorithmics 59.9% Erbud 3.3% Midas 40.0% ZAP 1.1%

CD Projekt 37.3% Unibep 3.2% Work Service 26.7% ZEPAK 0.6%

Hawe 31.3% Emperia 3.2% CD Projekt 22.0% Phn 0.5%

Asseco BS 29.4% Neuca 2.3% Tesgas 16.3% Ciech -1.5%

MW Trade 27.5% Action 2.0% Action 13.7% Hawe -2.4%

Netia 27.3% Pelion 2.0% Forte 13.2% Pozbud -2.6%

Euco 27.1% AB 1.6% MW Trade 11.6% PRESCO -3.1%

Presco 27.0% ABC Data 1.6% Bytom 11.4% Open Finance -3.1%

Ovostar 26.7% Midas -4.6% Votum 11.2% Netia -4.2% Source: DM BZ WBK estimates

Fig. 4. Small& Mid caps – Momentum Radar 1M Market Performance (%)

3M Market Performance (%)

10 Highest 10 Lowest


Voxel 24.3 ACE -1.9

Bank BPH 36.7 Voxel -3.9

Bank BPH 21.5 Police -2.7

Work Service 35.4 Ambra -4.2

Medicalgorithmics 13.0 Netia -2.8

PCM 34.1 ABC Data -4.8

Midas 11.3 Budimex -3.4

Grupa Kety 33.7 BOS Bank -4.9

Paged 11.0 Farmacol -4.3

Forte 28.3 ACE -6.2

Votum SA 11.0 ZE PAK -4.9

Elemental Holding 26.1 Wojas -6.4

Prime Car Management 10.0 Ambra -5.3

Alumetal 25.3 Wielton -6.5

Benefit Systems 8.2 Presco Group -11.9

PHN 24.5 Emperia Holding -13.4

Alumetal 8.1 Open Finance -12.5

Paged 24.3 Hawe -17.4

Ovostar 8.0 Wielton -12.6

Amica Wronki 23.5 Open Finance -17.7 Source: DM BZ WBK estimates

1Y Market Performance (%)

YTD Market Performance (%)



Forte 69.1 Ambra -25.5

Euco 79.9 Farmacol -26.6

Medicalgorithmics 66.4 Ovostar -27.5

Work Service 49.6 Pelion -27.3

Work Service 58.7 Farmacol -27.6

Monnari Trade 48.9 Ovostar -27.5

Euco 57.6 Pelion -28.9

Forte 44.9 Hawe -30.1

Kety 50.9 Emperia -30.7

Paged 35.9 Atrem -31.1

Paged 46.9 Atrem -30.9

Ciech 34.6 ACE -32.5

Votum 42.3 Voxel -34.5

Kety 33.4 Voxel -32.5

Ciech 41.2 Hawe -40.5

Wojas 26.1 Emperia -35.4

Monnari Trade 33.2 Presco -49.0

Votum 25.8 Presco -42.3

Synektik 30.5 Open Finance -71.1

Tesgas 24.3 Open Finance -69.4 Source: DM BZ WBK estimates


7

Poland IT Distribution

NOVEMBER 12, 2014

AB RECOMMENDATION

BUY (MAINTAINED)

Negative earnings dynamics CURRENT PRICE: PLN32.4

TARGET PRICE: PLN43.0 (MAINTAINED)

1Q14/15 Results Preview. We expect that AB continued

its top-line improvement in 1Q14/15, although its earning

may prove to be a small disappointment. We expect that in

the Czech Republic and Slovakia AB kept its strong

dynamics, driven by the distribution agreement with Apple.

In Poland, we expect a 4% y/y sales expansion. We expect

the gross margin at 3.95% vs. 3.90% in 1Q13/14. We also

forecast a visible increase in SG&A costs - PLN40.1mn vs.

PLN29.5mn in 1Q13/14 (SG&A/sales ratio at 2.81%). We

assume revenues of PLN1.43bn (+13.7% y/y), an EBITDA

of PLN19.4mn. The net profit should settle at PLN10.7mn

(net margin at 0.75%). Outcome: NEGATIVE.

Recent developments. The company mulls paying a

dividend and a launch of a buyback tender offer. The

company has recently completed a PLN100mn 2019 bond

issue priced Wibor6M + 1.6%.

Outlook. During its last results’ presentation, AB said that

it saw signs of market improvement in the Czech Republic,

mainly in the enterprise sector but also in the public sector.

Change in Forecasts. We apply no changes to our model.

Change in Valuation & Recommendation. We keep our

12-month Target Price for AB at PLN43.0 and maintain our

Buy rating for the stock. The comparative valuation points

to PLN29.2 per share

STOCK PERFORMANCE

ABE

TP

WIG Relative

10

15

20

25

30

35

40

45

Oct-

11

Ja

n-1

2

Apr-

12

Ju

l-12

Oct-

12

Ja

n-1

3

Apr-

13

Ju

l-13

Oct-

13

Ja

n-1

4

Apr-

14

Ju

l-14

Oct-

14

Buy Hold Sell Under Review / Suspended

The chart measures performance against the WIG index.

On 11/05/2014, the WIG index closed at 53,591.

LAST RECOMMENDATIONS

Rec. Date Price Price performance

on issue date

12 month target

absolute relative (p.p)

Buy 10-23-2014 31.2 43.0 3.7% 3.2

Buy 7-9-2014 29.9 39.0 4.5% -0.6

Hold 4-28-2014 29.1 35.0 2.7% 4.4

Hold 1-30-2014 33.7 35.0 -13.6% -15.9

MAIN SHAREHOLDERS

% of votes

Mr. Andrzej Przybylo 15.0%

ING pension fund 13.1%

Mrs. Iwona Przybylo 10.0%

Allianz pension fund 9.1%

Aviva mutual fund 5.7%

COMPANY DESCRIPTION

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

ANALYST

Lukasz Kosiarski (+48) 22 586 82 25

[email protected]

Company Data

PLNm 2013/14E 2014/15E 2015/16E 2016/17E Reuters/Bloomberg codes ABEP.WA / ABE PW

Sales 5,758 6,092 6,339 6,596 Market capitalisation (PLNm) 524

EBITDA 96.0 100.0 104.1 108.4 Number of shares (m) 16.2

EBIT 85.3 87.4 90.7 94.6 Free float (%) 79.1%

Net income 57.3 60.6 62.0 64.1 Avg. daily turnover 3M (PLNm) 0.2

P/E (x) 8.4 7.9 7.7 7.5 Price performance

1M 3M YTD

EV/EBITDA (x) 8.6 8.3 8.0 7.6 5.5% 22.3% -0.3% Source: Company data, DM BZ WBK estimates

Fig. 1. AB: 1Q14/15 results preview

mailto:[email protected]


8

PLN in millions, unless otherwise stated

1Q11/12 2Q11/12 3Q11/12 4Q11/12 1Q12/13 2Q12/13 3Q12/13 4Q12/13 1Q13/14 2Q13/14 3Q13/14 4Q13/14 1Q14/15E y/y q/q

Sales 944 1,429 1,001 963 1,123 1,730 1,355 1,306 1,256 1,637 1,348 1,517 1,428 13.7% -5.9%

EBITDA 24.2 36.7 13.8 16.9 14.3 28.4 15.2 16.2 20.6 33.5 18.8 23.1 19.4 -5.8% -15.7%

EBITDA margin 2.6% 2.6% 1.4% 1.8% 1.3% 1.6% 1.1% 1.2% 1.6% 2.0% 1.4% 1.5% 1.4% -0.3 -0.2

EBIT 21.8 34.0 11.6 14.1 11.9 25.8 12.6 13.8 18.2 31.0 16.3 19.9 16.2 -10.7% -18.4%

EBIT margin 2.3% 2.4% 1.2% 1.5% 1.1% 1.5% 0.9% 1.1% 1.4% 1.9% 1.2% 1.3% 1.1% -0.3 -0.2

Net profit 10.1 21.6 8.3 7.9 9.3 16.8 6.2 9.5 13.1 21.2 10.6 12.4 10.7 -17.8% -13.6%

Net margin 1.1% 1.5% 0.8% 0.8% 0.8% 1.0% 0.5% 0.7% 1.0% 1.3% 0.8% 0.8% 0.8% -0.3 -0.1

Source: Company data, DM BZ WBK estimates

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

2014/15E 2015/16E 2016/17E

New Previous Change New Previous Change New Previous Change

Sales 6,092 6,092 0.0% 6,339 6,339 0.0% 6,596 6,596 0.0%

EBITDA 100.0 100.0 0.0% 104.1 104.1 0.0% 108.4 108.4 0.0%

EBIT 87.4 87.4 0.0% 90.7 90.7 0.0% 94.6 94.6 0.0%

Net profit 60.6 60.6 0.0% 62.0 62.0 0.0% 64.1 64.1 0.0% Source: Company data, DM BZ WBK estimates

Fig. 3. AB: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

DCF valuation 43.0 43.0 0.0%

Comparable valuation (based on 2013/14-2015/16E) 29.2 29.2 0.0% Source: Company data, DM BZ WBK estimates

Fig. 4. AB: Income statement forecast PLN in millions, unless otherwise stated

2012/13 2013/14 2014/15E 2015/16E 2016/17E

Net sales 5,430 5,758 6,092 6,339 6,596

COGS 5,220 5,484 5,839 6,075 6,322

Gross profit 210.0 273.7 252.9 263.5 274.5

SG&A 139.3 161.2 165.5 172.8 179.9

Other operating income, net -6.6 -27.2 0.0 0.0 0.0

EBITDA 74.2 96.0 100.0 104.1 108.4

Operating profit 64.2 85.3 87.4 90.7 94.6

Net financial income (costs) -12.2 -11.7 -12.7 -14.2 -15.5

Profit before tax 52.0 73.7 74.8 76.5 79.1

Income tax 10.3 16.4 14.2 14.5 15.0

Net profit 41.7 57.3 60.6 62.0 64.1

Gross margin 3.9% 4.8% 4.2% 4.2% 4.2%

EBITDA margin 1.4% 1.7% 1.6% 1.6% 1.6%

Operating margin 1.2% 1.5% 1.4% 1.4% 1.4%

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


Fig. 5. AB: Balance sheet forecast PLN in millions, unless otherwise stated

2012/13 2013/14 2014/15E 2015/16E 2016/17E

Current assets 1,002 1,091 1,213 1,306 1,393

Fixed assets 166 168 185 179 173

Total assets 1,167 1,260 1,398 1,485 1,565

Current liabilities 741 791 868 893 921

bank debt 211 195 195 195 195

Long-term liabilities 5 5 5 6 6

bank debt 0 0 0 0 0

Equity 421 464 524 586 638

share capital 16 16 16 16 16

Minority Interest 0 0 0 0 0

Total liabilities 1,167 1,260 1,398 1,485 1,565

Net debt 199 149 161 160 125


Fig. 6. AB: Cash flow forecast PLN in millions, unless otherwise stated

2012/13 2013/14 2014/15E 2015/16E 2016/17E

CF from operations 0.9 77.8 16.3 8.5 54.9

CF from investment -4.9 -13.4 -29.3 -7.4 -7.2

CF from financing 0.0 26.4 0.0 0.0 -12.4

Net change in cash -4.0 90.8 -13.0 1.1 35.3



9


NOVEMBER 12, 2014

ABC DATA RECOMMENDATION

HOLD (MAINTAINED)

Least preferred IT distributor CURRENT PRICE: PLN3.83

TARGET PRICE: PLN4.00 (PREV. PLN4.10)

3Q14 Results Review. ABC Data reported 3Q14 results

way below expectations due to PLN10mn impairment on

receivables; adjusted results came in line with

expectations. Revenues expended 13% y/y to PLN1.37bn,

matched expectations (PLN1.35-1.40bn); revenues from

Polish market increased by 15% y/y to PLN703mn (we

expected a 5% growth), sales in EU countries came flat y/y

at PLN506mn (huge disappointment, we expected +20%

y/y), while export sales outside EU increased by 69% y/y to

PLN166mn. Gross margin stood at 4.79% vs. 4.46% in

3Q13 and 5.11% in 2Q14. Our assumption was 4.70%.

SG&A came at PLN56.8mn vs. PLN36.4mn in 3Q13. Sales

costs include PLN10mn one-off costs of impairment on

receivables. SG&A to sales ratio stood at 4.13% vs. 3.01%

in 3Q13. EBIT came at PLN7.5mn (-59% y/y), adjusted

EBIT came at PLN17.5mn vs. expectations of PLN19.2mn

(market) and PLN18.2mn (BZ WBK). Net earnings came at

PLN2.0mn, tax rate in 3Q14 at 54.7%. Operating CF in

3Q14 stood at PLN30.8mn.

2014 guidance. Company slashed its FY14 official

guidance: new forecast is sales at PLN5.54bn (vs.

PLN5.76bn), EBITDA at PLN74.8mn (vs. PLN92.1mn).

New FY14 guidance implies 4Q14 sales at PLN1.61bn and

EBITDA at PLN31.6mn.

Recent developments. Mrs. Ilona Weiss, deputy CEO, will

replace Mr. Norbert Biedrzycki as CEO on 1 January,

2015.

Change in Forecasts. We have applied some changes to

our model following 3Q14 results release.

Change in Valuation & Recommendation. We cut our

12-month Target Price for ABC Data at PLN4.00 and

maintain our Hold rating for the stock. The comparative

valuation points to PLN3.76 per share

STOCK PERFORMANCE

ABC

TP

WIG Relative

0

1

1

2

2

3

3

4

4

5

5

Oct-

11

Ja

n-1

2

Apr-

12

Ju

l-12

Oct-

12

Ja

n-1

3

Apr-

13

Ju

l-13

Oct-

13

Ja

n-1

4

Apr-

14

Ju

l-14

Oct-

14






on issue date

12 month target


Hold 10-23-2014 3.6 4.1 5.2% 4.7

Sell 7-9-2014 4.3 4.0 -14.4% -19.5

Sell 4-28-2014 3.9 3.9 8.1% 9.8

Sell 1-30-2014 4.1 3.9 -5.1% -7.4

MAIN SHAREHOLDERS

% of votes

ABCD Management 41.0%

MCI Venture Projects 20.5%

PZU pension fund 9.3%

Aviva pension fund 7.0%

BZ WBK Asset Management 5.0%

COMPANY DESCRIPTION

One of the largest IT distribution company in Poland.

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes ABCP.WA / ABC PW



EBIT 77.2 70.2 93.8 98.8 Free float (%) 37.2%



1M 3M YTD

EV/EBITDA (x) 9.2 11.4 8.5 8.1 -1.8% -4.5% -10.9% Source: Company data, DM BZ WBK estimates

Fig. 1. ABC Data: 3Q14 results review



10


3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q

Sales 752 1,304 760 742 892 1,300 1,089 1,096 1,212 1,425 1,169 1,391 1,375 13.4% -1.1%

EBITDA 11.7 19.3 13.2 8.0 9.5 28.1 16.9 14.9 19.5 28.3 12.7 22.5 8.0 -58.9% -64.3%

EBITDA margin 1.6% 1.5% 1.7% 1.1% 1.1% 2.2% 1.5% 1.4% 1.6% 2.0% 1.1% 1.6% 0.6% -1.0 -1.0

EBIT 10.4 18.3 12.3 7.3 8.7 27.3 16.3 14.4 18.9 27.6 12.2 21.9 7.5 -60.5% -65.9%

EBIT margin 1.4% 1.4% 1.6% 1.0% 1.0% 2.1% 1.5% 1.3% 1.6% 1.9% 1.0% 1.6% 0.5% -1.0 -1.0

Net profit 6.4 29.5 6.4 0.2 5.0 19.5 11.0 14.3 14.2 19.7 6.8 11.2 2.0 -86.0% -82.2%

Net margin 0.9% 2.3% 0.8% 0.0% 0.6% 1.5% 1.0% 1.3% 1.2% 1.4% 0.6% 0.8% 0.1% -1.0 -0.7


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

2014E 2015E 2016E

New Previuos Change New Previuos Change New Previuos Change

Sales 5,623 5,787 -2.8% 5,924 5,924 0.0% 6,267 6,267 0.0%

EBITDA 72.4 86.6 -16.4% 96.5 96.5 0.0% 101.6 101.6 0.0%

EBIT 70.2 84.4 -16.8% 93.8 93.8 0.0% 98.8 98.8 0.0%

Net profit 39.3 51.5 -23.6% 67.5 67.5 0.0% 71.1 71.1 0.0% Source: Company data, DM BZ WBK estimates

Fig. 3. ABC Data: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

DCF valuation 4.00 4.10 -2.4%

Comparable valuation (based on 2014-2016E) 3.76 3.76 0.0% Source: Company data, DM BZ WBK estimates

Fig. 4. ABC Data: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 3,693 4,822 5,623 5,924 6,267

COGS 3,509 4,596 5,358 5,650 5,977

Gross profit 183.8 226.5 265.9 273.9 289.5

SG&A 132.8 151.0 198.2 180.1 190.7

Other operating income, net 4.6 1.7 2.4 0.0 0.0

EBITDA 58.8 79.6 72.4 96.5 101.6




Income tax 9.0 8.9 19.3 15.8 16.6

Net profit 31.1 59.2 39.3 67.5 71.1

Gross margin 5.0% 4.7% 4.7% 4.6% 4.6%

EBITDA margin 1.6% 1.6% 1.3% 1.6% 1.6%




Fig. 5. ABC Data: Balance sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 824 842 995 1,065 1,152

Fixed assets 73 75 81 85 87

Total assets 896 917 1,076 1,151 1,239


bank debt 112 141 230 253 278


bank debt 20 0 0 0 0

Equity 288 316 310 332 363

share capital 125 125 125 125 125


Total liabilities 896 917 1,076 1,151 1,239

Net debt 118 124 220 228 231


Fig. 6. ABC Data: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

CF from operations 73.7 30.1 -42.4 43.8 43.1


CF from financing -67.6 -22.7 44.1 -22.1 -15.2

Net change in cash 4.3 3.3 -6.7 14.4 23.1



11

Poland Automotive

NOVEMBER 12, 2014

ACE RECOMMENDATION

BUY (INITIATION)

A highly probable rise in earnings CURRENT PRICE: PLN10.7

TARGET PRICE: PLN16.5

Equity Story. We are initiating our coverage of ACE, a leading

supplier of disc brake system components in Europe, with a Buy

recommendation and a target price of PLN16.5 per share (54%

upside!). We expect the company to improve its profitability in the

coming years due to efficiency improvements in Fuchosa (Spain),

implementation and utilisation of nodular iron technology in Feramo

(Czech Rep.) and new aluminium projects in EBCC (Poland). That

said, we expect the gross margin to rise on improving sales in 2015E

and 2016E, by 1.5pp and by 0.5pp to 23.5% and 24%, respectively.

We thus expect company to show substantial net profit dynamics in

years ahead. Given ACE’s strong cash generation nature we see the

company as attractive from dividend pay-outs point of view.

Automotive market outlook. According to PWC, Autofacts

passenger and light-commercial vehicle production (key driver for

ACE volumes) should grow y/y by 5.4% in EU in 2014, though fall by

0.3% in the CEE region. For 2015 and beyond, PWC expects the

European automotive market to continue to grow, albeit at a slower

pace (2013-2018 CAGR at 3.4%).

Financials. We forecast ACE revenues in 2014E at EUR98.1mn (-

3% y/y), while in 2015E company’s sales should go up to

EUR101.1mn (+3% y/y). For 2016E We expect ACE revenues to

grow 5% y/y (above the market CAGR for 2013-2018), when the

company should be fully utilising its new capacities and projects.

EBIT is expected to rise to EUR4.9mn (+10% y/y) in 2014E, to

EUR5.8mn (+19% y/y) in 2015E and to EUR7.1mn (+21% y/y) in

2016E. That said, the net profit margin should rise to 4.1% (2015E)

and 4.9% (2016E) from 2.8% in 2014E.

Risks/triggers. The deepening slowdown in the European economy

could hit sales of passenger cars and LCV sales and this is the key

risk that we see for ACE’s business. Among other risks, the delay in

obtaining homologation for its products could also harm the pace of

the company’s earnings growth in the future years.

Valuation & recommendation. Based on our DCF model, we arrived

at a 12 month TP of PLN16.5 per share, which implies a 54% upside

potential. We thus initiate our coverage of ACE with a Buy

recommendation.

STOCK PERFORMANCE





on issue date

12 month target


n/a n/a n/a n/a n/a n/a

COMPANY DESCRIPTION

The ACE group (casting company) is a leading supplier of disc brake system components to the production-focused European automotive industry (Tier 2). The company’s main products are: iron anchors and aluminum calipers. The company’s production is based in three plants in Spain (Fuchosa), Poland (EBCC) and the Czech Republic (Feramo).

Main shareholders % of votes

Casting brake (Spain) 11.45%




ANALYST

Tomasz Kasowicz (+48) 22 586 81 55

[email protected]

Company Data

EURmn 2013 2014E 2015E 2016E Reuters/Bloomberg codes ACEP.WA / ACE PW

Sales 100.8 98.1 101.2 106.5 Market capitalisation (PLNm) 230.1


EBIT 4.5 4.9 5.8 7.1 Free float (%) 82.7%



1M 3M YTD

EV/EBITDA (x) 6.6 6.6 6.1 5.5 -4.5% -9.7% -33.9%

Source: Company data, BZ WBK Brokerage research



12

Fig. 1. ACE: DCF valuation EUR in millions, unless otherwise stated

DCF valuation 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E beyond

EBIT 5.8 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1 7.1

Tax rate 19% 19% 19% 19% 19% 19% 19% 19% 19% 19% 19%

Taxes on EBIT -1.1 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3

NOPLAT 4.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7 5.7

Depreciation 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5

Capital expenditures 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 4.5 5.5

Change in working capital 0.4 0.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Free cash flow 5.4 6.2 6.7 6.7 6.7 6.7 6.7 6.7 6.7 6.7 5.7

Terminal growth rate

1.0%

Terminal value

93.7

Discount factor 0.93 0.87 0.81 0.76 0.71 0.66 0.62 0.58 0.54 0.50 0.47

Discounted free cash flow at 31.12.2014 5.0 5.4 5.5 5.1 4.8 4.4 4.1 3.9 3.6 3.4 47.1

Enterprise value 92.3 Net debt at 31.12.2014 14.3 Minorities 0.0 Proceeds from non-core assets 0.0 Fair value at 31.12.2014 78.0 Number of shares 21.2 Fair value per share at 31.12.2014 3.7 Cost of equity 9.0% 12M Target Price in EUR 4.0 EUR/PLN rate 4.2 12M Target Price in PLN 16.5 Curren value per share 10.7 Up/downside 54.3%

PV FCF/PV TV 49%

2015E P/E @ TP (x) 20.4 2015E EV/EBITDA @ TP (x) 8.7

Source: Company data, BZ WBK Brokerage

Fig. 2. ACE: Comparable valuation

P/E EV/EBITDA

2014E 2015E 2016E 2014E 2015E 2016E

BREMBO SPA 14.5 12.9 11.7 6.6 5.9 5.4

ELRINGKLINGER AG 15.0 13.2 11.7 6.7 6.1 5.6

FISCHER (GEORG)-REG 11.9 10.2 9.5 5.6 5.1 4.8

SOGEFI 15.3 8.5 6.9 2.1 1.7 1.5

VALEO SA 12.7 10.9 9.6 5.0 4.4 4.0

LE BELIER 8.8 7.7 6.8 4.4 3.8 3.4

TRW AUTOMOTIVE HOLDINGS CORP 13.2 12.0 11.0 6.2 5.7 5.2

POLYTEC HOLDING AG 9.8 7.9 6.9 4.0 3.2 2.9

AKEBONO BRAKE INDUSTRY CO 22.6 15.7 9.8 n/a 2.8 2.3

CIE AUTOMOTIVE SA 18.2 12.4 10.6 4.9 4.1 3.7

NISSIN KOGYO CO LTD 10.2 10.0 8.8 4.3 4.0 3.6

Median international peers 13.2 10.9 9.6 4.9 4.1 3.7

ACE 20.1 13.2 10.4 6.6 6.1 5.5

Premium/discount 53% 21% 8% 34% 49% 48%

Implied value (in PLN per share) 7.0 8.8 9.9 10.0 9.1 9.1

Source: BZ WBK Brokerage research, company data, Bloomberg


13

Fig. 3. ACE: 3Q14 results preview EUR in millions, unless otherwise stated

3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q

Sales 22.8 25.3 27.2 26.0 23.1 22.3 26.1 26.7 24.1 24.0 26.6 25.5 22.8 -5.3% -10.5%

EBITDA 2.5 2.7 2.1 2.5 1.7 1.9 2.0 2.8 2.2 3.4 3.1 2.7 2.3 3.7% -15.5%

EBITDA margin 11% 11% 8% 10% 7% 9% 8% 11% 9% 14% 11% 10% 10% 0.9 -0.6

EBIT 1.1 1.1 0.8 1.3 0.6 0.4 0.8 1.6 0.9 1.2 1.7 1.3 0.9 -2.3% -35.0%

EBIT margin 5% 4% 3% 5% 3% 2% 3% 6% 4% 5% 7% 5% 4% 0.1 -1.4

Net profit -0.1 0.5 0.8 0.3 0.7 0.6 0.2 0.7 0.6 0.5 1.0 0.6 0.5 -8.1% -6.7%

Net margin -1% 2% 3% 1% 3% 3% 1% 2% 2% 2% 4% 2% 2% -0.1 0.1


Fig. 4. ACE: Forecast changes EUR in millions, unless otherwise stated

2014E 2015E 2016E


Sales 98.1 n/a n/a 101.2 n/a n/a 106.5 n/a n/a

EBITDA 10.4 n/a n/a 11.3 n/a n/a 12.6 n/a n/a

EBIT 4.9 n/a n/a 5.8 n/a n/a 7.1 n/a n/a

Net profit 2.7 n/a n/a 4.1 n/a n/a 5.2 n/a n/a

Source: Company data, BZ WBK Brokerage Fig. 5. ACE: Valuation changes In PLN per share, unless otherwise stated

New Previous Change Weight

DCF valuation 16.5 n/a n/a 100%

Comparable valuation (based on 2014-2016E) 9.0 n/a n/a 0%


Fig. 6. ACE: Income statement forecast EUR in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 98.6 100.8 98.1 101.2 106.5

COGS -81.6 -81.4 -76.1 -77.4 -81.2

Gross profit 17.0 19.5 22.0 23.8 25.3

SG&A -15.4 -15.8 -17.7 -18.0 -18.2


EBITDA 8.3 10.4 10.4 11.3 12.6




Income tax -0.3 -1.4 -1.4 -1.0 -1.2

Net profit 2.4 1.9 2.7 4.1 5.2

Gross margin 17.2% 19.3% 22.4% 23.5% 23.8%

EBITDA margin 8.4% 10.3% 10.6% 11.2% 11.8%




Fig. 7. ACE: Balance Sheet forecast EUR in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 36.0 31.2 30.0 30.9 32.4

Fixed assets 47.1 45.6 45.8 44.9 44.0

Total assets 83.1 76.8 75.9 75.8 76.4

Current liabilities 20.4 21.9 22.6 21.9 22.3

bank debt 3.5 5.2 7.0 6.1 4.7

Long-term liabilities 22.1 17.2 18.0 16.1 13.3

bank debt 18.5 14.0 14.8 12.9 10.0

Equity 40.7 37.7 35.2 37.7 40.9

share capital 3.2 3.2 3.2 3.2 3.2

Minority Interest 0.0 0.0 0.0 0.0 0.0

Total liabilities 83.1 76.8 75.9 75.8 76.4

Net debt 9.5 11.5 14.3 11.2 6.6


Fig. 8. ACE: Cash flow forecast EUR in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



CF from financing -1.0 -7.8 -3.5 -4.7 -6.5

Net change in cash -8.7 -4.8 -0.2 0.2 0.4



14

This page has been left intentionally blank.


15


NOVEMBER 12, 2014

ACTION RECOMMENDATION

BUY (MAINTAINED)

In line with official guidance CURRENT PRICE: PLN46.62


3Q14 Results Preview. Most of the growth in 3Q14 sales

at Action, as was the case in the previous quarter, should

come from operations abroad. For 3Q14, we expect export

sales to expand by 42% y/y and the domestic sales, in line

with the market, by 3% y/y. Overall, we expect the

company’s sales at PLN1.33bn (+17% y/y). We see the

gross margin at 6.10% vs. 6.02% in 3Q13 and estimate the

SG&A costs at PLN59.0mn (SG&A/sales ratio at 4.43%).

The EBIT should reach PLN21.3mn and the net profit

PLN15.7m (+12% y/y, net margin at 1.17%). Outcome:

POSITIVE.

Recent developments. The company has recently signed

two large contracts for hardware shipments with science

universities in Krakow and Gdynia worth PLN41.0mn and

PLN30.6mn, respectively. CEO Mr. Piotr Bielinski recently

sold 150k shares at PLN47/share. According to his

statement, the cash will be used to capitalise game

developer Action Game Labs (Action 40% subsidiary).

2014 guidance. The company sees its 2014 revenues at

PLN5.45bn and the net profit at PLN70.9mn. 1H14 results

account for 46% of the forecasted FY14 sales and 47% on

the net level. Our forecasts for 2014 are higher than the

guidance by 3% both on the top-line and the net level.



12-month Target Price for Action at PLN69.7 and maintain

our Buy rating for the stock. The comparative valuation

points to PLN39.40 per share.

STOCK PERFORMANCE

ACT

TP

WIG Relative

0

10

20

30

40

50

60

70

80

Oct-

11

Ja

n-1

2

Apr-

12

Ju

l-12

Oct-

12

Ja

n-1

3

Apr-

13

Ju

l-13

Oct-

13

Ja

n-1

4

Apr-

14

Ju

l-14

Oct-

14






on issue date

12 month target


Buy 10-23-2014 46.0 69.7 1.3% 0.9

Buy 7-9-2014 43.0 69.7 7.0% 1.8

Buy 4-28-2014 46.9 65.0 -8.3% -6.6

Buy 1-30-2014 49.0 69.0 -4.3% -6.6

MAIN SHAREHOLDERS

% of votes

Mr. Piotr Bielinski 20.9%

Mrs. Aleksandra Matyka 18.6%

Generali pension fund 10.8%

Mr. Wojciech Wietrzykowski 7.2%


COMPANY DESCRIPTION

One of the largest IT distribution company in Poland.

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes ACT.WA / ACT PW


EBITDA 91 110 135 143 Number of shares (m) 16.6

EBIT 82 98 118 127 Free float (%) 53.2%

Net income 62 73 90 97 Avg. daily turnover 3M (PLNm) 0.6


1M 3M YTD

EV/EBITDA (x) 9.5 7.9 6.4 6.1 -0.8% 12.7% -2.9% Source: Company data, DM BZ WBK estimates



16

Fig. 1. Action: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 669 1,023 788 752 827 1,148 1,132 989 1,140 1,488 1,324 1,197 1,333 16.9% 11.3%

EBITDA 16.5 24.0 18.0 16.9 18.8 25.9 22.6 21.1 21.1 26.6 25.8 24.1 23.8 12.6% -1.3%

EBITDA margin 2.5% 2.3% 2.3% 2.2% 2.3% 2.3% 2.0% 2.1% 1.8% 1.8% 1.9% 2.0% 1.8% -0.1 -0.2

EBIT 13.7 21.0 15.1 14.0 16.0 23.1 20.3 18.8 18.7 24.2 23.5 21.6 21.3 13.8% -1.4%

EBIT margin 2.1% 2.1% 1.9% 1.9% 1.9% 2.0% 1.8% 1.9% 1.6% 1.6% 1.8% 1.8% 1.6% 0.0 -0.2

Net profit 10.1 15.0 11.1 9.3 11.0 16.8 15.0 13.3 14.0 19.3 17.3 15.9 15.7 12.0% -1.5%

Net margin 1.5% 1.5% 1.4% 1.2% 1.3% 1.5% 1.3% 1.3% 1.2% 1.3% 1.3% 1.3% 1.2% -0.1 -0.2


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

2014E 2015E 2016E


Sales 5,640 5,640 0.0% 6,619 6,619 0.0% 7,396 7,396 0.0%

EBITDA 109.7 109.7 0.0% 134.9 134.9 0.0% 143.4 143.4 0.0%

EBIT 98.2 98.2 0.0% 118.2 118.2 0.0% 126.8 126.8 0.0%


Fig. 3. Action: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 4. Action: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 3,515 4,749 5,640 6,619 7,396

COGS 3,288 4,452 5,293 6,220 6,957

Gross profit 226.8 297.1 347.8 399.2 439.1

SG&A 158.5 210.5 247.9 279.3 310.7

Other operating income, net 0.0 -4.6 -1.7 -1.7 -1.7

EBITDA 79.6 91.4 109.7 134.9 143.4




Income tax 12.7 16.1 18.5 21.0 22.8

Net profit 48.3 61.6 72.5 89.6 97.2

Gross margin 6.5% 6.3% 6.2% 6.0% 5.9%

EBITDA margin 2.3% 1.9% 1.9% 2.0% 1.9%




Fig. 5. Action: Balance sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 763 1,021 1,090 1,157 1,229

Fixed assets 138 151 182 171 159

Total assets 901 1,172 1,273 1,328 1,389

Current liabilities 636 854 902 952 1,011

bank debt 107 107 107 107 107


bank debt 0 20 50 50 50

Equity 260 295 316 320 322



Total liabilities 901 1,172 1,273 1,328 1,389

Net debt 99 44 143 160 178


Fig. 6. Action: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E




Net change in cash -0.5 74.5 -68.4 -17.6 -17.9



17

Poland Industrials

NOVEMBER 12, 2014

ALUMETAL RECOMMENDATION

BUY (INITIATION)

Automotive shift to CEE CURRENT PRICE: PLN44.0


Equity Story. Alumetal is the fourth biggest secondary aluminium

(aluminium casting alloys) producer in Europe, enjoying superior

profitability over its competitors thanks to an advanced metal

management system, its modern facilities and lower staff costs. The

company is capitalising on the shift of the automotive industry production

to the CEE region from Western Europe. According to OICA data, the

share of the CEE5 countries (Poland, Hungary, Czech Republic, Slovakia

and Slovenia) in EU engine and gearbox production (main use for

aluminium casting alloys) rose to 13% in 2012 from 1% in 2005 and this

trend continues. Following the second stage of the Nowa Sol project,

which expanded capacities by additional 33kt, we expect Alumetal to

reach a nearly 93% utilisation this year. The company decided to launch a

greenfield investment in Hungary, which will expand its capacities by

another 60kt (to 225kt), starting from 4Q16. We believe that this a good

move for Alumetal as it has a dominant position on the domestic market

(with a 50% market share) and has already established a base of clients

in Southern Europe (Hungary is, for instance, its third biggest export

market so far). The Hungarian project should allow Alumetal to grow by

leaps and bounds once more. The strong balance sheet and cash

generation will enable it to finance this project (CAPEX of PLN120mn)

and to simultaneously maintain its 50% dividend payout and safe

indebtedness levels (net debt/EBITDA’16 at 1.2x)

Financials. We assumed the alloy-to-scrap spread at PLN1,365/t for the

forecasted period, in line with the historical average. Having said that, the

company should be able to maintain its 8.5% gross profit margin. We also

expect the new capacities in Hungary to be utilised in 65% in the first full

year of their running (though this will cannibalise the previous Hungarian

sales).

Triggers/Risks. The company is heavily exposed to the automotive

segment (90% of sales), so any worsening environment in this industry

will have a negative impact on the company’s financials. The company

has a good track record of utilising new capacities but the Hungarian

project is Alumetal’s first greenfield investment.

Valuation & recommendation. Our DCF model points to a TP of

PLN52.4 per share. The comparative valuation points to PLN41.8 but

since the peer group is flawed (no listed close peers), we have set our TP

at PLN52.4, implying a 19% upside potential.

STOCK PERFORMANCE

AML

WIG Relative

30

32

34

36

38

40

42

44

46

Ju

l-14

Ju

l-14

Aug

-14

Aug

-14

Aug

-14

Sep

-14

Sep

-14

Sep

-14

Oct-

14

Oct-

14

Oct-

14

No

v-1

4




COMPANY DESCRIPTION

Company is a biggest polish and 4th biggest in Europe

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


Ipopema 30 FIZAN 40.0%



ANALYST

Tomasz Kucinski +48 22 534 16 10

[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes AMT.WA / AML PW

Sales 1015.3 1197.3 1263.3 1322.7 Market capitalisation (PLNmn) 663.3

EBITDA 54.0 75.4 90.1 93.7 Number of shares (mn) 15.1

EBIT 37.1 56.2 69.0 68.2 Free float (%) 42.5%



1M 3M YTD

EV/EBITDA (x) 13.6 9.8 8.5 8.3 7.6% 25.8% n.a. Source: Company data, DM BZ WBK estimates



18

Fig. 1. Alumetal: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Revenues 1,197.3 1,263.3 1,322.7 1,547.7 1,578.7 1,610.3 1,642.5 1,667.1 1,692.1 1,717.5

EBIT 56.2 67.0 66.2 82.1 83.7 85.4 87.1 88.4 89.8 91.1

Cash taxes on EBIT 0.0 2.7 2.6 2.6 2.7 2.7 13.2 13.4 14.3 17.3

NOPAT 56.2 64.3 63.5 79.5 81.1 82.7 73.9 75.0 75.4 73.8

Depreciation 19.2 21.1 25.5 26.3 26.3 26.3 26.3 26.3 26.3 26.3

Change in operating WC 31.8 11.6 10.5 39.6 5.5 5.6 5.7 4.3 4.4 4.5

Capital expenditures 10.0 70.0 52.0 26.3 26.3 26.3 26.3 26.3 26.3 26.3

Net investment 22.6 60.6 37.0 39.6 5.5 5.6 5.7 4.3 4.4 4.5

Free cash flow 78.7 3.8 26.6 39.8 75.6 77.1 68.2 70.7 71.0 69.3

WACC 8.2%

PV FCF 2014-2023 320.5

Terminal growth 1.0%

Terminal value (TV) 976.7

PV TV 481.8

Total EV 802.3

Net debt 74.8

Equity value 727.5

Number of shares (mn) 15.1

Value per share (PLN, 31 Dec 2014) 48.3

Month 11.0

Curent value per share (PLN) 47.9

12M target price 52.4


Fig. 2. Alumetal: Comparable valuation

Price Mkt cap (EURmn)

P/E EV/EBITDA

2014E 2015E 2016E 2014E 2015E 2016E

Alumetal SA 43.6 155 11.9 10.7 11.0 9.8 8.5 8.3

AMAG Austria Metall AG 26.99 951.8 20 16.1 13.1 9.1 7.6 6.7

Hindalco Industries Ltd 156.1 4,224 11.3 9.1 7.3 8.3 7.0 6.3

Alcoa Inc 16.33 15,483 20.0 15.3 13.5 8.4 6.7 6.1

United Co RUSAL PLC 4.25 6,699 14.8 6.9 6.5 14.4 10.3 9.5

Grupa Kety SA 288.05 639 14.0 13.1 12.7 8.7 8.4 8.1

Impexmetal SA 2.75 130 9.2 9.2 9.2 7.4 6.8 6.5

Median 14.4 11.1 10.9 8.5 7.3 6.6

Premium/discount vs. median -15.0% 16.7% -17.4% -3.9% 0.6% 14.9%

Source: BZ WBK Brokerage research, company data


19

Fig. 3. Alumetal: 3Q14 results review PLN in millions, unless otherwise stated


Sales n.a. n.a. n.a. n.a. n.a. n.a. 244.1 225.4 274.2 271.6 311.4 305.2 292.3 6.6% -4.2%

EBITDA n.a. n.a. n.a. n.a. n.a. n.a. 9.2 9.4 16.4 18.4 22.8 13.3 19.7 20.1% 48.1%

EBITDA margin n.a. n.a. n.a. n.a. n.a. n.a. 3.8% 4.2% 6.0% 6.8% 7.3% 4.4% 6.7% 0.8 2.4

EBIT n.a. n.a. n.a. n.a. n.a. n.a. 5.2 5.4 12.4 14.1 18.0 8.5 14.9 20.2% 75.3%

EBIT margin n.a. n.a. n.a. n.a. n.a. n.a. 2.1% 2.4% 4.5% 5.2% 5.8% 2.8% 5.1% 0.6 2.3

Net profit n.a. n.a. n.a. n.a. n.a. n.a. 5.7 4.8 12.4 12.9 17.2 10.7 14.0 12.9% 30.8%

Net margin n.a. n.a. n.a. n.a. n.a. n.a. 2.3% 2.1% 4.5% 4.8% 5.5% 3.5% 4.8% 0.3 1.3


Fig. 4. Alumetal: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 1197.3 n.a. n.a. 1263.3 n.a. n.a. 1322.7 n.a. n.a.

EBITDA 75.4 n.a. n.a. 90.1 n.a. n.a. 93.7 n.a. n.a.

EBIT 56.2 n.a. n.a. 69.0 n.a. n.a. 68.2 n.a. n.a.

Net profit 55.8 n.a. n.a. 62.1 n.a. n.a. 60.5 n.a. n.a.


Fig. 5. Alumetal: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

DCF valuation 52.4 n.a. n.a.

Comparable valuation (based on 2014-2016E) 41.8 n.a. n.a. Source: Company data, DM BZ WBK estimates

Fig. 6. Alumetal: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 845 1015 1197 1263 1323

COGS 784 953 1096 1156 1210

Gross profit 61 62 101 107 112

SG&A 25 28 38 40 46

Other operating income, net 4 3 -4 2 2

EBITDA 53 54 75 90 94

Operating profit 39 37 56 69 68

Net financial income (costs) 4 2 2 4 5

Profit before tax 37 36 55 65 63

Income tax 3 1 0 3 3

Net profit 34 36 56 62 61

Gross margin 7.2% 6.2% 8.5% 8.5% 8.5%

EBITDA margin 6.3% 5.3% 6.3% 7.1% 7.1%




Fig. 7. Alumetal: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 237 272 345 340 351

Fixed assets 196 210 201 250 296

Total assets 432 483 547 591 647


bank debt 56 60 92 72 70


bank debt 18 11 11 37 44

Equity 249 285 304 338 368

share capital 248 284 302 336 366


Total liabilities 433 483 547 591 647

Net debt 72 70 75 103 114


Fig. 8. Ambra:: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

CF from operations 52 36 43 72 76

CF from investment -13 -35 -10 -72 -55

CF from financing -39 -2 -5 -22 -25

Net change in cash 0 -1 28 -22 -4



20



21

Poland FMCG

NOVEMBER 12, 2014

AMBRA RECOMMENDATION

BUY (INITIATION)

Growing on cider CURRENT PRICE: PLN8.8


Equity Story. Ambra is the leading wine and strong, non-vodka

alcohol distributor in Poland with a high c.50% share of own

brands in its portfolio. Ambra also distributes its products in

Romania (c.13% share) and the Czech Republic (c.10%). The

company’s portfolio includes popular brands, such as: Dorato,

Cin&Cin, Piccolo, ElSol, Fesco and Cydr Lubelski. Ambra offers

investors exposition to the continuously growing wine market (c-4-

5% pa), despite the recent slowdown to just 0-1% in 2014. The

company has recently invested in cider production and a new

brand ‘Cydr Lubelski’ to benefit from the rising popularity of this

soft apple drink in Poland. The cider market is likely to grow to

40mn litres in the next five years, which would constitute just

c.1% of the beer market. Ambra can be distinguished from other

WSE companies by a good FcF profile. Since its managers

turned the company around from when it faced problems with

foreign investments in 2008, Ambra generates a stable OCF (avg.

conversion ratio at 0.8x), which, along with the limited CAPEX,

makes it possible to deliver an attractive FcF yield (11.5% in

2008-13 on average). This has allowed Ambra to start paying

attractive DY since 2012, which should, in our view, continue in

the coming years.

Financials. We expect the 2014/15E results to be pretty much

flat y/y, with growth appearing in 2015/16E on the rising positive

impact of ‘Cydr Lubelski’. We expect Ambra to earn a net profit of

PLN16mn and an EBITDA of PLN42mn on sales of PLN468mn

(+12% y/y due to the rising sales of cider). In regards to the cider

project, we expect an EBIT loss of PLN2mn on sales of 29mn in

2014/15E, which will turn into an EBIT profit of PLN2mn next

year. In the long run (2018/19E), we estimate that cider might

give a PLN6mn boost to Ambra’s bottom line.

Valuation & recommendation. Ambra is currently trading with a

PE of 14x and 11x in 2014/15-15/16, respectively, which implies a

premium vs. fair PE (c.10x). On the other hand, we believe that

the relatively high FcF yield justifies such a premium. Based on

our DCF model, we arrived at a 12-month TP of PLN12.0 per

share, which implies a 38% upside potential. We initiate Ambra’s

coverage with a Buy rating.

STOCK PERFORMANCE



COMPANY DESCRIPTION

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


Sektkellerei Schloss-Wachenheim 61.1%


Mr. Nick Gunther Reh 1.3%

Free float 30.0%

ANALYST

Tomasz Sokolowski (+48) 22 586 82 36

[email protected]

Company Data

PLNm 2013/14 2014/15E 2015/16E 2016/17E Reuters/Bloomberg codes AMB.WA / AMB PW

Sales 418.2 467.9 479.5 492.9 Market capitalisation (PLNm) 222


EBIT 30.2 30.5 34.6 35.4 Free float (%) 37.3%



1M 3M YTD




22

Fig. 1. Ambra: DCF valuation PLN in millions, unless otherwise stated

2014/15E 2015/16E 2016/17E 2017/18E 2018/19E 2019/20E 2020/21E 2021/22E 2022/23E 2023/24E

Net sales 468 479 493 507 523 531 537 543 550 557

EBIT 31 35 35 36 35 35 33 32 31 30

Cash taxes on EBIT 5 6 6 6 6 6 6 6 5 5

NOPAT 26 29 30 30 29 29 27 26 26 25

Depreciation 11 12 12 12 13 13 14 14 14 15

Change in operating WC 13 2 3 3 3 1 1 1 1 1

Capital expenditure 10 11 17 13 14 14 15 15 16 16

Free cashflow 14 27 22 26 25 26 25 24 23 22

WACC (2014-23) 8.0%

PV FCF 2014-23 157


Terminal Value (TV) 447

PV TV 207

Total EV 364

Net debt 86

minorities 4

Equity value 274

Number of shares (m) 25.2

Value per share (PLN, 1 Jan 2014/15) 10.9

Month 11

Current value per share (PLN) 11.0

Year-end target price (PLN) 12.0


Fig. 2. Ambra: Comparable valuation

P/E EV/EBITDA ROE g'13-15E PEG2Y

Name 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E Sales EBITDA net

WHOLESALE

METRO 15.4 12.6 10.5 4.9 4.7 4.5 10% 12% 13% 0% -4% -324% 0.0

BOOKER 26.4 21.9 19.5 16.7 14.3 12.9 17% 19% 20% 2% 9% 7% 3.1

SYSCO 21.7 20.1 18.7 10.7 10.1 9.4 19% 19% 20% 5% 7% 10% 2.0

SIAM MAKRO 36.7 29.2 23.7 23.4 18.7 15.3 44% 49% 54% 15% 25% 22% 1.3

BIZIM 28.9 22.1 17.7 9.4 8.0 6.6 17% 21% 24% 12% 14% 1% 23.2

Median 26.4 21.9 18.7 10.7 10.1 9.4 17% 19% 20% 5% 9% 7% 2.0

Ambra 14.0 11.3 10.5 7.7 6.8 6.6 7% 9% 9% 14.7% 12.8% 18.6% 0.6

vs. wholesalers -47% -48% -44% -28% -33% -30%



23

Fig. 3. Ambra: 3Q14 results review PLN in millions, unless otherwise stated


Sales 84.3 187.2 71.2 86.4 80.0 188.7 65.8 90.0 86.1 174.8 68.8 88.5 86.8 0.7% -1.9%

EBITDA 7.0 33.4 4.6 1.8 7.9 34.5 -0.7 0.7 9.8 31.3 -0.2 0.0 9.0 -7.9% 47168.4%

EBITDA margin 8.3% 17.8% 6.4% 2.0% 9.9% 18.3% -1.1% 0.8% 11.3% 17.9% -0.2% 0.0% 10.1% -122 1008

EBIT 4.5 30.7 -3.2 -1.0 5.3 31.9 -3.1 -2.2 7.1 28.6 -2.8 -2.7 6.3 -11.0% -334.2%

EBIT margin 5.4% 16.4% -4.5% -1.2% 6.7% 16.9% -4.7% -2.4% 8.2% 16.4% -4.1% -3.0% 7.1% -106 1016

Net profit 2.7 20.7 -4.8 -2.6 1.6 20.7 -3.2 -2.6 3.4 20.3 -3.4 5.8 2.4 -28.1% -57.9%

Net margin 3.3% 11.0% -6.7% -3.0% 2.0% 11.0% -4.9% -2.9% 3.9% 11.6% -4.9% 6.5% 3.4% -54 -314


Fig. 4. Ambra: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 468 n.a. n.a. 479 n.a. n.a. 493 n.a. n.a.

EBITDA 41 n.a. n.a. 46 n.a. n.a. 47 n.a. n.a.

EBIT 30 n.a. n.a. 34 n.a. n.a. 35 n.a. n.a.

Net profit 15 n.a. n.a. 19 n.a. n.a. 21 n.a. n.a.


Fig. 5. Ambra: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 6. Ambra: Income statement forecast PLN in millions, unless otherwise stated

12/13 13/14 14/15E 15/16E 16/17E

Net sales 425 418 468 479 493

COGS 284 286 320 327 338

Gross profit 141 132 148 152 155

SG&A 105 101 118 117 119

Other operating income, net -4 -1 0 0 0

EBITDA 42 41 42 46 47


Net financial income (costs) -7 -6 -6 -5 -4


Income tax 9 -2 9 10 10

Net profit 17 26 16 20 21

Gross margin 33.1% 31.6% 31.7% 31.7% 31.4%

EBITDA margin 10.0% 9.8% 8.9% 9.6% 9.6%




Fig. 7. Ambra: Balance Sheet forecast PLN in millions, unless otherwise stated

12/13 13/14 14/15E 15/16E 16/17E

Current assets 229 222 243 258 267

Fixed assets 190 197 196 196 201

Total assets 420 419 439 454 468


bank debt 72 73 83 83 83


bank debt 26 20 20 20 20

Equity 212 226 224 233 240




Net debt 84 86 100 90 88


Fig. 8. Ambra: Cash flow forecast PLN in millions, unless otherwise stated

12/13 13/14 14/15E 15/16E 16/17E




Net change in cash 8 -7 -4 9 2



24



25

Poland Industrials

NOVEMBER 12, 2014

AMICA RECOMMENDATION

BUY (INITIATION)

Hot investment CURRENT PRICE: PLN109

TARGET PRICE: PLN149

Equity Story. Following the 2010 plans sale to Samsung, we estimate

that 2014 will be the fourth year in a row with EBITDA growth exceeding

20%. This year could mark, however, a turnaround for Amica and be the

first year of strong growth without a contribution from the Russian market

that used to be the main driver in the past. Amica is doing extraordinarily

well on the Polish market, taking full advantage of the good market

environment, Mastercook’s bankruptcy, and combining these two factors

with a successful marketing campaign. It has also started to grow

dynamically on some of the Western markets (Germany and UK above

all). We believe that exports, mainly to the Western markets, and growth

in the non-heating segment in Poland should in the coming years be

offsetting the likely further slowdown on the Russian market and problems

with retaining a very high (ca. 60%) market share in free-standing heating

equipment in Poland. We believe that Amica is a company that doesn’t

bite off more than it can chew – it picks new markets wisely and enters

them cautiously, yet effectively. It does so without taking too much risk –

either by entering big distribution channels without huge marketing

expenditures or by making opportunistic acquisitions. What is more,

Amica has strong balance sheet, with its net debt*/EBITDA at 0.9x –

much lower than its peers.

Financials. We estimate Amica’s 2014 y/y sales growth at 17.3%

(domestic market up by 26% y/y, and the Russian, PLN-denominated

sales down 4% y/y), which implies an EBITDA of PLN155mn (+23.8% y/y)

and a net profit of PLN80.6mn. We estimate the 2015 and 2016 sales

growth at 5.8% and 3.7%, respectively, which translates into an EPS 14-

16 CAGR of 9.3%.

Triggers/Risks. The Russian market remains the key risk for Amica – the

Russian economy is deteriorating and further RUB depreciation could be

at some point impossible to be passed onto the final consumer. The

situation with Fagor’s assets in Poland could be an additional risk but we

don’t believe Mastercook brand will be able to make a comeback.

Valuation & recommendation. Based on our DCF model, we arrived at

the 12 month TP at PLN149 per share, which implies a 37% upside

potential. Amica is currently trading with a P/E’14 of 10.5x (please also

note that the company’s PnL and cash tax rates differ significantly) and

the EV/EBITDA’14 at 6.4x, i.e. with significant discounts to its international

peers. The comparative valuation yields a similar result and points to

PLN150.

STOCK PERFORMANCE

AMC

WIG Relative

10

30

50

70

90

110

130

Oct-

11

Ja

n-1

2

Apr-

12

Ju

l-12

Oct-

12

Ja

n-1

3

Apr-

13

Ju

l-13

Oct-

13

Ja

n-1

4

Apr-

14

Ju

l-14

Oct-

14




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 56.3%


ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes AMCP.WA / AMC PW

Sales 1,656 1,942 2,055 2,131 Market capitalisation (PLNmn) 891.4

EBITDA 125 155 160 172 Number of shares (mn) 7.8

EBIT 96 123 128 133 Free float (%) 35.8%



1M 3M YTD

EV/EBITDA (x)* 8.2 6.4 6.1 5.5 3.8% 23.9% 2.4% Source: Company data, DM BZ WBK estimates

*taking into account factoring of PLN100mn in 2014 (growing accordingly to sales growth afterwards)



26

Fig. 1. Amica: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Revenues 1,941.9 2,054.8 2,130.8 2,167.5 2,217.3 2,268.3 2,320.6 2,363.4 2,407.1 2,451.7

EBIT 122.7 127.6 132.8 137.2 140.4 143.6 147.0 149.8 145.3 148.1


NOPAT 114.4 118.4 110.5 114.1 135.4 138.0 140.7 124.3 120.7 122.9

Depreciation 32.2 32.8 39.3 39.8 40.3 40.8 41.3 46.8 52.4 53.1



Net investment 39.8 68.8 15.1 9.4 11.3 11.6 51.8 51.0 11.7 11.8

Free cash flow 74.6 49.6 95.4 104.7 124.0 126.4 88.9 73.3 109.1 111.1

WACC 9.1%

PV FCF 2014-2023 573.8


Terminal value (TV) 1,388.6

PV TV 635.2

Total EV 1,208.9

Net debt 143.6

Equity value 1,065.4



Month 11.0




Fig. 2. Amica: Comparable valuation

Price

Mkt cap (EURmn)

P/E EV/EBITDA

2014E 2015E 2016E 2014E 2015E 2016E

Amica Wronki 108 199 10.5 9.2 8.8 6.4 6.1 5.5

Indesit 11.0 1,253 33.1 19.5 16.1 8.6 7.4 6.6

Arcelik 13.2 3,162 13.1 11.7 10.1 n.a. n.a. n.a.

Electrolux 206.7 6,925 19.6 14.5 12.2 9.1 7.0 6.1

Whirlpool 175.8 11,011 15.1 12.4 10.8 8.2 6.3 5.2

Gorenje 6.6 161 19.6 10.7 5.6 6.3 5.7 5.1

De' Longhi 15.2 2,275 18.3 15.6 14.0 9.3 8.4 7.7

Median 18.9 13.4 11.5 8.6 7.0 6.1

Premium/discount vs. median -44.6% -31.4% -23.6% -25.9% -12.4% -9.2%



27

Fig. 3. Amica: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 404.3 437.6 360.5 329.5 427.0 447.9 346.7 364.3 445.6 497.1 427.6 449.9 521.4 17.0% 15.9%

EBITDA 22.9 25.2 18.7 14.8 38.9 28.1 25.3 18.2 33.6 46.0 34.0 38.7 41.6 23.8% 7.6%

EBITDA margin 5.7% 5.8% 5.2% 4.5% 9.1% 6.3% 7.3% 5.0% 7.5% 9.3% 7.9% 8.6% 8.0% 0.4 -0.6

EBIT 17.7 19.3 12.8 8.7 32.8 21.2 18.7 10.4 26.4 38.6 25.5 31.0 33.6 27.2% 8.7%

EBIT margin 4.4% 4.4% 3.6% 2.7% 7.7% 4.7% 5.4% 2.9% 5.9% 7.8% 6.0% 6.9% 6.5% 0.5 -0.4

Net profit 20.6 60.5 12.3 0.3 17.6 16.2 12.9 5.4 41.4 29.6 13.1 20.6 23.9 -42.3% 16.0%

Net margin 5.1% 13.8% 3.4% 0.1% 4.1% 3.6% 3.7% 1.5% 9.3% 6.0% 3.1% 4.6% 4.6% -4.7 0.0


Fig. 4. Amica: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E







Fig. 5. Amica: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

DCF valuation 149 n.a. n.a.

Comparable valuation (based on 2014-2016E) 150 n.a. n.a. Source: Company data, DM BZ WBK estimates

Fig. 6. Amica: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 1565 1656 1942 2055 2131

COGS 1129.6 1141.4 1324.1 1403.2 1454.7

Gross profit 435.4 514.6 617.8 651.6 676.1

SG&A 363.8 422.0 493.5 524.0 543.4

Other operating income, net 2.7 3.6 -1.7 0.0 0.0

EBITDA 99.2 125.2 154.9 160.4 172.1


Net financial income (costs) 11.8 15.2 23.2 13.2 13.9


Income tax 16.5 -8.0 18.9 21.7 22.6

Net profit 46.4 89.4 80.6 92.7 96.3

Gross margin 27.8% 31.1% 31.8% 31.7% 31.7%

EBITDA margin 6.3% 7.6% 8.0% 7.8% 8.1%




Fig. 7. Amica: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 485.4 535.3 621.8 653.9 702.9

Fixed assets 353.5 397.8 391.0 428.2 429.2

Total assets 838.8 933.1 1012.8 1082.1 1132.0


bank debt 81.5 60.7 69.1 62.1 61.9


bank debt 35.0 37.8 35.2 28.2 28.1

Equity 421.6 472.2 525.6 594.1 634.8

share capital 406.1 456.7 510.0 578.6 619.2

Minority Interest -0.7 -1.0 0.0 0.0 0.0


Net debt 41 73 44 29 0


Fig.8. Amica: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



CF from financing 26 -57 -20 -38 -56

Net change in cash 52 -50 35 1 28



28



29

Poland Industrials

NOVEMBER 12, 2014

APATOR RECOMMENDATION

HOLD (INITIATION)

Obstacles for growth? CURRENT PRICE: PLN38.0


Equity Story. Apator has a long track record of growth, attributable to

successful acquisitions and growth of the traditional meters’ market. Now

that the markets seem either mature or declining, its products’ offer is

comprehensive and market share high, the company needs to come up

with something new. Apator sees significant opportunities in the smart

meter market (hence the idea of the Elkomtech acquisition). According to

EU guidelines, each country should replace 80% of all the electricity

meters with a smart version by 2020. Only 16 EU countries decided,

however, to do so (five EU countries also decided to implement intelligent

gas meters) and others (including most of Poland’s neighbours) decided

against a massive rollout, claiming that it is, at least to a significant extent,

poor value for money. So far, based on the first tenders, it does not look

like this will be a producer’s market – competition is high and pricing, the

most important criterion, aggressive. The situation on the export markets

does not look much different either. Apator just signed its first electricity

smart metering contract, but it looks like conquering this potentially

attractive market will not be a piece of cake, even for such an experienced

company.

Financials. We are of the opinion that Apator will not reach its

management’s sales forecast, likely reporting PLN711mn. It will, however,

in our opinion exceed the net profit forecast of PLN75-78mn (+22.8% y/y,

roughly flat, however, if adjusting for Elkomtech and other operating

income). The upcoming years will bring slow growth (EPS14-16 CAGR

assumed at 5.1%), with only 2019-2020 finally offering a pickup in the

company’s results due to the smart metering project’s reaching its final

and most valuable stages.

Triggers/Risks. The main risk for Apator’s future is the shape of the

smart metering market, mainly in Poland but also on the company’s export

markets, and, more specifically, the factors that will drive this market.

Please note also that Apator has quite a significant exposure to the

Russian market – 9.2% of its consolidated sales in 1H14

Valuation & recommendation. We are initiating coverage with a

Hold recommendation and a TP of PLN42.4 (adding back the interim

dividend that will be paid in December). The comparative valuation points

to PLN41.1, treating the treasury shares as a cash equivalent (without the

possible tax impact, however) or PLN43.7, assuming the treasury shares

get cancelled.

STOCK PERFORMANCE

APT WIG Relative

10

15

20

25

30

35

40

45

Oct-

11

Ja

n-1

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COMPANY DESCRIPTION

Apator is a polish leading Polish supplier of metering systems for all the utility services and also low voltage switchgear.


Mariusz Lewicki 9.8%

Tadeusz Sosgórnik 8.7%

Danuta Guzowska 7.8%

Zbigniew Jaworski 6.4%

Apator Mining 6.4%

Janusz Marzyglinski 6.2%

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes APTP.WA / APT PW

Sales 684.0 710.9 744.6 777.7 Market capitalisation (PLNmn) 1,257.4


EBIT 86.5 108.1 112.0 116.7 Free float (%) 51.5%


P/E (x) 18.5 15.0/13.4 14.3/12.8 13.6/12.1 Price performance

1M 3M YTD

EV/EBITDA (x) 10.9 9.2 8.5 8.1 1.3% 10.1% 3.7% Source: Company data, DM BZ WBK estimates



30

Fig. 1. Apator: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Revenues 710.9 744.6 777.7 782.9 810.4 836.4 849.6 759.4 766.0 772.7

EBIT 108.1 112.0 116.7 117.8 121.8 125.9 128.3 116.6 117.5 118.3


NOPAT 92.2 95.4 99.2 100.1 103.3 101.9 107.3 97.8 98.5 95.9

Depreciation 22.2 24.6 24.6 24.6 24.6 24.6 24.6 24.6 24.6 24.6

Change in operating WC 11.2 7.8 7.9 1.2 6.5 6.2 3.1 -21.6 1.6 1.6


Net investment 123.9 7.8 7.9 1.2 6.5 6.2 3.1 -21.6 1.6 1.6

Free cash flow -31.7 87.6 91.3 98.9 96.8 95.8 104.2 119.4 96.9 94.3

WACC 8.4%

PV FCF 2014-2023 598.0


Terminal value (TV) 1,281.1

PV TV 618.3

Total EV 1,216.4

Net debt -58.6

Minority interests 1.5

Equity value 1,273.5



Month 11.0


interim dividend per share 0.3



Fig. 2. Apator: Comparable valuation

Price Currency P/E EV/EBITDA

2014E 2015E 2016E 2014E 2015E 2016E

Apator SA 38.28 300 15.0 14.4 14.1 9.2 8.7 8.4

Aplisens SA 13.2 42 12.0 n.a. n.a. 7.3 n.a. n.a.

Schneider Electric SE 61.75 36,037 16.3 14.5 13.0 11.1 10.1 9.3

Osaki Electric Co Ltd 707 191 19.8 13.4 11.7 8.8 7.1 6.7

Vaisala OYJ 22.09 403 21.3 16.7 13.3 3.9 3.7 6.7

Badger Meter Inc 57.1 664 27.2 22.7 20.2 14.5 12.3 n.a.

Itron Inc 41.28 1,297 25.2 18.9 15.5 10.8 9.3 8.0

Median 20.6 16.7 13.3 9.8 9.3 7.3

Premium/discount vs. median -27.1% -14.0% 6.0% -6.1% -6.0% 14.5%



31

Fig. 3. Apator: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 145.1 164.8 163.1 146.9 188.8 170.0 167.4 173.5 162.7 175.5 152.9 181.9 179.8 10.5% -1.1%

EBITDA 29.2 24.9 26.1 22.9 48.1 18.7 22.4 28.2 32.8 24.8 26.9 33.3 33.6 2.6% 0.9%

EBITDA margin 20.1% 15.1% 16.0% 15.6% 25.5% 11.0% 13.4% 16.2% 20.1% 14.1% 17.6% 18.3% 18.7% -1.4 0.4

EBIT 25.0 20.7 21.9 18.4 43.5 13.7 17.3 23.0 27.5 19.6 21.8 27.6 27.9 1.5% 1.0%

EBIT margin 17.2% 12.5% 13.4% 12.5% 23.0% 8.0% 10.3% 13.3% 16.9% 11.2% 14.3% 15.2% 15.5% -1.4 0.3

Net profit 16.8 15.5 16.3 33.5 34.3 10.8 12.9 16.9 21.7 16.8 16.1 21.9 21.7 -0.4% -1.2%

Net margin 11.6% 9.4% 10.0% 22.8% 18.2% 6.3% 7.7% 9.8% 13.4% 9.6% 10.5% 12.1% 12.0% -1.3 0.0


Fig. 4. Apator: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E







Fig. 5. Apator: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 6. Apator: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 669 684 711 745 778

COGS 484 482 489 510 532

Gross profit 185 202 222 235 245

SG&A 107 113 118 123 129

Other operating income, net 20 -2 5 2 2

EBITDA 116 107 130 137 141




Income tax -4 14 20 21 22

Net profit 95 68 84 88 92

Gross margin 27.6% 29.5% 31.3% 31.0% 31.0%

EBITDA margin 17.4% 15.7% 18.3% 18.3% 18.2%




Fig. 7. Apator: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 255 261 337 360 373

Fixed assets 249 258 346 341 337

Total assets 504 519 683 701 710


bank debt 44 51 51 51 51


bank debt 15 11 111 91 71

Equity 298 325 388 424 450




Net debt 15 42 78 46 23


Fig. 8. Apator: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



CF from financing -56 -47 80 -73 -86




32



33

Poland IT

NOVEMBER 12, 2014

ASSECO SEE RECOMMENDATION

BUY (INITIATION)

Overcoming headwinds CURRENT PRICE: PLN7.51


Equity Story. Asseco South Eastern Europe (ASE) operates in

11 Balkan countries and in three segments – banking systems,

payments and integration. The company is a regional leader and,

in countries like Serbia, has a market position as strong as

Asseco Poland on the Polish market. ASE was created from a

merger of many smaller local companies and it remains active on

the M&A field. It has a relatively good track record in acquisitions

and has a transparent capital group structure. It successfully

carried out buyouts of minority stakes at the acquired companies,

something that Asseco Poland seems unable to do. ASE

operates on markets that are less developed than in Poland and

which should yield higher growth rates in the long-term. But the

poor macro environment has so far not allowed the positive

scenario to materialise.

Financials. From the beginning of 2014, the company has been

switching its payments business into a full outsourcing model.

This leads to higher CAPEX on payment terminals, which is

mostly financed by bank debt. The P&L impact is a higher top-line

and EBITDA, flat EBIT. In our opinion, the mix of organic growth

and acquisitions will allow ASE to continue the recovery that

started in 2014. The payments business unit should report the

fastest pace of growth, while the share of the least marginable

integration segment in revenues should shrink. We expect ASE to

report a net profit of PLN36.4mn and PLN37.7mn in 2014E and

2015E, respectively, which implies the 2014E P/E at 11.1x and

2015E P/E 10.4x. We expect the dividend pay-out at 60% of the

net profit, which gives an attractive DY close to 6%. At our TP,

Asseco SEE still offers an attractive 4% DY.

Triggers/Risks. The company is a play for the macro recovery in

the SEE region. It has had troubles coping with the difficult market

conditions in the last couple of years. The macro rebound should,

however, be very positive to ASE’s business. We have not

factored in any solid recovery into our model and are, therefore,

leaving it as a pure upside for the company’s shareholders.

Valuation & recommendation. Based on our DCF model, we

arrived at a 12 month TP of PLN10.30 per share, which implies a

37% upside potential. In our model, we applied a beta of 1.2 due

to the presence on the less developed Balkan markets. The

comparative valuation points to PLN8.9 per share.

STOCK PERFORMANCE

ASE

WIG Relative

6

7

8

9

10

11

12

13

Oct-

11

Ja

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COMPANY DESCRIPTION

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

MAIN SHAREHOLDERS

% of votes

Asseco Poland 51.1%

EBRD 9.3%

Liatris 7.4%


ANALYST


[email protected]

Company Data

PLNmn 2013 2014E 2015E 2016E Reuters/Bloomberg codes ASEP.WA / ASE PW



EBIT 42.1 44.2 47.9 51.7 Free float (%) 32.3%



1M 3M YTD




34

Fig. 1. Asseco South Eastern Europe: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Net sales 475.5 503.7 529.1 549.1 567.5 583.4 595.9 609.0 622.9 637.5

EBIT 44.2 47.9 51.7 54.2 55.8 56.5 56.4 56.1 55.9 55.6


NOPAT 37.1 38.8 41.9 43.9 45.2 45.8 45.6 45.5 45.3 45.1

Depreciation 22.2 28.8 30.2 31.8 33.3 35.0 36.8 38.6 40.5 42.6


Capital expenditure 50.8 42.2 42.4 41.4 37.3 39.1 40.9 42.9 44.9 47.1

Free cashflow 8.1 21.7 26.4 31.7 38.9 39.8 40.0 39.6 39.2 38.7

WACC (2014-23) 9.0%

PV FCF 2014-23 193.6


Terminal Value (TV) 541.0

PV TV 228.5

Total EV 422.2

Net debt -54.7

Equity value 460.1



Month 11


12-month target price (PLN) 10.30


Fig. 2. Asseco South Eastern Europe: Comparable valuation

Market

Cap P/E EV/EBITDA

Company Price Currency (EURmn) 2014E 2015E 2016E 2014E 2015E 2016E

Asseco South Eastern Europe 7.51 PLN 92 10.3 10.0 9.3 5.2 4.5 4.1

Peers

Asseco Poland 49.71 PLN 976 11.7 13.3 12.4 4.3 4.2 3.8

Asseco Business Solutions 12.30 PLN 97 13.8 13.6 13.0 7.5 7.4 7.0

Asseco Central Europe 16.05 PLN 81 7.6 6.8 n.a. n.a. n.a. n.a.

Comp 60.30 PLN 84 9.9 10.6 14.4 6.3 5.4 6.4

Sygnity 17 PLN 47 10.7 8.5 8.0 5.1 4.1 3.5

GFI Informatique 5.06 EUR 276 12.5 10.4 9.5 5.7 5.1 4.7

Neurones 14 EUR 330 17.5 17.0 17.3 5.9 5.4 5.0

Reply 56.70 EUR 530 12.6 10.9 8.8 6.3 5.5 4.9

Cap Gemini 52 EUR 8,302 14.6 13.1 11.8 7.0 6.1 5.3

Computacenter 622.00 GBp 1,106 13.2 12.5 11.7 6.2 5.6 5.1

SAP 54 EUR 66,216 15.6 14.5 13.3 10.9 9.5 8.2

Indra Sistemas 8 EUR 1,329 11.2 9.8 8.8 7.1 6.4 5.9

Median 12.6 10.7 11.7 6.3 5.5 5.1

Implied share price vs. peers (PLN) 9.1 8.0 9.4 8.9 9.1 9.0

Implied price (PLN) 8.9



35

Fig. 3. Asseco South Eastern Europe: 3Q14 results review PLN in millions, unless otherwise stated


Sales 116.1 146.3 105.3 116.5 103.4 137.3 100.6 113.0 107.3 150.8 99.3 121.0 115.2 7.3% -4.8%

EBITDA 17.2 21.3 14.8 14.7 14.5 19.3 13.1 12.5 13.2 17.2 12.6 16.2 18.1 37.0% 11.8%

EBITDA margin 14.8% 14.5% 14.1% 12.7% 14.0% 14.1% 13.0% 11.1% 12.3% 11.4% 12.7% 13.4% 15.7% 3.4 2.3

EBIT 15.0 18.8 12.3 12.1 11.9 16.3 9.9 9.0 9.8 13.5 8.0 10.5 11.9 22.0% 12.9%

EBIT margin 12.9% 12.8% 11.7% 10.4% 11.5% 11.8% 9.8% 8.0% 9.1% 8.9% 8.1% 8.7% 10.3% 1.2 1.6

Net profit 13.3 18.3 12.7 11.0 11.0 15.0 7.8 7.4 8.6 12.2 7.0 9.1 9.2 7.3% 1.4%

Net margin 11.4% 12.5% 12.1% 9.4% 10.6% 10.9% 7.8% 6.5% 8.0% 8.1% 7.1% 7.5% 8.0% 0.0 0.5


Fig. 4. Asseco South Eastern Europe: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E





Net profit 37.7 n.a. n.a. 38.9 n.a. n.a. 41.9 n.a. n.a. Source: Company data, DM BZ WBK estimates

Fig. 5. Asseco South Eastern Europe: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 6. Asseco SEE: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 462.5 471.7 475.5 503.7 529.1

COGS 337.9 354.2 359.4 381.1 400.0

Gross profit 124.6 117.5 116.1 122.6 129.0

SG&A 72.6 75.6 71.9 74.7 77.3


EBITDA 63.4 56.1 66.3 76.7 81.9




Income tax 5.1 7.4 7.2 9.1 9.8

Net profit 49.6 35.9 37.7 38.9 41.9

Gross margin 26.9% 24.9% 24.4% 24.3% 24.4%

EBITDA margin 13.7% 11.9% 13.9% 15.2% 15.5%




Fig. 7. Asseco SEE: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 218.7 214.0 230.2 252.9 265.2

Fixed assets 541.1 563.4 592.1 605.7 618.0

Total assets 759.8 777.4 822.3 858.5 883.2


bank debt 0.5 6.3 13.3 20.0 20.0


bank debt 0.8 7.9 23.6 30.0 30.0

Equity 664.7 648.8 669.9 686.1 704.7

share capital 518.9 518.9 518.9 518.9 518.9



Net debt -82.3 -54.7 -46.9 -47.7 -52.3


Fig. 8. Asseco SEE: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



CF from financing -28.2 -30.0 6.0 -9.6 -23.3

Net change in cash -28.9 -15.0 14.9 13.9 4.5



36



37

Poland IT

NOVEMBER 12, 2014

ASSECO BUSINESS SOLUTIONS RECOMMENDATION

BUY (INITIATION)

Programmed to generate cash CURRENT PRICE: PLN12.30


Equity Story. Asseco Business Solutions (ABS) is a unique

company in the Asseco group. It is a product company, not a

simple software integrator, and this is why it is able to generate

one of the highest margins in the Asseco group. The company

operates in two segments – ERP systems and FMCG-dedicated

mobile applications – that both have a similar share in the

revenues. ABS is one of market leaders in the saturated FMCG

mobile applications market in Poland. To maintain growth in this

segment, ABS decided this year to start selling its Mobile Touch

product abroad. The company is a typical cash cow. It has low

CAPEX and working capital requirements, it generates stable and

high FCFs. It also has a strong balance sheet despite its dividend

payouts of 100% of the net profit for the last couple of years.

Financials. In our opinion 1) the supportive ERP market, which is

correlated with the overall macro situation in Poland and 2) the

company’s foreign expansion with the FMCG application should

allow it to sustain mid-single digit y/y growth pace for the next

three-four years. Asseco BS trades at 2014E P/E 13.9x and

2015E P/E 13.5x, with a premium vs. the parent company, for

example, but offers an attractive DY at above 7%. At our TP,

Asseco BS still offers a decent 5% DY.

Triggers/Risks. In our opinion, the foreign expansion with the

FMCG-dedicated products is the major valuation driver for

Asseco BS. It aims to sustain growth in the segment now that the

local market is already saturated. Asseco BS is planning to

expand in two directions and in cooperation with other companies

in the Asseco group – Western Europe with Asseco Solutions and

Russia with R-Style. The company has already signed its first

large contract in this regard. That said, we also see a potential

upside from further distribution of the cash surplus to its

shareholders – in addition to the 100% dividend, the company

can easily afford to launch a share buyback program.



33% upside potential. In our opinion, due to the attractive product

mix, high DY and strong balance sheet, ABS fully deserves the

premium vs. its peers. The comparative valuation points to

PLN10.3 per share.

STOCK PERFORMANCE

ABS

WIG Relative

6

7

8

9

10

11

12

13

14

15

16

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COMPANY DESCRIPTION

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

MAIN SHAREHOLDERS

% of votes

Asseco Poland 46.5%

Metlife pension fund 10.5%


ANALYST


[email protected]

Company Data

PLNmn 2013 2014E 2015E 2016E Reuters/Bloomberg codes ABSP.WA / ABS PW



EBIT 31.8 35.1 35.5 37.4 Free float (%) 47.2%



1M 3M YTD




38

Fig. 1. Asseco Business Solutions: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Net sales 155.2 164.0 173.4 180.1 187.0 192.6 198.3 204.1 210.2 216.4

EBIT 35.1 35.5 37.4 38.7 40.0 41.0 42.1 43.4 44.7 46.0


NOPAT 28.5 28.7 30.3 31.3 32.4 33.2 34.1 35.1 36.2 37.2

Depreciation 12.2 12.8 13.4 14.1 14.8 15.5 16.3 17.1 18.0 18.9



Free cashflow 24.8 26.9 28.3 29.7 30.7 31.7 32.5 33.5 34.5 35.5

WACC (2014-23) 8.0%

PV FCF 2014-23 201.9



PV TV 240.8

Total EV 442.7

Net debt -54.7

Equity value 470.7



Month 11




Fig. 2. Asseco Business Solutions: Comparable valuation

Market

Cap P/E EV/EBITDA


Asseco Business Solutions 12.30 PLN 97 13.8 13.6 13.0 7.5 7.4 7.0

Peers

Asseco Poland 49.71 PLN 976 11.7 13.3 12.4 4.3 4.2 3.8

Asseco South Eastern Europe 7.51 PLN 92 10.3 10.0 9.3 5.2 4.5 4.1

Asseco Central Europe 16.05 PLN 81 7.6 6.8 n.a. n.a. n.a. n.a.

Comp 60.30 PLN 84 9.9 10.6 14.4 6.3 5.4 6.4

Sygnity 17 PLN 47 10.7 8.5 8.0 5.1 4.1 3.5

GFI Informatique 5.06 EUR 276 12.5 10.4 9.5 5.7 5.1 4.7

Neurones 14 EUR 330 17.5 17.0 17.3 5.9 5.4 5.0

Reply 56.70 EUR 530 12.6 10.9 8.8 6.3 5.5 4.9

Cap Gemini 52 EUR 8,302 14.6 13.1 11.8 7.0 6.1 5.3

Computacenter 622.00 GBp 1,106 13.2 12.5 11.7 6.2 5.6 5.1

SAP 54 EUR 66,216 15.6 14.5 13.3 10.9 9.5 8.2

Indra Sistemas 8 EUR 1,329 11.2 9.8 8.8 7.1 6.4 5.9

Median 12.6 10.7 11.7 6.3 5.5 5.1





39

Fig. 3. Asseco Business Solutions: 3Q14 results review PLN in millions, unless otherwise stated


Sales 31.5 45.8 37.3 33.0 32.1 36.9 33.7 32.6 31.3 48.5 39.1 31.2 32.6 4.2% 4.4%

EBITDA 9.0 12.4 10.4 7.7 9.8 13.0 10.6 8.4 10.0 14.4 12.0 9.4 10.2 2.2% 8.9%

EBITDA margin 28.5% 27.2% 28.0% 23.2% 30.5% 35.2% 31.4% 25.8% 32.0% 29.7% 30.8% 30.1% 31.4% -0.6 1.3

EBIT 6.5 10.4 7.7 5.0 7.3 10.6 7.7 5.5 7.1 11.5 9.2 6.3 7.3 2.2% 15.2%

EBIT margin 20.7% 22.8% 20.7% 15.3% 22.8% 28.7% 22.7% 17.0% 22.8% 23.7% 23.5% 20.3% 22.4% -0.4 2.1

Net profit 5.6 8.8 6.8 4.6 6.2 9.0 6.7 4.8 5.9 9.4 7.7 5.4 6.1 3.7% 13.6%

Net margin 17.8% 19.2% 18.1% 13.9% 19.4% 24.3% 19.9% 14.8% 18.8% 19.4% 19.7% 17.2% 18.7% -0.1 1.5


Fig. 4. Asseco Business Solutions: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E






Fig. 5. Asseco Business Solutions: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 6. Asseco BS: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 139.3 146.0 155.2 164.0 173.4

COGS 94.0 100.1 102.5 109.7 116.4

Gross profit 45.3 45.9 52.7 54.3 57.0

SG&A 15.0 13.9 18.0 18.8 19.6

Other operating income, net 0.4 -0.1 0.4 0.0 0.0

EBITDA 40.9 43.4 47.3 48.3 50.8




Income tax 6.5 6.7 7.0 7.1 7.4

Net profit 26.5 26.8 29.8 30.1 31.7

Gross margin 32.5% 31.4% 34.0% 33.1% 32.9%

EBITDA margin 29.4% 29.7% 30.5% 29.4% 29.3%




Fig. 7. Asseco BS: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 80.4 96.9 98.6 100.0 102.6

Fixed assets 196.2 194.5 196.2 197.0 197.9

Total assets 276.6 291.4 294.8 297.0 300.4


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 258.6 259.0 265.0 265.3 266.9

share capital 167.1 167.1 167.1 167.1 167.1



Net debt -48.5 -54.7 -57.2 -56.2 -56.2


Fig. 8. Asseco BS: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E




Net change in cash -8.5 6.2 2.5 -1.0 0.0



40



41

Poland Construction & Real Estate

NOVEMBER 12, 2014

ATREM RECOMMENDATION

BUY (MAINTAINED)

Waiting for margin recovery CURRENT PRICE: PLN 4.9

TARGET PRICE: PLN 7.1 (MAINTAINED)

Equity story: The long-awaited margin rebound in the

construction niches where Atrem operates is not materialising and

it is unlikely to emerge any time soon. In our view, we will take a

little longer before better times arrive for Atrem in terms of

generating margins on contracts. On the other hand, we do not

change our overall view on Atrem. For us, Atrem operates in

attractive niches of the construction market (mainly automatics

and high-voltage power engineering), which offers an exposure to

the new round of EU funds’ flows, and is well-balanced, with an

estimated FY’14 net cash of PLN7mn. In this light, we believe

Atrem is well-prepared for a rebound in margins, which we expect

to finally materialise some time ahead.

3Q14 Results Preview. 3Q14 was another weak period for

Atrem. Despite the fact that its sales are still growing nicely, the

company continues to suffer from low margins, which makes it

impossible to make money from its core business. Sales should

be by 27%y/y higher at PLN25mn, with the gross margin at 9.0%

or PLN2.2mn in 3Q14. We expect the SG&A costs at PLN3.1mn

(12.4% vs. 12.6%) and PLN1.5mn of other operating gains in

3Q14 due to the release of provisions. Overall, we expect a

positive EBITDA of PLN1.4mn. On an adj. basis, EBITDA would

turn negative to a tiny loss of PLN0.1mn, compared to positive

PLN0.9mn last year. With no major changes in financials or taxes,

this should result in a bottom line of PLN0.5mn or a loss of

PLN0.7mn on an adj. basis. Outcome: NEGATIVE.

Change in valuation & recommendation. We maintain our Buy

recommendation. Our DCF-based valuation points to

PLN7.10/share. The comparative valuation points to

PLN5.20/share.

PUBLICATION DATE

NOVEMBER 14, 2014

3Q14 RESULTS PREVIEW

3Q14E y/y (%) q/q (%)

Sales 24.9 26.7 60.9

EBITDA 1.4 -0.1 3.4

EBIT 0.7 -0.8 2.7

Net profit 0.5 -1.0 1.8

STOCK PERFORMANCE





on issue date

12 month target


Buy 10/22/2014 4.8 7.1 2.9% 2.4

Hold 4/28/2014 6.3 7.6 -24.6% -27.9

Buy 1/30/2014 8.7 8.5 -27.1% -29.4

Buy 10/23/2013 6.6 8.8 31.2% 36.8

COMPANY DESCRIPTION

Atrem is an engineering company with a wide range of products and services related to industrial process automation, telemetrics, regulation, electronics and metrology.

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes ATRP.WA / ATR PW



EBIT 2.6 3.8 1.9 4.3 Free float (%) 27.4



1M 3M YTD




42

Fig. 1. Atrem: 3Q14 results preview PLN in millions, unless otherwise stated

3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%)

Sales 26.7 60.9 41.2 27.6 27.5 33.1 20.1 23.5 26.5 36.8 20.1 35.0 24.9 -6.1% -28.8%

EBITDA -0.1 3.4 1.9 -4.4 -2.7 -5.1 0.9 0.7 1.2 2.5 1.4 1.8 1.4 8.9% -24.1%

EBITDA margin -0.4% 5.7% 4.6% -16.0% -9.9% -15.5% 4.6% 3.1% 4.7% 6.9% 7.2% 5.1% 5.4% 75 33

EBIT -0.8 2.7 1.1 -5.1 -3.5 -5.9 0.2 0.0 0.5 1.8 0.8 1.1 0.7 21.4% -40.9%

EBIT margin -3.1% 4.5% 2.8% -18.6% -12.6% -17.7% 1.1% 0.1% 2.0% 5.0% 3.8% 3.2% 2.6% 59 -54

Net profit -1.0 1.8 0.6 -4.7 -3.1 -4.9 0.1 0.1 0.3 1.3 0.6 0.7 0.5 99.6% -23.7%

Net margin -3.9% 2.9% 1.4% -16.9% -11.2% -14.8% 0.7% 0.5% 1.0% 3.6% 3.0% 2.0% 2.1% 112 14


Fig. 2. Atrem: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 126.5 126.5 0.0% 126.5 126.5 0.0% 142.3 142.3 0.0%

EBITDA 6.9 6.9 0.0% 5.1 5.1 0.0% 7.5 7.5 0.0% EBIT 3.8 3.8 0.0% 1.9 1.9 0.0% 4.3 4.3 0.0% Net profit 3.2 3.2 0.0% 1.7 1.7 0.0% 3.7 3.7 0.0% Source: Company data, DM BZ WBK estimates

Fig. 3. Atrem: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

DCF valuation 7.1 7.1 n.a.

Comparable valuation (based on 2013-2015E) 5.2 5.1 +1.9% Source: Company data, DM BZ WBK estimates

Fig. 4. Atrem: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 129.3 106.9 126.5 126.5 142.3

COGS 119.9 90.2 111.8 109.9 121.7

Gross profit 9.5 16.8 14.7 16.6 20.6

SG&A 16.1 14.1 14.7 14.7 16.4

Other operating income, net -6.7 0.0 3.8 0.0 0.0

EBITDA -10.4 5.4 6.9 5.1 7.5

Operating profit -13.3 2.6 3.8 1.9 4.3

Net financial income (costs) 1.4 0.0 -0.1 -0.2 -0.3

Profit before tax -14.7 2.7 3.9 2.1 4.5

Income tax -2.6 0.8 0.7 0.4 0.9

Net profit -12.1 1.9 3.2 1.7 3.7

Gross margin 7.3% 15.7% 11.6% 13.1% 14.5%

EBITDA margin -8.1% 5.1% 5.4% 4.0% 5.3%

Operating margin -10.3% 2.5% 3.0% 1.5% 3.0%

Net profit margin -9.3% 1.7% 2.5% 1.4% 2.6%


Fig. 5. Atrem: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 64 66 69 66 74


Total assets 109 107 113 110 118


bank debt 2 0 0 0 0


bank debt 2 0 0 0 0

Equity 60 61 64 66 70




Net debt -3 -4 -7 -9 -10


Fig. 6. Atrem: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E


CF from investment 0.9 1.0 -6.2 -2.4 -3.6

CF from financing -13.1 -3.5 0.1 0.0 0.0

Net change in cash 3.2 -1.8 2.9 1.4 1.0



43

Poland FINANCIALS

NOVEMBER 12, 2014

BANK BPH RECOMMENDATION

BUY (INITIATION)

Who’s going to buy? CURRENT PRICE: PLN 51.77

TARGET PRICE: PLN 59.80

Equity story. We are initiating our coverage of Bank BPH with a Buy rating and a TP of PLN 59.75 (15% upside potential). The bank is not a technology leader and does not offer strong growth prospects, but it is officially up for sale by GE. Our calculations show that banks in Poland were generally sold between P/BV 1.11x (BGZ) and 1.77x (Santander CB), while BPH is currently trading at P/BV 0.7x, which implies PLN72-115. Our TP is based equally on weight valuation for a strategic investor (PLN78.11) and for a financial investor (PLN41.39).

Earnings outlook. Following the 43% fall in earnings in 2014E, we expect earnings to drop further to PLN25mn (down 80% y/y) in 2015E and to improve to PLN103mn in 2016E. We expect the drop in 2014 to be mainly caused by a lower NII due to interest rate cuts in Poland. Our estimates show that the bank has around PLN4bn in cash loans and most of these are at 16%. BPH’s CFO Andras Bende said, when commenting on the bank’s 2Q14 results, that if interest rates fell by 25 bp, with both loans and deposits repriced by 25bp ceteris paribus, the NII would fall by more than PLN25mn. We assume that the bank will continue its restructuring process, leading to a probable fall in the cost of risk (BPH shows very good results in AQR tests).

Dividend prospects. We expect no dividends in the 2013-15 period.

Valuation. Based on our 2014E estimates, BPH trades at 35.6x earnings and P/Book of 0.77x, while offering a 2% ROE. These multiples may seem very expensive for a financial investor (high P/E) and very cheap for a strategic investor (P/BV). When calculating the valuation for a strategic investor, we used a regression model of ROE and P/BV of the recent M&A bank transactions. Assuming the ROE at 4%, the valuation should be at around P/BV 1.2x. We used a residual income model for the financial investor.

Price target and recommendation. We set our TP at PLN59.75 (15.4% upside potential), deriving it from a 50/50 blend of two methodologies – regression of P/BV and ROE from the recent M&A, from which we get fair P/BV 1.2x and PLN78.11 (53% upside potential), as well as a residual income model. We used a RFR of 3.0% (3-month average), Beta of 0.9, risk premium of 5% and g of 1.0% and got PLN 41.40 (19% downside potential).

Triggers/Risks. BPH has been in a state of permanent restructuring ever since its takeover by GE but with no positive result. The bank’s C/I is currently one of the highest in the sector (80%+) and its loans’ portfolio is shrinking pretty much every quarter. We suspect that BPH might be a good bridge for a foreign bank that wants to enter the Polish market and we expect that the transaction could be closed by the end of next year, offering a trigger for the stock’s price. If GE changed its mind and did not sell it, BPH’s share price would stand at around PLN41.

STOCK PERFORMANCE

BPH

WIG Relative

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n.a. n.a. n.a. n.a. n.a. n.a.

COMPANY DESCRIPTION

BPH is Poland 12th largest bank by assets. The bank was

established in its current shape back in 2009 when a slimmed-down BPH was merger with GE Money Bank..


GE capital group 89.1%

ANALYSTS

Andrzej Bieniek Securities broker, Investment advisor (+48) 22 586 85 21 [email protected] Dariusz Górski (+48) 22 586 81 00 [email protected]

Company Data

PLNmn 2013 2014E 2015E 2016E Reuters/Bloomberg codes BPH.WA /BPHR PW

NII 980 878 703 794 Market capitalisation (PLNm) 3,910

Total income 1,536 1,333 1,164 1,260 Number of shares (m) 76.7

Provisions -139 -63 -37 -57 Free float (%) 10.9%

Net profit 192 110 25 103 Avg. daily turnover 3M (PLNm) 0.34


1M 3M YTD

P/BV (x) 0.79 0.77 0.77 0.75 16.7% 23.6% -6.4% Source: Company data, DM BZ WBK estimates


44

Fig. 5. Bank BPH: Residual Income valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E

Net profit 110 25 103

Equity (YE) 5,070 5,095 5,198

ROE 2.2% 0.5% 2.0%

COE 7.5% 7.5% 7.5%

Excess return -5.3% -7.0% -5.5%

Residual income -266 -356 -283

PV of residual income (2014-16E) -784

Growth (CAGR) ROE (avg.) Pay-out (avg.) Total value PV

Transition period (2017-2023E) 18.8% 4.7% 91% -1,094 -701

Perpetuity 1.0% 5.7% 95% -1,612 -728

Total intrinsic value -2,212

# of shares (m) 77

Value per share -28.9

Last reported BVPS 65.1

Fair value (Jan'14) 36.2

Month 10

Fair value (current) 38.5

Upside potential 41.4

Upside potential -19%


Fig. 6. Bank BPH: Peers for M&A transactions

P/BV P/E

Polbank 1.68 n.a.

Kredyt Bank 1.38 13.7

Nordea 1.31 20.1

Santander CB 1.77 6.8

BGZ 1.11 28.2

Meritum 1.35 29.3

Median 1.36 20.1

avg. 1.44 19.6

Market cap weight 1.42 15.2

Implied BPH price from Median 88.78 50.43

Implied BPH price from average 93.43 49.25

Implied BPH price from market cap weight 92.76 38.10

Implied BPH price from ROE regression 78.11 n.a.

Upside potential 53%


Fig. 7. Bank BPH: Regression of P/BV and ROE for banks M&A transactions

R² = 0.9186

0%

5%

10%

15%

20%

25%

1.0 1.2 1.4 1.6 1.8 2.0

ROE (Y-1)

P/BV

BGZ

Bank BPH

Nordea

Meritum

Kredyt Bank

Santander CB

R² = 0.3936

0%

5%

10%

15%

20%

25%

1.0 1.2 1.4 1.6 1.8 2.0

ROE (current)

P/BV

Kredyt Bank

Nordea

BPH

BGZ

Meritum

Santander CB



45

Fig. 8. Bank BPH: Sensitivity analysis to P/BV multiple

P/BV 0.70 0.80 0.90 1.00 1.10 1.20 1.30 1.40 1.50 1.60 1.70

Price 45.6 52.1 58.6 65.1 71.6 78.1 84.6 91.1 97.6 104.2 110.7

Source: BZ WBK Brokerage research, company data Fig. 9. Bank BPH: 3Q14 results preview PLN in millions, unless otherwise stated

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q

NII 320 321 315 296 261 244 234 241 235 232 233 0% 1%

F&C 139 128 98 111 99 94 94 142 92 88 78 -18% -12%

Other income 4 12 22 30 25 26 60 16 16 24 29 -51% 24%

Revenues 463 461 435 437 385 364 388 399 343 343 340 -12% -1%

Operating costs -352 -372 -312 -298 -305 -269 -290 -267 -292 -276 -261 -10% -5%

Operating profit 111 89 123 138 80 95 98 131 51 68 79 -20% 16%

Provisions -30 -39 -3 -47 -22 -34 -16 -67 -11 -20 -22 40% 12%

Net profit 61 36 93 69 42 45 63 43 28 34 40 -37% 18% Source: Company data, DM BZ WBK estimates

Fig. 10. Bank BPH: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


NII 878 n.a. 0% 703 n.a. 0% 794 n.a. 0%

F&C 359 n.a. 0% 366 n.a. 0% 371 n.a. 0%

Other income 96 n.a. 0% 95 n.a. 0% 95 n.a. 0%

Total income 1,333 n.a. 0% 1,164 n.a. 0% 1,260 n.a. 0%

Opex -1,117 n.a. 0% -1,087 n.a. 0% -1,067 n.a. 0%

Provisions -63 n.a. 0% -37 n.a. 0% -57 n.a. 0%

Net profit 110 n.a. 0% 25 n.a. 0% 103 n.a. 0% Source: Company data, DM BZ WBK estimates

Fig. 11. Bank BPH: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

Residual income 41.4 n.a. 0%

M&A peers transaction 78.1 n.a. 0%

Blended average target price 59.8 n.a. 0% Source: Company data, DM BZ WBK estimates

Fig. 12. Bank BPH: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

NII 1,252 980 878 703 794

F&C 430 429 359 366 371

Other income 114 127 96 95 95

Total income 1,797 1,536 1,333 1,164 1,260

Total opex -1,335 -1,132 -1,117 -1,087 -1,067

EBIT (pre-prov.) 462 404 216 77 193

Net provisions -120 -139 -63 -37 -57

Other 0 0 0 0 0

Pre-tax 342 265 153 41 136

Income tax -73 -60 -35 -8 -26

Net profit 259 192 110 25 103

Key ratios (%)

NIM (IEA) 4.0 3.2 2.9 2.4 2.8

Risk adjusted NIM (IEA) 3.6 2.8 2.7 2.3 2.6

Non-interest income/assets 1.5 1.6 1.4 1.5 1.5

Total income/assets 5.0 4.6 4.1 3.7 4.1

Cost/income ratio 74 74 84 93 85

Cost/assets 3.7 3.4 3.4 3.4 3.5

Cost of risk (bps) 41 53 26 63 64

Effective tax rate -21.2 -22.7 -23.1 -19.0 -19.0


Fig. 13. Bank BPH: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Cash/interbank 5,377 1,073 1,021 970 966

Customer loans 25,376 22,862 21,264 21,331 21,118

Debt securities 5,085 6,841 7,598 6,157 5,690

Total assets 34,416 33,004 32,440 31,039 30,384

Due to banks 377 315 217 212 208

Customer deposits 13,015 13,361 13,290 12,622 12,570

Equity 4,767 4,960 5,070 5,095 5,198

Loans (yoy, %) -9% -10% -7% 0% -1%

Deposits (yoy, %) -4% 3% -1% -5% 0%

Assets (yoy, %) -7% -4% -2% -4% -2%

L/D 195 171 160 169 168


Fig. 10. Bank BPH: Key ratios PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

NPLs 11 11 12 12 12

Coverage 83 80 79 78 77

ROE 5.5 4.0 2.2 0.5 2.0

ROA 0.7 0.6 0.3 0.1 0.3



46



47

Poland Other

NOVEMBER 12, 2014

BENEFIT SYSTEMS RECOMMENDATION

BUY (MAINTAINED)

Strong momentum CURRENT PRICE: PLN300

TARGET PRICE: PLN391 (MAINTAINED)

3Q14 Results Review. Benefit Systems reported 3Q14

results visibly above expectations. Revenues stood at

PLN109.8mn vs. expectations of PLN107-108mn;

company maintained sales y/y growth pace at 22%, which

is slightly higher than in previous quarters. Number of

active sport cards at the end of 3Q14 increased by 71.4k

y/y to 489.0k, 4.7k lower q/q, but seasonality effect was

lower than we expected. Gross margin came at record high

31.9% vs. our expectation of 30.1% and 30.6% in 3Q13; in

sport cards segment gross margin reached 33.5% vs.

31.5% in 3Q13, over 1.3pp higher than our assumptions.

Sport cards segment generated PLN105.3mn revenues

and PLN27.3mn EBIT; contribution of new products was

sales of PLN3.1mn and EBIT loss PLN4.6mn. EBITDA

stood at PLN23.6mn, +34% y/y, above our expectations

and market consensus, while net result came at

PLN17.7mn, also above expectations.

Recent developments. The company issued 68.72k new

shares of the C series as part of a motivational scheme.

Insiders sold 32.35k shares between Sept.29 and Oct. 2.

Benefit Systems hired Grzegorz Haftarczyk as its

management’s foreign expansion advisor.

Expansion of the fitness club chain. Affiliated fitness

club chains recently opened several new locations.

Calypso Fitness now operates 20 fitness clubs (new clubs

in Siedlce and Pila), Fabryka Formy – 10 clubs (new clubs

in Torun and Zielona Gora), Fitness Academy – 5 clubs

(unchanged). The newest chain in the BFT group – Zdrofit

- operates in 9 locations.



12-month Target Price for Benefit Systems at PLN391 and

maintain our Buy rating for the stock. The comparative

valuation points to PLN299.2 per share.

STOCK PERFORMANCE

BFT

TP

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Buy 7-9-2014 279.0 391.0 7.5% 1.9

Buy 4-28-2014 261.8 383.0 6.6% 8.2

Buy 1-30-2014 314.0 383.0 -16.6% -18.9

MAIN SHAREHOLDERS

% of votes

Mr. James Van Bergh 24.2%

Benefit Invest 23.2%


Mr. Marek Kamola 10.5%


COMPANY DESCRIPTION

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

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes BFT.WA / BFT PW



EBIT 33.1 43.3 53.4 61.6 Free float (%) 42.1%



1M 3M YTD




48

Fig. 1. Benefit Systems: 3Q14 results review PLN in millions, unless otherwise stated


Sales 60.1 67.5 74.3 81.6 77.7 86.4 90.0 98.5 91.7 103.0 108.6 114.5 109.8 22.0% -4.1%

EBITDA 11.5 7.1 3.6 11.9 16.3 8.1 4.3 8.9 17.5 7.0 4.3 13.2 23.6 33.8% 79.0%

EBITDA margin 19.1% 10.5% 4.8% 14.6% 21.0% 9.4% 4.7% 9.0% 19.1% 6.8% 4.0% 11.5% 21.5% 1.9 10.0

EBIT 10.8 6.4 2.8 11.0 15.4 7.0 3.2 7.8 16.4 5.7 2.9 11.9 22.3 35.9% 87.6%

EBIT margin 17.9% 9.5% 3.7% 13.4% 19.8% 8.0% 3.5% 7.9% 17.9% 5.6% 2.6% 10.4% 20.3% 2.1 9.9

Net profit 8.9 17.2 2.4 9.8 12.2 5.0 2.9 6.2 12.6 4.5 2.7 9.2 17.7 39.7% 92.5%

Net margin 14.9% 25.5% 3.2% 12.0% 15.7% 5.8% 3.2% 6.3% 13.8% 4.4% 2.5% 8.0% 16.1% 2.0 8.1


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

2014E 2015E 2016E


Sales 441.0 441.0 0.0% 489.7 489.7 0.0% 529.8 529.8 0.0%

EBITDA 49.6 49.6 0.0% 60.5 60.5 0.0% 68.5 68.5 0.0%

EBIT 44.2 44.2 0.0% 54.2 54.2 0.0% 62.4 62.4 0.0%


Fig. 3. Benefit Systems: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 4. Benefit Systems: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 320.0 383.4 441.0 489.7 529.8

COGS 248.9 298.7 345.3 380.4 409.3

Gross profit 71.1 84.7 95.7 109.2 120.5

SG&A 36.5 52.6 52.4 55.9 58.9


EBITDA reported 39.9 37.8 48.3 58.4 66.7

EBITDA exc. SOP 42.9 46.2 51.6 61.7 70.0

Operating profit reported 36.1 33.1 43.3 53.4 61.6

Operating profit exc. SOP 39.1 41.5 46.6 56.7 64.9



Income tax 9.3 8.4 8.5 10.5 12.2

Net profit 29.8 28.5 36.2 44.8 51.9

Gross margin 22.2% 22.1% 21.7% 22.3% 22.7%

EBITDA margin 12.5% 9.8% 10.9% 11.9% 12.6%




Fig. 5. Benefit Systems: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 49.1 60.1 62.5 90.9 120.6

Fixed assets 86.1 129.3 133.3 136.8 140.1

Total assets 135.3 189.5 195.8 227.7 260.8


bank debt 0.1 23.1 0.1 0.1 0.1


bank debt 0.1 1.4 1.4 1.4 1.4

Equity 98.2 122.5 140.8 166.8 195.0

share capital 2.4 2.5 2.5 2.5 2.5

Minority Interest -0.1 -0.6 -0.6 -0.6 -0.6


Net debt -77.7 -94.4 -120.9 -150.3 -181.6


Fig. 6. Benefit Systems: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



CF from financing -13.3 8.7 -40.7 -18.8 -23.7

Net change in cash -15.9 -10.2 -1.4 24.3 26.3



49

Poland FINANCIALS

NOVEMBER 12, 2014

BOS BANK RECOMMENDATION

BUY (INITIATION)

Is ecology trendy enough? CURRENT PRICE: PLN 41.5


Equity story. We are initiating our coverage of BOS with a Buy rating and TP of PLN49.1 (18% upside potential). The bank has been transformed by its new management that took over in 2008. The share of the brokerage house’s net profit fell to 17% in the group’s earnings from 50% in 2009. The new management realised it would be hard to earn like a universal bank and began to specialise in ecological products and ecological investments. BOS is also relatively insensitive to interest rate changes. It loses its margin when interest rates are volatile but stabilises when interest rates are calm. The management expects the ecological awareness to grow in Poland in the years ahead, with ecological heating and electricity becoming more popular. It plans to offer comprehensive services for ecological projects (both retail and corporate). For this reason, the group has launched companies that will supply ecological products (solar, wind power etc.), install and service them. Media also speculate that the bank plans to buy FM bank, which, in our opinion, would be positive. FM Bank could increase the scale of operations, add know-how in the SME and smart bank (mobile technology) segments, while BOS could reprice deposits lower.

Earnings outlook. We expect a 17% CAGR in the 2014E-16E earnings, mainly driven by ecological products. In 2013, the National Fund for Environmental Protection and Water Management (NFOSiGW) did not subsidise retail clients in their installations of ecological equipment at home. This slowed down the entire retail ecological market and we expect that this programme will start next year, adding PLN20mn in 2015E and PLN15mn in 2016E in fees. In the core revenues, we expect improvement in NIM to 176bp and 195bp in 2015E-16E. In 2016E, we expect to see the biggest improvement in the funds’ costs, when the bank will be paying off its high-yield bond. The F&C should increase with a 2% CAGR 2014E-16E. Opex should increase by a mere 2% CAGR 2014-16E, mainly due to cost optimisation projects that are in progress (back office centralisation, change of the sales model in branches). The cost of risk used to be at very low levels (17-46bp), but it should rise to 60bp in 2016. This, however, would still be a very low level relative to other banks.

Dividend prospects. We expect no dividends in the 2014-16E period.

Triggers/Risks. We assume that the market of green power for retail will move on and add PLN20mn in 2015 and PLN15mn in 2016. If the market remains frozen, the bank will trade at P/E 12.6 for 2015 and P/E 9.8x for 2016.

Valuation. Based on our sub-consensus 2014E estimates, BOS trades at 11.4x P/E and P/Book of 0.6x, which is below the sector’s average. The subsequent years should bring a drop in the multiples, with P/E falling to a single digit territory and ROE rising to 6% from 4% in 2013.

Price target and recommendation. We set our TP at PLN49.10 (18% upside potential, Buy), deriving it from a 50/50 blend of two methodologies – residual income and warranted equity value. We used a RFR of 3.00% (3-month average), Beta of 1.0, risk premium of 5% and g of 2.0%.

STOCK PERFORMANCE

BOS

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COMPANY DESCRIPTION

BOS is Poland 18th largest bank by assets. Bank is creating

innovative banking products in environmental protection field. It also finance corporates in environmental investments and support their business development.


NFOSiGW 56.6%

ING OFE 5.2%

ANALYSTS


Company Data

PLNmn 2013 2014E 2015E 2016E Reuters/Bloomberg codes BOS.WA / BOS PW

NII 278 286 328 369 Market capitalisation (PLNm) 938

Total income 501 522 564 599 Number of shares (m) 22.9

Provisions -60 -44 -71 -79 Free float (%) 53.4%



1M 3M YTD

P/BV (x) 0.6 0.6 0.6 0.5 -5.0% -4.3% -12.8% Source: Company data, DM BZ WBK estimates


50

Fig. 14. BOS Bank: Residual Income model PLN in millions, unless otherwise stated

2013 2014E 2015E 2016E

Net profit 66 81 90 107

Equity (YE) 1,481 1,566 1,656 1,763

ROE 4.5% 5.2% 5.4% 6.0%

COE 8.0% 8.0% 8.0% 8.0%

Excess return -3.5% -2.8% -2.6% -2.0%

Residual income -52 -43 -42 -33

PV of residual income (2014-16E) -102


Transition period (2017-2023E) 6.5% 6.6% 21% -224 -130

Perpetuity 2.0% 6.5% 50% -660 -283

Total intrinsic value -515

# of shares (m) 23




Month 10


12-month target price 50.6



Fig. 15. BOS Bank: Warranted Equity Valuation PLN in millions, unless otherwise stated

2016E ROE (%) 6.0

COE (%) 8.0

g (%) 2.0

Implied fair P/B (x) 0.7

YE16E BVPS 77.1

Fair value (YE16) 52.0

PV of fair value 41.3

DPS14E 0.0

DPS15E 0.0

DPS16E 0.0

PV of 2014-16E DPS 0.0

PV of equity + DPS (Jan'14) 41.3

Month 10

PV (current) 44.0

12-month price target 47.6



Fig. 16. BOS Bank: COE calculation PLN in millions, unless otherwise stated

RFR* (%) 3.0

Risk premium (%) 5.0

Beta 1.0

COE (%) 8.0



51

Fig. 17. BOS Bank: 3Q14 results review PLN in millions, unless otherwise stated


Net interest income 68 70 74 71 66 66 69 77 75 76 71 2% -7%

Fee income 26 25 26 30 25 26 28 31 27 24 26 -5% 7%

Other income 13 30 15 22 21 35 19 38 17 37 39 90% 6%

Revenues 107 126 115 122 112 128 116 146 118 137 135 16% -1%

Operating costs -88 -94 -91 -101 -83 -93 -91 -99 -91 -96 -91 4% -5%

Operating profit 20 32 24 21 29 35 25 47 27 41 44 52% 8%

Provisions -5 -20 -13 -17 -8 -5 -28 -20 -11 -14 -14 -48% 1%

Net profit 12 11 7 6 17 23 16 30 12 23 23 2076% 1%


Fig. 18. BOS Bank: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


NII 286 n.a. 0% 328 n.a. 0% 369 n.a. 0%

F&C 106 n.a. 0% 112 n.a. 0% 118 n.a. 0%

Other income 130 n.a. 0% 125 n.a. 0% 112 n.a. 0%

Total income 522 n.a. 0% 564 n.a. 0% 599 n.a. 0%

Opex -381 n.a. 0% -383 n.a. 0% -388 n.a. 0%

Provisions -44 n.a. 0% -71 n.a. 0% -79 n.a. 0%

Net profit 81 n.a. 0% 90 n.a. 0% 107 n.a. 0%


Fig. 19. BOS Bank: Valuation changes In PLN per share, unless otherwise stated

New Previous Change


WEV 47.6 n.a. 0%


Fig. 20. BOS Bank: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

NII 284 278 286 328 369

F&C 106 110 106 112 118

Other income 76 113 130 125 112

Total income 466 501 522 564 599

Total opex -374 -366 -381 -383 -388

EBIT (pre-prov.) 93 135 142 181 211

Net provisions -52 -60 -44 -71 -79

Pre-tax 40 75 98 111 132

Income tax -5 -9 -17 -21 -25

Net profit 35 66 81 90 107

Key ratios (%)

NIM (IEA) 1.9 1.7 1.6 1.8 2.0

Risk adjusted NIM (IEA) 1.5 1.3 1.4 1.4 1.5

Non-interest income/assets 1.1 1.2 1.2 1.2 1.1

Total income/assets 2.7 2.7 2.7 2.9 3.0

Cost/income ratio 80 73 73 68 65

Cost/assets 3.7 4.7 5.7 6.7 7.7

Cost of risk (bps) 45 51 35 55 60

Effective tax rate -12.3 -11.7 -17.1 -19.0 -19.0


Fig. 21. BOS Bank: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Cash/interbank 1,050 893 776 776 776

Customer loans 11,122 12,055 12,440 12,725 12,892

Debt securities 3,937 4,670 5,700 5,700 5,700

Total assets 18,867 18,417 19,646 19,931 20,097

Due to banks 466 443 300 500 700

Customer deposits 11,816 13,196 14,774 14,627 14,324

Equity 1,442 1,481 1,566 1,656 1,763

Loans (yoy, %) -2% 8% 3% 2% 1%

Deposits (yoy, %) 4% 12% 12% -1% -2%

Assets (yoy, %) 21% -2% 7% 1% 1%

L/D 94 91 84 87 90


Fig. 22. BOS Bank: Key ratios (%) PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

NPLs 7.8 6.7 6.7 6.7 6.6

Coverage 33 37 37 37 37

ROE 2.5 4.5 5.2 5.4 6.0

ROA 0.21 0.35 0.43 0.45 0.53



52



53


November 12, 2014

BUDIMEX RECOMMENDATION

HOLD (MAINTAINED)

‘First choice’ contractor CURRENT PRICE: PLN134.9


Equity story. Budimex is the rare example of a WSE-listed

general contractor, which managed to make money on large road

contracts over the last few years. GDDKiA, the sector’s key

investor, is now starting to distribute motorway and express road

contracts co- financed by EU 2014-2020 funds and this should

shortly translate into spending growth. As in the past, we think

Budimex should be able to take full advantage of the rising road

expenditures and gradually boost its profits from 2016, when

growth in road expenditures should accelerate. 2016 is also when

the Turow power contract should start contributing. The rise in

earnings should also be accompanied by cash generation and

dividend payments. Overall, as the largest and the most liquid

WSE-listed construction company, Budimex should remain the

‘first choice’ company in the sector, in our view. However, in light

of the <15% fundamental upside, we maintain our

recommendation at Hold.

Change in forecasts. We maintain our financial forecast intact.

We expect flattish y/y earnings in 2015, and earnings growth in

2016, in which we project accumulation in construction works.

Triggers & risks. Triggers include: 1) backlog q/q growth in 4Q

since Budimex won a few tenders by offering the cheapest offers

(likely the signing of the PLN1.32bn contract for Ostroleka road

bypass construction), 2) we expect GDDKiA to continue to

distribute contracts that are co-financed by EU2014-20 funds,

which should secure further backlog growth in 2015 and result in

strong profits momentum in 2016E, 3) the housing boom opens

room for gradual growth in flats’ sale volumes by the Budimex

Nieruchomosci subsidiary, 4) probable high dividend payout next

year. Risks include: 1) growth in construction costs (probable

result of accumulation in construction works in Poland) may put

pressure on margins, 2) new regulations prioritising

subcontractors may have a slightly negative effect on the

company’s cash position in 2015 and beyond.

Change in Valuation & Recommendation. We maintain our

Target Price based on a DCF valuation at PLN153. We also

maintain Hold recommendation.

STOCK PERFORMANCE





on issue date

12 month target


Hold 10-22-2014 136.5 153.0 -1.2% -1.7

Hold 7-9-2014 117.1 130.0 16.6% 11.5

Hold 4-28-2014 139.8 144.0 -16.3% -14.6

Hold 1-30-2014 133.0 129.0 5.1% 2.8

Hold 10-23-2013 126.8 121.0 4.9% 10.5

COMPANY DESCRIPTION

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


Valivala Holdings BV 59.1%


ANALYST

Adrian Kyrcz (+48) 22 586 81 59

[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes BDXP.WA / BDX PW

Sales 4 749.5 4 734.1 4 749.8 5 645.7 Market capitalisation (PLNm) 3 444


EBIT 333.3 193.2 208.0 283.0 Free float (%) 40.9%



1M 3M YTD

EV/EBITDA (x) 5.1 10.4 9.5 6.5 -1.1% 15.8% 2.2% Source: Company data, DM BZ WBK estimates



54

Fig. 1. Budimex: 3Q14 results review PLN in millions, unless otherwise stated

3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y (%) q/q (%)

Sales 1 574 1 694 1 083 1 800 1 697 1 497 853 1 235 1 368 1 294 834 1 319 1 559.6 14.0% 18.2%

EBITDA 99 -93 50 34 65 83 50 54 62 196 59 63 72.0 15.6% 14.1%

EBITDA margin 6.3% -5.5% 4.7% 1.9% 3.8% 5.6% 5.8% 4.4% 4.6% 15.2% 7.0% 4.8% 4.6% 0.0 0.0

EBIT 92 -102 37 19 53 73 43 46 55 190 53 57 66.3 20.3% 15.3%

EBIT margin 5.8% -6.0% 3.4% 1.1% 3.1% 4.9% 5.0% 3.7% 4.0% 14.6% 6.3% 4.4% 4.3% 0.1 0.0

Net profit 74 -118 37 -15 55 109 35 33 43 189 43 44 47.9 10.9% 8.5%

Net margin 4.7% -7.0% 3.4% -0.8% 3.2% 7.3% 4.1% 2.7% 3.2% 14.6% 5.1% 3.3% 3.1% 0.0 -0.1


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

2014E 2015E 2016E


Sales 4734 4734 0% 4750 4750 0% 5646 5646 0%

EBITDA 225 225 0% 240 240 0% 315 315 0%

EBIT 193 193 0% 208 208 0% 283 283 0%

Net profit 169 169 0% 177 177 0% 238 238 0% Source: Company data, DM BZ WBK estimates

Fig. 3. Budimex: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

DCF valuation 153 153 0%

Comparable valuation 106 106 0% Source: Company data, DM BZ WBK estimates

Fig. 4. Budimex: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 6078 4749 4734 4750 5646

COGS 5618 4354 4350 4350 5167

Gross profit 460 395 384 400 479

SG&A 218 191 191 192 196

Other operating income, net -60 129 0 0 0

EBITDA 233 362 225 240 315


Net financial income (costs) 20 -2 16 10 11


Income tax -17 -30 -40 -41 -56

Net profit 186 300 169 177 238

Gross margin 7.6% 8.3% 8.1% 8.4% 8.5%

EBITDA margin 3.8% 7.6% 4.8% 5.1% 5.6%




Fig. 5. Budimex: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 2888 3065 2565 2609 3112

Fixed assets 560 622 619 619 619

Total assets 3448 3687 3184 3228 3732


bank debt 18 20 20 20 20


bank debt 76 34 34 34 34

Equity 433 645 512 553 650


Net debt -1224 -1605 -1112 -1154 -1394


Fig. 6. Budimex: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

CF from operations -44 315 -179 198 401

CF from investment -99 158 7 -2 1


Net change in cash -434 319 -493 42 240



55

Poland Retail

NOVEMBER 12, 2014

BYTOM RECOMMENDATION

BUY (INITIATION)

FRUITS OF RESTRUCTURING CURRENT PRICE: PLN1.4


Equity Story. Following the gung-ho management’s turn-around

of the troubled company through a manufacturing site spin-off and

closing of the loss-making subsidiaries, Bytom became a clean

retailer of men’s formal clothing, which expects to operate 79

stores in its retail chain or 8,053 sqm selling area in 2014E. The

coming years should also bring further growth of the retail chain

to reach a long-term target of 10,000k sqm. We think that Bytom,

with the restructured balance sheet (net cash of PLN2mn), as well

as the redesigned store interior and collection, is on the right

track to achieve its target. Apart from its organic growth, Bytom

mulls takeovers to speed up its growth. The company looks for a

brand that offers men’s fashion at a rather low price, something

that would be more affordable for a wider audience. We view this

to be a rational move and the potential success should create a

great opportunity for growth on another mass market for the

company.

Financials. We expect Bytom to add 910/1,040/1,000 sqm in

2014-16E, respectively. We expect the LfL at 10%, 4% and 4% in

2014-16E, respectively. Based on these assumptions, we expect

Bytom to report sales of PLN101mn/PLN114mn and PLN130mn

in 2014-16E. We expect the gross margin to grow to 62.7%

(+207bps), 53.3% (+52bps) and 53.1% (down 12bps) in 2014-

16E. In regards to SG&A, we expect the SG&A/avg. sqm at

PLN6,070 (+2.0% y/y), PLN5,952 (-1.9% y/y) and PLN5,977

(+0.4% y/y). Overall, we expect Bytom to earn an EBITDA of

PLN10.2mn, PLN12.7mn and PLN14.8mn, while its net profit

should come in at PLN7.2mn, PLN9.7mn and PLN9.4mn in 2014-

16E, respectively.

Valuation & recommendation. Bytom is currently trading with a

PE of 14x and 11x in 2014-15E. Taking into account its growth,

the high ROE (29%-30%) and the clean balance sheet, we

believe that PE at c.15-16x would be more fair, in our view.

Assuming that we are correct with our FY’14-15 forecasts, the

FY15 still leaves a nearly 30% upside to these levels. Based on

our DCF model, we arrived at a 12 month TP of PLN2.0 per

share, which implies a 33% upside potential. We initiate coverage

with a Buy rating.

STOCK PERFORMANCE



COMPANY DESCRIPTION

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


Forum mutual fund 18.4%

Investors mutual fund 13.1%

Mr. Jan Pilch 11.2%

Mr. Michal Wojcik 2.6%

Free float 54.7%

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes BTM.WA / BTM PW



EBIT 1.3 7.2 9.5 11.3 Free float (%) 72.3%



1M 3M YTD




56

Fig. 1. Bytom: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Revenues 101.4 114.0 129.6 131.3 131.3 132.6 135.7 138.9 141.5 144.2

EBIT 10.2 12.7 14.8 12.5 12.1 12.4 13.6 14.7 15.5 15.9


NOPAT 0.0 0.0 2.1 1.7 1.6 1.6 1.8 2.0 2.1 2.1

Depreciation 7.2 9.5 9.2 7.2 6.7 6.8 7.7 8.5 9.0 9.1



Net investment 3.2 4.6 5.0 3.5 4.3 4.4 4.5 4.6 4.7 4.8

Free cash flow 3.9 7.3 6.6 7.3 6.2 6.3 7.1 7.9 8.6 8.8

WACC (2014-2023, %) 8.0%

PV FCF 2013-2023 45

Terminal growth (%) 2.5%


PV TV 78

Total EV 123

Net debt -6

Equity value 128


Value per share (PLN, 1 Jan 2014) 1.8

Month 11


12 month target price (PLN) 2.0


Fig. 2. Bytom: Comparable valuation

P/E EV/EBITDA PEG ROE DY

Name 2014E 2015E 2016E 2014E 2015E 2016E 1Y 2Y 2014E 2015E 2016E 2014E 2015E 2016E

LPP 33.1 28.7 22.2 20.3 17.7 13.8 1.5 0.7 30.2% 28.9% 30.6% 1.0% 1.2% 1.4%

Monnari 11.0 11.9 13.8 8.4 7.4 6.8 0.8 2.6 26.4% 19.3% 14.9% 0.0% 0.0% 5.0%

Bytom 13.9 10.5 10.9 9.3 7.4 6.4 0.02 0.01 29.3% 32.0% 27.5% 0.0% 4.9% 6.7%

average 19.3 17.1 15.6 12.7 10.8 9.0 0.8 1.1 28.6% 26.8% 24.4% 0.3% 2.0% 4.4%

CCC 26.2 19.9 16.9 18.1 14.1 12.2 0.9 0.4 28.7% 31.2% 1.2% 1.9% 2.5% 0.0%

Wojas 10.1 10.6 10.1 6.1 5.9 5.5 14.5 -2.5 14.8% 12.3% 11.4% 1.3% 1.9% 0.0%

Gino Rossi 20.5 13.4 12.3 8.4 7.2 6.6 0.1 0.0 10.5% 14.2% 13.5% 0.0% 0.0% 0.0%

average 18.9 14.6 13.1 10.9 9.1 8.1 5.1 -0.7 18.0% 19.2% 8.7% 1.1% 1.5% 0.0%

Total - average 19.1 15.9 14.4 11.8 10.0 8.5 3.0 0.2 23.3% 23.0% 16.5% 0.7% 1.7% 2.2%



57

Fig. 3. Bytom: 3Q14 results review PLN in millions, unless otherwise stated

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13E 1Q14 2Q14 3Q14 y/y q/q

Sales 15.9 18.9 17.4 19.7 16.7 21.4 22.1 25.1 21.0 25.0 26.7 21.2% 7.1%

EBITDA -1.5 -0.6 -0.6 -0.6 -0.9 2.2 1.0 1.9 -0.1 2.8 2.6 159.2% -7.3%

EBITDA margin -9.4% -3.1% -3.3% -3.2% -5.7% 10.1% 4.5% 7.6% -0.3% 11.1% 9.6% 513 -149

EBIT -2.2 -1.3 -1.2 -1.4 -1.6 1.5 0.4 1.0 -0.7 2.1 1.9 398.7% -9.6%

EBIT margin -13.8% -6.9% -7.0% -7.2% -9.5% 6.9% 1.7% 4.0% -3.4% 8.2% 7.0% 527 -128

Net profit -2.0 -1.5 -1.1 -0.7 -2.0 0.7 0.3 2.0 -0.9 2.1 1.5 447.5% -29.7%

Net margin -12.9% -8.2% -6.4% -3.3% -11.9% 3.4% 1.2% 7.9% -4.5% 8.3% 5.4% 423 -284


Fig. 4. Bytom: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E







Fig. 5. Bytom: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 6. Bytom: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 72 85 101 114 130

COGS 37 42 48 53 61

Gross profit 35 43 53 61 69

SG&A 39 42 46 51 57


EBITDA -3 4 10 13 15

Operating profit -6 1 7 9 11


Profit before tax -5 0 7 10 12

Income tax 0 -1 0 0 2

Net profit -5 1 7 10 9

Gross margin 48.4% 50.7% 52.7% 53.3% 53.1%

EBITDA margin -4.6% 4.8% 10.0% 11.2% 11.4%




Fig. 7. Bytom: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



Total assets 51 49 56 64 70


bank debt 6 0 0 0 0


bank debt 1 0 0 0 0

Equity 20 21 28 33 35




Net debt 6 -2 -6 -8 -8


Fig. 8. Bytom: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E


CF from investment -4 1 -3 -5 -5

CF from financing 0 -6 0 -5 -7

Net change in cash 0 1 4 3 0



58



59

Poland TMT

NOVEMBER 12, 2014

CD PROJEKT RECOMMENDATION

BUY (MAINTAINED)

Counting down to Witcher 3 release CURRENT PRICE: PLN16.73


3Q14 Results Preview. We expect CD Projekt to report weak quarterly results for several reasons: seasonally low sales in all segments, costs connected with the launch of The Witcher 3 (like participating in video game exhibitions) and costs of new features at GOG (Galaxy and movie distribution). In digital distribution we expect a c. 10% sales increase y/y, the gross margin at 35.0% vs. 27.2% in 3Q13 and the SG&A costs at PLN3.5mn vs. PLN1.5mn year ago. We expect the game development segment to report PLN4.0mn in revenues, which is unlikely to cover the rise in SG&A. The segment’s net loss, the first since 1Q11, should equal to PLN2.2mn. The retail distribution segment should suffer a 33% fall in sales (weaker catalogue). Overall, we see the 3Q14 revenues at PLN30.1mn, an EBITDA of PLN-1.3mn, an EBIT of PLN-2.1mn and a net loss of PLN1.4mn. Outcome: NEGATIVE.

The Witcher 3 remains high across all the pre-order rankings. According to VGChartz, more than 166k customers in the US alone have pre-ordered the game so far across all the three platforms.

Recent Developments. The Company appealed against the court’s verdict in the Optimus case. The court decided that CD Projekt will get PLN1.1mn and PLN1.2mn in interest, much below the demanded PLN35.7mn plus interest. The Company also performed an intra-group transaction for The Witcher brand, which should lead to several PLNmn in tax savings in next five years.

4Q14 outlook. Two smaller projects are due for release in 4Q14 – a board game - The Witcher The Adventure Game - and a mobile MOBA game – The Witcher Battle Arena. We expect their contribution in 4Q14 to sit at a low, single-digit PLNmn.


Change in Valuation & Recommendation. We keep our 12-month Target Price for CD Projekt at PLN18.0 and maintain our Buy rating for the stock. The comparative valuation points to PLN11.45 per share.

STOCK PERFORMANCE

CDR

TP

WIG Relative

0

2

4

6

8

10

12

14

16

18

20

Oct-

11

Ja

n-1

2

Apr-

12

Ju

l-12

Oct-

12

Ja

n-1

3

Apr-

13

Ju

l-13

Oct-

13

Ja

n-1

4

Apr-

14

Ju

l-14

Oct-

14






on issue date

12 month target


Buy 10-20-2014 16.3 18.0 2.9% 0.7

Buy 7-9-2014 15.2 17.7 6.8% 3.3

Hold 4-28-2014 14.9 16.7 2.2% 3.9

Hold 3-31-2014 15.3 16.7 -2.7% -1.2

U.R. 3-12-2014 15.0 n.a. 2.1% -1.5

Hold 1-30-2014 18.2 19.0 -17.7% -17.9

MAIN SHAREHOLDERS

% of votes

Shareholders’ agreement 35.8%

PKO mutual fund 9.5%



COMPANY DESCRIPTION

CD Projekt is a game developer and distributor.

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes CDR.WA / CDR PW

Sales 142.2 150.8 330.1 375.9 Market capitalisation (PLNm) 1,589


EBIT 14.9 6.0 118.4 121.1 Free float (%) 60.9%



1M 3M YTD




60

Fig. 1. CD Projekt: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 25.9 29.7 17.7 53.8 42.1 50.9 27.8 35.2 40.2 38.9 30.8 43.8 30.1 -25.2% -31.2%

EBITDA 5.6 -0.5 0.7 14.2 6.5 9.6 3.3 5.2 5.8 3.7 1.4 5.2 -1.3 -122.8% -125.2%

EBITDA margin 21.8% -1.7% 4.0% 26.5% 15.4% 18.8% 12.0% 14.7% 14.3% 9.6% 4.7% 11.9% -4.4% -18.7 -16.3

EBIT 5.2 -1.0 0.2 13.6 5.8 8.8 2.6 4.4 4.9 2.9 0.6 3.4 -2.1 -143.2% -163.1%

EBIT margin 20.1% -3.4% 0.9% 25.4% 13.7% 17.3% 9.4% 12.4% 12.3% 7.6% 2.0% 7.7% -7.1% -19.4 -14.8

Net profit 4.8 -1.3 0.5 13.3 5.8 8.5 4.1 3.6 4.4 2.8 1.5 3.0 -1.4 -132.2% -146.8%

Net margin 18.4% -4.2% 2.7% 24.8% 13.7% 16.8% 14.6% 10.3% 11.0% 7.1% 4.9% 7.0% -4.7% -15.7 -11.7


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

2014E 2015E 2016E


Sales 150.8 150.8 0.0% 330.1 330.1 0.0% 375.9 375.9 0.0%

EBITDA 10.7 10.7 0.0% 123.1 123.1 0.0% 125.8 125.8 0.0%

EBIT 6.0 6.0 0.0% 118.4 118.4 0.0% 121.1 121.1 0.0%


Fig. 3. CD Projekt: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 4. CD Projekt: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 164.0 142.2 150.8 330.1 375.9

COGS 89.6 88.8 101.0 162.7 199.4

Gross profit 74.4 53.3 49.8 167.4 176.5

SG&A 38.3 35.2 46.6 51.8 58.2

Other operating income, net -7.7 -3.2 2.8 2.8 2.8

EBITDA 31.0 18.0 10.7 123.1 125.8


Net financial income (costs) -0.1 2.3 2.1 2.7 6.3


Income tax 0.2 2.3 1.8 19.5 20.2

Net profit 28.1 14.9 6.0 101.5 107.3

Gross margin 45.4% 37.5% 33.0% 50.7% 47.0%

EBITDA margin 18.9% 12.7% 7.1% 37.3% 33.5%




Fig. 5. CD Projekt: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 108.7 122.6 131.5 251.4 362.3

Fixed assets 94.2 95.0 95.0 95.0 95.0

Total assets 202.9 217.6 226.5 346.4 457.2


bank debt 4.7 0.3 0.0 0.0 0.0


bank debt 7.6 5.1 5.1 5.1 5.1

Equity 151.5 167.4 173.4 274.9 382.1

share capital 95.0 95.0 95.0 95.0 95.0



Net debt -23.0 -39.2 -30.6 -121.0 -239.7


Fig. 6. CD Projekt: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



CF from financing -8.7 -3.3 -0.5 0.0 0.0




61

Poland Chemicals

NOVEMBER 12, 2014

CIECH RECOMMENDATION

BUY (MAINTAINED)

3Q14: not that bad, upward trend ahead CURRENT PRICE: PLN42.3


3Q14 Results Preview. We expect Ciech to report revenues at

PLN702mn (-14% q/q and -15% y/y). The y/y drop in revenues is caused

by 2% lower soda ash volumes (due to maintenance stoppages),

discontinued operations in organic/agro segments and contract end in

sulphur trading with Siarkopol. Despite the drop in revenues y/y,

improvement in restructuring and profitability in the soda business should

lift the EBITDA margin to 16% (up 3p.p. y/y). We, therefore, expect the

EBITDA to reach PLN113mn (+4% y/y), the normalised EBITDA at

PLN116mn (-10% y/y). All in all, we expect the EBIT at PLN59mn (-29%

q/q and +7% y/y). We also assume a negative net financial result of

PLN28mn, the effective tax rate at 19%, and the net profit in 3Q14 at

PLN25mn. Outlook: NEUTRAL.

EBITDA from the segment’s point of view: We expect the soda

segment to deliver the reported EBITDA at PLN 97m (-18% q/q, -7%

y/y). We also assume soda ash/baking soda volumes at 463kt/30kt, -2%/-

3% y/y. The y/y drop in soda volumes is due to small production

stoppages in 3Q14, observed in the German and Romanian plants. On

the other hand, we assume that average soda prices were 4% higher y/y.

We expect the organic segment to report the EBITDA at PLN11mn

compared to PLN8mn in 3Q14. The Agro&silicate segment is set to

report a lower EBITDA y/y of PLN6mn (vs. PLN9mn in 3Q13). Other

products &eliminations should consume PLN1mn.

Strategy update for 2014-2019. Company’s strategy assumes the avg.

annual normalized EBITDA at PLN660mn (margin at 17%), substantial

debt reduction (net debt / EBITDA ratio at below 1.0x in 2019) and avg.

DY at 3%. The strategy targets are to be achieved by development of the

soda ash and crop protection plant segments. The strategy is also based

on the assumption that the impact of the trona supply from Turkey to

Europe is not material. The strategy goals are ambitious, however not

unrealistic given bullish soda ash market outlook.

Change in forecasts. We made no changes to our forecasts for 2014E

and beyond. We leave our financial forecasts unchanged.

Change in Valuation & Recommendation. We keep our DCF-based

Target Price unchanged at PLN51.4 per share (21.5% upside potential).

That said, we uphold our BUY recommendation for Ciech.

PUBLICATION DATE

NOVEMBER 14, 2014


3Q14E y/y q/q

Sales 702 -15% -14%

EBITDA 113 4% -15%

EBIT 59 7% -29%

Net profit 25 293% 20%

STOCK PERFORMANCE

CIE

TP

WIG Relative

10

15

20

25

30

35

40

45

50

55

Oct-

11

Ja

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on issue date

12 month target


Buy 10/27/2014 40.1 51.4 5.5% 5.3

Buy 9/23/2014 39.1 51.0 2.6% 4.6

COMPANY DESCRIPTION

Ciech is the second largest soda ash producer in Europe.

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes CECH.WA / CIE PW

Sales 3,501 3,050 3,046 3,204 Market capitalisation (PLNm) 2,160


EBIT 140 263 297 362 Free float (%) 48.8%



1M 3M YTD

EV/EBITDA (x) 10.2 7.7 7.0 6.1 +1.2% +7.3% +32.0% Source: Company data, Bloomberg, BZ WBK Brokerage



62

Fig. 1. Ciech: 3Q14 results preview PLN in millions, unless otherwise stated

3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y chg. q/q chg.

Sales 1,018 1,019 1,173 1,120 1,065 1,020 993 889 823 795 845 814 702 -15% -14%

EBITDA 89 74 134 -242 79 82 124 93 109 22 118 133 113 4% -15%

EBITDA margin 8.7% 7.3% 11.4% -21.6% 7.4% 8.0% 12.4% 10.5% 13.2% 2.8% 14.0% 16.4% 16.1% 2.9 -0.3

EBIT 33 16 72 -303 23 24 71 41 55 -36 68 83 59 7% -29%

EBIT margin 3.2% 1.6% 6.1% -27.1% 2.2% 2.4% 7.2% 4.6% 6.7% -4.5% 8.0% 10.2% 8.4% 1.7 -1.8

Net profit 8 -9 11 -348 -25 -89 38 15 6 -22 6 21 25 293% 20%

Net margin 0.8% -0.9% 0.9% -31.1% -2.3% -8.7% 3.8% 1.7% 0.8% -2.8% 0.8% 2.5% 3.5% 2.8 1.0


Fig. 2. Ciech: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 3,050 3,050 0% 3,046 3,046 0% 3,204 3,204 0%

EBITDA 472 472 0% 520 520 0% 590 590 0%

EBIT 263 263 0% 297 297 0% 362 362 0%

Net profit 72 72 0% 143 143 0% 200 200 0% Source: Company data, BZ WBK Brokerage

Fig. 3. Ciech: Valuation changes In PLN per share, unless otherwise stated


DCF valuation 51.4 51.4 0% 100%

Comparable valuation (based on 2014-2015E) 36.0 36.0 0% 0% Source: Company data, BZ WBK Brokerage

Fig. 4. Ciech: Income statement forecast PLN in millions, unless otherwise stated

2012 2013E 2014E 2015E 2016E

Net sales 4,378 3,501 3,050 3,046 3,204

COGS -3,781 -2,894 -2,398 -2,352 -2,435

Gross profit 596 607 652 694 769

SG&A -479 -387 -363 -383 -394

Other operating income, net -314 -81 -26 -14 -13

EBITDA 40 356 472 520 590



Profit before tax -457 -6 105 177 247

Income tax 22 46 34 34 47

Net profit after minorities -431 49 72 143 200

Gross margin 13.6% 17.3% 21.4% 22.8% 24.0%

EBITDA margin 0.9% 10.2% 15.5% 17.1% 18.4%




Fig. 5. Ciech: Balance sheet forecast PLN in millions, unless otherwise stated

2012 2013E 2014E 2015E 2016E

Current assets 1,182 910 814 809 848

Fixed assets 2,546 2,300 2,394 2,515 2,577

Total assets 3,728 3,211 3,209 3,324 3,425

Current liabilities 1,028 697 2,037 2,009 1,911

bank debt 63 11 1,478 1,456 1,336

Long-term liabilities 1,786 1,617 263 263 262

bank debt 1,499 1,308 7 7 7

Equity 886 911 924 1,067 1,267

share capital 288 288 288 288 288

Minority Interest -6 -14 -15 -15 -15


Net debt 1,480 1,213 1,393 1,371 1,246


Fig. 6. Ciech: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013E 2014E 2015E 2016E



CF from financing, incl. 124 -252 -52 -143 -234




63


November 12, 2014

DOM DEVELOPMENT RECOMMENDATION

HOLD (MAINTAINED)

All priced in CURRENT PRICE: PLN44.91


Equity story. We are positive on the Polish residential sector.

The sale volumes of housing developers have been rising since

the beginning of 2009 and we expect the trend to continue in

2015. Low interest rates should be supportive here (as the past

correlation suggests), as is the case with the expected rise in

mortgage originations and the likely rise in price limits in the MdM

scheme. Nevertheless, we believe that this outlook is already

reflected in the current valuation of DOM. Note, for example, that

the company is trading at a P/BV of 1.36x, at a premium

compared with the sector’s median and estimated fair P/BV of

Dom that we currently see at 1.25x (on the basis of the estimated

2015E ROE at c. 9.3%). With our TP close to current share

market price, we maintain our neutral view on DOM.

Residential market continued recovery in 3Q14. The eight

reviewed developers sold a total of 2,511 flats, up 21% y/y and

12% q/q. In 9M14, they improved the volume by 36% y/y and they

also all reported a double-digit y/y volume growth, with the growth

rate ranging between 19% (Dom Development) and 109%

(Budimex). The aggregate volume of the reviewed developers is

also 39% higher y/y, taking into account the last four quarters.

The annualised 9M14 aggregate sales volume implies a healthy

24% y/y growth in FY14.

Sale volume of DOM relatively weak. The company announced

that it had sold 495 housing units in 3Q14 (+7% q/q, +20% y/y),

the most since the start of 2010. In 9M14 overall, the company

sold 1,358 units in total, up 19% y/y, which, on the other hand, is

a relatively weak result (the aggregate volume of the WSE

developers rose 36% y/y). The annualised 9M14 aggregate

volume of sales implies a 24% y/y rise in FY14, with the pace at

Dom at a meagre 13%. In the long term, we expect the company

to sell/hand over 2.0-2.1k units annually, which is above the

implied FY14 sales volume and slightly above the 3Q annualised

sale volume.

Change in forecasts. We slightly decline our 2015-2017 profits

forecast, as we assume slightly lower margin at residential

projects. We assume notary sales in 2014 at 1,950. We expect

Dom to sell/hand over c. 2.0-2.1k apartments annually after 2014.


Target Price for DOM intact at PLN45.1. We also maintain our

Hold recommendation intact.

STOCK PERFORMANCE





on issue date

12 month target


Hold 10-22-2014 44.9 45.1 1.1% 0.5

Sell 7-9-2014 43.6 45.1 3.0% -2.1

Sell 4-28-2014 48.0 45.1 -9.2% -7.5

Sell 1-30-2014 53.8 45.1 -10.8% -13.1

Sell 10-23-2013 41.5 38.7 29.6% 35.2

COMPANY DESCRIPTION

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


Dom Development BV 59.5%


Mr. Jaroslaw Szanajca 6.2%

Mr. Grzegorz Kielpsz 5.2%

ANALYST

Adrian Kyrcz (+48) 22 586 81 59

[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes DOMP.WA / DOM PW



EBIT 73.3 70.6 105.1 104.4 Free float (%) 27.2%



1M 3M YTD


http://stooq.pl/h/?i=119t


64

Fig. 1. Dom Development: 3Q14 results review PLN in millions, unless otherwise stated


Sales 201.5 211.0 141.9 164.0 305.1 238.3 220.3 119.9 123.6 212.6 198.7 163.0 159.9 29.4% -1.9%

EBITDA 47.4 47.9 19.3 19.8 44.4 32.8 33.8 2.7 3.6 36.4 9.6 3.7 21.1 482.9% 463.4%

EBITDA margin 23.5% 22.7% 13.6% 12.1% 14.5% 13.8% 15.3% 2.2% 2.9% 17.1% 4.8% 2.3% 13.2% 3.5 4.7

EBIT 46.9 47.2 18.5 19.1 43.9 32.1 33.0 1.9 2.8 35.7 8.9 3.0 20.3 619.9% 579.8%

EBIT margin 23.3% 22.4% 13.1% 11.6% 14.4% 13.5% 15.0% 1.6% 2.3% 16.8% 4.5% 1.8% 12.7% 4.6 5.9

Net profit 36.6 39.0 14.6 15.7 35.5 25.5 26.3 1.1 1.1 25.9 9.3 1.6 15.3 n.m. 840.4%

Net margin 18.1% 18.5% 10.3% 9.5% 11.6% 10.7% 11.9% 0.9% 0.9% 12.2% 4.7% 1.0% 9.6% 9.5 8.6


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

2014E 2015E 2016E


Sales 818 818 0% 870 870 0% 870 870 0%

EBITDA 74 74 0% 108 123 -12% 108 121 -11%

EBIT 71 71 0% 105 120 -12% 104 118 -12%

Net profit 54 54 0% 84 96 -12% 84 95 -12% Source: Company data, DM BZ WBK estimates

Fig. 3. Dom Development: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

DCF valuation 45.1 45.1 0%

Comparable valuation (based on P/BV) 33.8 33.8 0% Source: Company data, DM BZ WBK estimates

Fig. 4. Dom Development: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 851.4 676.4 818.4 870.0 870.0

COGS 647.4 519.3 661.7 669.9 669.9

Gross profit 204.0 157.1 156.8 200.1 200.1

SG&A 85.2 82.5 86.1 95.0 95.7

Other operating income. net -5.2 -1.2 0.0 0.0 0.0

EBITDA 116.5 76.5 73.8 108.2 107.5


Net financial income (costs) 0.0 -3.6 -3.9 -1.7 -0.8


Income tax -22.3 -15.2 -12.7 -19.6 -19.7

Net profit 91.2 54.5 54.1 83.8 83.9

Gross margin 24.0% 23.2% 19.2% 23.0% 23.0%

EBITDA margin 13.7% 11.3% 9.0% 12.4% 12.4%




Fig. 5. Dom Development: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 1751.5 1721.4 1373.7 1477.0 1496.2

Fixed assets 8.2 7.5 7.4 7.2 7.1

Total assets 1759.7 1728.9 1381.0 1484.2 1503.3


bank debt 37.3 3.8 3.8 3.8 3.8


bank debt 397.0 444.0 150.0 100.0 100.0

Equity 892.4 856.5 856.1 896.6 913.5


Net debt 23.6 120.4 124.9 -15.1 -6.5


Fig. 6. Dom Development: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

CF from operations 125.6 -8.7 62.5 190.4 64.1

CF from investment -238.2 231.5 -1.2 -2.3 -1.9


Net change in cash -204.3 146.3 -298.5 90.1 -8.6



65


November 12, 2014

ECHO INVESTMENT RECOMMENDATION

BUY (MAINTAINED)

FX rates to support 3Q profits CURRENT PRICE: PLN6.47


3Q14 Results Preview. We expect Echo to post quite a good set

of results in 3Q14. We expect a flat q/q profit from rental activities and assume no completion of new project or changes in rent

levels. We do, however, expect as much as PLN11.6mn in profit from selling flats on high notary sales volume. And so we project

18% q/q gross profit growth to PLN78.6mn. We also expect a revaluation gain of approx. PLN13.8mn, purely caused by the

EUR/PLN q/q appreciation (+0.4% q/q). For the very same reason, we expect Echo to recognise a loss of PLN6.6mn in its

financial activity (some loans are EUR denominated). All in all, we forecast Echo to earn PLN26.6mn, much more than in 2Q14

(PLN16.5mn) and 3Q13 (5.4mn). The forecasted profit growth would, however, only increase Echo’s NAV by 1% q/q, which is why we expect market reaction to be neutral. Outcome: NEUTRAL.

Financial forecasts. We maintain our financial forecasts. We

expect 4Q14 and the 2015-2016 results outlook to be quite positive. In 4Q14, we expect Echo to recognise the first

revaluation gains from the nearly completed Katowice Business Park and the Wroclaw West Gate office projects. In 2015, we

expect Echo to recognise approx. PLN200mn in positive revaluation from the continuation of the two aforementioned

projects, extra gains from the Gdansk Tryton office project and gains from the scheduled enlargement of a shopping mall in

Jelenia Gora. For 2016, we forecast revaluations of approx. PLN160mn, solely from the Q22 office building in Warsaw.


Target Price for Echo at PLN7.65 (weighted average of discounted 2016E NAV and peer comparison) and maintain our

Buy recommendation on fundamental upside. The company trades at P/BV of 0.84x, which is close to its WSE peer GTC

(0.80x P/BV), though it used to be traded at a more significant premium in the past. We also think that the premium over GTC is

justified because GTC may decide again to issue new shares (for acquisitions), which we would view negatively with respect to the

uncertainty regarding the number, size and operating data of the potential acquisition targets. We forecast Echo to rise its BVPS by

17% to PLN9.01 in 2016E from PLN7.7 in 2Q14. The discounted 2016E NAV (12M forward) sits at PLN7.96, which offers an

upside to the current share price. At the top of that the spread between Warsaw prime office yields and T-bond 2Y yields

significantly widened recently, which might be supportive for the share market price of Echo (as in the past).

STOCK PERFORMANCE





on issue date

12 month target


Buy 10-22-2014 6.2 7.7 3.9% 3.3

Buy 7-9-2014 6.6 7.7 -4.9% -10.0

Buy 4-28-2014 5.8 7.7 13.5% 15.2

Buy 1-30-2014 6.2 8.1 -6.9% -9.2

Buy 10-23-2013 7.2 8.3 -14.1% -8.6

COMPANY DESCRIPTION

Echo is a real estate and residential developer with focus on Polish market. Office and retail buildings constitute majority of assets.


Mr. Michal Solowow 45.9%




ANALYST

Adrian Kyrcz (+48) 22 586 81 59

[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes ECH.WA / ECH PW

Sales 528 488 640 689 Market capitalisation (PLNm) 2 670

EBIT 497 677 452 445 Number of shares (m) 412.7

Adj. EBIT 224 197 252 283 Free float (%) 53.9%


BV 2765 3240 3496 3717 Price performance

1M 3M YTD

P/BV (x) 0.97 0.82 0.76 0.72 3.9% 3.2% -3.4% Source: Company data, DM BZ WBK estimates, *adjusted for revaluation gains/losses


66

Fig. 1. Echo Investment: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 109.4 115.2 153.8 122.9 158.7 148.2 140.5 125.4 140.7 122.2 111.8 111.5 155.0 10.2% 39.0%

EBITDA 324.7 49.8 -27.3 103.2 -39.4 158.0 236.1 255.8 -3.7 11.7 491.8 38.1 72.5 n.m. 90.4%

EBITDA margin 296.7% 43.2% -17.7% 84.0% -24.8% 106.6% 168.1% 204.0% -2.6% 9.6% 439.8% 34.1% 46.8% -18.7 0.4

EBIT 323.6 48.6 -32.0 104.9 -40.5 156.8 235.1 254.1 -5.4 10.0 490.1 36.9 71.3 n.m. 93.2%

EBIT margin 295.7% 42.2% -20.8% 85.3% -25.5% 105.9% 167.3% 202.7% -3.9% 8.2% 438.2% 33.1% 46.0% -12.9 0.4

Net profit 72.2 29.2 30.7 67.3 -19.5 332.3 156.1 146.0 5.4 1.7 408.3 16.5 26.6 n.m. 61.3%

Net margin 66.0% 25.3% 19.9% 54.8% -12.3% 224.3% 111.1% 116.5% 3.8% 1.4% 365.1% 14.8% 17.1% 3.5 0.2


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

2014E 2015E 2016E


Sales 488 488 0% 640 640 0% 689 689 0%

EBITDA 682 682 0% 457 457 0% 451 451 0%

EBIT 677 677 0% 452 452 0% 445 445 0%

Adj EBIT 177 177 0% 252 252 0% 283 283 0%

Net profit 489 489 0% 255 255 0% 222 222 0% Source: Company data, DM BZ WBK estimates, *adjusted for revaluation gains/losses

Fig. 3. Echo Investment: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

SOTP valuation 7.65 7.65 0%

Comparable valuation 6.0 6.0 0% Source: Company data, DM BZ WBK estimates

Fig. 4. Echo Investment: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 583 528 488 640 689

COGS 277 236 208 298 314

Gross profit 305 292 280 342 375

SG&A 83 82 89 91 92


EBITDA 195 502 682 457 451




Income tax 190 12 -47 -60 -52

Net profit 374 331 489 255 222

Gross margin 52.4% 55.4% 57.3% 53.5% 54.4%

EBITDA margin 33.5% 95.1% 139.7% 71.4% 65.4%




Fig. 5. Echo Investment: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 1029 1534 1604 1351 1266

Fixed assets 4174 4596 5281 5829 6167

Total assets 5453 6224 6885 7180 7433


bank debt 550 562 562 562 562


bank debt 2223 2149 2300 2300 2300

Equity 2432 2765 3240 3496 3717


Net debt 2397 2289 2328 2582 2666


Fig. 6. Echo Investment: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



CF from financing 79 -250 20 -135 -172

Net change in cash -176 43 112 -254 -85



67

Poland Industrials

NOVEMBER 12, 2014

ELEMENTAL HOLDING RECOMMENDATION

BUY (INITIATION)

Building recycling tycoon CURRENT PRICE: PLN2.88


Equity Story. Elemental Holding is a company that operates through its

three Polish subsidiaries – Syntom (non-ferrous metal trading), Tesla

Recycling (PCB recycling) and Terra Recycling (WEEE recycling) and

started from scratch just in 2009. The company is a clever mix of low

volumes - high margin recycling (PCB, WEEE) and high volumes-low

margin trading, which creates synergies for the whole group (bargaining

power, supply of raw materials). WEEE recycling is heavily regulated by

the EU, with the WEEE Directive setting the collection, recycling and

recovery targets for different electro-waste groups. The Polish law,

compliant with EU regulations, sets a collection target of 65% in 2021 of

waste put one the market (vs. 35.3% in 2013 or 4.2kg per resident). But

there are still markets that are far behind the current collection levels in

Poland. Turkey, even if not an EU member, still regulates its market

similarly and collects only 0.5kg per resident at the moment (target of 4kg

in 2018). Elemental’s current strategy stipulates acquisitions of recycling

companies on underdeveloped markets in order to create a major CEE

player. The company finalised two deals this year - catalytic converters

and WEEE recycler from Lithuania – EMP and metal trading company

from Slovakia – Metal Holding, is finalizing third (Turkish Evciler) and

looking at the levels of financing that it had obtained, especially the new

PLN50mn bond issue, it will probably not stop at the three.

Financials. We expect the company’s results to grow rapidly next year,

mainly due to acquisitions (revenues up by 36.9% y/y, EBITDA up by

36.6%). A further increase of the high margin recycling should also

gradually improve margins on the domestic market in the longer term.

Triggers/Risks. The WEEE recycling markets, as many other recycling

markets, are heavily afflicted by the grey market. There are, however,

actions that could improve this, such as a distinction of refrigerators

instead of just MDA in the product groups. The company will cumulatively

acquire several companies in 2014, and aside from the obvious risks like

overpaying, it may take some time to put all these puzzles together

Valuation & recommendation. Using the DCF model, we set the

company’s TP at PLN3.9 (37% upside) and issued a Buy

recommendation.

STOCK PERFORMANCE

EMT WIG Relative

0

1

1

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2

3

3

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COMPANY DESCRIPTION

Elemental Holding specializes in non-ferrous metal collecting and trading as well as PCB, WEEE and catalytic converter recycling. Company is currently gaining access to foreign markets through M&A’s.


Moearth Holdings Limited 23.8%

Ibah Holdings Limited 18.2%

Glaholm Investments Limited 15.0%

EVF I Investments S.a.r.l 10.1%


ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes EMPT.WA / EMT PW



EBIT 24.1 40.9 53.2 58.1 Free float (%) 25.8%



1M 3M YTD


Fig.1. Elemental: DCF valuation



68


2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Revenues 739.7 1,013.0 1,075.3 1,134.8 1,190.5 1,223.0 1,253.2 1,284.2 1,307.9 1,332.2

EBIT 40.9 53.2 58.1 62.2 66.5 69.7 72.8 75.9 77.5 79.1


NOPAT 38.8 47.3 47.1 50.4 53.9 56.5 58.9 61.5 62.8 64.1

Depreciation 5.8 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6

Change in operating WC -6.8 7.4 11.0 11.2 11.2 8.8 8.8 9.1 8.4 3.3


Net investment 57.9 7.4 11.0 11.2 11.2 8.8 8.8 9.1 8.4 3.3

Free cash flow -19.2 39.9 36.1 39.2 42.7 47.7 50.2 52.4 54.4 60.8

WACC 9.0%

PV FCF 2014-2023 272.0



PV TV 351.7

Total EV 623.7

Net debt -4.0

Minority interests 56.1

Equity value 571.6



Month 11.0




Fig. 2. Elemental: Comparable valuation

Price Mkt. cap (EURmn)

P/E EV/EBITDA

2014E 2015E 2016E 2014E 2015E 2016E

Elemental Holding SA 2.91 107 12.7 10.9 10.9 9.5 6.6 5.9

Krynicki Recykling SA 8.8 35 18.3 12.7 14.9 10.2 7.3 5.8

Aurubis AG 41.845 1,881 21.0 11.1 9.9 8.1 5.9 5.4

Waste Management Inc 49.45 18,213 20.6 19.4 17.7 9.3 9.2 8.8

Republic Services Inc 39.13 11,190 20.2 19.1 17.0 8.5 8.1 7.7

Waste Connections Inc 49.71 4,963 24.5 21.7 19.1 11.4 10.5 9.7

Jianxin Mining Co Ltd 7.08 1,058 23.6 19.1 15.4 17.8 14.1 11.3

Median 20.8 19.1 16.2 9.8 8.6 8.2

Premium/discount vs. median -47.2% -40.3% -32.8% -22.3% -15.6% -15.0%



69

Fig. 3. Elemental: 3Q14 results preview PLN in millions, unless otherwise stated


Sales n.a. n.a. n.a. n.a. 220.2 226.5 221.8 200.4 196.9 239.4 174.2 161.7 184.0 -6.6% 13.7%

EBITDA n.a. n.a. n.a. n.a. 7.5 8.9 6.6 6.0 7.6 7.4 10.5 9.5 12.0 57.3% 25.7%

EBITDA margin n.a. n.a. n.a. n.a. 3.4% 3.9% 3.0% 3.0% 3.9% 3.1% 6.0% 5.9% 6.5% 2.6 0.6

EBIT n.a. n.a. n.a. n.a. 6.9 8.2 6.0 5.4 6.8 6.5 9.6 8.1 10.5 53.8% 29.4%

EBIT margin n.a. n.a. n.a. n.a. 3.1% 3.6% 2.7% 2.7% 3.5% 2.7% 5.5% 5.0% 5.7% 2.2 0.7

Net profit n.a. n.a. n.a. n.a. 4.7 5.7 5.5 7.4 7.1 4.5 9.2 7.7 9.0 27.0% 17.1%

Net margin n.a. n.a. n.a. n.a. 2.1% 2.5% 2.5% 3.7% 3.6% 1.9% 5.3% 4.7% 4.9% 1.3 0.1


Fig. 4. Elemental: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E







Fig. 5. Elemental: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 6. Elemental: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Sales 895 859 740 1013 1075

operating costs 868 835 699 1013 1075

EBITDA 29 27 47 64 69





Net profit 18 24 35 41 41

EBITDA margin 3.2% 3.1% 6.3% 6.3% 6.4%




Fig. 7. Elemental: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 106 205 297 317 335

Fixed assets 91 160 225 225 225

Total assets 197 366 523 542 560


bank debt 34 36 55 44 35


bank debt 11 14 63 63 63

Equity 125 258 305 328 348

share capital 103 155 167 167 167



Net debt 40 29 -4 -24 -39


Fig. 8. Elemental: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

CF from operations 0. 12 47 44 40


CF from financing 19 37 125 -24 -24




70



71

Poland FMCG

NOVEMBER 12, 2014

EMPERIA RECOMMENDATION

BUY (MAINTAINED)

Still slow CURRENT PRICE: PLN 49

TARGET PRICE: PLN 81 (MAINTAINED)

Equity Story: In our view, Emperia’s current market price values

Stokrotka at c.1.3x monthly sales, which we believe to be too low when

compared with the recent M&A transactions on the FMCG market. This

limits any downside. On the other hand, in order to cash in the potential

valuation gap, a positive decision of the management to put Emperia up

for sale is needed. This is the largest risk to our investment story.

3Q14 Results Preview. 3Q14 failed to bring about much change on the

FMCG market, which remained very slow. Emperia was not different from

this bleak picture. As far as its retail arm is concerned, we expected

Stokrotka’s LfL at negative 1%. But new space contribution pushed total

sales to +7% y/y to PLN494mn in 3Q14. We expect the gross margin at

25.5% and the SG&A costs at PLN130mn (26.3% of sales). The results

will be adversely hit by inventory shrinkage at PLN2.0mn, which will lead

to an EBITDA of PLN2.7mn vs. the previous year’s negative EBITDA of

PLN13mn. It must be remembered that 3Q13 was severely affected by a

shifts in the business model towards own logistics in exchange for

deliveries from Tradis. For the remaining segments, we assumed similar

EBITDA results to 2Q14 (real estate - EBITDA at PLN10mn, IT - EBITDA

at PLN3.4mn and other - EBITDA at PLN2.0mn). As far as the entire

Emperia Group is concerned, we expect the EBITDA to reach PLN15mn

(vs. the previous year’s loss of PLN1mn) and we expect the bottom line at

PLN4mn (vs. the previous year’s loss of PLN1mn) in 2Q14E. On cash

flow, we expect the OCF at c. ‘0’ and the buyback (PLN10mn) will

diminish the net cash position to c.PLN106mn vs. PLN94mn in 3Q14.

Outcome: NEUTRAL.

Change in valuation & recommendation. We maintain our investment

story and our SOTP valuation for Emperia, which assumes cash account

at PLN106mn in 2Q14 (vs. the previous PLN120mn), PLN690mn for

Stokrotka (3.9x 2014E sales of PLN2.097mn) and PLN368mn for real

estate. A comparable valuation points to PLN56.00/ share.


3Q14E y/y (%) q/q (%)

Sales 522.6 10.5% 4.0%

EBITDA 15.5 n.a. -45.3%

EBIT 3.2 n.a. -80.1%

Net profit 3.6 n.a. -74.2%

STOCK PERFORMANCE





on issue date

12 month target


Buy 10/23/2014 47.8 81.0 2.7% 2.2

Buy 9/7/2014 55.0 82.0 -13.2% -11.2

Buy 4/28/2014 68.0 87.0 -19.1% -24.6

Buy 1/30/2014 70.0 90.7 -2.8% -5.1

COMPANY DESCRIPTION

Emperia has wholesale and retail operations in the FMCG segment. These are backed by a commercial real estate portfolio.

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes EMP.WA / EMP PW



EBIT 15 32 30 26 Free float (%) 86.6%



1M 3M YTD




72

Fig. 1. Emperia: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 464.1 517.1 491.4 487.5 463.0 506.9 493.0 489.7 473.0 511.7 479.4 502.4 522.6 10.5% 4.0%

EBITDA 28.6 28.8 22.8 9.8 -27.3 20.4 23.7 19.1 -0.8 13.9 17.9 28.3 15.5 n.a. -45.3%

EBITDA margin 6.2% 5.6% 4.6% 2.0% -5.9% 4.0% 4.8% 3.9% -0.2% 2.7% 3.7% 5.6% 3.0% 313 -267

EBIT 11.6 11.9 11.6 -0.8 -37.7 11.1 13.5 10.4 -11.1 2.6 5.6 16.0 3.2 n.a. -80.1%

EBIT margin 2.5% 2.3% 2.4% -0.2% -8.1% 2.2% 2.7% 2.1% -2.3% 0.5% 1.2% 3.2% 0.6% 296 -258

Net profit 39.9 19.9 26.2 10.4 -28.4 11.6 13.7 10.9 -11.0 1.6 3.2 14.1 3.6 n.a. -74.2%

Net margin 8.6% 3.8% 5.3% 2.1% -6.1% 2.3% 2.8% 2.2% -2.3% 0.3% 0.7% 2.8% 0.7% 302 -211

Source: Company data, DM BZ WBK estimates,

Fig. 2. Emperia: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 2,202 2,202 0.0% 2,489 2,489 0.0% 2,665 2,665 0.0%

EBITDA 79 79 0.0% 80 80 0.0% 78 78 0.0%

EBIT 32 32 0.0% 30 30 0.0% 26 26 0.0%

Net profit 29 29 0.0% 30 30 0.0% 26 26 0.0%


Fig. 3. Emperia: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

SOTP 81 81 n.a.

Comparable valuation (based on 2014-2016E) 56 57 -1.8% Source: Company data, DM BZ WBK estimates,

Fig. 4. Emperia: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2015E

Net sales 1,949 1,967 2,202 2,489 2,665

COGS 1,478 1,539 1,634 1,857 1,998

Gross profit 471 428 567 631 667

SG&A 482 478 535 601 641


EBITDA 28 62 79 80 78

Operating profit -16 -46 32 30 26


Profit before tax 11 -41 38 39 35

Income tax -10 5 9 10 9

Net profit 21 -46 29 30 26

Gross margin 24.2% 21.8% 25.8% 25.4% 25.0%

EBITDA margin 1.4% 3.1% 3.6% 3.2% 2.9%

Operating margin -0.8% -2.4% 1.4% 1.2% 1.0%

Net profit margin 1.1% -2.4% 1.3% 1.2% 1.0%


Fig. 5. Emperia: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2015E

Current assets 390 478 481 565 656

Fixed assets 589 587 573 563 521

Total assets 978 1,065 1,055 1,128 1,177


bank debt 0 1 0 0 0


bank debt 0 3 0 0 0

Equity 688 648 731 761 787



Total liabilities 978 1,065 1,055 1,128 1,177

Net debt -215 -191 -288 -345 -419


Fig. 6. Emperia: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2015E



CF from financing -912 -51 50 0 0

Net change in cash -836 -20 92 58 74



73


November 12, 2014

ERBUD RECOMMENDATION

HOLD (INITIATION)

High reliance on developers CURRENT PRICE: PLN 26.49


Equity Story. Erbud offers exposition to the general construction

market in Poland, which we expect to recover thanks to some economic growth acceleration and the flow of EU funds in the 2014-2020 period that should support public investments. The company is, however, highly dependent on commercial developers and here we see limited room for growth due to the high market saturation in office and retail space (such deals constitute as much as 40% of the company’s current backlog). On the other hand, Erbud is present in the power segment (service works), where prospects for growth look strong in the short to mid-term (the company has recently secured key employees, which should support this segment’s development). We also like the company’s plan to start its first residential project in Warsaw (so far it has only been present in Bydgoszcz and Torun), probably the most attractive city for residential developers at the moment. All in all, we are quite positive on the results’ outlook for Erbud, though we also believe its valuation to be demanding.

Financials. We expect the net profit at a CAGR of 12% in 2014E-

2017E, supported by a gradual growth in sales from the road and power businesses. Following the expected gross margin compression in 2014E (-0,5pp to 6.9%), we forecast a margin recovery in 2015-2017 and its stabilisation afterwards (at 7.7%). Growth in the margin should be supported by further growth in the construction capacity utilisation (data reported by the statistics office GUS) and rising investments thanks to the 2014-2020 EU funds.

Triggers/Risks. The key risks include: 1) a potential payment of

c. PLN24mn in compensation (PLN2.7/shr) for the investor of the Modlin airport, and 2) potential provisions related to the Modlin contract. That said, a trigger for Erbud’s share price could be the completion of the Deptak retail/office scheduled for 2015, which might be value-accretive (Erbud holds a 50% stake in JV) and asset disposal (if any). The company’s claim for c. PLN20mn in compensation from its subcontractors of the Modlin contract (PLN1.6/shr) and any positive outcome in this regard could also be a trigger.

Valuation & recommendation. We issue a Hold

recommendation for Erbud. Based on our DCF model, we arrived at a 12 month TP of PLN29.6 per share. In the TP calculation, we included a value assessment of the 50% stake in the retail/office Deptak project (value net of CAPEX at PLN22mn or PLN1.7/shr). The company is trading close to the peer median at the P/E 2015E multiple.

STOCK PERFORMANCE

ERBWIG Relative

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12 month target



COMPANY DESCRIPTION

Erbud is a general contractor and residential projects developer. Company is focusing on general construction works, roads construction, engineering works, and servicing power sector.

Main shareholders % of

votes

Wollf&Mueller Baubeteiligungen GmbH & Co. KG 32.7%

Juladal Investment Limited 22.2%


AVIVA pension fund 9.3%

Mr. Dariusz Grzeszkak 5.9%

ANALYST

Adrian Kyrcz (+48) 22 586 81 59

[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes UERB.WA / ERB PW

Sales 1 223.6 1 366.3 1 411.1 1 416.1 Market capitalisation (PLNm) 325.4


EBIT 32.8 34.5 38.8 43.2 Free float (%) 36.3%



3M 3M YTD



http://stooq.pl/h/?i=119u


74

Fig. 1. Erbud: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Net sales* 1366 1407 1407 1389 1359 1359 1359 1359 1359 1359

EBIT* 34 36 36 36 35 35 35 35 35 35


NOPAT* 28 29 29 29 29 28 28 28 28 28

Depreciation 8 8 8 8 8 8 8 8 8 8

Change in operating WC -86 -17 -9 -3 7 0 0 0 0 0

Capital expenditure -5 -5 -8 -8 -8 -8 -8 -8 -8 -8

Free cash flow -55 15 20 26 35 28 28 28 28 28

Sum of FCFFs PVs 98.1

Risk free rate 3.0%

WACC 8.0%

Residual growth of FCFFs 1.0%

Residual value 406

Present value of the residual value 188

Erbud's EV 286

Cash and equivalents (2014 bop) 125

Interest-bearing debt (2014 bop) 94

Dividends 8,9

Equity value 307

No. of shares (m) 12.8

Equity value of Erbud per share (PLN) 24.0

Month 11.0 Current equity value of Erbud per share (PLN) 25.9

12M equity value per share (PLN) 27.9

Real estate per share (PLN)** 1.7

12M TP inc. Real Estate (PLN) 29.6

Source: Company data, DM BZ WBK estimates, * excluding contribution of Deptak office/retail building,**see table below for details Fig. 2. Erbud: Real estate value calculation PLN in millions, unless otherwise stated

Property name

GLA (ths

sqm) NOI yield Estimated

value

CAPEX total without

land Net CAPEX

Estimated value net of

CAPEX Stake

Net per share (PLN)

Deptak retail/office 9.2 8.0 7.5% 106.0 74 62.9 43.1 50% 1.7


Fig. 3. Erbud: Comparable valuation

P/E EV/EBITDA

Name 2014E 2015E 2016E 2014E 2015E 2016E

Acciona 51.2 27.0 18.6 8.8 8.4 8.1

Astaldi 5.8 4.9 4.3 5.6 5.2 4.9

Bilfinger Berger 12.7 9.9 8.7 6.0 4.9 4.4

Eiffage 12.7 10.6 8.9 7.8 7.6 7.3

Ferrovial 33.7 30.0 25.9 20.1 19.2 18.3

Skanska 17.2 15.0 13.9 11.3 10.2 9.7

Strabag 13.0 11.2 9.8 3.6 3.4 3.3

Vinci 12.6 12.4 11.6 7.5 7.4 7.2

Hochtief 17.5 14.3 11.8 4.3 4.1 3.9

Median - Western peers 13.0 12.4 11.6 7.5 7.4 7.2

Atrem 13.1 24.1 11.3 5.0 6.5 4.3

Tesgas - 12.6 7.9 6.1 4.8 2.8

Unibep 13.3 11.2 12.1 8.9 7.4 7.5

Trakcja 11.4 15.8 12.4 7.7 8.9 7.2

Budimex 20.7 19.8 14.7 10.6 9.8 6.7

Elektrobudowa 15.3 10.1 8.5 6.3 4.7 4.2

Median - Polish peers 13.3 14.2 11.7 7.0 7.0 5.5

Average implied share price of Erbud in PLN (Polish peers) 22.0 26.8 25.4 20.8 24.5 23.0

Average implied share price of Erbud in PLN (Western peers) 21.4 23.4 25.2 25.6 25.6 25.6

Average implied share price of Erbud (PLN) 24.1

Source: Bloomberg, BZ WBK research, company data


75

Fig. 4. Erbud: 3Q14 results review PLN in millions, unless otherwise stated


Sales 424.9 388.2 234.4 369.0 362.4 418.7 206.4 319.5 298.7 400.5 283.6 425.5 428.3 43.4% 0.7%

EBITDA 8.5 10.5 8.7 9.2 10.9 8.2 3.6 8.2 14.2 14.1 7.6 13.1 11.4 -19.7% -13.0%

EBITDA margin 2.0% 2.7% 3.7% 2.5% 3.0% 1.9% 1.8% 2.6% 4.8% 3.5% 2.7% 3.1% 2.7% -0.4 -0.1

EBIT 6.8 8.4 7.5 6.7 9.4 5.9 2.3 5.8 12.5 11.8 6.1 10.5 9.6 -23.3% -8.3%

EBIT margin 1.6% 2.2% 3.2% 1.8% 2.6% 1.4% 1.1% 1.8% 4.2% 2.9% 2.2% 2.5% 2.2% -0.5 -0.1

Net profit 4.0 3.2 3.2 4.7 4.1 5.2 0.4 2.0 7.7 7.4 1.3 6.7 7.0 -8.7% 3.9%

Net margin 0.9% 0.8% 1.4% 1.3% 1.1% 1.2% 0.2% 0.6% 2.6% 1.9% 0.5% 1.6% 1.6% -0.4 0.0


Fig. 5. Erbud: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 1366 n.a n.a 1411 n.a n.a 1416 n.a n.a

EBITDA 42 n.a n.a 47 n.a n.a 51 n.a n.a

EBIT 34 n.a n.a 39 n.a n.a 43 n.a n.a

Net profit 21 n.a n.a 24 n.a n.a 28 n.a n.a


Fig. 6. Erbud: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

DCF valuation 29.6 - -

Comparable valuation (based on 2014-2016E) 24.1 - - Source: Company data, DM BZ WBK estimates

Fig. 7. Erbud: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 1264 1224 1366 1411 1416

COGS 1180 1133 1271 1309 1309

Gross profit 84 91 95 102 107

SG&A 50 58 60 63 63


EBITDA 37 41 42 47 51




Income tax -5 -8 -5 -6 -7

Net profit 20 18 21 24 28

Gross margin 6.7% 7.4% 6.9% 7.2% 7.5%

EBITDA margin 2.9% 3.3% 3.1% 3.3% 3.6%




Fig. 8. Erbud: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 696 678 753 793 821

Fixed assets 124 118 115 112 112

Total assets 820 796 868 904 933


bank debt 38 74 74 74 74


bank debt 65 20 20 20 20

Equity 251 267 288 312 340


Net debt -98 -30 49 40 21


Fig. 9. Erbud: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

CF from operations 89 -55 -57 24 36






76



77

Poland FINANCIALS

NOVEMBER 12, 2014

EUCO RECOMMENDATION

BUY (MAINTAINED)

Momentum remains strong CURRENT PRICE: PLN 26.5

TARGET PRICE: PLN 31.7 (PREV. 30.9)

Equity Story. A leading provider of personal injury claim services. EuCO

provides a wide range of services related to obtaining compensation for

its clients from insurance companies. Claiming compensation for personal

injuries for victims of road accidents represents most of its business. The

bulk of cases are settled directly with insurers, who typically agree to pay

approximately twice the amount they would pay claimants. Most cases are

settled by EuCO’s law firm through the courts, allowing EuCO to earn

approximately 30% of the settlement value. EuCO’s success to date has

been largely driven by a combination of an efficient claim processing

centre and an extensive, well-motivated and low-cost (fee-based) network

of agents. EuCO currently operates through over 25k agents. It is among

the two largest companies of its kind in Poland and is developing a

subsidiary in Romania.

Financials. Strong growth looks set to stay. Inflows from insurance

companies to the law firm increased to PLN64mn in 2013 from PLN2mn in

2009 (when it started up). We expect this to increase further to

PLN140mn in 2016E. Revenues at EuCO’s parent should stay stable at

above PLN20mn, while its business in the Czech Republic, Slovakia and

Hungary should stay stable. Romania, its new market, should be

consolidated in 2014E and add around PLN0.2-0.5mn to net profit.

However, we are not yet including this in our forecasts. We conservatively

assume a more modest growth rate ahead, resulting in annual average

revenue growth of 11%. This, coupled with stable margins, should

translate into 17% CAGR in the period. Strong cash generation should

allow EuCO to pay substantial dividends (payout ratio of 60%+, DY 5%+)

and, unless it embarks on major acquisitions or broader geographical

expansion, its dividend yield could be as high as 8.9% in 2016E vs. 3.7%

in 2013. ROE could be over 30% by 2016.

Triggers/Risks. Apart from the usual risk of forecasting errors, we would

highlight the gap between reported revenues and the claims actually

received in cash in last years, as the company opted to recognise cases it

had won or was very likely to win in revenues before receiving a payment.

Reputation/perception risks are common in this sector. We also note that

the sector is seriously under-regulated. Insurers, while generally co-

operative, may become more obstructive as the recent increase in the

share of court-settled claims indicates.

Valuation & recommendation. We set a 12-month target price of PLN

31.70/share using a blend of DCF and comparable company multiples.

The implied 20% upside may seem steep, but, at our target price, EuCO’s

multiples (13.4x 2014E earnings and 11.2x EV/EBITDA) would be only

marginally above the current median for comparable companies. We think

the TP is justified by EuCO’s superior ROE (36% in 2014E) and net profit

margin (25%). At the current price, the company trades at 9.5x 2015E P/E

and an EV/EBITDA of 8.1x. Which we perceive as attractive level.

STOCK PERFORMANCE

EUC

TP

WIG Relative

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Buy 7-23-2014 21.4 30.9 23.7% 19.7

Hold 7-9-2014 20.3 22.0 5.6% 3.9

Buy 4-28-2014 19.8 22.0 2.4% 4.0

Buy 1-30-2014 13.2 22.0 50.0% 47.7

COMPANY DESCRIPTION

EuCO specialises in servicing personal injury claims, typically on behalf of victims of motor accidents. It is one of the leading players in Poland and the Czech Republic. Its in-house legal practice pursues more complex cases in the courts.


Spexar Ltd 31.1%

Corpor Capital Ltd 31.1%

ING Pension Fund 12.2%

ANALYST

Andrzej Bieniek Securities Broker, Investment Advisor (+48) 22 586 85 21; [email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes EUC.WA / EUC PW



EBIT 11.3 13.8 16.6 18.8 Free float (%) 38%



1M 3M YTD




78

Fig. 23. EuCO: 3Q14 results preview PLN in millions, unless otherwise stated

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q

Revenues 8.5 9.6 10.5 16.9 12.1 11.1 11.3 14.8 12.1 14.1 14.0 24% -1%

Gross profit 3.7 3.0 3.6 6.9 4.2 3.4 4.1 7.2 4.3 4.7 5.3 28% 12%

EBITDA 2.0 2.0 2.4 3.2 2.4 1.7 2.6 5.5 2.7 3.1 3.4 32% 11%

EBIT 1.8 1.8 2.2 3.0 2.2 1.5 2.4 5.3 2.5 2.9 3.2 34% 12%

Net profit 1.6 5.0 1.8 2.8 1.7 1.6 2.2 4.8 2.3 2.6 3.0 35% 17%

Gross profit margin 44% 31% 34% 41% 35% 31% 37% 49% 36% 34% 38%

EBITDA margin 24% 21% 23% 19% 20% 15% 23% 37% 22% 22% 24%

EBIT margin 22% 19% 21% 18% 18% 13% 21% 36% 21% 20% 23%

Net profit margin 19% 52% 17% 16% 14% 14% 20% 32% 19% 18% 21% Source: Company data, DM BZ WBK estimates

Fig. 24. EuCO: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 55.6 55.6 0.0% 63.5 63.5 0.0% 67.0 67.0 0.0%

EBITDA 14.5 14.5 0.0% 17.3 17.3 0.0% 19.6 19.6 0.0%

EBIT 13.8 13.8 0.0% 16.6 16.6 0.0% 18.8 18.8 0.0%

Net profit 12.8 12.8 0.0% 15.4 15.4 0.0% 16.6 16.6 0.0%


Fig. 25. EuCO: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

DCF valuation 31.6 30.1 +5.0%

Comparable valuation (based on 2014-2016E) 31.9 31.7 +0.6%

Blended average target price 31.7 30.9 +2.5% Source: Company data, DM BZ WBK estimates

Fig. 26. EuCO: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 45.6 49.3 55.6 63.5 67.0

COGS -28.3 -30.3 -34.3 -38.0 -38.9

Gross profit 17.2 19.0 21.3 25.5 28.2

Sales costs -0.3 -0.1 -0.1 -0.1 -0.1

Management costs -7.9 -7.7 -6.9 -8.3 -8.6

Other operating income, net 0.7 0.2 -0.6 -0.6 -0.7

EBITDA 10.5 12.1 14.5 17.3 19.6

EBIT 9.7 11.3 13.8 16.6 18.8

Financial expenses/income -0.3 -0.2 -0.4 -0.4 -0.4 Profit on ordinary activities 9.5 11.2 13.4 16.2 18.4

Pre-tax profit 9.5 11.2 13.4 16.2 18.4

Income tax 1.7 -0.9 -0.6 -0.8 -1.8

Net profit 11.2 10.2 12.8 15.4 16.6

Margins

Gross margin 37.8% 38.5% 38.3% 40.2% 42.0%

EBITDA margin 23.0% 24.6% 26.1% 27.2% 29.2%

EBIT margin 21.4% 23.0% 24.8% 26.1% 28.1%

Pre-tax margin 20.8% 22.6% 24.1% 25.5% 27.5%

Effective tax rate 17.7% -8.2% -4.5% -5.0% -10.0%



Fig. 27. EuCO: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 47.2 64.2 66.7 73.2 79.1

L-t assets 13.3 11.5 10.4 11.8 17.2

Total assets 60.5 75.7 77.1 85.0 96.3


bank debt 2.4 6.1 6.1 6.1 6.1


bank debt 1.7 0.2 0.0 0.0 0.0

Equity 26.8 32.4 39.3 45.4 51.2

share capital 0.6 0.6 0.6 0.6 0.6




Fig. 28. EuCO: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E




Net change in cash 2.2 3.7 4.5 3.0 2.6



79

Poland Pharma / Health Care

NOVEMBER 12, 2014

FARMACOL RECOMMENDATION

BUY (MAINTAINED)

Weaker quarter y/y expected CURRENT PRICE: PLN 50.2

TARGET PRICE: PLN 66.0 (MAINTAINDED)

3Q14 Results Preview. We expect Farmacol to report weaker

results y/y in 3Q14 due to lower gross margins on the refunded

drugs. We had assumed that Farmacol’s top line would rise by

4% y/y to PLN1,329mn. Due to the lower gross margins y/y and

lack of any visible cost savings initiatives, we expect the EBITDA

to come in at PLN21.9mn (-38% y/y, margin down by 110bps y/y

to 1.7%) and the profit on sales to drop by 28% y/y to PLN20mn

(margin down by 65bps to 1.5%). We had also assumed the other

operating losses at PLN3mn in 3Q14 and the net financial income

at PLN8mn. The expected 19% effective tax rate should yield a

net profit of PLN20mn (-35% y/y). Outcome: NEGATIVE.

Farmacol is trading with a 6%/11% premium on PE’14 and a

18% /34% premium on PE’15 to Pelion and Neuca, respectively.

On the other hand, when we take the Cash Adjusted PE into

account (which equals to 10.5x and 9.4x in 2014-15), Farmacol

offers double-digit discounts vs. its competitors and its fair PE

(11.6x). We believe this limits any downside in case of a negative

surprise from the results’ release and makes Farmacol an

attractively priced stock.

Change in valuation & recommendation. DCF-based valuation

points to PLN66/shr. A comparative valuation to its Polish peers

points to PLN52.1/share.

PUBLICATION DATE

NOVEMBER 12, 2014


3Q14E y/y (%) q/q (%)

Sales 1,329 4.0% 13.5%

EBITDA 21.9 -38.3% 29.4%

EBIT 16.5 -43.5% 43.1%

Net profit 19.9 -35.0% 52.7%

STOCK PERFORMANCE





on issue date

12 month target


Buy 10/21/2014 51.2 66.0 -1.9% -2.6

Buy 9/7/2014 50.0 72.0 2.3% 4.5

Buy 4/28/2014 50.4 75.0 -0.9% -6.4

Buy 1/30/2014 58.2 77.0 -13.4% -15.7

COMPANY DESCRIPTION

One of the largest pharmaceutical distributors in Poland. With the acquisition of Cefarm Bialystok, Farmacol has significantly increased its exposure to the retail segment.

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes FCLP.WA / FCL PW



EBIT 113 72 81 84 Free float (%) 42.3%



1M 3M YTD




80

Fig. 1. Farmacol: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 1,234 1,348 1,157 1,139 1,294 1,254 1,335 1,256 1,278 1,337 1,451 1,171 1,329 4.0% 13.5%

EBITDA 15.6 20.0 30.6 23.6 16.9 54.9 35.0 23.9 35.5 43.2 22.4 17.0 21.9 -38.3% 29.4%

EBITDA margin 1.3% 1.5% 2.6% 2.1% 1.3% 4.4% 2.6% 1.9% 2.8% 3.2% 1.5% 1.4% 1.7% -113 20

EBIT 11.6 16.4 26.4 20.0 13.2 51.1 28.0 17.8 29.2 37.9 16.5 11.6 16.5 -43.5% 43.1%

EBIT margin 0.9% 1.2% 2.3% 1.8% 1.0% 4.1% 2.1% 1.4% 2.3% 2.8% 1.1% 1.0% 1.2% -104 26

Net profit 8.4 15.2 26.4 18.5 14.8 52.8 30.6 20.3 30.6 43.9 18.3 13.0 19.9 -35.0% 52.7%

Net margin 0.7% 1.1% 2.3% 1.6% 1.1% 4.2% 2.3% 1.6% 2.4% 3.3% 1.3% 1.1% 1.5% -90 38


Fig. 2. Farmacol: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 5,424 5,424 0.0% 5,626 5,626 0.0% 5,843 5,843 0.0%

EBITDA 101 101 0.0% 112 112 0.0% 117 117 0.0% EBIT 72 72 0.0% 81 81 0.0% 84 84 0.0% Net profit 84 84 0.0% 88 88 0.0% 92 92 0.0% Source: Company data, DM BZ WBK estimates

Fig. 3. Farmacol: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 4. Farmacol: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 4,844 5,206 5,424 5,626 5,843

COGS 4,406 4,826 5,044 5,233 5,434

Gross profit 438 380 380 394 409

SG&A 294 262 293 304 316


EBITDA 117 137 101 112 117




Income tax 28 19 20 21 22

Net profit 114 125 84 88 92

Gross margin 9.0% 7.3% 7.0% 7.0% 7.0%

EBITDA margin 2.4% 2.6% 1.9% 2.0% 2.0%




Fig. 5. Farmacol: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 1,518 1,729 1,814 1,938 2,069

Fixed assets 416 449 488 492 496

Total assets 1,934 2,178 2,302 2,430 2,565

Current liabilities 931 1,037 1,080 1,120 1,163

bank debt 9 9 9 9 9


bank debt 14 14 14 14 14

Equity 918 1,047 1,128 1,216 1,308




Net debt -286 -321 -348 -419 -493


Fig. 6. Farmacol: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E


CF from investment 7 -58 -68 -35 -36

CF from financing -15 -2 -3 0 0




81

Poland Industrials

November 12, 2014

FORTE RECOMMENDATION

BUY (INITIATION)

Strengthening abroad CURRENT PRICE: PLN57.00


Equity Story. The market environment for the Polish furniture industry remains supportive. The CSO (Central Statistical Office) indicates robust momentum in sold furniture production, both in terms of volume (16% y/y increase in 3Q14) and value (14% y/y upswing). The double-digit pace of growth might be difficult to maintain in the long term (taking into consideration the long-term average of c. 6.5%), but we see the production output here in an upward trend. Compared with the Polish furniture sector, Forte outperforms its competitors in terms of production efficiency. We even expect the company to be able to improve its financial figures in tougher market conditions. The recent readings of the sold furniture output indicate flat export prices and a minuscule decline of the domestic ones. As a consequence, it could turn out that there is little room left for margins’ expansion in the medium term. We assume, however, that prices of raw materials should remain stable, which, combined with the planned investments in the Polish production plants (instead of developing a brand new one abroad) with the estimated CAPEX expenditure at PLN30-40mn scheduled for 2014-16 should allow Forte to boost its sales with sound margins’ levels.

Financials. We expect Forte’s sales to total PLN827mn in 2014, up by 24% y/y. For 2015-17 we forecast an average sales momentum of 10% y/y (15% in 2015 vs. 5% in 2017). The EBITDA / EBIT margins should amount to 14.8% / 12.8%, respectively. Looking ahead, we expect the NP margin to fluctuate at around 10% (reaching a record of 10.6% in 2015). In the mid-term, we expect the margins to stabilise with short-lived positive or negative deviations from the aforementioned levels. Close to the end of our forecasting period, we make a conservative assumption of a slight margin deterioration (inflationary costs increase vs. high production capacities utilisation with no additional growth in the CAPEX planned in the end of the model’s horizon).

Triggers / Risks. We look at export as a significant catalyst for the stock. In our model, we estimate that exports to France will develop steadily to reach PLN200mn in 2017. Other significant European markets (Spain and UK) are treated as a growth option for the future, with varied potential stemming from the differences in the market structure, however. The biggest downside risk we associate with deterioration of demand for furniture and ability to deliver the declared capacities’ enhancement in line with the schedule. The EURPLN exchange rate poses a threat to the financial outcome only to a limited extent thanks to the symmetric, no-cost option corridors hedging the exposure to the currency exchange rate risk for two years ahead, in line with the company’s strategy. The high concentration of demand from the Steinhoff group constitutes an operational risk as well (at the same time the group remains the chief sales booster).

Valuation & recommendation. Based on our DCF model, we arrived at a 12M TP of PLN67.60, which implies a 19% upside potential. A comparative valuation puts Forte’s share price in a range from PLN43.02 to PLN58.28. Assigning equal weights to the P/E and EV/EBITDA ratios, we arrive at an average valuation of PLN49.27 per share. As a consequence of the upside potential of 19%, we are initiating coverage with a Buy recommendation.

STOCK PERFORMANCE

FTE WIG Relative

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Oct-

11

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on issue date

12 month target



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 29.53%

MetLife OFE 14.69%

ING OFE 6.32%

AVIVA OFE 5.58%

ANALYST

Michal Sopiel (+48) 22 586 82 33

[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes FTEP.WA / FTE PW

Sales 666 827 950 1,043 Market capitalisation (PLNm) 1,354


EBIT 72 106 123 135 Free float (%) 70.5%



1M 3M YTD

EV/EBITDA (x) 15.1 11.2 9.6 8.7 +3.6% +29.8% +48.1% Source: Company data, DM BZ WBK estimates


82

Fig. 1. Forte: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Net sales 827 950 1,043 1,093 1,118 1,140 1,160 1,180 1,201 1,222

EBIT 109 125 135 137 135 135 135 135 133 133


NOPAT 88 101 110 111 109 109 109 109 108 108

Depreciation 16 19 20 22 24 27 27 28 30 31



Free cashflow 70 43 31 28 10 10 6 5 6 6

WACC 7.9%

PV FCF 2014-2023 538

Terminal Value (TV) 1,775

PV TV 831

Total EV 1,369

Net debt -7

Equity value 1,376


Value per share (PLN, 1 Jan 2014) 1,476

Month 10


12-month Target Price 67.6


Fig. 2. Forte: Comparable valuation

Company Price Currency P/E EV/EBITDA

2014E 2015E 2016E 2014E 2015E 2016E

Fabryki Mebli Forte SA 56.0 PLN 15.3 13.2 12.2 11.2 9.6 8.7

Polish Industrials

Grupa Kety SA 288.1 PLN 16.7 15.4 18.0 9.7 9.1 8.5

Inter Cars SA 206.5 PLN 16.4 14.9 13.8 12.6 11.4 10.7

Budimex SA 135.5 PLN 20.2 16.9 14.5 9.8 8.4 7.3

Elektrobudowa SA 77.5 PLN 15.4 10.2 8.6 n.a. n.a. n.a.

Paged SA 42.0 PLN 10.9 7.6 7.1 n.a. n.a. n.a.

Integer.pl SA 210.0 PLN 70.8 35.8 20.0 30.6 12.0 7.4

Pfleiderer Grajewo SA 31.0 PLN 13.8 12.7 11.7 8.5 7.8 7.2

Kopex SA 11.0 PLN 9.7 9.6 8.2 4.8 4.9 4.4

Pozbud T&R SA 5.0 PLN 10.2 9.0 9.7 n.a. n.a. n.a.

Famur SA 3.2 PLN 12.7 11.6 11.2 4.3 4.0 3.8

Rovese SA 1.5 PLN n.a. 45.5 18.3 9.0 7.9 7.2

Median 14.6 12.7 11.7 9.3 8.1 7.2

Foreign furniture sector representatives

Ekornes ASA 73.3 NOK 11.0 9.5 8.8 5.8 5.1 4.9

BoConcept Holding A/S 85.0 DKK 15.5 6.4 4.1 6.0 4.7 3.4

Steinhoff International Holdings Ltd 5,511.0 ZAr 11.4 10.0 9.0 10.5 9.4 8.9

Nobia AB 59.5 SEK 17.1 12.2 11.1 9.8 7.4 6.9

Herman Miller Inc 31.8 USD 16.3 13.7 12.0 9.0 8.0 7.2

Ethan Allen Interiors Inc 29.3 USD 17.1 14.5 12.1 8.3 7.3 6.4

Knoll Inc 19.7 USD 18.8 15.0 13.1 11.9 9.8 n.a.

Hooker Furniture Corp 15.2 USD 14.8 11.9 n.a. 6.6 5.6 n.a.

Median 15.9 12.0 11.1 8.6 7.4 6.7

Premium/discount vs. Polish peers median 4.7% 4.1% 4.5% 19.7% 17.8% 19.6%

Premium/discount vs. foreign peers median -3.9% 10.2% 10.4% 29.5% 29.9% 30.2%

Implied Forte price per share vs. Polish peers 53.49 53.77 53.58 46.80 47.54 46.81

Implied Forte price per share vs. foreign peers 58.28 50.83 50.73 43.25 43.10 43.02

Source: BZ WBK Brokerage research, Bloomberg


83

Fig. 3. Forte: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 143.3 155.6 147.0 116.3 137.3 159.9 156.5 146.8 166.5 196.5 212.0 190.7 201.0 20.7% 5.4%

EBITDA 15.4 14.3 15.3 8.4 15.6 18.0 22.0 17.5 22.0 27.5 32.0 25.6 30.1 36.8% 17.6%

EBITDA margin 10.8% 9.2% 10.4% 7.2% 11.3% 11.3% 14.1% 11.9% 13.2% 14.0% 15.1% 13.4% 15.0% 3.6 3.1

EBIT 11.8 10.8 11.4 4.7 11.6 14.0 18.0 13.3 17.8 23.3 27.9 21.4 26.0 46.2% 21.3%

EBIT margin 8.2% 6.9% 7.8% 4.0% 8.5% 8.8% 11.5% 9.1% 10.7% 11.9% 13.1% 11.2% 12.9% 4.5 3.8

Net profit 6.5 8.1 9.1 4.9 9.6 10.9 13.8 10.4 14.9 18.8 23.2 17.2 21.9 46.6% 27.6%

Net margin 4.6% 5.2% 6.2% 4.2% 7.0% 6.8% 8.8% 7.1% 9.0% 9.6% 11.0% 9.0% 10.9% 3.9 3.8


Fig. 4. Forte: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 827 n.a. n.a. 950 n.a. n.a. 1,043 n.a. n.a.





Fig. 5. Forte: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 6. Forte: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 560.5 666.4 827.3 949.7 1,043.1

COGS 375.3 424.9 521.9 598.0 656.6

Gross profit 185.2 241.4 305.4 351.7 386.4

SG&A 137.8 162.1 198.9 228.6 250.9

Other operating income, net -2.3 -6.9 -0.6 0.2 -0.2

EBITDA 60.7 89.1 122.3 142.1 155.3


Net financial income (costs) 0.0 0.7 1.7 0.8 -0.7


Income tax 6.6 15.2 20.4 23.6 25.6

Net profit 37.9 57.8 87.1 100.6 109.0

Gross margin 33.0% 36.2% 36.9% 37.0% 37.0%

EBITDA margin 10.8% 13.4% 14.8% 15.0% 14.9%




Fig. 7. Forte: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 231.2 300.8 341.7 380.3 417.5

Fixed assets 252.9 254.1 270.1 289.1 304.1

Total assets 484.1 554.9 611.7 669.4 721.5


bank debt 30.8 10.0 10.0 10.0 10.0


bank debt 31.8 60.3 55.3 50.3 45.3

Equity 345.2 380.9 433.3 481.7 525.3

share capital 23.8 23.8 23.8 23.8 23.8



Net debt 31.9 -6.5 10.9 5.5 -7.2


Fig. 8. Forte: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



CF from financing, incl. -40.0 -14.3 -39.7 -57.3 -70.4

dividends -17.8 -22.6 -34.7 -52.3 -65.4




84



85

Poland FMCG

NOVEMBER 12, 2014

GINO ROSSI RECOMMENDATION

BUY (INITIATION)

A succesfull restructuring story CURRENT PRICE: PLN3.1


Equity Story. Gino Rossi’s story is similar to Bytom. Following a

successful restructuring process, the once troubled company is

now healing in both its segments: Gino Rossi and Simple. Gino

Rossi is now showing the first positive signs thanks to its

restructuring efforts of the previous years. Taking into account 1)

the increased share of its own production in Gino Rossi, as well

as 2) the deep optimisation in Simple, including a change in

management, that brought about shorter collections and lower

inventories, Gino Rossi will not only notably improve its financial

results in the coming years, but it is also set to regain its growing

profile to some extent, especially in Simple. And while the

company previously failed to see much space for opening new

stores, now that the necessary changes had been implemented,

the number of its Simple stores is likely to grow to 70 in the long-

term from the current 50. The number of its own Gino Rossi

stores is likely to grow to 99 in the long-term from the current 85.

Financials. We expect a noteworthy improvement of Gino

Rossi’s financial results in the coming years. We expect the net

profit at a CAGR’14-16 of 85%, the EBITDA at 26.3% and sales

at 12.8%. Our main assumptions are: 1) selling space growth

(incl. franchising) by 2k/2k/1.8k sqm in 2014-16E, respectively, 2)

LfL at 8.5%, 4% and 4% in 2014-16E, respectively, 3) the gross

margin at 49.6% (+430bps), 50.2% (+64bps) and 50.9%

(+69bps), 4) the SG&A/avg. sqm at PLN6,618 (+6.1% y/y),

PLN6,784 (+2.5% y/y) and PLN7,042 (+3.8% y/y) and 5) lower

interest on debt from 2015.

Valuation & recommendation. Gino Rossi is currently trading at

a PE of 20x and 13x in 2014-15E, which seems demanding. But

when we take into account the company’s good corporate

governance as well as its relatively high financial costs, the

premium seems justified. Based on our DCF model, we arrived at

a 12 month TP of PLN4.0 per share, which implies a 30% upside

potential. We are initiating our coverage with a Buy rating.

STOCK PERFORMANCE



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 14.9%

Investors mutual fund 13.9%

Mr. J. Pilch 13.0%

Mr. K. Bajołek 9.7%

Pioneer mutual fund 6.7%

Nova Idea Farm sp. z o.o. SKA 6.3%

Free Float 35.6%

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes GRIP.WA / GRI PW



EBIT 8.4 3.0 3.2 3.5 Free float (%) 87.0%



1M 3M YTD




86

Fig. 1. Gino Rossi: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Net sales 255 287 314 318 323 329 337 345 353 360

EBIT 17 20 21 15 12 16 22 22 21 20


NOPAT 15 16 17 12 10 13 18 18 17 16

Depreciation 7 7 7 8 8 9 9 10 10 11



Free cashflow 8 10 8 10 9 13 17 17 17 14

WACC (2014-23) 7.8%

PV FCF (2014-23) 78



PV TV 137

Total EV 216

Net debt 44

Equity value 172

Number of shares (m) 51


Month 11




Fig. 2. Gino Rossi: Comparable valuation



LPP 33.1 28.7 22.2 20.3 17.7 13.8 1.5 0.7 30.2% 28.9% 30.6% 1.0% 1.2% 1.4%

Monnari 11.0 11.9 13.8 8.4 7.4 6.8 0.8 2.6 26.4% 19.3% 14.9% 0.0% 0.0% 5.0%

Bytom 13.9 10.5 10.9 9.3 7.4 6.4 0.02 0.01 29.3% 32.0% 27.5% 0.0% 4.9% 6.7%

average 19.3 17.1 15.6 12.7 10.8 9.0 0.8 1.1 28.6% 26.8% 24.4% 0.3% 2.0% 4.4%

CCC 26.2 19.9 16.9 18.1 14.1 12.2 0.9 0.4 28.7% 31.2% 1.2% 1.9% 2.5% 0.0%

Wojas 10.1 10.6 10.1 6.1 5.9 5.5 14.5 -2.5 14.8% 12.3% 11.4% 1.3% 1.9% 0.0%

Gino Rossi 20.5 13.4 12.3 8.4 7.2 6.6 0.1 0.0 10.5% 14.2% 13.5% 0.0% 0.0% 0.0%

average 18.9 14.6 13.1 10.9 9.1 8.1 5.1 -0.7 18.0% 19.2% 8.7% 1.1% 1.5% 0.0%

Total - average 19.1 15.9 14.4 11.8 10.0 8.5 3.0 0.2 23.3% 23.0% 16.5% 0.7% 1.7% 2.2%



87

Fig. 3. Gino Rossi: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 48.2 52.1 48.7 49.8 56.2 54.5 51.2 49.4 58.3 59.6 60.1 65.5 68.8 18.1% 5.1%

EBITDA 0.5 4.4 2.2 2.4 3.7 4.1 1.1 3.6 3.1 6.2 2.8 7.7 3.8 21.7% -50.7%

EBITDA margin 0.9% 8.4% 4.4% 4.9% 6.6% 7.6% 2.2% 7.3% 5.3% 10.4% 4.7% 11.7% 5.5% 17 -622

EBIT -1.1 2.8 0.6 0.9 2.4 2.4 -0.3 2.1 1.7 4.7 1.4 6.0 2.1 22.1% -65.7%

EBIT margin -2.2% 5.4% 1.3% 1.8% 4.3% 4.4% -0.5% 4.2% 2.9% 7.8% 2.3% 9.2% 3.0% 10 -622

Net profit -4.6 1.8 0.0 2.3 0.9 1.0 -1.4 1.5 0.3 1.3 0.2 2.2 0.1 -79.7% -97.2%

Net margin -9.5% 3.5% 0.0% 4.5% 1.7% 1.8% -2.7% 3.0% 0.5% 2.3% 0.3% 3.4% 0.1% -44 -331


Fig. 4. Gino Rossi: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E







Fig. 5. Gino Rossi: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

DCF valuation 4.0 n.a. 0.0%

Comparable valuation (based on 2014-2016E) 3.9 n.a. 0.0% Source: Company data, DM BZ WBK estimates

Fig. 6. Gino Rossi: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 209 219 255 287 314

COGS 121 120 129 143 154

Gross profit 89 99 127 144 160

SG&A 86 91 110 124 139

Other operating income, net 4 0 0 0 0

EBITDA 12 14 23 26 28





Net profit 4 2 8 12 13

Gross margin 42.3% 45.3% 49.6% 50.2% 50.9%

EBITDA margin 5.9% 6.5% 9.2% 9.2% 9.1%




Fig. 7. Gino Rossi: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 88 106 126 145 162


Total assets 161 186 202 222 241


bank debt 28 20 20 20 20


bank debt 11 36 36 36 36

Equity 68 69 77 89 102




Net debt 35 44 40 33 29


Fig. 8. Gino Rossi: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



CF from financing -3 17 0 0 0




88



89

Poland Industrials

November 12, 2014

GRAJEWO RECOMMENDATION

BUY (INITIATION)

In full swing CURRENT PRICE: PLN30.66


Equity Story. The Polish wood-based boards producer benefits from the recently observed strong growth in furniture output of the domestic manufacturers. As we see no early signs of significant deterioration of the furniture market, we expect the company to extrude more value for its shareholders. The positive readings of the German particleboard price index (4% q/q uptick) remain supportive of the sales volumes in the particleboards segment. However, in the forecast horizon we are more conservative and expect prices to rise on average by 2% y/y. Additionally, high capacities’ utilisation has led to the development of an investment plan that aims at boosting efficiency (6% y/y in regards to wood-based panels this year). Production efficiency is expected to start improving from 3Q14 onward and achieve a target performance in the end of 2015 with regards to particleboards’ production (investment plan for the HDF segment regarding conversion of the production profile is scheduled for 2015-16). In the mid-term, Grajewo plans to seek a value increase through the development of a modern production line of kitchen countertops, expansion of its product mix and introduction of prefabricated products production (packed furniture). We also expect Silekol to be an important driver of the financial results’ improvement due to rising sales beyond the group (inter alia to the construction industry). According to the company, a strategic move regarding its engagement in a new production plant project should materialise no sooner than in 2017. On the cost side, we assumed inflationary growth of raw material prices (2% y/y till 2016 and 2.5% in the long term). We expect prices of glues and resins to increase a touch more slowly (c. 2%) due to favourable urea (thus melamine) prices.

Financials. We expect Grajewo to report a nearly c. 8.7% y/y sales growth in 2014 (PLN1.59bn). Our figures indicate hefty increases of its margins across all the P&L lines. We forecast the NP to stand at PLN106mn (6.7% margin). Looking forward, the adoption of measures aimed at operational performance improvement will lead to a margins’ uptick by 36bps in 2015 (in case of the EBITDA margin by 45bps, while the EBIT and NP should increase c. 37bps). We see the EBITDA growing to PLN212mn in 2015 and PLN228mn in 2017.

Triggers / Risks. We identified several risks to our model scenario. Firstly, there is the possible upswing in the supply of wood-based boards from the East, which might pose a risk for the total sales volumes in the short term. High utilisation rates, on the one hand, push the maintenance cost up and, on the other, makes production less flexible in the event of an unplanned stoppage. In the long term, the EURPLN exchange rate could affect the company’s financial results as well. However, the company hedges its currency position with forward contracts, which should give it a chance to adjust the price when needed.

Valuation & recommendation. Based on the DCF valuation, we have set a 12M TP of PLN35.50. A comparison with Grajewo’s peers indicates a valuation range from PLN22.75 to PLN37.93 per share. Since our valuation exceeds the current market price by 16%, we are initiating coverage of Grajewo with a Buy recommendation.

STOCK PERFORMANCE

GRJWIG Relative

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COMPANY DESCRIPTION

Grajewo is one of Poland’s leading producers of wood-based boards


Pfleiderer Service GmBH 65.11%

AVIVA OFE 9.93%

ING OFE 5.32%

ANALYST

Michal Sopiel (+48) 22 586 82 33

[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes GRJ.WA / GRJ PW

Sales 1,462 1,589.3 1,671.6 1,716.2 Market capitalisation (PLNm) 1,521

EBITDA 157 194.5 212.1 221.2 Number of shares (m) 49.6

EBIT 109 147.7 161.6 165.6 Free float (%) 34.9%

Net income 0 106.2 117.8 121.3 Avg. daily turnover 3M (PLNm) 0.2


1M 3M YTD

EV/EBITDA (x) 10.6 8.5 7.8 7.5 +2.2% -8.9% +17.9% Source: Company data, DM BZ WBK estimates


90

Fig. 1. Grajewo: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Net sales 1,589 1,672 1,716 1,759 1,801 1,847 1,897 1,949 2,002 2,057

EBIT 148 162 166 169 169 171 172 174 177 176


NOPAT 119 130 133 136 136 138 138 140 142 142

Depreciation 47 51 56 60 62 64 66 68 69 73



Free cashflow 89 80 62 25 19 22 24 24 25 27

WACC 8.0%

PV FCF 2014-2023 615


PV TV 1,025

Total EV 1,641

Net debt 138

Minority interest 0

Equity value 1,503


Value per share (PLN, 1 Jan 2014) 1,618

Month 10




Fig. 2. Grajewo: Comparable valuation


2014E 2015E 2016E 2014E 2015E 2016E

Pfleiderer Grajewo SA 31.01 PLN 14.5 13.1 12.7 8.5 7.8 7.6

Polish Industrials

Grupa Kety SA 288.05 PLN 16.7 15.4 18.0 9.7 9.1 8.5

Inter Cars SA 206.50 PLN 16.4 14.9 13.8 12.6 11.4 10.7

Budimex SA 135.45 PLN 20.2 16.9 14.5 9.8 8.4 7.3

Elektrobudowa SA 77.50 PLN 15.4 10.2 8.6 n.a. n.a. n.a.

Paged SA 42.00 PLN 10.9 7.6 7.1 n.a. n.a. n.a.

Integer.pl SA 210.00 PLN 70.8 35.8 20.0 30.6 12.0 7.4

Fabryki Mebli Forte SA 56.00 PLN 16.1 14.5 13.3 11.1 9.9 9.0

Kopex SA 10.99 PLN 9.7 9.6 8.2 4.8 4.9 4.4

Pozbud T&R SA 4.99 PLN 10.2 9.0 9.7 n.a. n.a. n.a.

Famur SA 3.20 PLN 12.7 11.6 11.2 4.3 4.0 3.8

Rovese SA 1.46 PLN n.a. 45.5 18.3 9.0 7.9 7.2

Median 15.7 14.5 13.3 9.7 8.7 7.3

Foreign wood-based boards sector representatives

Norbord Inc 22.87 CAD 61.3 20.0 9.9 15.2 8.5 5.5

Interface Inc 15.94 USD 28.9 18.0 15.9 12.6 9.6 7.5

Universal Forest Products Inc 50.18 USD 17.7 14.7 21.1 8.2 7.1 9.1

Surteco SE 23.58 EUR 16.5 11.9 9.0 6.7 6.2 5.4

Boise Cascade Co 37.43 USD 17.5 14.0 11.0 7.9 6.7 5.7

Greenply Industries Ltd 1150.65 INR 18.0 20.0 17.1 10.1 8.9 7.7

Canfor Corp 26.99 CAD 17.8 11.2 9.6 7.4 5.8 5.1

Duratex SA 8.22 BRL 12.2 10.3 8.8 6.7 6.0 5.3

Median 17.7 14.3 10.4 8.1 6.9 5.6

Premium/discount vs. Polish peers median -18.2% -8.6% 21.9% 5.5% 13.7% 36.3%

Premium/discount vs. foreign peers median -18.2% -8.6% 21.9% 5.5% 13.7% 36.3%

Implied Grajewo price per share vs. Polish peers 33.64 34.28 32.39 35.50 34.49 29.90

Implied Grajewo price per share vs. foreign peers 37.93 33.94 25.44 29.38 27.27 22.75



91

Fig. 3. Grajewo: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 445.5 480.6 362.4 328.4 448.6 379.9 354.5 341.3 380.1 386.3 396.8 380.8 394.2 3.7% 3.5%

EBITDA 65.2 64.2 27.1 30.5 55.4 42.8 24.9 31.4 42.9 54.9 41.9 53.0 49.2 14.7% -7.2%

EBITDA margin 14.6% 13.4% 7.5% 9.3% 12.3% 11.3% 7.0% 9.2% 11.3% 14.2% 10.6% 13.9% 12.5% 0.1 3.3

EBIT 45.7 44.9 16.0 19.8 36.3 24.2 14.4 20.8 32.4 39.5 30.1 40.2 35.9 10.6% -10.7%

EBIT margin 10.2% 9.3% 4.4% 6.0% 8.1% 6.4% 4.1% 6.1% 8.5% 10.2% 7.6% 10.6% 9.1% 1.0 3.0

Net profit 6.6 22.9 12.7 5.2 14.1 17.8 13.3 5.9 17.5 24.9 20.3 29.6 27.9 59.6% -5.7%

Net margin 1.5% 4.8% 3.5% 1.6% 3.2% 4.7% 3.7% 1.7% 4.6% 6.5% 5.1% 7.8% 7.1% 3.9 5.4


Fig. 4. Grajewo: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 1,589 n.a. n.a. 1,672 n.a. n.a. 1,716 n.a. n.a.





Fig. 5. Grajewo: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 6. Grajewo: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 1,432.3 1,462.1 1,589.3 1,671.6 1,716.2

COGS 1,204.9 1,200.1 1,278.1 1,339.1 1,374.9

Gross profit 227.4 262.1 311.2 332.5 341.4

SG&A 161.7 158.4 166.9 174.3 179.1


EBITDA 116.1 156.8 194.5 212.1 221.2




Income tax 1.2 10.6 25.7 28.5 29.4

Net profit 49.8 151.8 106.2 117.8 121.3

Gross margin 15.9% 17.9% 19.6% 19.9% 19.9%

EBITDA margin 8.1% 10.7% 12.2% 12.7% 12.9%




Fig. 7. Grajewo: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 1,076.8 327.9 353.8 340.1 344.0

Fixed assets 730.2 790.9 860.1 941.4 997.1

Total assets 1,807.0 1,118.8 1,213.9 1,281.5 1,341.1


bank debt 528.4 67.7 82.7 82.7 82.7


bank debt 182.7 86.8 95.1 90.1 85.1

Equity 527.4 652.3 758.4 817.7 874.1

share capital 16.4 16.4 16.4 16.4 16.4


Total liabilities 1,807.0 1,118.8 1,213.9 1,281.5 1,341.1

Net debt 129.0 137.9 132.5 143.4 156.7


Fig. 8. Grajewo: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E


CF from investment -25.6 535.8 -112.5 -124.0 -110.4

CF from financing, incl. -217.7 -659.3 23.3 -63.4 -69.7

dividends 0.0 0.0 0.0 -58.4 -64.7

Net change in cash -2.0 -1.0 28.7 -16.0 -18.2



92



93

Poland TELECOMS

November 12, 2014

HAWE RECOMMENDATION

BUY (INITIATION)

Dark Fibre for Sale CURRENT PRICE: PLN2.51


Equity Story. HAWE has built and now operates two parallel

4,000km dark fibre backbone rings in Poland, offering a unique high-speed connection capacity. On the one hand, these connect Poland’s key cities, on the other, they offer a direct line between Germany and Belarus. The sale or lease of the backbone network has been HAWE’s key EBITDA driver in the past (some 20k km sold) and we expect it to stay that way in the future - with the average contract profitability at above 90%. HAWE services all the main Polish telco players, both the mobile and fixed-liners, and its backbone network seems to be an ideal platform for the construction of Poland-wide FTTH connections. On top of that, HAWE won two substantial network construction contracts to be completed by 2015. While these support the 2014/15E EBITDA, the scale of the construction works distorts the mid-term top line trends and inflates the EBITDA margin by 2015.

Financials. Following the uninspiring 3Q14, we expect the

seasonally high sales of dark fibre to boost the 4Q14E results to reach a flat FY14E EBITDA y/y. The completion of the heavy margin-eroding construction works will keep the top line inflated in 2015E, while focus on the dark fibre lease or sale (own assumption of 4,000km p.a.) should result in the EBITDA’s stabilising at PLN58mn in 2016E. Assuming no dividend pay-out, we expect HAWE to become debt-free as of 2018E.

Triggers / Risks. Annual sales of more than 5,000km of optic fibre p.a. are a substantial upside (+PLN1.5 per share to TP for additional 1,000km p.a.). The company is also looking for a strategic investor, which could change the picture. HAWE’s key shareholder is facing some legal problems and we believe there future of Mr. Falenta’s stake is uncertain. Finally, FTTH involvement could result in HAWE’s increased investment outlays.


arrived at a 12M TP of PLN4.40 per share, which implies a 75% upside potential. The price of acquiring the Italian dark fibre provider back in 2011 yields a HAWE per share price of PLN5.81, while a comparison with the Polish ATM on 2014E-16E EV/EBITDA ratio yields a share price of PLN5.92.

STOCK PERFORMANCE

HWE

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COMPANY DESCRIPTION

HAWE operates most modern Polish backbone ring, consisting of two 3,800km-long fibre-optic main lines, with cross-border links with Russia, Belarus, Ukraine and Germany. It also provides network construction services.


Trinitybay Investments Ltd. 26.1%

Marek Falenta 7.7%

ANALYST

Pawel Puchalski, CFA (+48) 22 586 80 95

[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes HWE.WA / HWE PW

Sales 175 232 243 157 Market capitalisation (PLNm) 268.1


EBIT 61 59 58 40 Free float (%) 63.6%



1M 3M YTD

EV/EBITDA (x) 4.8 5.2 4.6 5.7 5.5% -15.3% -26.3% Source: Company data, DM BZ WBK estimates



94

Fig. 1. HAWE: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Net sales 232 243 157 159 160 162 164 166 168 170

EBIT 70 71 54 55 57 58 59 60 61 61


NOPAT 59 59 45 45 46 47 48 48 49 50

Depreciation 18 18 18 18 18 19 19 19 19 19

Change in operating WC -19 16 -5 -2 -2 -2 -2 -2 -2 -2


Free cashflow 82 48 61 58 59 60 61 62 63 64

WACC 9.0%

PV FCF 2014-2023 398

Terminal Value (TV)* 657

PV TV 136

Total EV 534

Net debt** 132

Equity value 403



Month 10



Source: Company data, DM BZ WBK estimates. * Terminal Value equals PV FCF 2024-2030E, before value of Fixed Assets reaches nil

in 2030E; ** adjusted for 4.2mn own shares held, priced at market value.

Comparative Valuation: Past transactions

In 2011 an Italian dark fibre provider in the northern Italy was sold for EUR436mn. According to different sources it had

network length in the range from 5,200km to 6,600km, and 2010 EBITDA at EUR42mn. Transaction price implies

transactional EV/EBITDA at 10.3x, and EUR / km ranging from 66k to 84k. While we believe ratio of price per dark fibre

network kilometre should not be applied to Poland due to very different economics of two countries, we see transactional

EV/EBITDA at 10.3x as providing fair comparative approach, especially in light of current very low interest rates.

If we apply this ratio, on basis of our 2014E-16E estimates HAWE should be priced at PLN5.81 per share.

Fig. 29. HAWE: Comparable valuation


2014E 2015E 2016E 2014E 2015E 2016E

HAWE 2.35 PLN 5.2 5.0 6.6 5.0 4.4 5.4

ATM 11.05 PLN 29.9 20.5 17.3 12.0 10.2 8.9

Implied HAWE price per share 13.37 9.54 6.12 7.28 6.45 4.01

Source: BZ WBK Brokerage research, Bloomberg. Own estimates for HAWE, market consensus for ATM.


95

Fig. 30. HAWE: 3Q14 results review PLN in millions, unless otherwise stated


Sales 32.5 12.2 35.7 48.8 33.5 38.6 54.2 49.0 89.2 64.7 67.7% -27.5%

EBITDA 12.5 1.6 6.3 31.9 20.4 6.6 18.0 12.1 17.9 8.1 22.8% -54.5%

EBITDA margin 38.5% 12.8% 17.6% 65.5% 60.9% 17.1% 33.1% 24.7% 20.0% 12.6% -4.6 -7.5

EBIT 10.2 -0.7 4.1 29.3 15.2 2.7 13.9 7.9 13.6 3.9 46.4% -71.2%

EBIT margin 31.5% -5.9% 11.4% 60.1% 45.5% 7.0% 25.7% 16.1% 15.3% 6.1% -0.9 -9.2

Net profit 6.5 0.7 1.6 25.2 14.3 2.6 9.8 7.2 10.9 2.6 2.0% -76.0%

Net margin 36.3% 36.6% 16.4% 26.3% 32.1% 27.9% 29.6% 19.3% 13.2% 4.1% -23.9 -9.1


Fig. 31. HAWE: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E







Fig. 32. HAWE: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 33. HAWE: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 108 175 232 243 157

COGS 75 98 133 146 79


SG&A 18 18 22 21 20

Other operating income, net -4 -4 0 0 0

EBITDA 33 77 76 76 58


Net financial income (costs) -2 2 0 4 7


Income tax 5 12 11 12 9

Net profit 17 52 48 50 38

Gross margin 30.6% 43.9% 42.6% 39.8% 49.6%

EBITDA margin 30.6% 43.9% 33.0% 31.3% 36.9%




Fig. 34. HAWE: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E


Fixed assets 469 530 552 575 592

Total assets 539 609 625 636 651


bank debt 160 29 96 49 35


bank debt 1 98 49 45 40

Equity 300 353 401 451 489

share capital 139 139 139 139 139



Net debt 147 101 131 84 62


Fig. 35. HAWE: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E


CF from investment 43 19 13 13 8

CF from financing, incl. 1 -7 -47 -59 -25

dividends 0 0 0 0 0

Net change in cash -7 19 -12 -4 3



96



97

Poland Industrials

GRUPA KETY RECOMMENDATION

BUY (MAINTAINED)

New strategy almost there CURRENT PRICE: PLN278


Equity Story. Our investment story remains intact. We believe that export

sales, especially in the aluminium systems segment, growth in margins

and, finally, stabilisation in the extruded products will remain Kety’s main

drivers of growth. We also still believe that Kety can monetise the rising

aluminium usage in the automotive segment.

3Q14 Results Review. Kety’s management had previously announced

that the company had the highest results in its history. Its sales amounted

to PLN489 (+8% y/y), the EBITDA/EBIT to PLN103mn/PLN81.6mn

(+32.9% y/y and +43.2% y/y, respectively). The net profit came in at

PLN62.1mn (+41.1%). The bottom line was, however, burdened by FX

losses due to the UAH devaluation (financial costs were at PLN5.4mn).

The results’ growth was driven by improvement in the three main

segments and all of them recorded growth in sales and margins, both in

y/y as well as q/q terms. It also worth noting that both aluminium systems

and the flexible packaging segments generated record-high margins, with

the extruded products returning to margins unseen since 2010. The

growth in sales was caused by a rise in demand on the domestic, as well

as on the majority of its export markets (biggest export growth was

recorded in Germany, Italy, Holland, UK and the Czech Republic). Kety’s

net debt stood at PLN192.7mn at the end of the quarter, slightly below the

previously suggested level of PLN200mn. The operating cash flow

amounted to PLN63.2mn (61% of the EBITDA due to the seasonal

working capital spike) and CAPEX was at PLN30mn (PLN74mn after 9M).

Moreover, the management suggested that y/y demand growth for

products in 4 out of 5 segments will continue in 4Q14 (with the y/y

demand growth in extrustion, aluminium systems and accessories seen at

5-10%, in flexible packaging at 5% and in constructional services flat).

New strategy in 1Q15. The management announced that its strategic

targets for 2015, which were set in the company’s previous strategy,

would be met or nearly met already in 2014 (we assume that the target of

PLN325mn in EBITDA will be missed just by PLN1mn). Kety is due to

present its new, five-year strategy in 1Q15. The company is set to focus

on organic growth in its present segments but will not rule out

acquisitions. Its CAPEX plans will be balanced with a satisfactory dividend

level for its shareholders (according to our model, the company should be

able to maintain the 60% pay-out ratio without a debt increase and still be

able to finance its CAPEX of PLN150-160mn in the coming years).

Valuation & Recommendation. We made no changes to our forecasts

and, as a consequence, to our valuation.

STOCK PERFORMANCE

KTY

TP

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Buy 10-23-2014 266.2 311.0 4.5% 4.1

Buy 8-6-2014 219.0 287.0 24.6% 19.3

COMPANY DESCRIPTION

Kety is a leading Polish aluminium products (extruded profiles and aluminium systems) and flexible packaging manufacturer.






ANALYST


[email protected]

Company Data

PLNmn 2013 2014E 2015E 2016E Reuters/Bloomberg codes KTY.WA / KTY PW

Sales 1,594 1,790 1,867 1,942 Market capitalisation (PLNmn) 2,610.7

EBITDA 226 324 336 347 Number of shares (mn) 9.4

EBIT 145 240 253 262 Free float (%) 98.8%



1M 3M YTD




98

Fig. 1. Kety: 3Q14 results review PLN in millions, unless otherwise stated


Sales 411.3 390.5 349.8 387.5 442.9 387.9 334.4 379.6 452.6 427.2 412.9 438.7 489.0 8.0% 11.5%

EBITDA 70.1 50.2 47.2 62.7 74.4 40.3 45.1 53.0 77.5 50.3 67.9 81.3 103.0 32.9% 26.7%

EBITDA margin 17.0% 12.9% 13.5% 16.2% 16.8% 10.4% 13.5% 14.0% 17.1% 11.8% 16.4% 18.5% 21.3% 4.1 2.7

EBIT 52.7 30.7 27.6 41.5 53.9 19.1 25.6 33.1 57.0 29.2 48.4 61.1 81.6 43.2% 33.6%

EBIT margin 12.8% 7.9% 7.9% 10.7% 12.2% 4.9% 7.7% 8.7% 12.6% 6.8% 11.7% 13.9% 16.9% 4.3 3.0

Net profit 34.0 19.7 23.9 31.8 44.0 17.2 17.0 42.9 44.0 49.6 30.8 52.6 62.1 41.1% 18.1%

Net margin 8.3% 5.0% 6.8% 8.2% 9.9% 4.4% 5.1% 11.3% 9.7% 11.6% 7.5% 12.0% 13.1% 34.3% 8.9%


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

2014E 2015E 2016E


Sales 1,790 1,790 0.0% 1,867 1,867 0.0% 1,942 1,942 0.0%

EBITDA 324 324 0.0% 336 336 0.0% 347 347 0.0%

EBIT 240 240 0.0% 253 253 0.0% 262 262 0.0%

Net profit 185 185 0.0% 198 198 0.0% 205 205 0.0%


Fig. 3. Kety: Valuation changes In PLN per share, unless otherwise stated

New Previous Change


Comparable valuation (based on 2014-2016E) 308 308 0%


Fig. 4. Kety: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Sales revenue: 1,568 1,594 1,790 1,867 1,942

operating cost, ex. depreciation

1,365 1,412 1,490 1,554 1,619

Depreciation 83 81 84 84 85

EBITDA 225 226 324 336 347




Income tax 20 -19 37 47 48

Net profit 117 154 185 198 205

EBITDA margin 14.3% 14.2% 18.1% 18.0% 17.9%




Fig. 5. Kety: Balance sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 711 710 766 797 827

Fixed assets 932 1006 1060 1121 1183

Total assets 1,643 1,716 1,826 1,918 2,010


bank debt 254 245 252 251 251


bank debt 52 39 42 41 41

Equity 1,023 1,126 1,217 1,305 1,391

share capital 830 887 947 1,021 1,100



Net debt 236 208 231 228 227


Fig. 6. Kety: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



CF from financing, incl. -15 -72 -85 -112 -120

dividends paid -46 -56 -93 -111 -119

Net change in cash 6 10 -12 1 1



99

Poland Health Care / IT

NOVEMBER 12, 2014

MEDICALGORITHMICS RECOMMENDATION

HOLD (INITIATION)

Fair-valued growth story CURRENT PRICE: PLN204

TARGET PRICE: PLN230

Equity Story. Medicalgorithmics’ success story is based on its own, state-

of-the-art software system used in Pocket ECG. This allows the company

to enjoy superb margins, the highest among all the WSE-listed

companies. The SaaS sales model helps to stabilise its results and tie its

customers for a long time. Medicalgorithmics is the first Polish company

that received an FDA certificate and set a foothold on the most attractive

US market. It has also started to enter new markets in Europe, Asia and

Americas. We like the company’s light business model (no expensive own

distribution), its low CAPEX and working capital requirements, resulting in

a strong cash generation ability, strong balance sheet, as well as

excellent and sustainable pace of growth.

Financials. The growth pace remains the key valuation driver for

Medicalgorithmics. We believe that after the c80% sales y/y expansion in

2014E, the company will be able to expand its top-line by c50% in 2015E

on orders from the largest US market and new contracts for Pocket ECG.

The company’s relocation to a new bigger factory and its headcount

increase ballooned its opex and slightly lowered the margins. We expect,

however, that the operating margin will return to levels seen last year from

2015, when the higher fixed costs will be diluted by higher revenues.

Medicalgorithmics is trading at a 2015E and 2016E P/E of 31.0x and

24.8x, respectively.

Triggers/Risks. Apart from the core Pocket ECG product, the company’s

R&D department is working on three new projects that may have a

positive impact on the company’s P&L. So far Medicalgorithmics is a

single product company, which we think is a major risk. Regulatory risk in

the US was minimised when its global expansion was kicked off, but the

risk of companies like Apple or Samsung appearing on the market is hard

to estimate. Medicalgorithmics does not have a clear policy about what to

do with the cash surplus. A declaration of a higher dividend and a

buyback program would receive a warmer welcome than investments in

the Polish corporate bonds. The stock’s share price has recently been

under pressure from a share supply from the CEO and seed funds, as

well as its lower-than-expected pace of growth. We believe that the

current price levels balance the company’s growth prospects and its

downside risks.

Valuation & recommendation. Based on our DCF model, we arrived at a

12-month TP of PLN230 per share. The TP implies a 13% upside

potential, which caused us to initiate our coverage of the stock with a Hold

recommendation. The comparative valuation points to PLN131 per share.

STOCK PERFORMANCE

MDG

WIG Relative

0

50

100

150

200

250

300

350

No

v-1

1

Feb

-12

May-1

2

Aug

-12

No

v-1

2

Feb

-13

May-1

3

Aug

-13

No

v-1

3

Feb

-14

May-1

4

Aug

-14




COMPANY DESCRIPTION

The Company is focused on the development of solutions and systems for signal and data processing in cardiac monitoring.

MAIN SHAREHOLDERS

% of votes


Mr. Marek Dziubinski 11.6%

New Europe Ventures 8.0%

Nordea pension fund 7.5%

BioInfoBank Seed Capital 6.3%


ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes MDG.WA / MDG PW



EBIT 10.0 16.5 24.4 31.6 Free float (%) 73.4%



1M 3M YTD

EV/EBITDA (x) 59.4 36.4 24.9 19.0 13.8% -8.9% 17.9% Source: Company data, DM BZ WBK estimates



100

Fig. 1. Medicalgorithmics: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Net sales 28.1 41.7 53.0 62.6 71.9 82.1 90.3 99.3 109.2 120.1

EBIT 16.5 24.4 31.6 38.0 44.2 50.9 56.0 61.7 67.9 74.7


NOPAT 13.4 19.7 25.6 30.8 35.8 41.2 45.4 49.9 55.0 60.5

Depreciation 0.6 0.6 0.6 0.7 0.7 0.7 0.8 0.8 0.9 0.9



Free cashflow -7.4 9.7 18.1 24.8 29.9 34.9 40.2 44.3 48.7 53.6

WACC (2014-23) 8.0%

PV FCF 2014-23 172.9



PV TV 422.1

Total EV 595.0

Net debt -75.0

Equity value 670.0



Month 11




Fig. 2. Medicalgorithmics: Comparable valuation

Market

Cap P/E EV/EBITDA


Medicalgorithmics 204.00 PLN 208 43.3 31.0 24.8 36.4 24.9 19.0

Peers

LiveChat Software 18.01 PLN 137 30.0 22.5 18.0 24.2 18.1 14.2

BioTelemetry 8.25 USD 220 88.7 33.3 n.a. 11.1 8.4 n.a.

LifeWatch 9.67 CHF 134 71.7 17.9 12.9 35.5 9.2 6.7

GN Store Nord 138.10 DKK 3,896 25.6 20.1 17.3 15.8 13.4 12.1

Sonova Holding 150.90 CHF 10,514 25.2 21.8 20.1 17.5 15.1 13.5

Nihon Kohden 5850.00 JPY 2,335 21.6 19.9 18.2 10.5 9.5 8.7

SHL TeleMedicine 8.70 CHF 98 117.2 20.5 12.7 16.5 9.9 n.a.

Medtronic 68.70 USD 67,527 17.0 15.7 14.6 11.8 10.6 9.8

St Jude Medical 65.22 USD 18,647 16.4 15.5 14.2 12.2 11.4 10.4

Boston Scientific 13.33 USD 17,682 16.1 14.7 13.3 12.5 10.7 9.3

SHL TeleMedicine 8.70 CHF 98 117.2 20.5 12.7 16.5 9.9 n.a.

Lepu Medical Technology 26.11 CNY 3,469 47.8 38.4 30.6 n.a. n.a. n.a.

Median 25.6 20.1 14.4 14.1 10.3 9.8

Implied share price vs. LiveChat (PLN) 141.3 148.1 148.4 142.8 154.7 158.8





101

Fig. 3. Medicalgorithmics: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 1.3 1.9 2.3 3.1 2.7 2.9 3.3 3.7 3.9 4.8 5.9 6.6 7.3 90.0% 11.0%

EBITDA 0.7 1.2 1.8 1.8 1.9 2.1 2.2 2.4 2.9 3.1 3.9 4.1 4.3 44.9% 3.8%

EBITDA margin 53.7% 63.3% 77.4% 57.0% 71.3% 71.1% 66.6% 64.4% 76.5% 63.7% 65.7% 62.4% 58.3% -18.2 -4.1

EBIT 0.6 1.1 1.7 1.6 1.8 1.9 2.1 2.3 2.7 3.0 3.8 4.0 4.1 51.8% 3.9%

EBIT margin 46.5% 57.8% 72.7% 53.6% 67.5% 67.0% 63.1% 61.3% 70.5% 61.1% 63.4% 60.1% 56.3% -14.2 -3.8

Net profit 0.6 1.0 1.3 1.6 2.0 2.5 2.5 2.6 2.8 3.0 3.8 3.9 4.1 44.1% 5.2%

Net margin 48.7% 55.2% 58.3% 53.5% 75.2% 85.8% 76.7% 70.5% 73.3% 61.1% 63.5% 58.6% 55.6% -17.7 -3.0


Fig. 4. Medicalgorithmics: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E






Fig. 5. Medicalgorithmics: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

DCF valuation 230 n.a. n.a.

Comparable valuation (based on 2014-2016E) 131 n.a. n.a. Source: Company data, DM BZ WBK estimates

Fig. 6. Medicalgorithmics: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 11.0 15.7 28.1 41.7 53.0

Opex 3.9 5.8 11.6 17.3 21.4


EBITDA 7.2 10.2 17.1 25.0 32.2




Income tax 1.8 2.6 3.8 5.3 6.6

Net profit 7.4 10.9 16.1 22.5 28.2

EBITDA margin 65.9% 64.7% 60.8% 59.9% 60.8%




Fig. 7. Medicalgorithmics: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 65.2 50.0 54.9 66.5 83.2

Fixed assets 10.4 33.5 44.5 45.8 46.9

Total assets 75.5 83.5 99.4 112.3 130.1


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 73.8 80.9 92.4 104.0 119.5

share capital 0.3 0.3 0.3 0.3 0.3



Net debt -61.9 -75.0 -75.6 -77.1 -85.2


Fig. 8. Medicalgorithmics: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



CF from financing 54.5 -3.7 -4.6 -11.0 -12.7

Net change in cash 7.0 9.0 9.7 10.1 10.5



102



103

Poland TMT

NOVEMBER 12, 2014

MIDAS RECOMMENDATION

BUY (MAINTAINED)

Polkomtel’s promo to boost 3Q volume? CURRENT PRICE: PLN0.60


3Q14 Results Preview. We expect Midas’ 3Q14 data

transfer volume to increase by 29% q/q and 122% y/y to

18GB. We see the 9M data transfer expanding to 44.6GB,

up 112% y/y. In our view the strength of the 3Q14 volumes

may be attributed to Polkomtel’s recent LTE-focused

promotion, likely driving the September volume to some

7GB. We expect little surprises or expansion at the cost

line, but an ‘extra’ 1GB of the September 2014 transfer

volume boosts the EBITDA by an additional PLN5mn. Flat

transfer rates q/q will trim quarterly loss to PLN25mn.

While we see the 3Q14 results broadly flat at the EBITDA /

EBIT / net profit levels y/y, the quarter brings us much

closer to the long-awaited EBITDA breakeven. Outcome:

POSITIVE.

Competitive LTE offers. The other Polish mobile players

have all announced a launch of their own LTE services for

mid-2014. But so far Midas remains the only fully-blown

provider of LTE services in Poland.

Auction for 800 / 2,600 MHz frequencies. The regulator

announced an auction for five 800MHz and fourteen

2,600MHz blocks (5MHz width each), priced at PLN250mn

and PLN25mn, respectively. Bids may be placed by 24

November, 2014 and the regulator will have one month for

verification.

Change in Forecasts. We keep our forecasts unchanged

over the entire forecasting period.

Change in Valuation & Recommendation. We apply no

changes to our DCF and DDM valuations, leaving these

unchanged, respectively, at PLN1.39 and PLN1.29 per

share. We maintain our BUY recommendation.

PUBLICATION DATE

NOVEMBER 15, 2014


3Q14E y/y q/q

Sales 87.8 56% 21%

EBITDA -25.4 n.a. n.a.

EBIT -55.8 n.a. n.a.

Net profit -62.8 n.a. n.a.

STOCK PERFORMANCE

MDS

TP

WIG Relative

0

0

0

1

1

1

1

1

2

Oct-

11

Ja

n-1

2

Apr-

12

Ju

l-12

Oct-

12

Ja

n-1

3

Apr-

13

Ju

l-13

Oct-

13

Ja

n-1

4

Apr-

14

Ju

l-14

Oct-

14






on issue date

12 month target


Buy 10-20-2014 0.55 1.39 9.1% 6.9

Buy 7-9-2014 0.51 1.39 7.8% 4.4

Buy 4-28-2014 0.63 1.09 -19.0% -17.4

Buy 1-30-2014 0.69 1.28 -8.7% -11.0

COMPANY DESCRIPTION

Midas builds and operates LTE network in Poland, eyes 66% coverage of the country with the total of 4,700 base stations.

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes MDSP.WA / MDS PW

Sales 219 318 468 669 Market capitalization (PLNm) 888

EBITDA -98 -129 -21 160 Number of shares (m) 1,479.7

EBIT -210 -260 -176 -5 Free float (%) 34.0%

Net income -207 -304 -248 -90 Avg. daily turnover 3M (PLNm) 0.7

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

1M 3M YTD

EV/EBITDA (x) n.a. n.a. n.a. 12.1 11.1% 15.4% -9.1% Source: Company data, DM BZ WBK estimates



104

Fig. 1. Midas: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 5.5 11.5 18.3 20.7 22.4 28.5 43.0 48.1 56.4 82.5 66.9 72.5 87.8 55.6% 21.2%

EBITDA -7.4 -16.6 -14.9 -21.4 -19.9 -25.5 -21.2 -32.0 -28.1 -17.1 -49.4 -40.7 -25.4 n.a. n.a.

EBITDA margin -134% -144% -81% -104% -89% -89% -49% -67% -50% -21% -74% -56% -29% 21.0 27.3

EBIT -12.3 -22.9 -29.9 -47.8 -45.9 -62.5 -47.2 -59.6 -55.8 -47.5 -78.4 -71.1 -55.8 n.a. n.a.

EBIT margin -223% -199% -164% -231% -205% -219% -110% -124% -99% -58% -117% -98% -63% 35.5 34.6

Net profit -14.1 -24.4 -28.8 -44.6 -42.8 -59.5 -43.9 -56.3 -61.4 -44.9 -82.6 -77.5 -62.8 n.a. n.a.

Net margin -255% -212% -157% -216% -191% -209% -102% -117% -109% -54% -123% -107% -71% 37.4 35.5

Source: Company data, DM BZ WBK estimates.

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

2014E 2015E 2016E


Sales 318 318 0% 468 468 0% 669 669 0%

EBITDA -129 -129 n.a. -21 -21 n.a. 160 160 0%

EBIT -260 -260 n.a. -176 -176 n.a. -5 -5 n.a.

Net profit -304 -304 n.a. -248 -248 n.a. -90 -90 n.a. Source: Company data, DM BZ WBK estimates

Fig. 3. Midas: Valuation changes In PLN per share, unless otherwise stated

New Previous Change


DDM valuation 1.29 1.29 0% Source: Company data, DM BZ WBK estimates

Fig. 4. Midas: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 90 219 318 468 669

COGS, ex. depreciation 275 429 578 644 674

Depreciation 104 112 132 154 165

Gross profit -185 -210 -260 -176 -5

SG&A 0 0 0 0 0


EBITDA -82 -98 -129 -21 160

Operating profit -186 -210 -260 -176 -5

Net financial income (costs) 2 -15 -52 -81 -93

Profit before tax -184 -225 -312 -256 -98

Income tax -8 -19 -8 -8 -8

Net profit -176 -207 -304 -248 -90

EBITDA margin -206% -96% -82% -37% -1%

EBITDA margin adjusted -91% -45% -41% -5% 24%

Operating margin -207% -96% -82% -37% -1%

Net profit margin adjusted -196% -94% -96% -53% -13%


Fig. 5. Midas: Balance sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 232 198 262 263 368

Fixed assets 1,189 1,285 1,371 1,465 1,382

Total assets 1,420 1,483 1,633 1,728 1,751


bank debt 16 0 20 20 20

Long-term liabilities 169 483 858 1,109 1,101

bank debt 33 357 740 1,000 1,000

Equity 970 763 459 210 120

share capital 148 148 148 148 148



Net debt -116 317 716 1,046 1,065


Fig. 6. Midas: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

CF from operations -109 -109 -181 -82 65


CF from financing, incl. 627 307 403 260 0

dividends paid 0 0 0 0 0

Net change in cash 128 -127 5 -70 -18



105

Poland Retail

NOVEMBER 12, 2014

MONNARI RECOMMENDATION

BUY (INITIATION)

What doesn't kill you makes you stronger CURRENT PRICE: PLN9.5


Equity Story. Monnari offers investors another successful

restructuring story. Some past bad decision-making pushed

Monnari on the verge of bankruptcy in 2008-09. But thanks to

aggressive restructuring and loyal clients , Monnari did not go the

way of the dodo. Monnari is now a company that has shown

PLN22mn in net cash (including PLN16mn loan) in 3Q14, has

attractive office real estate for sale (worth c.PLN25mn) and plans

further development of the proven Monnari concept – a concept

that survived the worst. And we believe that this scenario will

materialise in the coming years. We expect Monnari to increase

its floor space at least by c5k sqm by 2016E, which accounts for

27% of its current floor space. This should yield in sales and an

EBITDA at a 11% and 14% CAGR in 2014-2016.

Financials. We expect that Monnari will remain on the growth

path in 2015. Our main assumptions are: 1) selling space growth

by 2.2k/1.9k/0.9k sqm in 2014-16E, respectively, 2) LfL at 5.0%,

3.0% and 3.0% in 2014-16E, respectively, 3) the gross margin at

57.5% (+135bps), 56.5% (-95bps) and 57.1% (+52bps), 4) the

SG&A/avg. sqm at PLN3,808 (+9.0% y/y), PLN3,757 (-1.3% y/y)

and PLN3,873 (+3.1% y/y) and 5) starting of tax payments since

2016. We have also assumed that Monnari will sell real estate for

PLN25mn, which will boost company costs by cPLN2mn

(additional rents and lack of rent incomes from external tenants).

Valuation & recommendation. Monnari is currently trading at a

PE of 12.1x (on adj. basis) and 11.9x in 2014-15E, which seems

cheap taking into account its growth potential, the high ROE

(26%) and the clean balance sheet. We believe that PE at c.15-

16x would be fairer. Assuming that we are correct with our FY’14-

15 forecasts, there is still plenty of upside to catch. On the other

hand, such corporate actions like loans to external companies

that are connected to Monnari’s owners casts some shadow on

the company and might hinder its price appreciation toward more

attractive multiples. In our view, it would be better to finance

private projects by dividend rather than loans from Monnari.

Based on our DCF model, we arrived at a 12 month TP of

PLN13.5 per share, which implies a 42% upside potential. We

initiate coverage with a Buy rating.

STOCK PERFORMANCE



COMPANY DESCRIPTION

Monnari is a retail company selling women’s fashion mainly under the brand Monnari.


Mr. Miroslaw Misztal 26.1%

Fair Ltd. 8.3%

Mr. Jakub Banasiak 6.5%

Union Investment 7.3%

Free float 51.8%

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes MONP.WA /MON PW



EBIT 22.6 22.7 23.1 24.7 Free float (%) 47.8%



1M 3M YTD

EV/EBITDA (x) 9.5 8.4 7.4 6.8 -4.0% +15.6% +46.9% Source: Company data, DM BZ WBK estimates



106

Fig. 1. Monnari: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Net sales 167 183 197 191 201 209 218 227 236 246

EBIT 23 23 25 16 17 18 20 23 26 26


NOPAT 23 23 20 13 14 15 16 18 21 21

Depreciation 3 3 4 4 4 4 5 5 5 6

Change in operating WC 3 2 2 -1 1 1 1 1 1 1


Free cashflow 18 20 17 13 12 13 15 17 19 19

WACC (2014-2023, %) 8.0%

PV FCF 2013-2023 110



PV TV 173

Total EV 284

Net debt -77

Equity value 361

Number of shares (m) 31

Value per share (PLN, 1 Jan 2014) 12

Month 11




Fig. 2. Monnari: Comparable valuation



LPP 33.1 28.7 22.2 20.3 17.7 13.8 1.5 0.7 30.2% 28.9% 30.6% 1.0% 1.2% 1.4%

Monnari 11.0 11.9 13.8 8.4 7.4 6.8 0.8 2.6 26.4% 19.3% 14.9% 0.0% 0.0% 5.0%

Bytom 13.9 10.5 10.9 9.3 7.4 6.4 0.02 0.01 29.3% 32.0% 27.5% 0.0% 4.9% 6.7%

average 19.3 17.1 15.6 12.7 10.8 9.0 0.8 1.1 28.6% 26.8% 24.4% 0.3% 2.0% 4.4%

CCC 26.2 19.9 16.9 18.1 14.1 12.2 0.9 0.4 28.7% 31.2% 1.2% 1.9% 2.5% 0.0%

Wojas 10.1 10.6 10.1 6.1 5.9 5.5 14.5 -2.5 14.8% 12.3% 11.4% 1.3% 1.9% 0.0%

Gino Rossi 20.5 13.4 12.3 8.4 7.2 6.6 0.1 0.0 10.5% 14.2% 13.5% 0.0% 0.0% 0.0%

average 18.9 14.6 13.1 10.9 9.1 8.1 5.1 -0.7 18.0% 19.2% 8.7% 1.1% 1.5% 0.0%

Total - average 19.1 15.9 14.4 11.8 10.0 8.5 3.0 0.2 23.3% 23.0% 16.5% 0.7% 1.7% 2.2%



107

Fig. 3. Monnari: 3Q14 results review PLN in millions, unless otherwise stated


Sales 27.3 30.7 30.9 42.9 30.6 32.2 33.6 49.1 35.1 41.6 37.0 9.9% -11.1%

EBITDA -0.5 2.8 0.3 8.4 0.0 4.7 2.3 11.4 4.1 7.2 4.9 108.1% -32.5%

EBITDA margin -1.9% 9.3% 1.1% 19.6% -0.1% 14.7% 6.9% 23.2% 11.6% 17.3% 13.1% 619 -417

EBIT -1.3 2.2 -0.3 7.8 -0.6 4.0 1.8 10.8 3.4 6.3 4.0 127.2% -36.1%

EBIT margin -4.6% 7.0% -0.9% 18.1% -1.9% 12.4% 5.3% 22.0% 9.6% 15.2% 10.9% 565 -429

Net profit -1.4 2.3 -0.7 8.0 1.1 4.4 0.9 10.6 6.1 6.4 4.0 322.4% -38.4%

Net margin -5.1% 7.6% -2.4% 18.7% 3.6% 13.7% 2.8% 21.5% 17.4% 15.4% 10.7% 791 -473


Fig. 4. Monnari: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E







Fig. 5. Monnari: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 6. Monnari: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 132 146 167 183 197

COGS 63 64 71 79 85

Gross profit 69 82 96 103 113

SG&A 60 60 74 80 88


EBITDA 11 25 26 26 28


Net financial income (costs) 1 0 -1 -2 -2


Income tax -1 -1 -3 0 5

Net profit 8 24 27 25 21

Gross margin 52.5% 56.1% 57.5% 56.5% 57.1%

EBITDA margin 8.5% 17.4% 15.5% 14.5% 14.4%




Fig. 7. Monnari: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



Total assets 108 102 131 157 165


bank debt 25 0 0 0 0


bank debt 0 0 0 0 0

Equity 71 88 115 140 147




Net debt -2 -28 -36 -74 -78


Fig. 8. Monnari: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E


CF from investment 3 -1 -19 12 -4

CF from financing -1 -31 0 0 -15




108



109

Poland FINANCIALS

NOVEMBER 12, 2014

MW TRADE RECOMMENDATION

BUY (INITIATION)

Healthy momentum CURRENT PRICE: PLN 18.7


Equity Story. MW Trade is Poland’s second-largest, non-bank

provider of funding and financial services for the health care

sector (hospitals as well as their suppliers). The company is also

increasingly engaged with local governments and municipalities.

Its close cooperation with the Getin Holding group (Idea Bank

funding) offers the company more flexibility and opportunity to

grow in the new business line of guarantees and fees. Following

the 56% revenues CAGR in 2010-2013 and 49% of earnings,

2014-2016E should bring 15% and 11% growth rates,

respectively, despite our assumption of margin contraction. Based

on our estimates, the company trades at a 8.9x 2015E P/E and a

P/Book of 1.9x, while continues to generate a ROE of 23%. Our

TP of PLN 21/ share implies a 16% upside potential. We are

initiating our coverage with a BUY rating.

Financials. The company’s strong revenues and EPS growth

should continue despite our conservative assumptions for its

product portfolio growth (10% CAGR in 2014-2016E vs. 22% in

2010-2013) and negative margin development (10.7% in 2016E

vs. 13.3% in 2013). We expect a 15% revenue CAGR in 2014-

16E, following 56% in 2009-2013 and an EPS CAGR 11% vs. a

historical rate of 49%. We expect the dividend pay-out ratio to

stay at 50% in 2014E-2016E, which implies a DY of 5.1%-6.1% in

upcoming years.

Triggers/Risks. The risks include frequent changes to

regulations on hospital liabilities and the general structural

challenges that the Polish health care system is facing. The

funding risks are significant, though we believe they are properly

addressed in our model since we use a COE of 14%. Lastly, MW

Trade is in the Getin Holding group, which is both an opportunity

and a threat. Idea Bank is now granting safe and flexible loans,

but there is the threat that Idea Bank might acquire MW Trade’s

know-how and become its competitor.

Valuation & recommendation. We have set a 12-month target

price for MW Trade at PLN21.6/share using a blend of residual

income (50%) and a warranted equity method (50%), which

implies a 16% upside potential. The company currently trades at

P/E 8.9x 2015E, P/BV of 1.9x, a headline EV/EBITDA of 39x and

a dividend yield of 5.6%

STOCK PERFORMANCE

MWTWIG

Relative

0

5

10

15

20

25

Oct-

11

Ja

n-1

2

Apr-

12

Ju

l-12

Oct-

12

Ja

n-1

3

Apr-

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Ju

l-13

Oct-

13

Ja

n-1

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Apr-

14

Ju

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14






on issue date

12 month target



COMPANY DESCRIPTION

MW Trade provides funding and financial services to health care sector, its suppliers as well as local governments and municipalities. The company is a second player on the Polish market of hospital liabilities.


Getin Holding 51.3%

Mr. Rafał Wasilewski 20.0%

TFI Quercus 10.2%

AVIVA OFE 5.2%

ANALYSTS


Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes MWT.WA / MWT PW



EBIT 17.2 19.8 21.5 23.5 Free float (%) 28.7%



1M 3M YTD



110

Fig. 1. MW Trade: Residual income valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E

Net profit 16 17 19 Equity (YE) 71 80 90 ROE 23.7% 23.1% 22.7% COE 14.0% 14.0% 14.0% Excess return 9.7% 9.0% 8.7% Residual income 7 7 7

PV of residual income (2014-16E) 17.4


Transition period (2017-2023E) -0.9% 20.9% 60% 58 32.2 Perpetuity 3.0% 19.7% 60% 84 35

Total intrinsic value 84.9 # of shares (m) 8 Value per share 10.1 Last reported BVPS 7.6 Fair value (Jan'14) 17.7 Month 10 Fair value (current) 19.8

12 month TP 22.5



Fig. 2. MW Trade: Comparable valuation

2016E ROE (%) 22.7 COE (%) 14.0 g (%) 3.0 Implied fair P/B (x) 1.8 YE16E BVPS 10.7 Fair value (YE16) 19.1

PV (Jan'14) 12.9

DPS14E 0.9 DPS15E 1.0 DPS16E 1.1

PV of 2014-16E DPS 2.4

PV of equity + DPS (Jan'14) 15.3

Month 10 PV (current) 17.1

12-month price target 19.5

Upside potential 8%


Fig. 3. MW Trade: Valuation changes Fig. 4. MW Trade: Valuation changes

0.12

0.17

0.22

0.27

0.32

Ja

n-1

2

Mar-

12

May-1

2

Ju

l-12

Sep

-12

No

v-1

2

Ja

n-1

3

Mar-

13

May-1

3

Ju

l-13

Sep

-13

No

v-1

3

Ja

n-1

4

Mar-

14

May-1

4

Ju

l-14

Sep

-14

No

v-1

4

MWT/MAG price ratio STD +/-1

STD +/-2

0.50

0.55

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

Feb

-14

Mar-

14

Apr-

14

May-1

4

Ju

n-1

4

Ju

l-14

Aug

-14

Sep

-14

Oct-

14

MWT/MAG P/E ratio Average

STD +/-2 STD +/- 1

Source: Bloomberg data, DM BZ WBK estimates Source: Bloomberg data, DM BZ WBK estimates


111

Fig. 5. MW Trade: 3Q14 results review PLN in millions, unless otherwise stated

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q

Revenues 13.3 17.0 15.0 15.9 14.9 16.7 17.6 17% 5%

Funding cost -8.7% -8.4% -7.9% -8.1% -7.7% -7.9% -7.9% 0% 0%

Gross profit 3.5 5.6 4.0 4.0 4.0 5.0 5.0 26% 1%

Opex -1.4 -1.7 -1.5 -2.4 -1.7 -1.8 -1.7 13% -6%

EBITDA 3.6 5.7 4.1 4.2 4.2 5.0 5.1 25% 2%

EBIT 3.5 5.6 4.0 4.1 4.1 4.9 5.0 26% 2%

Net profit 2.9 4.6 3.3 3.2 3.3 3.9 4.0 20% 2%

Income yield 13.0% 14.9% 12.4% 12.7% 11.6% 12.4% 12.0% n.a. n.a.

Funding cost -8.7% -8.4% -7.9% -8.1% -7.7% -7.9% -7.9% n.a. n.a.

Gross profit margin 26.0% 33.1% 26.4% 25.3% 26.7% 29.6% 28.3% n.a. n.a.

EBITDA margin 26.9% 33.7% 27.2% 26.1% 28.2% 30.0% 29.0% n.a. n.a.

EBIT margin 26.2% 33.1% 26.5% 25.4% 27.5% 29.4% 28.5% n.a. n.a.

Net profit margin 21.6% 27.0% 22.2% 20.3% 22.2% 23.6% 22.8% n.a. n.a. Source: Company data, DM BZ WBK estimates

Fig. 6. MW Trade: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 68.6 n.a. 0% 79.7 n.a. 0% 93.3 n.a. 0%

EBITDA 20.2 n.a. 0% 21.8 n.a. 0% 24.1 n.a. 0%

EBIT 19.8 n.a. 0% 21.5 n.a. 0% 23.7 n.a. 0%

Net profit 16.0 n.a. 0% 17.5 n.a. 0% 19.3 n.a. 0% Source: Company data, DM BZ WBK estimates

Fig. 7. MW Trade: Valuation changes In PLN per share, unless otherwise stated

New Previous Change


Warranted Equity 17.1 n.a. 0%


Fig. 8. MW Trade: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 44.6 61.3 68.6 79.7 93.3

Portfolio funding cost -27.2 -35.8 -40.2 -49.2 -59.6

Gross profit 17.4 25.5 28.5 30.5 33.7

Opex -6.6 -8.4 -8.8 -9.2 -10.1

EBITDA 11.1 17.5 20.2 21.8 24.1

EBIT 10.8 17.2 19.8 21.5 23.7

Other 0.4 0.2 0.0 0.2 0.2

Pre-tax profit 11.2 17.4 19.8 21.7 23.9

Income tax -2.2 -3.3 -3.8 -4.2 -4.6

Net profit 9.0 14.0 16.0 17.5 19.3

Gross margin 39.1% 41.6% 41.5% 38.3% 36.1%

EBITDA margin 24.8% 28.6% 29.5% 27.4% 25.8%

EBIT margin 24.2% 28.0% 28.9% 26.9% 25.4%

Pre-tax margin 25.1% 28.3% 28.9% 27.2% 25.6%

Effective tax rate -19.3% -19.1% -19.4% -19.4% -19.4%



Fig. 9. MW Trade: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 214.3 162.9 228.3 267.4 290.4

Cash and equivalents 2.3 1.7 4.1 5.4 4.5

Financial assets 211.7 158.3 221.3 258.0 281.0

L-t 184.2 361.6 502.5 584.5 635.9

PP&E 2.2 2.3 2.4 2.5 2.6

Financial assets 178.3 353.3 494.1 576.0 627.2

Total assets 398.5 524.5 730.8 851.9 926.3



Equity 53.4 63.2 71.3 80.1 89.8

Total liabilities and equity 398.5 524.5 730.8 851.9 926.3


Fig.10. MW Trade: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

CF from operations -96.7 -112.0 -128.2 -75.4 -25.0


CF from financing 96.4 112.0 131.2 77.3 24.7

Net change in cash -0.7 -0.7 2.4 1.3 -0.9


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.



113

Poland TMT

NOVEMBER 12, 2014

NETIA RECOMMENDATION

HOLD (PREV. SELL)

Concerning customer trends CURRENT PRICE: PLN5.56

TARGET PRICE: PLN5.71 (PREV. PLN4.95)

3Q14 Results Review. The results came in below our estimates and

the market consensus: there was a 10% top line erosion, the reported

EBITDA was down 23% y/y and there was a net loss, something not

seen in a very long time. Most importantly, the total RGUs (down 62k

to 2.36m) erosion accelerated to 7.7% y/y and 2.6% q/q; the reported

long-unseen RGU erosion in its own network, the highest-ever

volume erosion in the B2C segment, a sudden slowdown in the B2B

segment. The management believes that the erosion in the own

network RGUs is a one-off and that growth will emerge already in

4Q14. The management finds sales to the old Aster clients ‘very

promising’; due to (1) the intensified market competition and (2)

Netia’s focus on high-margin clients. The company will strive to

maintain revenues and margin.

Changes in shareholder structure. SISU Capital increased its stake

to 10.18% from 8.7%. On the other hand, insider(s) sold 305k Netia

shares in Sept. and Oct. 2014. An insider bought 15k shares very

recently.

Strategy update. The company will focus on the B2B segment,

trimming any operating or investing outlays in the B2C segment. It is

also set to quit proactive acquisition of the B2C segment’s clients and

it will strive to optimise costs in both. The company will effectively

divide its B2B and B2C segments into separate business lines.

PLN145mn payment from Orange. Netia and Orange agreed to

settle all their past lawsuits and Orange will pay Netia PLN145mn,

with Netia giving up all its future claims. If the EU fine put on Orange

settles below EUR120mn, Netia might receive up to EUR50mn in the

future.

Change in Forecasts. We adjust our forecasts for the PLN145mn

(pre-tax) inflow from Orange, to be reported in 4Q14.

Change in Valuation & Recommendation. The PLN145mn comes

out of the blue and boosts Netia’s valuations (DCF and comparative)

by some 8-9% each. We expect Netia to become very inexpensive on

the EV/EBITDA ratios following the PLN145mn 4Q14 payment. We

changed our method of TP-setting from pure DCF to 50% DCF-50%

comparable. The new TP at PLN5.71 offers little upside, so we

change our recommendation to Hold from Sell.

PUBLICATION DATE

NOVEMBER 6, 2014

3Q14 RESULTS REVIEW

3Q14E y/y q/q

Sales 413.4 -10% -2%

EBITDA 109.4 -23% -9%

EBIT 3.1 -91% -78%

Net profit -4.4 n.a. n.a.

STOCK PERFORMANCE

NET TP

WIG Relative

0

1

2

3

4

5

6

7

8

Oct-

11

Ja

n-1

2

Apr-

12

Ju

l-12

Oct-

12

Ja

n-1

3

Apr-

13

Ju

l-13

Oct-

13

Ja

n-1

4

Apr-

14

Ju

l-14

Oct-

14






on issue date

12 month target


Sell 7-20-2014 5.5 5.0 1.5% -3.0

Sell 7-9-2014 5.5 4.5 0.4% -0.8

Sell 4-28-2014 5.4 4.6 1.1% 2.8

Sell 1-30-2014 4.8 4.5 11.8% 9.5

COMPANY DESCRIPTION

Netia is the largest alternative fixed line telecommunication service provider in Poland.

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes NET.WA / NET PW



EBIT 93 207 65 79 Free float (%) 74.3%



1M 3M YTD

EV/EBITDA (x) 4.4 3.8 4.5 4.6 -3.0% -0.5% 5.5% Source: Company data, DM BZ WBK estimates



114

Fig. 1. Netia: 3Q14 results review PLN in millions, unless otherwise stated

3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q BZWBK

est. mkt

cons

Sales 394.6 426.7 544.3 536.5 521.1 519.5 490.7 477.5 457.1 450.8 434.4 422.2 413.4 -10% -2% 416 415

EBITDA 103.4 98.0 124.1 134.9 148.4 54.1 138.6 136.4 142.5 115.2 126.0 119.8 109.4 -23% -9% 115 117

EBITDA margin 26.2% 23.0% 22.8% 25.1% 28.5% 10.4% 28.3% 28.6% 31.2% 25.6% 29.0% 28.4% 26.5% -4.7 -1.9 27.7% 28.2%

EBIT 27.6 16.2 4.1 12.8 27.3 -65.2 27.3 26.4 32.8 6.2 20.7 14.2 3.1 -91% -78% 9 12

EBIT margin 7.0% 3.8% 0.8% 2.4% 5.2% -13% 5.6% 5.5% 7.2% 1.4% 4.8% 3.4% 0.7% -6.4 -2.6 2.3% 2.8%

Net profit 24.7 14.3 -9.8 21.0 10.0 -108.9 13.1 8.6 14.1 10.5 11.0 8.3 -4.4 n.a. n.a. 3 5

Net margin 6.2% 3.3% -1.8% 3.9% 1.9% -21% 2.7% 1.8% 3.1% 2.3% 2.5% 2.0% -1.1% -4.1 -3.0 0.8% 1.3%


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

2014E 2015E 2016E


Sales 1,739 1,739 0% 1,667 1,667 0% 1,616 1,616 0%

EBITDA 637 492 29% 455 455 0% 429 429 0%

EBIT 207 62 234% 65 65 0% 79 79 0%


Fig. 3. Netia: Valuation changes In PLN per share, unless otherwise stated

New Previous Change


Comparable valuation (based on 2014-2016E) 6.05 5.55 9%

Weighted valuation* 5.71 n.a. n.a. Source: Company data, DM BZ WBK estimates. * 50% DCF, 50% comparable valuation.

Fig. 4. Netia: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales, incl.: 2,121 1,876 1,739 1,667 1,616

Voice Revenues 986 830 712 623 548

Data Revenues 791 747 736 732 729

Other Revenues 344 299 291 312 338

COGS, incl.: -2,142 -1,783 -1,532 -1,602 -1,537 Sales & mgm (ex. wages / restruct. / deprec. ) -283 -257 -211 -192 -179

Depreciation -482 -440 -430 -390 -350 One-offs (provisions & restructuring) -102 -4 143 0 0

EBITDA 462 533 637 455 429



Profit before tax -61 68 189 50 64

Income tax 27 18 32 5 12

Net profit -88 50 157 45 52

EBITDA margin 21.8% 28.4% 36.6% 27.3% 26.5%

EBITDA margin, ex. one-offs 26.6% 28.6% 28.4% 27.3% 26.5%




Fig. 5. Netia: Balance sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 455 316 544 580 586

Fixed assets 2,777 2,621 2,381 2,232 2,123

Total assets 3,232 2,937 2,925 2,812 2,708


bank debt 166 127 127 127 127


bank debt 384 257 257 257 257

Equity 2,296 2,205 2,219 2,119 2,025

share capital 386 348 351 352 352



Net debt 380 292 50 6 -5


Fig. 6. Netia: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E




dividends paid 125 128 146 146 146




115


NOVEMBER 12, 2014

NEUCA RECOMMENDATION

BUY (MAINTAINED)

Under influence of the ACP takeover CURRENT PRICE: PLN 231

TARGET PRICE: PLN 376 (MAINTAINED)

Equity story: We left our investment case unchanged. We believe that

Neuca is an attractive company because: (1) it is a leader on the

continuously growing pharma wholesale/retail market (c4-5%pa), (2) the

recent takeover of ACP Pharma’s wholesale business will provide easy

and notable synergies, (3) further development of Synoptis Pharma’s

business, together with the potential gains from the emerging business of

its own chain of private clinics. These are all arguments that stand behind

our belief that Neuca will be continuously improving its results in the

coming years.

The company is currently trading with 4%/10% discount vs. Pelion and

Farmacol on FY’14 PE. In regards to FY’15, Neuca is trading at an 12%

and 27% discount vs. Pelion and Farmacol, respectively. In this light,

Neuca is cheap as it has the highest fair PE level thanks to the highest

ROE and growth, which we calculate at 12.5x vs. Farmacol (11.6x) and

Pelion (9.0x). In this light, we remain buyers on the stock seizing the

opportunity of the possible correction after disappointing 3Q14

resutls.

Change in valuation & recommendation. DCF-based valuation stayed

unchanged. A comparative valuation against Polish peers points to

PLN250/share.

STOCK PERFORMANCE





on issue date

12 month target


Buy 10/21/2014 216.0 376.0 6.9% 6.2

Buy 9/7/2014 217.9 383.0 -0.8% 1.4

Buy 4/28/2014 232.9 346.0 -6.5% -12.0

Buy 1/30/2014 276.5 365.0 -15.8% -18.1

COMPANY DESCRIPTION

Neuca is the largest Polish pharmaceutical distributor, with rising exposure in drug production.

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes NEUP.WA / NEU PW



EBIT 102 91 132 141 Free float (%) 42.1%



1M 3M YTD




116

Fig. 1. Neuca: 3Q14 results review PLN in millions, unless otherwise stated


Sales 1,482 1,617 1,459 1,412 1,361 1,456 1,532 1,418 1,435 1,410 1,497 1,555 1,737 21.0% 11.7%

EBITDA 21.2 26.3 35.0 27.7 27.0 27.9 43.5 31.6 28.5 23.1 34.0 20.8 21.1 -26.1% 1.2%

EBITDA margin 1.4% 1.6% 2.4% 2.0% 2.0% 1.9% 2.8% 2.2% 2.0% 1.6% 2.3% 1.3% 1.2% -77 -13

EBIT 15.8 20.6 29.1 21.9 21.3 21.9 37.7 25.1 22.6 17.1 28.1 13.8 15.3 -32.4% 10.6%

EBIT margin 1.1% 1.3% 2.0% 1.6% 1.6% 1.5% 2.5% 1.8% 1.6% 1.2% 1.9% 0.9% 0.9% -69 -1

Net profit 9.9 20.2 20.1 15.0 15.7 15.2 32.3 20.3 19.7 13.1 36.3 10.8 11.8 -39.8% 9.3%

Net margin 0.7% 1.3% 1.4% 1.1% 1.2% 1.0% 2.1% 1.4% 1.4% 0.9% 2.4% 0.7% 0.7% -69 -1


Fig. 2. Neuca: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 6,537 6,537 0.0% 7,402 7,402 0.0% 7,786 7,786 0.0%

EBITDA 120 120 0.0% 167 167 0.0% 178 178 0.0% EBIT 91 91 0.0% 132 132 0.0% 141 141 0.0% Net profit 87 87 0.0% 110 110 0.0% 121 121 0.0% Source: Company data, DM BZ WBK estimates Fig. 3. Neuca: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

DCF valuation 376 376 n.a.

Comparable valuation (based on 2014-2016E) 250 246 +1.6% Source: Company data, DM BZ WBK estimates

Fig. 4. Neuca: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 5,687 5,795 6,537 7,402 7,786

COGS 5,121 5,243 5,949 6,728 7,060

Gross profit 566 552 588 674 726

SG&A 452 429 480 525 568


EBITDA 118 127 120 167 178


Net financial income (costs) 13 -2 -4 -3 2


Income tax 16 19 0 19 21

Net profit 66 85 87 110 121

Gross margin 10.0% 9.5% 9.0% 9.1% 9.3%

EBITDA margin 2.1% 2.2% 1.8% 2.3% 2.3%




Fig. 5. Neuca: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 1,461 1,504 2,041 2,217 2,393

Fixed assets 411 413 461 479 492

Total assets 1,872 1,918 2,519 2,715 2,904

Current liabilities 1,437 1,429 1,764 1,869 1,960

bank debt 109 100 109 109 109


bank debt 84 71 244 244 244

Equity 336 406 475 564 662




Net debt 176 166 165 64 -11


Fig. 6. Neuca: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E







117

Poland FINANCIALS

NOVEMBER 12, 2014

OPEN FINANCE RECOMMENDATION

BUY (MAINTAINED)

Purification CURRENT PRICE: PLN 5.7


Equity Story & Financials. EPS growth to return from 2015 on.

After the downward revision we are now expecting 2014E revenues to drop 18% y/y to PLN361mn and to start recovering from 2015 (up 4% y/y) on. In 2015E the recovery should be driven by an increase in volumes (loans up 4% y/y, investment products up 6% and real estate intermediation up 9%). 2014 should be a ‘down year’ again with EPS forecast to drop 54%. Positive earnings momentum should return from 2015 on (EPS up 19% y/y) with 2015-2016E CAGR at 18%. Restructuring actions (the merger of HB/OF branches, outsourcing of advisers, a new CRM program), new products (low risk regular savings schemes, insurance products) combined with a supportive environment (an economic rebound, low market interest rates and a new government housing subsidy scheme be the drivers. Top line growth should be moderate initially (+ 4% y/y in 2015) as the expected continued margin contraction will, we expect, largely offset the forecast growth in product volumes. C/I should however fall markedly (down to 90% in 2015E), allowing the bottom line recovery.

Dividend prospects. We expect OF to start paying dividends

again in 2016E (DPS of PLN0.11 or DY of 2%). We expect some of the 2013-15E retained earnings to be used to de-leverage and that OF will pay off half of its debt and roll over the balance, which matures in 2015 and 2016

Triggers/Risks. OF enjoys strong operating leverage with

variable costs constituting c. 69% of all costs. On our estimates, a 1% change in revenues translates into cPLN4mn swing in net profit, ceteris paribus. Furthermore, there is a share supply risk from GNB and Idea Bank, which hold 42% and 6.6% stakes respectively. We estimate that the minimum share price levels at which Idea Bank would recognise a capital gain on the transaction is PLN12.69/share, while for GNB the level is at PLN15.60. Both these thresholds are significantly above the current level and hence minimise the risk of an imminent supply.

Valuation & recommendation. We leave our TP PLN7.00, but

given the 23% upside potential we are re-iterating our Buy rating. Our TP is derived from an equal-weighted blend of three methodologies – DCF, comparable multiples and residual income. We use a risk-free rate of 3.0% (3-month average 10-year bond yield), Beta of 1.2, risk premium of 5% and g of 1.0%.

STOCK PERFORMANCE

OPFTP

WIG Relative

0

2

4

6

8

10

12

14

16

18

20

Se

p-1

1

De

c-1

1

Mar-

12

Ju

n-1

2

Se

p-1

2

De

c-1

2

Mar-

13

Ju

n-1

3

Se

p-1

3

De

c-1

3

Mar-

14

Ju

n-1

4

Se

p-1

4






on issue date

12 month target


Buy 10-29-2014 6.0 7.0 0.0% 0.2

Buy 7-9-2014 8.4 12.2 -29.2% -34.9

Buy 6-17-2014 9.5 12.2 -11.6% -7.4

COMPANY DESCRIPTION

Open Finance is the largest and most widely-recognized financial intermediary in Poland with a 33% market share in mortgage intermediation and 95% in investment products The group also includes Open TFI, a mutual fund, Open Life, a life insurance company and Open Broker.


GNB 42.15%

Idea Bank 6.60%

Amplico pension fund 7.17%



ANALYSTS

Andrzej Bieniek Securities Broker, Investment Adviser +48 22 586 85 21; [email protected] Dariusz Górski +48 22 586 81 00; [email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes OPF.WA / OPF PW

Sales 440 361 376 375 Market capitalisation (PLNm) 309


EBIT 71 28 34 36 Free float (%) 45.7%



1M 3M YTD





118

Fig. 1. Open Finance: 3Q14 results review PLN in millions, unless otherwise stated


Revenues 133 117 117 84 105 116 113 107 96 98 85 -25% -14%

Opex (98) (91) (97) (79) (90) (95) (92) (96) (86) (89) (84) -8% -5%

EBITDA 39 33 24 21 22 29 26 23 16 17 16 -38% -4%

EBIT 36 29 20 5 15 20 21 14 8 8 7.2 -66% -13%

Net profit 30 26 20 47 12 16 16 12 6 7 7.9 -52% 6%

EBIT margin 27% 25% 17% 5% 14% 18% 19% 14% 8% 8% 8% -55% 1%

Net profit margin 23% 22% 17% 57% 12% 14% 14% 11% 6% 8% 9% -35% 22% Source: Company data, DM BZ WBK estimates

Fig. 2. Open Finance: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 361 361 0.0% 376 376 0.0% 375 375 0.0%

EBITDA 60 60 0.0% 69 69 0.0% 75 75 0.0%

EBIT 28 28 0.0% 34 34 0.0% 36 36 0.0%

Net profit 26 26 0.0% 31 31 0.0% 35 35 0.0%


Fig. 3. Open Finance: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

Comparable multiples 6.6 6.6 0.0%

DCF 6.0 6.0 0.0%

Residual Income 6.8 6.8 0.0%

Blended average target price 7.0 7.0 0.0% Source: Company data, DM BZ WBK estimates

Fig. 4. Open Finance: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Revenues 451 440 361 376 375

Operating costs (365) (374) (329) (341) (341)

Gross profit on sales 86 66 32 35 34

Gross margin 19% 15% 9% 9% 9%

EBIT 90 71 28 34 36

EBIT margin 20% 16% 8% 9% 10%

EBITDA 117 100 60 69 75

EBITDA margin 26% 23% 17% 18% 20%

Net financials 107 -8 -8 -7 -4 Share of the associate's profit 22 5 14 14 14

Gross profit 117 68 34 41 47

Income tax 6 -12 -5 -8 -9

Tax rate 5% -17% -16% -19% -19%

Net profit 123 56 26 31 35


Fig. 5. Open Finance: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Fixed assets 414.3 459.9 463.3 473.3 473.3

Current assets 186.7 179.8 190.6 191.2 233.3


Equity 362.1 417.6 445.9 476.6 505.6


Total assets 601.0 639.7 653.8 664.4 706.5


Fig. 6. Open Finance: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E


CF from investment (87) (83) (51) (50) (37)

CF from financing 24 35 (12) (31) (40)

Net change in cash -34 0 14 -9 33



119

Poland Others

November 12, 2014

OVOSTAR UNION RECOMMENDATION

HOLD (MAINTAINED)

UAH devaluation takes its toll CURRENT PRICE: PLN70.11


3Q14 Results Preview. Ovostar sold 195mn shell eggs in 3Q,

+27% q/q and y/y, especially thanks to high export sales’ volume.

The company sold 407t of dry egg products (-3% y/y, +12% q/q)

and 1,558t of liquid egg products (-13% y/y, 6% q/q). We expect

the selling price of eggs to seasonally increase to UAH0.84/egg

(+15% y/y, +33% q/q), which, in USD terms, would imply a -28%

y/y decline and a +22% q/q growth. We expect the price of dry

egg products at UAH65/kg (+11% q/q, +48% y/y), which implies,

in USD terms, an 8% y/y decline and a 3% q/q growth, and the

price of liquid egg products at UAH18/kg (-1% q/q, +16% y/y),

which implies a 22% y/y decline and a 3% q/q decrease. We do

not expect any BA revaluation gains/losses. Overall, we expect

much lower y/y BA revaluation adjusted results, but higher q/q.

Outcome: NEUTRAL.

UAH devaluation constitutes the key risk to OVO. The YTD

USD/UAH appreciated 50%+ to UAH12.9. Devaluation generally

reduces our EBITDA forecast, in the short term. Note

thatcompany has EUR-denominated loans and, in case of further

UAH devaluation, extra financial costs may appear.

Change in forecasts. We maintain our financial forecast for

Ovostar intact.

Pressure on fodder costs. The CBOT prices of wheat and corn

(main components of fodder) are under pressure. Price of wheat

decreased by 21% YTD (-15% over 3Q14) and is 30% below

2013 average. The price of corn, is 24% down YTD (-24% over

3Q), and 45% below 2013 avg. Such developments are

favourable for Ovostar, in general.


Target Price for OVO at PLN75. We maintain our Hold

recommendation for the company.

STOCK PERFORMANCE





on issue date

12 month target


Hold 7-10-2014 67.0 75.0 4.6% -1.5

Hold 7-9-2014 69.9 80.0 -4.2% -3.7

Hold 4-28-2014 69.0 80.0 1.4% 3.0

Hold 1-30-2014 80.0 105.0 -13.8% -16.0

Buy 10-23-2013 98.2 122.0 -18.5% -12.9

COMPANY DESCRIPTION

OVO is egg and egg products manufacturer in Ukraine.


Prime One Capital 71.2%

Generali pension fund 9.94%


ANALYST

Adrian Kyrcz (+48) 22 586 81 59

[email protected]

Company Data

USDm 2013 2014E 2015E 2016E Reuters/Bloomberg codes OVO.WA / OVO PW



EBIT 31.6 22.9 18.5 22.2 Free float (%) 28.8%


Adj EBITDA 28.5 26.5 26.8 31.2

Adj EBIT 19.4 18.5 22.2 21.6

Adj Net income 23.8 17.2 15.1 18.1

Ad P/E (x) 4.1 6.2 8.4 7.0 Price performance

1M 3M YTD

Adj EV/EBITDA (x) 3.7 4.7 5.1 3.7 1.6% 3.1% -29.9% Source: Company data, DM BZ WBK estimates


120

Fig. 1. Ovostar: 3Q14 results preview USD in millions, unless otherwise stated


Sales 13.5 20.6 17.5 13.9 12.5 27.2 19.6 15.1 20.9 27.6 19.5 16.1 17.9 13.5 20.6

EBITDA 5.2 7.7 9.4 3.8 2.8 11.2 6.5 3.0 8.3 17.8 9.2 4.3 4.2 5.2 7.7

EBITDA margin 38.7% 37.4% 53.7% 27.0% 22.6% 41.2% 33.1% 19.8% 39.5% 64.5% 47.1% 26.4% 23.7% 38.7% 37.4%

EBIT 4.8 7.4 8.8 3.0 2.0 9.9 5.2 1.7 8.2 16.6 8.1 3.3 3.3 4.8 7.4

EBIT margin 35.7% 35.9% 50.2% 21.2% 16.2% 36.5% 26.4% 11.1% 39.3% 60.1% 41.5% 20.5% 18.4% 35.7% 35.9%

Net profit 2.9 8.6 8.6 3.1 2.1 9.5 5.0 1.6 8.0 16.2 7.7 3.3 3.3 2.9 8.6

Net margin 21.2% 41.9% 49.4% 22.2% 16.6% 35.0% 25.6% 10.7% 38.4% 58.7% 39.5% 20.6% 18.4% 21.2% 41.9%


Fig. 2. Ovostar: Forecasts changes USD in millions, unless otherwise stated

2014E 2015E 2016E


Sales 88.6 88.6 0% 100.3 100 0% 113.9 113.9 0%

EBITDA 30.0 30.0 0% 26.8 27 0% 31.2 31.2 0%

EBIT 22.9 22.9 0% 18.5 18 0% 22.2 22.2 0%

Adj EBITDA 26.5 26.5 0% 26.8 27 0% 31.2 31.2 0%

Adj EBIT 19.4 19.4 0% 18.5 18 0% 22.2 22.2 0%

Net profit 20.7 20.7 0% 15.1 15 0% 18.1 18.1 0% Source: Company data, DM BZ WBK estimates

Fig. 3. Ovostar: Valuation changes In PLN per share, unless otherwise stated

New Previous Change


Comparable valuation 89 89 0% Source: Company data, DM BZ WBK estimates

Fig. 4. Ovostar: Income statement forecast USD in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 60.3 81.6 88.6 100.3 113.9

BA revaluation 11.0 7.0 3.5 0.0 0.0

COGS 42.2 0.0 65.3 77.6 87.6

Gross profit 29.1 35.7 26.8 22.7 26.3

SG&A 5.6 6.8 5.7 6.2 6.3


EBITDA 27.3 35.5 30.0 26.8 31.2


Net financial income (costs) -0.5 0.6 -1.7 -2.8 -3.5


Income tax 0.3 -0.1 0.4 0.5 0.6

Net profit 23.5 30.9 20.7 15.1 18.1

Gross margin 48.2% 43.7% 30.3% 22.6% 23.1%

EBITDA margin 45.2% 43.6% 33.9% 26.7% 27.4%




Fig. 5. Ovostar: Balance Sheet forecast USD in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E


Fixed assets 86 110 118 126 121

Total assets 120 159 183 219 239


bank debt 3 0 0 0 0


bank debt 2 12 22 42 42

Equity 105 138 153 168 186


Net debt 3 3 13 9 -12


Fig. 6. Ovostar: Cash flow forecast USD in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



CF from financing 4 8 4 20 0

Net change in cash -16 19 0 24 21



121

Poland Industrials

November 12, 2014

PAGED RECOMMENDATION

BUY (INITIATION)

The die is cast CURRENT PRICE: PLN41.28


Equity Story. Paged is well-positioned to boost its sales in the coming years, which should translate into a strong financial performance. In our view, worth noting is the company's investment strategy based on solidifying its activity on solid fundamentals with a simultaneous diversification of markets, however, admittedly not always directly related to the core business. The plywood segment is the key growth driver thanks to the surging capacities from the already implemented and current investment programme (development of the MIRROR plywood production capabilities is currently being executed). All the investment works are scheduled to be completed in 1H2015 and should allow for an 10% production capacities’ increase in the end of 2015 vs. the currently observed volumes. It is crucial to keep in mind that at one go Paged will be able to base its plywood production in 25% (starting from 2017 according to the company’s guidance) on coniferous wood (so far only broadleaved), which will mitigate the risk of output contraction in case of broadleaved wood shortage or a margins’ squeeze caused by excessive prices increase (stability of financial results should improve in the long term). The furniture segment is being restructured which should finally lead to an upswing in sales, though we expect that in 2014 the bottom lines of the P&L will be burdened with the cost of new managerial staff acquisition. However, we calculate that starting from 2015, sales will enter a steady upward trend with the EBITDA margin surging from 2.8% in 2013 to 5.5% in 2018. We assumed a stable contribution from the DTP subsidiary (provider of receivables’ management services, in which Paged controls a 47.5% stake) at the yearly EBITDA hovering around PLN25mn. Finally, according to our calculations, Europa Systems (purchased by Paged in August 2014) will push sales and, to some extent, the margins (c. 1p.p.) higher. However, we have a cautious view on the additional business that the company will be able to generate as we forecast PLN90mn in revenues in 2016 (PLN75mn in 2014). In the short term we expect both the entities to be affected by transaction-related costs (Paged c. PLN3mn).

Financials. We forecast the NP margin to come in close to 9% in 2014 and to total 9.6% in 2015. Starting from 2017 (with the full effect visible from 2018 onward), the NP margin is expected to decrease to c. 8.8% due to an increase in the effective tax rate. Focusing on the nominal figures, our calculations indicate that Paged will report its 2014 sales only 1% higher than in the previous year (implication of low margin activity suppression in DTP). 2017 should bring about a significant improvement as we model a 30% sales change vs. 2014. We expect the EBITDA to reach almost PLN160mn in 2016 (PLN120mn this year).

Triggers / Risks. In our model we adopted a rather conservative approach to the output volumes and price trends. With regards to the plywood segment, our forecast assumes that the final capacities at 212cm will be achieved in 2018 (one year later than the company said in its guidelines). In the forecasted horizon, we get flat prices and stable margins at levels similar to those in 1H14. The furniture segment’s and Europa Systems’ operational figures can prove to be higher than expected. Undoubtedly, major risks are related to the raw material prices (especially of broadleaved wood) and to the launch of the MIRROR plywood production.

Valuation & recommendation. Based on our DCF model, we arrived at a 12M month TP of PLN67.00 per share, which implies a 62% upside potential. A comparable valuation points to PLN56.77 per share. Said that we, initiate our coverage of Paged with a Buy recommendation.

STOCK PERFORMANCE

PGD WIG Relative

0

5

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25

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on issue date

12 month target



COMPANY DESCRIPTION

Paged is the leading plywood producer in Poland. It also manufactures wooden furniture.


CI Consulting S.K.A. 9.78%

Fresita Limited Alfa S.K.A. 9.43%

Ksati Investments S.K.A. 9.43%

Polski Instytut Inwestycyjny S.K.A. 9.43%

Yellema Holdings Limited S.K.A. 9.43%

Generalna Dyrekcja Lasów Państwowych 8.33%

Daniel Mzyk 8.23%

Edmund Mzyk 7.09%

CC14 FIZ 6.72%

Yawal S.A. 5.92%

Paged S.A. 5.1%

ANALYST

Michal Sopiel (+48) 22 586 82 33

[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes PGDP.WA / PGD PW

Sales 687 702.8 793.2 854.5 Market capitalisation (PLNm) 627

EBITDA 105 120.3 145.2 158.3 Number of shares (m) 15.2

EBIT 87 99.8 117.8 128.1 Free float (%) 17.2%

Net income 58 61.8 76.5 84.8 Avg. daily turnover 3M (PLNm) 0.2


1M 3M YTD

EV/EBITDA (x) 7.4 8.4 6.9 6.1 +0.7% +12.2% +29.0% Source: Company data, DM BZ WBK estimates


122

Fig.1. Paged: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Net sales*** 655 744 805 860 888 903 912 924 937 950

EBITDA*** 95 119 132 143 149 150 152 153 155 157

EBIT*** 75 92 102 112 116 116 117 118 118 119

Cash taxes on EBIT*** 12 14 16 20 26 27 27 27 27 27

NOPAT 63 79 87 92 89 90 90 91 91 92

Depreciation*** 20 27 30 31 33 34 35 36 37 38



Net investment 128 62 28 16 10 8 6 5 5 4

Free cashflow -65 17 58 76 79 82 84 85 87 88

WACC 7.9%

PV FCF 2014-2023 342


PV TV 721

Total EV 1,063

Net debt 271

Minorities 155

DTP* 197

Real estate** 62

Equity value 896



Month 10

Current value per share (PLN)* 61.7


Source: Company data, DM BZ WBK estimates, *DTP market capitalisation as of Nov 5, 2014, **assumed fair value of real estate

assets,*** DTP excluded

Fig.2. Paged: Comparable valuation


2014E 2015E 2016E 2014E 2015E 2016E

Paged 42.00 PLN 10.5 8.3 7.5 8.5 6.9 6.2

Polish Industrials

Grupa Kety SA 288.05 PLN 16.7 15.4 18.0 9.7 9.1 8.5 Inter Cars SA 206.50 PLN 16.4 14.9 13.8 12.6 11.4 10.7 Budimex SA 135.45 PLN 20.2 16.9 14.5 9.8 8.4 7.3 Elektrobudowa SA 77.50 PLN 15.4 10.2 8.6 n.a. n.a. n.a. Pfleiderer Grajewo SA 31.01 PLN 13.8 12.7 11.7 8.5 7.8 7.2 Integer.pl SA 210.00 PLN 70.8 35.8 20.0 30.6 12.0 7.4 Fabryki Mebli Forte SA 56.00 PLN 16.1 14.5 13.3 11.1 9.9 9.0 Kopex SA 10.99 PLN 9.7 9.6 8.2 4.8 4.9 4.4 Pozbud T&R SA 4.99 PLN 10.2 9.0 9.7 n.a. n.a. n.a. Famur SA 3.20 PLN 12.7 11.6 11.2 4.3 4.0 3.8 Rovese SA 1.46 PLN n.a. 45.5 18.3 9.0 7.9 7.2

Median 15.7 14.5 13.3 9.7 8.4 7.3

Foreign plywood sector representatives

Norbord Inc 22.87 CAD 61.5 20.0 9.9 15.2 8.5 5.5 Ehlebracht AG 3.83 EUR 18.9 17.2 16.5 6.4 6.1 5.9 Universal Forest Products Inc 50.18 USD 17.7 14.7 21.1 8.2 7.1 9.1 Greenply Industries Ltd 1150.65 INR 18.0 20.0 17.1 10.1 8.9 7.7 Boise Cascade Co 37.43 USD 17.5 14.0 11.0 7.9 6.7 5.7 Canfor Corp 26.99 CAD 17.8 11.2 9.6 7.4 5.8 5.1 Duratex SA 8.22 BRL 12.3 10.4 8.9 6.7 6.0 5.3 Steinhoff International Holdings Ltd 5511.00 ZAr 11.4 10.0 9.0 10.5 9.4 8.9

Median 17.7 14.3 10.4 8.1 6.9 5.8

Premium/discount vs. Polish peers median -33.0% -42.8% -43.1% -12.3% -17.7% -15.1% Premium/discount vs. foreign peers median -40.6% -42.2% -27.7% 5.1% -0.4% 6.8%

Implied Paged price per share vs. Polish peers 62.72 73.37 73.82 47.88 51.06 49.46 Implied Paged price per share vs. foreign peers 70.72 72.70 58.10 39.95 42.16 39.33



123

Fig. 3. Paged: 3Q14 results review PLN in millions, unless otherwise stated


Sales 141.5 136.4 151.0 141.4 150.2 137.6 181.7 167.3 187.0 150.6 158.2 171.9 194.2 3.8% 13.0%

EBITDA 18.1 15.7 17.9 15.4 16.4 9.5 35.3 26.0 27.6 16.7 23.6 29.7 37.4 35.5% 25.9%

EBITDA margin 12.8% 11.5% 11.8% 10.9% 10.9% 6.9% 19.4% 15.5% 14.7% 11.1% 14.9% 17.3% 19.2% 8.3 3.7

EBIT 13.8 11.1 13.5 10.9 11.7 4.6 30.8 21.5 23.0 12.1 18.8 24.7 31.3 35.7% 26.4%

EBIT margin 9.7% 8.1% 8.9% 7.7% 7.8% 3.4% 16.9% 12.8% 12.3% 8.0% 11.9% 14.4% 16.1% 8.3 3.3

Net profit 3.2 6.4 11.4 3.2 7.9 5.2 14.0 14.1 21.5 8.9 15.4 14.7 21.3 -0.5% 45.0%

Net margin 2.3% 4.7% 7.5% 2.2% 5.2% 3.8% 7.7% 8.4% 11.5% 5.9% 9.7% 8.6% 11.0% 5.8 2.6


Fig. 4. Paged: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E







Fig. 5. Paged: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 6. Paged: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 587.3 686.7 702.8 793.2 854.5

COGS 448.7 511.6 496.1 555.7 597.0

Gross profit 138.6 175.1 206.7 237.5 257.5

SG&A 87.7 89.5 106.6 119.2 128.6


EBITDA 79.5 105.5 120.3 145.2 158.3




Income tax 14.8 7.0 11.1 13.0 15.0

Net profit 28.9 58.4 61.8 76.5 84.8

Gross margin 23.6% 25.5% 29.4% 29.9% 30.1%

EBITDA margin 13.5% 15.4% 17.1% 18.3% 18.5%




Fig. 7. Paged: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 250.8 264.3 384.4 403.8 411.1

Fixed assets 405.6 432.2 620.0 669.6 689.8

Total assets 656.4 696.6 1,004.3 1,073.3 1,100.9


bank debt 66.7 51.6 81.6 77.7 74.0


bank debt 74.4 56.2 221.2 211.0 183.5

Equity 305.5 365.5 427.3 503.8 558.0

share capital 36.3 36.5 36.5 36.5 36.5


Total liabilities 656.4 696.6 1,004.3 1,073.3 1,100.9

Net debt 117.5 93.5 271.5 255.3 227.9


Fig. 8. Paged: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

CF from operations -41.7 52.5 62.0 93.2 108.4


CF from financing, incl. 188.2 -20.5 250.0 -14.0 -61.8

dividends 0.0 0.0 0.0 0.0 -30.6

Net change in cash 6.3 -9.3 65.0 2.1 -3.8



124



125

Poland FINANCIALS

NOVEMBER 12, 2014

PRIME CAR MANAGMENT RECOMMENDATION

BUY (INITIATION)

Stable dividend payer CURRENT PRICE: PLN 50.6


Equity Story. Prime Car Management was focused in recent

years on high-margin car fleet management (CFM) services and

we expect it to stay on track and keep its margins on additional

services and increased volumes. We expect that supportive

environment (an economic rebound, low interest rates) with help

to increase higher margin CFM services instead of pure leasing

services. PCM plans to focus more on SME clients, while in

corporate segment should their market share stay stable. We

also expect the company to gain in the environment of lower

interest rates thanks to the leverage ratio level (debt/equity 1.11).

We are initiating our coverage of Prime Car Management with a

BUY rating and a TP of PLN59.70, offering a 18% upside

potential.

Financials. We expect a net profit of PLN68mn in 2014E (ex-

one-off PLN53mn). We also expect the net profit to fall to

PLN55mn in 2015E (down 19% y/y) and improve to PLN58 in

2016, implying a ROE of 15%, 11% and 12% respectively. We

assume that the margin on leasing will decrease in the following

years and expect the margins on additional services (insurance,

service, remarketing) to stay flat. This, with higher volumes,

should increase the profits. We expect the current mix of fleet to

shift towards a higher share of semi-FSL and FSL.

Triggers/Risks. We assume that the company will pay PLN4.3 of

DPS, which implies an 8.3% (7.2% at TP) of DY. This should be

between 6.7-7% (5.8-6.1% at TP) next year. However, the

company has been actively participating in the consolidation

process of the Polish CFM market and is looking for further

acquisitions. Although we did not factor in any future acquisitions

into our model, we think that the company’s good balance sheet

structure and track record (the company completed two

acquisitions in 2013) provide a good basis for further deals.

Valuation & recommendation. We have set a 12-month TP of

PLN59.7/share using a blend of the residual income model,

warranted equity valuation and DDM, which imply a 18% upside

potential. The company currently trades at P/E 9x 2014, P/BV of

1.3 and DY of 8.4%.

STOCK PERFORMANCE

PCM

WIG Relative

30

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on issue date

12 month target



COMPANY DESCRIPTION

Prime Car Management Group is one of the leaders in the car fleet management market in Poland by number of vehicles. The group operates under the Masterlease brand and had almost 8k clients with 23.180 vehicles leased and under management.


Fleet Holdings 60.00%

OFE ING 8.00%

ANALYSTS


Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes PCM.WA / PCM PW

Revenues 557 589 600 641 Market capitalisation (PLNm) 605

Costs -498 -500 -530 -569 Number of shares (m) 11.9

Pre-tax profit 59 89 70 72 Free float (%) 40.0%


P/Ex 14.1 9.1 11.2 10.6 Price performance

1M 3M YTD

P/BV 1.3 1.3 1.3 1.2 2.7% 21.0% 15.4% Source: Company data, DM BZ WBK estimates


126

Fig. 1.PCM: Residual Income model PLN in millions, unless otherwise stated

2014E 2015E 2016E

Net profit 68 55 58

Equity (YE) 479 493 508

ROE 14.5% 11.4% 11.6%

COE 9.3% 9.3% 9.3%

Excess return 5.3% 2.1% 2.4%

Residual income 25 10 12

PV of residual income (2014-16E) 41


Transition period (2017-2023E) 3.5% 11.8% 75% 126 56

Perpetuity 2.0% 11.8% 79% 226 86

Total intrinsic value 182

# of shares (m) 12

Value per share 15.3



Month 10.0





Fig. 2. PCM: DDM valuation

2014E 2015E 2016E

DPS* 0.0 4.3 3.5

Discount factor 0.92 0.84 0.77

NPV of 2014-16E (PLN/share) 6.3

Transition period (2017-23E):

- div. pay-out ratio (min, max) 72% 75%

- CAGR 3.4%

- NPV (PLN/share) 16.4

Terminal value (NPV per share) 28.0

Total NPV per share 50.6


Upside potential 8%


Fig. 3. PCM: Warranted Equity Valuation

2016E ROE (%) 11.6

COE (%) 9.3

g (%) 2.0

Implied fair P/B (x) 1.3

YE16E BVPS 42.6

Fair value (YE16E) 57

PV of fair value 43

DPS14E 0.0

DPS15E 4.3

DPS16E 3.5

PV of 2014-16E DPS 6.3

PV of equity + DPS (Jan'14) 50

Month 10

PV (current) 54

12-month price target 58




127

Fig. 4. PCM: 3Q14 results review PLN in millions, unless otherwise stated

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q

Revenues 135 148 139 135 139 151 128 -8% -15%

o/w operating leasing 43 43 42 42 40 40 38 -10% -6%

o/w fees 49 49 49 50 53 51 48 -1% -6%

o/w interest income 10 11 8 11 9 9 9 15% -1%

o/w sale-lease items 30 45 39 30 35 34 33 -16% -4%

Costs -117 -135 -128 -119 -120 -121 -114 -11% -6%

o/w service -39 -45 -42 -40 -40 -42 -40 -4% -5%

o/w depreciation -29 -29 -34 -31 -29 -28 -29 -15% 2%

o/w G&A -9 -9 -8 -10 -9 -10 -9 13% -10%

o/w sale-lease items -28 -42 -36 -29 -33 -33 -29 -19% -11%

Gross profit 19 13 11 16 19 30 14 25% -54%

Net profit 15 10 6 12 15 27 10.9 70% -60%


Fig. 5. PCM: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Revenues 589 n.a. 0% 600 n.a. 0% 641 n.a. 0%

Costs -500 n.a. 0% -530 n.a. 0% -569 n.a. 0%

Gross profit 89 n.a. 0% 70 n.a. 0% 72 n.a. 0%

Net profit 68 n.a. 0% 55 n.a. 0% 58 n.a. 0%


Fig. 6. PCM: Valuation changes In PLN per share, unless otherwise stated

New Previous Change


WEV 60.6 n.a. 0%

DDM 55.6 n.a. 0%


Fig. 7. PCM: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Revenues 539 557 589 600 641

o/w operating leasing 177 170 171 191 220

o/w fees 202 196 206 210 215

o/w interest income 38 40 41 39 37

o/w sale-lease items 118 144 148 152 161

Costs (496) (498) (500) (530) (569)

o/w service (184) (166) (169) (173) (177)

o/w depreciation (112) (123) (123) (144) (161)

o/w G&A (32) (35) (36) (37) (38)

o/w sale-lease items (115) (135) (139) (144) (152)


o/w service 20 34 40 41 42

o/w insurance 4 8 9 9 9

o/w sale-lease items 3 8 9 8 10

Tax rate -23% -26% -23% -21% -19%

Net profit 33 44 68 55 58


Fig. 8. PCM: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Cash and acash equivalents 16 7 46 23 8

Finance lease receivables 362 380 384 388 392

Inventories 17 35 36 44 50

Leased vehicles 543 526 544 653 751

Total assets 1,090 1,082 1,171 1,261 1,349

Bonds, loans and borrowings 534 522 544 653 751

Other liabilities 133 98 148 115 91

Equity 423 462 479 493 508

C/I 92% 89% 85% 88% 89%

Service margin 0.136% 0.218% 0.250% 0.250% 0.250%

Insurance margin 0.024% 0.052% 0.055% 0.055% 0.056%

Remarketing margin 0.58% 1.55% 1.65% 1.40% 1.40%


Fig. 9. PCM: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E


CF from investment (4) (1) (1) (1) (1)

CF from financing (92) (48) (66) (94) (96)

Net change in cash -4 -10 39 -23 -14



128



129

Poland Industrials

November 12, 2014

PEKAES RECOMMENDATION

BUY (INITIATION)

Something to prove CURRENT PRICE: PLN9.04


Equity Story. Pekaes operates on a challenging market with a strong exposure to the current economic activity (a highly cyclical business that could be described as the litmus paper of the economy). The long-term strategic plans are scheduled for 2014-18 and are aimed at expansion in full warehouse logistics (domestic and abroad) together with sector and market diversification both through acquisitions and organic growth. The logistics services provider is taking measures to deliver more value to its shareholders thanks to implementation of higher margin services and cross-line activities intended to extract synergies. The full truck road transport (delivering the lowest margin) represents c. 40% of the sales (figure used to amount to 80%), while the more profitable groupage transport is attributable for another 40%. Chemikals and Spedcont, the fully consolidated subsidiaries purchased at the end of 2013 that operate in the intermodal segment, bring in on average of 10% of the P&L top line. Sticking more to market figures, the recent statistics describing the transport and logistics sector indicate a stable financial and operational standing of the companies in 3Q14. Taking into account the less favorable industrial output data for the Polish economy in y/y terms (the seasonally adjusted gauge dropped c. 2pp in comparison to 2Q14) and pressure on prices of services (accompanied by limited possibilities of price cuts by the suppliers), the market remains tough. Statistics indicate an approx. 5.6% uptick in sales in transport and warehouses services in 1H2014.

Financials. Looking forward, the company expects to grow above the historical long term TSL market average of 3%-4%. We assume that the pace of the sales increase on a y/y basis will be close to 4% in the long-term horizon (4.5% in the medium term, till 2019). In our opinion, the company’s sales will amount to PLN717mn in 2014 (a 30.7% y/y surge) due to the consolidation of Chemikals and Spedcont. The NP is forecasted to come in at PLN15.7mn (2.2% margin). We estimate the EBITDA margin to near 5% in the current year and hover in a range of 4.5% to 5% in the long term, which is still well beneath the MB’s goal at the sector average of 6.5%. From 2015 onward, the effective tax rate is expected to increase due to the full settlement of the losses from the previous years.

Triggers / Risks. We assume that Pekaes will continue to build its position in the groupage shipment and the intermodal transport segment, reducing its exposure to the full-truck load services. According to the management’s guidance, the company is considering an acquisition that would allow it to double its parent entities’ sales with the engagement of own cash and external debt. Adverse trends in the economy pose a significant downside risk for the TSL company. Nevertheless, markets (planned expansion in southern Europe) and services should translate into lower business cyclicality in the long run.

Valuation & recommendation. We used a mixed approach to get our valuation, which is a combination of DCF (50% weight) at PLN12.8 per share and comparative valuation (50% weight) at PLN8.34 (assigned equal weights for Polish peers multiples of PLN8.67 and those for foreign peers of PLN8.01). Implementation of the described formula provides a 12M TP of PLN10.57, which offers an upside potential of 16.4%. We, therefore, initiate our coverage of Pekaes with a Buy recommendation.

STOCK PERFORMANCE

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on issue date

12 month target



COMPANY DESCRIPTION

Pekaes is one of Poland’s leading firms in full-warehouse logistics and multi-channel freight forwarder.


KH Logistyka Sp. z o.o. 56.71%

ING OFE 12.60%

PEK Holdings 6.30%

ANALYST

Michal Sopiel (+48) 22 586 82 33

[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes PEKA.WA / PEK PW

Sales 549 717 750 784 Market capitalisation (PLNm) 275.9


EBIT 10 16 17 18 Free float (%) 37.0%



1M 3M YTD

EV/EBITDA (x) 13.5 6.7 6.5 6.3 -1.4% +7.1% -9.9% Source: Company data, DM BZ WBK estimates


130

Fig. 1. Pekaes: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Net sales 717 750 784 819 857 896 923 950 979 1,009

EBITDA 35 36 36 37 39 41 42 43 44 46

EBIT 16 17 18 19 21 23 25 26 28 29


NOPAT 16 15 15 15 17 19 20 21 22 24

Depreciation 19 19 18 18 18 18 17 17 17 16



Net investment 27 1 1 1 0 0 -1 -1 0 0

Free cashflow -11 15 14 14 17 18 21 22 23 24

WACC 7.9%

PV FCF 2014-2023 94


PV TV 174

Total EV 268

Net debt -22

Real estate* 57

Equity value 347



Month 10



Source: Company data, DM BZ WBK estimates, *assumed fair value of real estate assets

Fig. 2. Pekaes: Comparable valuation


2014E 2015E 2016E 2014E 2015E 2016E

Pekaes 9.00 PLN 17.5 18.3 19.4 7.2 7.0 6.8

Polish Industrials

Grupa Kety SA 288.05 PLN 16.7 15.4 18.0 9.7 9.1 8.5 Inter Cars SA 206.50 PLN 16.4 14.9 13.8 12.6 11.4 10.7 Budimex SA 135.45 PLN 20.2 16.9 14.5 9.8 8.4 7.3 Elektrobudowa SA 77.50 PLN 15.4 10.2 8.6 n.a. n.a. n.a. Paged SA 42.00 PLN 10.9 7.6 7.1 n.a. n.a. n.a. Integer.pl SA 210.00 PLN 70.8 35.8 20.0 30.6 12.0 7.4 Fabryki Mebli Forte SA 56.00 PLN 16.1 14.5 13.3 11.1 9.9 9.0 Kopex SA 10.99 PLN 9.7 9.6 8.2 4.8 4.9 4.4 Pozbud T&R SA 4.99 PLN 10.2 9.0 9.7 n.a. n.a. n.a. Famur SA 3.20 PLN 12.7 11.6 11.2 4.3 4.0 3.8 PKP Cargo SA 79.99 PLN 11.7 11.2 9.8 5.2 5.0 4.6

Median 15.4 11.6 11.2 9.7 8.7 7.3

Foreign logistics sector representatives

ACM Shipping PLC n.a. GBp n.a. n.a. n.a. n.a. n.a. n.a. Agility Public Warehousing Co KSC 860.00 KWd 17.6 14.6 9.6 10.0 8.7 6.6 Asciano Ltd 6.29 AUD 15.1 13.2 12.2 8.2 7.5 7.2 ALL - America Latina Logistica SA 6.46 BRL 28.0 16.2 10.6 4.8 4.2 3.6 Bollore SA 400.95 EUR 34.8 31.1 26.7 14.1 12.7 11.6 Delticom AG 16.36 EUR 33.5 16.9 11.7 12.3 9.5 7.6 Egyptian Transport and Commercial Services Co SAE 18.21 EGP 10.7 7.4 6.1 8.0 5.0 4.2 Eurokai GmbH & Co KGaA 29.10 EUR 13.6 11.7 10.6 4.9 4.6 4.3 Hamburger Hafen und Logistik AG 17.31 EUR 24.3 19.9 17.1 5.6 5.3 5.0 LDLC.com 20.40 EUR 15.3 12.2 9.4 9.9 8.2 6.3 Mueller - die Lila Logistik AG 4.40 EUR 10.5 9.6 n.a. n.a. n.a. n.a. Reysas Tasimacilik ve Lojistik Ticaret AS 0.81 TRY 9.0 9.0 n.a. n.a. n.a. n.a. Super Group Ltd/South Africa 3125.00 ZAr 12.0 10.7 9.6 5.2 4.8 4.1 Stobart Group Ltd 97.75 GBp 32.5 20.3 12.3 27.5 20.1 12.4 TAL International Group Inc 43.49 USD 11.5 11.5 11.2 8.3 8.0 7.5

Median 15.2 12.7 10.9 8.3 7.7 6.5

Premium/discount vs. Polish peers median 13.8% 57.8% 73.5% -26.3% -20.2% -7.4%

Premium/discount vs. foreign peers median 15.4% 43.9% 78.5% -13.1% -10.0% 4.8%

Implied Pekaes price per share vs. Polish peers 7.91 5.70 5.19 12.21 11.27 9.72

Implied Pekaes price per share vs. foreign peers 7.80 6.25 5.04 10.36 10.00 8.59

Source: BZ WBK Brokerage research, Bloomberg.


131

Fig. 3. Pekaes: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 143.5 123.2 129.8 134.4 130.6 107.5 118.4 132.3 146.5 151.4 180.1 178.4 178.1 21.5% -0.2%

EBITDA 0.7 -3.8 0.3 -3.0 3.2 9.5 0.6 4.0 6.8 6.4 8.6 9.1 8.8 29.6% -3.1%

EBITDA margin 0.5% -3.1% 0.2% -2.2% 2.4% 8.9% 0.5% 3.0% 4.6% 4.2% 4.8% 5.1% 5.0% 2.5 1.9

EBIT 0.7 -6.4 -2.3 -5.5 0.8 7.3 -1.1 2.5 5.0 3.9 4.3 3.9 4.1 -17.4% 5.4%

EBIT margin 0.5% -5.2% -1.8% -4.1% 0.6% 6.8% -1.0% 1.9% 3.4% 2.5% 2.4% 2.2% 2.3% 1.7 0.4

Net profit 3.4 -5.7 -2.5 -4.3 2.1 8.5 0.4 3.9 5.6 3.2 4.2 3.6 3.6 -35.5% -0.5%

Net margin 2.4% -4.6% -1.9% -3.2% 1.6% 7.9% 0.3% 2.9% 3.8% 2.1% 2.3% 2.0% 2.0% 0.4 -0.9


Fig. 4. Pekaes: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E







Fig. 5. Pekaes: Valuation changes In PLN per share, unless otherwise stated

New Previous Change


Comparable valuation (based on 2014-2016E) 8.34 n.a. n.a.

Weighted TP 10.57 n.a. n.a. Source: Company data, DM BZ WBK estimates

Fig. 6. Pekaes: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 523.3 548.6 717.0 749.6 783.7

COGS 491.0 508.7 663.3 692.5 723.2

Gross profit 32.3 39.9 53.7 57.1 60.4

SG&A 38.5 31.6 38.4 39.8 41.2


EBITDA 10.0 17.8 35.3 35.8 36.3


Net financial income (costs) -4.4 -3.0 0.4 0.5 0.6


Income tax 0.7 0.2 0.2 1.7 3.3

Net profit 3.8 13.0 15.7 15.0 14.1

Gross margin 6.2% 7.3% 7.5% 7.6% 7.7%

EBITDA margin 1.9% 3.2% 4.9% 4.8% 4.6%




Fig. 7. Pekaes: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 204.8 163.3 217.5 227.8 237.9

Fixed assets 161.1 271.4 253.8 250.9 248.1

Total assets 365.9 434.7 471.3 478.8 486.0


bank debt 0.0 2.8 8.8 8.8 8.8


bank debt 0.0 16.3 32.3 32.3 32.3

Equity 275.8 287.0 302.7 306.7 310.4

share capital 98.2 98.2 98.2 98.2 98.2



Net debt -88.8 -36.5 -40.8 -44.5 -47.6


Fig. 8. Pekaes: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E


CF from investment 0.8 -94.3 -1.4 -15.8 -15.5

CF from financing, incl. -37.7 17.3 22.0 0.0 -10.3

dividends 0.0 0.0 0.0 0.0 -10.3




132



133


NOVEMBER 12, 2014

PELION RECOMMENDATION

HOLD (MAINTAINED)

Under pressure from falling margin CURRENT PRICE: PLN75


3Q14 Results Preview. We expect Pelion to report another weak

quarter y/y in 3Q14 on all the P&L levels. The results will be hit by

lower margins on Rx-drugs as well as by the lack of any visible

cost-cutting or growth in sales. We expect the top line to grow

5.0% y/y on the back of pharma growth, which we estimate at 4-

5% y/y. We also assume that the gross margin will probably fall

47bps to 10.4% y/y. Despite some costs savings, putting SG&A at

PLN175mn, or 9.3% of sales in 3Q14, and compared with

PLN170mn (9.6% of sales) in 3Q13, it is not enough to push the

EBITDA higher y/y. All in all, we expect the EBITDA to fall 11%

y/y (the EBITDA margin by 27bp to 1.4%) in 3Q14. Assuming

PLN4mn in net financials, we expect a net profit of PLN10mn

(-10% y/y) in 3Q14. Outcome: NEGATIVE.

We see no reason to change our recommendation on Pelion. In

line with the scenario that we had outlined following the positive

surprise in 1H13, 2H13 brought massive disappointment to

investors because the effects of the massive cost cutting in its

retail business and the impact of the loyalty programmes on sales

growth evaporated. Moreover, (1) another margin cut on the

refunded drugs; (2) slow market growth in 2014; and (3) the

continuous advertising ban in retail all add to this bleak picture.

We, therefore, expect Pelion to report notably weaker results y/y

with the EBITDA and the net profit falling 17% and 31% y/y in

2014. This means that Pelion is trading on a PE’ for 2014E of

13.4x and EV/EBITDA of 10.8x, which implies a 7% discount to

Farmacol and a 17% premium over Neuca. In our view, Pelion

should be traded at a discount to both.

Change in valuation & recommendation. We maintained our 12

month TP at PLN79/share. A comparative valuation against

Polish peers points to PLN62/share.

PUBLICATION DATE

NOVEMBER 14, 2014


3Q14E y/y (%) q/q (%)

Sales 1,869 5.0% 0.9%

EBITDA 27.0 -12.0% 35.3%

EBIT 17.0 -21.6% 52.3%

Net profit 10.0 -13.8% 393.7%

STOCK PERFORMANCE





on issue date

12 month target


Hold 10/21/2014 72.6 79.0 3.6% 2.9

Hold 9/7/2014 72.0 80.0 0.8% 3.0

Hold 4/28/2014 76.5 86.0 -5.9% -11.4

Hold 1/30/2014 89.1 96.0 -14.2% -16.4

COMPANY DESCRIPTION

Pelion is one of the largest Polish pharmaceutical distributors controlling a ca. 20% market share and with exposure in the retail segment.

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes PELIO.WA / PEL PW



EBIT 128 96 111 119 Free float (%) 68.1%


P/E (x), adj. 9.9 12.3 11.1 10.8 Price performance

1M 3M YTD

EV/EBITDA (x), adj. 8.4 10.9 9.5 9.0 -0.4% 3.0% -27.1% Source: Company data, DM BZ WBK estimates



134

Fig. 1. Pelion: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 1,628 1,697 1,663 1,659 1,610 1,754 1,922 1,770 1,780 1,831 1,947 1,852 1,869 5.0% 0.9%

EBITDA 35.1 31.3 28.2 29.4 29.7 52.3 63.2 42.8 30.7 28.0 46.6 20.0 27.0 -12.0% 35.3%

EBITDA margin 2.2% 1.8% 1.7% 1.8% 1.8% 3.0% 3.3% 2.4% 1.7% 1.5% 2.4% 1.1% 1.4% -28 37

EBIT 27.2 22.5 18.6 19.6 20.0 42.6 54.4 33.5 21.7 18.7 36.6 11.2 17.0 -21.6% 52.3%

EBIT margin 1.7% 1.3% 1.1% 1.2% 1.2% 2.4% 2.8% 1.9% 1.2% 1.0% 1.9% 0.6% 0.9% -31 31

Net profit 14.5 43.3 5.1 5.8 6.5 38.5 35.7 20.5 11.6 32.4 24.5 2.0 10.0 -13.8% 393.7%

Net margin 0.9% 2.6% 0.3% 0.3% 0.4% 2.2% 1.9% 1.2% 0.7% 1.8% 1.3% 0.1% 0.5% -12 43


Fig. 2. Pelion: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 7,589 7,589 0.0% 7,889 7,889 0.0% 8,219 8,219 0.0%

EBITDA 137 137 0.0% 154 154 0.0% 165 165 0.0% EBIT 96 96 0.0% 111 111 0.0% 119 119 0.0% Net profit 69 69 0.0% 81 81 0.0% 83 83 0.0% Source: Company data, DM BZ WBK estimates

Fig. 3. Pelion: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 4. Pelion: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 6,686 7,302 7,589 7,889 8,219

COGS 5,858 6,466 6,738 7,008 7,305

Gross profit 827 836 851 881 913

SG&A 707 699 747 765 789


EBITDA 140 164 137 154 165

EBITDA, adj. 159 173 145 159 170





Net profit 57 100 69 81 83

Net profit, adj. 78 96 69 81 83

Gross margin 12.4% 11.5% 11.2% 11.2% 11.1%

EBITDA margin 2.1% 2.3% 1.8% 2.0% 2.0%




Fig. 5. Pelion: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 1,562 1,741 1,929 2,054 2,178

Fixed assets 915 992 968 972 983

Total assets 2,477 2,733 2,897 3,026 3,161

Current liabilities 1,623 1,745 1,775 1,839 1,910

bank debt 67 38 144 144 144


bank debt 290 372 424 424 424

Equity 539 591 670 734 798




Net debt* 418 437 542 510 541

Source: Company data, DM BZ WBK estimates, *with reverse factoring

Fig. 6. Pelion: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

CF from operations 168 149 -86 95 45


CF from financing -194 17 155 -16 -19

Net change in cash -46 48 53 32 -31



135


November 12, 2014

PHN RECOMMENDATION

BUY (MAINTAINED)

Strong 3Q results on tax gain CURRENT PRICE: PLN25.25


3Q14 Results Preview. We expect PHN to post strong results in

3Q14. The company had announced an intra-Group transfer of

properties worth PLN243mn to SPV. Such a transaction should

result in the release of a tax provision (tax gain), as in the past.

And though the transaction was concluded already in 4Q, we

think that the company may decide to recognise the gain already

in 3Q. The core business should perform much better than in

2Q14 thanks to 1) higher q/q notary sale volumes (residential

business line), 2) higher q/q rental profits on q/q margin growth.

The continuing restructuring should also lead to slightly lower q/q

(PLN0.6mn) administrative costs. We expect, however, some

PLN4mn in one-off restructuring costs. Overall, we project PHN’s

EBIT to grow to PLN5.6mn from PLN0.6mn in 2Q but to fall vs.

3Q13 by >30%, especially with respect to the gradual NOI

contraction (pressure on rent levels, rising vacancy rates etc.). At

the bottom line level, we expect as much as PLN45.5mn (c.

PLN10mn in 2Q14 and 79mn in 3Q13), helped by the PLN40mn

tax gain. Outcome: POSITIVE.

Change in forecasts. We maintain our financial forecast intact.

Change in Valuation & Recommendation. We maintain our TP

for PHN at PLN29.1. With a fundamental upside, we maintain our

recommendation at Buy. Material tax gains in 3Q14E and 4Q14E

might offer a positive surprise, boosting the FY14 net profit close

to PLN90mn. Assuming there is a 100% dividend pay-out (likely

scenario), the dividend yield would exceed 7%, which is solid

level, the way we see it (PHN’s peers do not pay dividends given

their high leverage, whereas PHN is net cash). The company is

trading 0.63x to its 2Q14 NAV, which offers a huge discount to

the WSE peers, such as Echo or GTC (approx. 0.8x). That said,

we think that the current share valuation is justified only when a

flat NAV is assumed in the coming 6 years (assuming 8.2%

WACC). We find this to be an unlikely scenario in light of the

recently announced strategy to target NAV growth of 75% by

2023 (development of pipeline projects and acquisition of yielding

properties). With respect to the ST risk factors, the introduction of

approx. 0.2mn employee shares into trading by year-end may

produce an additional supply of shares. Furthermore, the

Treasury failed to sell its 73% stake in PHN to a strategic

investor. We think that a sale of the stake in a public placement

could be a possible scenario.

STOCK PERFORMANCE





on issue date

12 month target


Buy 10-22-2014 25.7 29.1 -1.0% -1.6

Hold 7-9-2014 24.7 27.5 4.1% -1.0

Hold 4-28-2014 29.9 29.7 -17.4% -15.8

Hold 2-11-2014 28.1 29.5 6.4% 8.3

COMPANY DESCRIPTION

PHN is a real estate developer.


Trasury 70.5%



ANALYST

Adrian Kyrcz (+48) 22 586 81 59

[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes PHN.WA / PHN PW

Sales 131.2 158.6 160.0 136.0 Market capitalisation (PLNm) 1 170.5

EBITDA -5.0 16.4 39.2 45.4 Number of shares (m) 46.4

EBIT -7.0 14.4 37.2 43.4 Free float (%) 29.8%



1M 3M YTD

P/BV (x) 0.60 0.61 0.60 0.59 4.1% 12.3% -5.9% Source: Company data, DM BZ WBK estimates


136

Fig. 1. PHN: 3Q14 results preview PLN in millions, unless otherwise stated


Sales n.a. 52.9 48.8 52.1 40.2 46.6 50.7 41.5 37.9 41.2 39.8 38.7 40.1 5.8% 3.6%

EBITDA n.a. -82.9 -63.1 -63.1 -56.7 -47.0 10.5 -32.2 9.0 7.7 3.0 1.0 6.0 -33.3% n.m.

EBITDA margin n.a. n.a. n.a. n.a. n.a. n.a. 20.7% -77.6% 23.7% 18.7% 7.5% 2.6% 15.0% -0.4 4.8

EBIT n.a. -83.9 -63.9 -63.7 -57.2 -47.7 9.9 -32.8 8.6 7.3 2.6 0.6 5.6 -34.9% n.m.

EBIT margin n.a. -

158.6% -

130.9% -

122.3% -

142.3% -

102.4% 19.5% -79.0% 22.7% 17.7% 6.5% 1.6% 14.0%

-0.4 8.0

Net profit n.a. -66.7 -46.0 -41.2 -43.8 -39.8 6.8 -23.1 78.8 37.5 2.5 10.2 45.5 -42.3% n.m.

Net margin n.a. -

126.1% -94.3% -79.1%

-

109.0% -85.4% 13.4% -55.7% 207.9% 91.0% 6.3% 26.4% n.m.

-0.5 3.3


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

2014E 2015E 2016E


Sales 159 159 0% 160 160 0% 136 136 0%

EBITDA 16 16 0% 39 39 0% 45 45 0%

EBIT 14 14 0% 37 37 0% 43 43 0%


Fig. 3. PHN: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

SOTP valuation 29.1 29.1 0%

Comparable valuation (based on P/BV) 27.9 27.9 0% Source: Company data, DM BZ WBK estimates

Fig. 4. PHN: Income statement forecast PLN in millions, unless otherwise stated

2013 2014E 2015E 2016E

Net sales 131.2 158.6 160.0 136.0

COGS -59.1 -89.6 -90.1 -60.6

Gross profit 72.1 69.0 69.9 75.4

SG&A 46.2 35.1 39.0 39.0

Other operating income, net -19.5 -7.7 -7.0 0.0

EBITDA -5.0 16.4 39.2 45.4

Operating profit -7.0 14.4 37.2 43.4

Net financial income (costs) 6.8 0.6 -4.6 -4.5

Profit before tax -0.2 15.0 32.6 39.0

Income tax 107.4 74.5 -6.2 -7.4

Net profit 100.4 88.7 26.4 31.6

Gross margin 55.0% 43.5% 43.7% 55.5%

EBITDA margin -3.8% 10.3% 24.5% 33.4%

Operating margin -5.3% 9.1% 23.3% 31.9%

Net profit margin 76.5% 55.9% 16.5% 23.2%


Fig. 5. PHN: Balance Sheet forecast PLN in millions, unless otherwise stated

2013 2014E 2015E 2016E

Current assets 483.0 291.2 235.8 254.7

Fixed assets 1974.2 2074.2 2166.4 2180.0

Total assets 2457.2 2365.4 2402.2 2434.7

Current liabilities 251.7 251.7 251.7 251.7

bank debt 1.1 1.1 100.0 100.0

Long-term liabilities 212.8 138.3 237.2 237.2

bank debt 0.4 0.4 0.4 0.4

Equity 1992.7 1975.4 1913.3 1945.8

Total liabilities 2457.2 2365.4 2402.2 2434.7

Net debt -216.3 -49.9 64.4 45.5


Fig. 6. PHN: Cash flow forecast PLN in millions, unless otherwise stated

2013 2014E 2015E 2016E

CF from operations 34.4 48.5 73.5 37.8

CF from investment 10.2 -115.0 -95.0 -15.0

CF from financing -0.5 -99.9 6.1 -4.0

Net change in cash 44.1 -166.4 -15.4 18.9



137


NOVEMBER 12, 2014

POZBUD RECOMMENDATION

BUY (MAINTAINED)

Another good quarter CURRENT PRICE: PLN 4.5


Our investment story remains intact. Pozbud still benefits from

a recovery in the domestic market, while its good quality products

and competitive prices are helping it increase its sales in Western

Europe markets. In our view, it should last for another year.

Additionally, in next year Pozbud will finalize investments into

additional capacities and is likely to sign production contract with

foreign partner. In our view, it will be a notable upside for Pozbud,

which we has not included in our model so far.

3Q14 results preview. 3Q14 was another positive quarter for

Pozbud. We expect top line to stay flat y/y at PLN68mn in 3Q14.

Please note the strong comparison base from previous year for

Pozbud. We estimate the gross margin should fall y/y in 3Q14 to

10.4% vs. 12.8% last year. We expect SG&A at PLN2.1mn (3.1%

in sales vs. 3.2% last year). We expect EBITDA of PLN6.2mn

(9.1% margin compared to 9.9% last year). We expect Pozbud to

report a net profit of PLN3.8mn vs. PLN4.8mn last year.

Outcome: NEUTRAL.

We materially cut our forecasts due to elimination of Baumal’s

takeover impact. On the other hand, we excluded from our

calculations notable dilution of Pozbud’s capital, which totally

eliminated negative impact of forecast decrease on our valuation.

12-m Target Price increase to PLN7.7 from PLN7.2 mainly comes

from lower RfR and time-passage.

Change in valuation & recommendation. Our DCF-based 12-

month target price points to PLN7.70/share. The comparative

valuation points to PLN4.0/share.

PUBLICATION DATE

NOVEMBER 14, 2014


3Q14E y/y (%) q/q (%)

Sales 67.6 0.4% 62.3%

EBITDA 6.1 -18.3% 34.5%

EBIT 5.1 -22.6% 35.1%

Net profit 3.8 -21.0% 27.7%

STOCK PERFORMANCE





on issue date

12 month target


Buy 10/22/2014 4.6 7.7 9.0% 8.4

Buy 4/28/2014 5.2 7.2 -11.8% -15.2

Buy 1/30/2014 5.3 6.7 -3.2% -5.5

Buy 10/23/2013 4.5 6.1 20.0% 25.6

COMPANY DESCRIPTION

Pozbud T&R is a producer of high-quality wooden windows and doors that has recently expanded into solid wooden floor production.

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes POZP.WA / POZ PW



EBIT 14.7 16.3 17.9 15.7 Free float (%) 70.1%



1M 3M YTD




138

Fig. 1. Pozbud: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 21.6 35.8 19.6 25.8 24.0 23.7 17.5 24.6 67.3 35.0 33.2 41.6 67.6 0.4% 62.3%

EBITDA 4.1 2.6 2.7 3.6 2.5 4.5 2.3 3.1 7.5 3.9 4.8 4.6 6.1 -18.3% 34.5%

EBITDA margin 18.9% 7.1% 13.8% 14.0% 10.3% 18.8% 13.4% 12.7% 11.1% 11.1% 14.5% 10.9% 9.1% -208 -188

EBIT 3.3 1.8 1.9 2.9 1.8 3.7 1.7 2.4 6.6 3.1 3.8 3.8 5.1 -22.6% 35.1%

EBIT margin 15.4% 5.0% 9.9% 11.4% 7.4% 15.5% 9.7% 9.9% 9.7% 8.9% 11.5% 9.0% 7.5% -223 -152

Net profit 2.3 2.0 1.5 2.4 1.8 2.1 1.7 2.1 4.8 2.0 2.9 3.0 3.8 -21.0% 27.7%

Net margin 10.7% 5.5% 7.7% 9.2% 7.7% 8.9% 9.8% 8.6% 7.1% 5.8% 8.7% 7.1% 5.6% -152 -152


Fig. 2. Pozbud: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 188.8 188.8 0.0% 187.8 187.8 0.0% 155.0 155.0 0.0%

EBITDA 19.5 19.5 0.0% 21.0 21.0 0.0% 19.0 19.0 0.0% EBIT 16.3 16.3 0.0% 17.9 17.9 0.0% 15.7 15.7 0.0% Net profit 13.3 13.3 0.0% 14.0 14.0 0.0% 11.8 11.8 0.0% Source: Company data, DM BZ WBK estimates

Fig. 3. Pozbud: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 4. Pozbud: Income statement forecast PLN in millions, unless otherwise stated

2012 2013E 2014E 2015E 2016E

Net sales 93.2 148.9 188.8 187.8 155.0

COGS 79.0 126.7 164.2 161.2 130.5

Gross profit 14.3 22.3 24.6 26.5 24.5

SG&A 4.6 8.3 8.0 8.3 8.5


EBITDA 12.6 17.8 19.5 21.0 19.0




Income tax 1.0 1.7 2.1 2.3 1.8

Net profit 7.7 11.4 13.3 14.0 11.8

Gross margin 15.3% 15.0% 13.0% 14.1% 15.8%

EBITDA margin 13.6% 12.0% 10.3% 11.2% 12.2%




Fig. 5. Pozbud: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013E 2014E 2015E 2016E

Current assets 77.3 102.3 77.9 73.7 71.3

Fixed assets 113.7 133.9 155.9 166.3 167.6

Total assets 191.0 236.2 233.8 240.0 238.9


bank debt 31.6 38.0 22.4 22.4 22.4


bank debt 14.9 12.4 20.0 20.0 20.0

Equity 119.5 143.7 146.8 152.8 156.2

share capital 23.4 26.8 23.4 23.4 23.4



Net debt 17.2 9.0 19.9 35.6 45.5


Fig. 6. Pozbud: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013E 2014E 2015E 2016E

CF from operations -4.9 9.7 22.9 5.9 4.5



Net change in cash -0.5 11.9 -18.8 -15.8 -9.8



139

Poland FINANCIALS

NOVEMBER 12, 2014

PRESCO RECOMMENDATION

SELL (INITIATION)

No story to buy CURRENT PRICE: PLN 3.8


Equity Story. PRESCO is one of the leading entities operating on the

market of purchase and sale of mass-scale consumer receivables in

Poland. It conducts the process of receivables recovery for its own

account, using amicable methods and, if necessary, at court. The

basic market on which the company builds its position and

development plans is Poland. In 2013, P.R.E.S.C.O. launched a pilot

project aimed at expansion abroad by way making the first investment

in a receivables portfolio in Russia. PRESCO had a quite weak 1H14

with PLN1.8mn in net profit (vs. PLN9.1mn in 2013) and it didn`t buy

any major debt portfolio in the period. What is more, its CFO

resigned. All this doesn’t exactly help the company. Based on our

estimates, the company trades at 28.5x 2014 P/E and an EV/EBITDA

of 13.9x. It generates a ROE of 2%. Our TP of PLN3.1/ share implies

a 19% downside potential. We are initiating our coverage with a SELL

rating.

Financials. We expect the company’s revenues to rise by 3% to

PLN53mn in 2015 and to PLN57mn in 2016E. Due to changes in the

business model (50/50 settlement and court cases), we expect its

cost-to- income to fall in the following years to 70%. We do not expect

the Russian portfolio to add any extras to revenues in 2014-2016.

Purchases of debt portfolios should stabilise at around PLN40mn per

year. We expect the company to hit bottom in 2014E , when its net

profit should amount to PLN2.6mn. It should, however, rise to

PLN7.7mn in 2016E.

Triggers/Risks. We believe that the golden age for the company has

already passed. We do not see any triggers that could help either.

Since court collectability is lower each year, the company tries to shift

the business model towards settlement. But it won’t work, in our

opinion, not I the near future anyway. We also believe it Russian

portfolio to be quite risky, even though its losses aren’t as big.

Valuation & recommendation. We have set a 12-month target price

for PRESCO at PLN3.1/share using a blend of residual income (50%)

and a DCF method (50%), which implies a 19% downside potential.

The company currently trades at P/E 11x 2015E, an EV/EBITDA of

11.1x and a dividend yield of 0.1%. We used a RFR of 3%, risk

premium 5%, Beta levered 1.54.

STOCK PERFORMANCE

PREWIG

Relative

0

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4

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12

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on issue date

12 month target



COMPANY DESCRIPTION

PRESCO group is one of the entities operating on the market of purchase and sale of mass-scale consumer receivables in Poland. The Company was established in 1998 and it specialises in the purchasing of portfolios receivables, which have been recognised to be difficult to recover by the primary owners.


Andrzejewski Investments Limited 40.7%

Piwonski Investments Limited 40.6%

TFI Legg Maison 5.3%

ANALYSTS


Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes PRE.WA / PRE PW



EBIT 16.6 9.6 13.5 14.6 Free float (%) 18.7%



1M 3M YTD



140

Fig. 1.PRESCO: Residual Income valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E

Net profit 3 7 8

Equity (YE) 116 122 130

ROE 2.3% 5.7% 6.1%

COE 10.7% 10.7% 10.7%

Excess return -8.4% -5.0% -4.6%

Residual income -10 -6 -6

PV of residual income (2014-16E) -17.8


Transition period (2017-2023E) 1.6% 7.2% 30% -38 -18.8

Perpetuity 3.0% 7.4% 30% -80 -29

Total intrinsic value -65.7

# of shares (m) 20




Month 10


12 month TP 3.1

Upside potential -19%


Fig. 2. PRESCO: DCF valuation

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E TV

Revenues 51 53 57 61 64 67 70 72 73 74 75

y/y -22% 3% 8% 7% 6% 5% 4% 3% 2% 1% 1%

EBIT 9.6 13.5 14.6 15.2 14.8 14.8 14.7 14.4 14.0 13.4 13.5

y/y -42% 42% 8% 4% -3% 0% -1% -2% -3% -4% -4%

EBIT margin 19% 25% 26% 25% 23% 22% 21% 20% 19% 18% 18%

Taxes on EBIT 1.8 2.6 2.8 2.9 2.8 2.8 2.8 2.7 2.7 2.5 2.6

NOPAT 7.7 11.0 11.8 12.3 12.0 12.0 11.8 11.7 11.3 10.8 10.9

Depreciation 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8

Portfolio amortisation 14.1 17.1 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0

Portfolio purchase -17.1 -40.0 -40.0 -40.0 -40.0 -40.0 -40.0 -40.0 -40.0 -40.0 -40.0

Capex -0.8 -0.8 -0.8 -0.8 -0.8 -0.8 -0.8 -0.8 -0.8 -0.8 -0.8

WC change 0.3 0.3 0.3 -1.3 0.1 0.3 0.3 0.3 0.3 0.3 0.3

Free cash flow 5.0 -11.7 12.1 11.0 12.1 12.3 12.1 11.9 11.6 11.1 11.2

Discount 0.9 0.8 0.8 0.7 0.7 0.6 0.5 0.5 0.5 0.4 0.4

WACC (2014-23E) 9%

PV FCF (2014-23E) 50


PV Terminal value 55

Total EV 104

Net debt (cash) (YE13) 54

Equity value 51


Equity value per share-current (PLN) 2.6

Target price (12-month) 2.8

Upside/downside -26%



141

Fig. 3. PRESCO: 3Q14 results preview PLN in millions, unless otherwise stated

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q

Revenues 20.2 14.2 18.1 12.2 14.9 19.2 17.1 14.6 14.4 12.7 10.0 -42% -21%

o/w revaluation of debt portfolios -0.8 -6.8 -2.9 -8.8 -6.2 -1.9 -3.9 -6.5 -4.9 -8.1 -8.0 104% -2%

COGS -11.0 -11.1 -11.2 -6.2 -12.9 -16.5 -8.0 -8.7 -11.8 -9.0 -8.0 0% -11%

EBITDA 8.8 2.9 6.6 5.2 1.6 2.4 7.7 5.7 2.2 3.4 2.1 -73% -38%

EBIT 8.6 2.5 6.0 5.2 1.4 2.2 7.5 5.5 2.0 3.2 1.9 -75% -41%

Net profit 7.2 0.9 4.1 3.3 -0.6 0.7 5.5 3.5 0.1 1.6 0.1 -97% -91%

Purchases of debt portfolio 11 21 29 16 0 -1 -5 20 -1 -2 18 -435% -862%

EBIT margin 42% 17% 33% 42% 10% 11% 44% 38% 14% 25% 19%

Net profit margin 36% 7% 22% 27% -4% 4% 32% 24% 1% 13% 1% Source: Company data, DM BZ WBK estimates

Fig. 4. PRESCO: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 51.4 n.a. 0% 53.1 n.a. 0% 57.1 n.a. 0%

EBITDA 10.4 n.a. 0% 14.3 n.a. 0% 15.4 n.a. 0%

EBIT 9.6 n.a. 0% 13.5 n.a. 0% 14.6 n.a. 0%

Net profit 2.6 n.a. 0% 6.8 n.a. 0% 7.7 n.a. 0% Source: Company data, DM BZ WBK estimates

Fig. 5. PRESCO: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

DCF valuation 2.80 n.a. 0%

Residual Income valuation 2.77 n.a. 0%


Fig.6. PRESCO: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 64.8 65.8 51.4 53.1 57.1

CoGS -39.4 -46.1 -40.2 -37.2 -40.0

Gross profit 25.4 19.7 11.2 15.9 17.1

Management costs -2.7 -3.1 -2.4 -2.5 -2.6

other operating income, net -6.7 -7.5 -6.9 -6.8 -6.9

EBITDA 23.0 17.4 10.4 14.3 15.4

EBIT 22.3 16.6 9.6 13.5 14.6

Financial expenses/income -6.7 -7.5 -6.9 -6.8 -6.9

Pre-tax profit 15.5 9.1 2.6 6.8 7.7

Income tax 0.0 0.0 0.0 0.0 0.0

Net profit 15.5 9.1 2.6 6.8 7.7

Margins

Gross margin 39.2% 29.9% 21.8% 30.0% 30.0%

EBITDA margin 35.4% 26.5% 20.2% 27.0% 27.0%

EBIT margin 34.3% 25.2% 18.6% 25.5% 25.6%

Pre-tax margin 24.0% 13.8% 5.1% 12.7% 13.5%

Effective tax rate -0.2% 0.0% 0.0% 0.0% 0.0%



Fig.7. PRESCO: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 20.7 22.1 8.4 8.4 8.4

L-t assets 172.3 170.1 160.9 160.9 160.9

Total assets 193.0 192.2 169.3 169.3 169.3


o/w debt 29.6 30.4 32.4 32.4 32.4

L-t liabilities 50.4 44.7 45.0 45.0 45.0

o/w debt 50.4 44.6 44.9 44.9 44.9

Equity 107.6 112.8 115.7 122.5 130.2


Fig.8. PRESCO: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



CF from financing 27.3 -13.0 -7.5 -6.9 -6.9

Net change in cash -15.9 12.5 15.2 -6.5 -8.5



142



143


November 12, 2014

RONSON RECOMMENDATION

SELL (INITIATION)

Simply too expensive CURRENT PRICE: PLN1.70


Equity Story. Ronson offers exposure to the quickly developing

Polish residential construction market. We expect a favourable

2015E outlook for the company, incl. probable growth in sales

volumes and strong profits on rising notary sales. In the short

term, however, we expect net losses in 4Q14/1Q14 on low notary

sales, accompanied by a negative operating cash flow boosting

leverage. Also, having followed the stock’s outperformance in the

last 3M period (compared to its closest peers), we believe the

company became quite expensive. It is trading in line with its NAV

and above the estimated fair P/NAV ratio, which we estimate at

0.96x, taking into account the 2015E ROE and 0.73x based on

our 2016E ROE estimates. We also cannot exclude some share

supply overhang, which theoretically could put some pressure on

the share price. Note for example that U.Dori, Ronson’s major

shareholder, recognised a deep net loss and negative equity in

1H14 and, hypothetically, we think it could decide to divest to

deleverage.

Financials. Following the disappointing 2014E results (net loss),

we expect a strong profit momentum in 2015. We expect the

handing-overs to rise to 950 units next year (from 500 in 2014E)

from the accumulation of completed dwellings (with respect to the

construction schedule) and strong pre-sales in 2014E (c. 700).

We forecast the sales volume at c. 850-900 units annually beyond

2015 (above the 2014E level) and the handing-overs at the same

level.

Triggers/Risks. We see a possible risk in the form of share

supply from U.Dori, which faces a strained balance sheet. The

growing sales volumes could be a major trigger, drawing support

from 1) a low WIBOR3M (past reverse-correlation between

interest rates and apartment sales volumes), 2) a recovery of

mortgage originations on some GDP growth acceleration next

year (past correlation between the GDP rate and mortgage

originations), and 3) a likely further increase in price limits under

the MdM scheme. We think that these factors should more than

offset the negative implication from the maximum LTV fall to 90%

from 2015 on from the current 95%. Another trigger could be

dividend payment next year (from retained profits)


arrived at 12 month TP at PLN1.53 per share, and we issue Sell

recommendation for Ronson.

STOCK PERFORMANCE





on issue date

12 month target


- - - - - -

COMPANY DESCRIPTION

Ronson is a residential developer focusing on Warsaw and Poznan markets.


U.Dori Group 39.8%

ITR Dori 39.8%



ANALYST

Adrian Kyrcz (+48) 22 586 81 59

[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes RONO.WA / RON PW



EBIT 18.7 -0.3 50.5 42.8 Free float (%) 20.4%

Net profit 19.0 -4.4 38.3 33.1 Avg. daily turnover 3M (PLNm) 0.2

P/E (x) 24.3 n.m. 12.1 14.0 Price performance

1M 3M YTD

EV/EBITDA (x) 29.7 n.m. 9.8 10.8 -4.0% 18.9% -9.1% Source: Company data, DM BZ WBK estimates


http://stooq.pl/h/?i=119u


144

Fig. 1. Ronson: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Net sales 160 371 315 310 338 336 334 334 325 320

EBIT 0 50 43 42 45 44 44 43 41 42


NOPAT 0 41 35 34 37 36 35 35 33 34

Depreciation 1 1 1 1 1 1 1 1 1 1

Change in operating WC 16 22 1 -4 0 0 0 2 1 1


Free cash flow 16 63 35 29 37 36 36 37 34 34


Risk free rate 3.0%

WACC 8.0%


Residual value 493.7

Present value of the residual value 228.6

Ronson’s EV 468.1

Cash and equivalents (2014 bop) 52.2

Interest-bearing debt (2014 bop) 164.0

Dividends 0.0

Equity value 356.2


Equity value of Ronson per share (PLN) 1.31

Month 11

Current equity value of Ronson per share (PLN)

1.41

12M Target Price (PLN) 1.53


Fig. 2. Ronson: Comparable valuation to housing developers

P/NAV

Name 2Q14

Dom Development 1.33

Robyg 1.37

Polnord 0.17

JWC 0.44

Inpro 0.90

Vantage 0.55

Median: 0.79

NAV of Ronson as of 2Q14 (PLNmn) 465

Implied equity value of Ronson (PLNmn) 369

Implied equity value of Ronson per share (PLN) 1.36

Source: Bloomberg, BZ WBK research


145

Fig. 3. Ronson: 3Q14 results review PLN in millions, unless otherwise stated


Sales 21 35 7 35 31 126 54 57 57 39 66 47 29.5 -48.5% -37.3%

EBITDA -1.0 4.4 -2.7 2.3 -2.2 29.6 9.0 5.2 4.2 0.1 5.8 1.5 -4.8 -212.2% -416.3%

EBITDA margin -4.8% 12.5% -37.5% 6.6% -6.9% 23.5% 16.7% 9.2% 7.4% 0.3% 8.7% 3.2% -16.1% -3.2 -6.0

EBIT -1.3 4.4 -2.9 2.1 -2.3 29.4 8.9 5.0 4.1 0.0 5.6 1.4 -4.9 -219.6% -462.2%

EBIT margin -6.2% 12.4% -40.2% 6.0% -7.5% 23.4% 16.4% 8.8% 7.2% 0.0% 8.5% 2.9% -16.6% -3.3 -6.8

Net profit 0.4 5.9 -1.1 3.0 -1.6 31.4 9.1 4.0 4.6 0.4 4.2 0.0 -4.9 -206.0% n.m.

Net margin 1.7% 16.7% -14.9% 8.6% -5.2% 24.9% 16.8% 7.1% 8.1% 1.1% 6.3% 0.1% -16.6% -3.1 -167.4


Fig. 4. Ronson: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 160 n.a n.a 371 n.a n.a 315 n.a n.a

EBITDA 0 n.a n.a 51 n.a n.a 43 n.a n.a

EBIT 0 n.a n.a 50 n.a n.a 43 n.a n.a

Net profit -4 n.a n.a 38 n.a n.a 33 n.a n.a Source: Company data, DM BZ WBK estimates

Fig. 5. Ronson: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 6. Ronson: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 199 207 160 371 315

COGS 148 164 135 296 247


SG&A 22 23 24 25 25

Other operating income, net -2 -1 -1 0 0

EBITDA 27 19 0 51 43



Profit before tax 28 17 -4 47 41

Income tax 3 1 0 -9 -8

Net profit 32 19 -4 38 33

Gross margin 25.4% 20.6% 15.8% 20.3% 21.6%

EBITDA margin 13.6% 9.4% 0.2% 13.8% 13.8%

Operating margin 13.2% 9.1% -0.2% 13.6% 13.6%

Net profit margin 15.9% 9.2% -2.7% 10.3% 10.5%


Fig. 7. Ronson: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 749 698 710 791 824


Total assets 787 745 757 838 871


bank debt 67 20 20 20 20


bank debt 141 144 144 144 144

Equity 460 467 462 501 534


Net debt 163 112 100 40 6


Fig. 8. Ronson: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

CF from operations -36 54 20 68 40

CF from investment -8 1 1 2 4


Net change in cash -50 7 12 60 34



146



147

Poland Health Care

NOVEMBER 12, 2014

SYNEKTIK RECOMMENDATION

BUY (MAINTAINED)

New cyclotron weigh on results CURRENT PRICE: PLN23.53


3Q14 Results Preview. We expect Synektik to report

mediocre results, lower y/y across all lines, but visibly

higher than in 1-2Q14. Such dynamics is also an effect of

high base from 3Q13. In radiopharmacy segment earnings

were depressed by opex and depreciation costs of Warsaw

cyclotron, which is still in registration process. ‘Old

business’ should perform quite well mostly due to

settlement of contract for MRI scanner shipment to

Oncology Hospital in Gliwice. We expect distribution and IT

segment to report PLN16.5mn sales, -5% y/y. Overall, we

see company to report sales of PLN22.4mn, with an

EBITDA of PLN3.4mn and a net profit of PLN1.6mn.

Outcome: NEUTRAL.

Deal with Iason GmbH. Synektik purchased rights to four

radiopharmaceuticals - EFDEGE, IASOflu, IASOdopa and

IASOcholine - for EUR2.77mn in Poland, Lithuania, Latvia,

Estonia, Ukraine and Belarus. It also bought the right to

produce and sell those radiopharmaceuticals in then Czech

Republic and Slovakia. According to our calculations,

Synektik paid 4-5x this year’s license fee, which we have

estimated is at 12% of sales, and gained access to several

new markets. We expect 2-3k doses to be sold on the new

markets.



12-month Target Price for Synektik at PLN32.5 and

maintain our Buy rating for the stock. The comparative

valuation points to PLN27.6 per share.

STOCK PERFORMANCE

SNT

TP

WIG Relative

0

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20

25

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40

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on issue date

12 month target


Buy 10-21-2014 22.7 32.5 3.6% 2.9

Buy 7-9-2014 21.0 35.9 8.1% 3.2

Buy 4-28-2014 25.1 32.9 -16.4% -14.8

Buy 1-30-2014 22.5 31.3 11.7% 9.5

MAIN SHAREHOLDERS

% of votes

Melhus Company Limited 25.0%

Templeton Asset Management 10.8%


PZU mutual fund 8.7%

Altus mutual fund 7.5%

Trigon mutual fund 5.4%

Norges Bank 5.2%

Noble mutual fund 5.1%

COMPANY DESCRIPTION

Synektik is a healthcare company focused on radiology segment.

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes SNTP.WA / SNT PW



EBIT 10.3 6.8 14.5 17.0 Free float (%) 75.0%



1M 3M YTD




148

Fig. 1. Synektik: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 9.0 19.2 6.9 9.2 16.4 28.9 11.9 10.5 24.3 32.2 9.3 18.7 22.4 -7.9% 19.4%

EBITDA 0.5 1.6 -1.3 0.1 0.5 3.9 1.3 1.7 4.2 7.0 1.0 2.0 3.4 -18.6% 71.9%

EBITDA margin 5.3% 8.4% -18.8% 0.7% 2.9% 13.4% 11.2% 16.3% 17.2% 21.8% 11.2% 10.6% 15.2% -2.0 4.6

EBIT 0.2 1.3 -2.0 -0.7 -0.3 3.2 0.6 0.9 3.4 6.2 0.3 0.5 1.7 -49.8% 219.7%

EBIT margin 2.7% 6.5% -29.3% -7.3% -1.6% 10.9% 5.0% 8.9% 13.9% 19.4% 2.9% 2.8% 7.6% -6.3 4.8

Net profit 0.2 1.0 -1.9 -0.9 -0.6 2.8 0.3 0.6 2.9 4.7 0.3 0.4 1.6 -44.2% 264.2%

Net margin 1.8% 5.0% -28.0% -9.4% -3.9% 9.8% 2.4% 5.8% 11.8% 14.7% 2.9% 2.3% 7.1% -4.7 4.8


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

2014E 2015E 2016E


Sales 85.2 85.2 0.0% 101.3 101.3 0.0% 105.6 105.6 0.0%

EBITDA 12.4 12.4 0.0% 19.0 19.0 0.0% 21.5 21.5 0.0%

EBIT 6.8 6.8 0.0% 14.5 14.5 0.0% 17.0 17.0 0.0%


Fig. 3. Synektik: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 4. Synektik: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 61.5 77.4 85.2 101.3 105.6

COGS 42.5 45.0 55.5 59.6 59.8

Gross profit 19.0 32.3 29.7 41.7 45.8

SG&A 18.9 22.1 22.9 27.1 28.8


EBITDA 2.8 14.2 12.4 19.0 21.5


Net financial income (costs) -0.8 -1.1 0.1 0.3 0.4


Income tax 0.0 1.5 1.1 2.8 3.3

Net profit -0.9 7.7 5.8 12.1 14.1

Gross margin 30.9% 41.8% 34.8% 41.1% 43.3%

EBITDA margin 4.6% 18.4% 14.5% 18.8% 20.4%




Fig. 5. Synektik: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 37.5 59.0 51.3 70.2 88.4

Fixed assets 22.5 43.8 48.7 45.5 42.0

Total assets 60.1 102.9 100.0 115.7 130.4


bank debt 3.2 3.4 2.5 2.5 2.5


bank debt 7.0 7.9 6.1 4.3 3.5

Equity 17.5 54.9 61.6 73.6 87.7

share capital 3.3 3.4 4.3 4.3 4.3



Net debt -3.7 -21.7 -14.1 -29.5 -47.0


Fig. 6. Synektik: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E




Net change in cash -3.7 19.9 -10.4 13.6 16.8



149


NOVEMBER 12, 2014

TESGAS RECOMMENDATION

BUY (MAINTAINED)

Nothing new CURRENT PRICE: PLN 4.5


Equity Story: Our investment view on Tesgas has not changed.

Similar to Atrem’s case, the long-awaited margin rebound in the

construction niches where Tesgas operates is not materialising

and it is unlikely to emerge any time soon. In our view, we will

have to wait a little longer to see better times arrive in terms of the

generated margins on contracts. On the other hand, we do not

change our view on Tesgas. For us, it is operating in an attractive

natural gas niche of the construction market, which also offers

exposure to the new round of EU funds’ flow, and it is well-

balanced with an estimated FY’14 net cash of PLN20mn (c. 50%

of the market capitalisation). In this light, we believe Tesgas, like

Atrem, is well-prepared for a rebound in margins, which, in our

view, will finally materialise sometime ahead.

Change in valuation & recommendation. Our DCF-based

valuation remains nearly unchanged at PLN7.40/share. The

comparative valuation points to PLN4.30/share.

PUBLICATION DATE

NOVEMBER 14, 2014

STOCK PERFORMANCE





on issue date

12 month target


Buy 10/22/2014 4.2 7.4 6.9% 6.4

Buy 4/28/2014 5.0 7.8 -16.5% -19.9

Buy 3/31/2014 5.1 7.8 -1.2% 0.4

Buy 1/30/2014 4.8 7.4 5.2% 1.3

COMPANY DESCRIPTION

Tesgas is an engineering company specializing in the construction of a great variety of natural gas facilities as well

as providing maintenance services for the largest natural gas network operators, namely PGNiG and Gaz System.

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes TSGP.WA / TSG PW



EBIT 1.3 2.1 2.8 5.1 Free float (%) 17.9%


P/E (x) 14.7 n.a. 13.9 8.7 Price performance

1M 3M YTD




150

Fig. 1. Tesgas: 3Q14 results review PLN in millions, unless otherwise stated


Sales 31.9 47.9 23.1 18.4 21.3 28.8 11.6 11.7 18.1 19.4 16.9 18.3 24.6 36.3% 34.3%

EBITDA 2.1 8.9 3.5 -21.7 1.6 4.2 0.4 0.3 1.0 1.8 0.3 -0.3 0.9 -6.5% -462.9%

EBITDA margin 6.7% 18.5% 15.0% -117.9% 7.4% 14.6% 3.2% 2.7% 5.6% 9.5% 1.7% -1.4% 3.8% -175 523

EBIT 1.4 8.1 2.7 -22.5 1.0 3.4 -0.3 -0.4 0.4 1.6 -0.4 -1.0 0.2 -60.1% -117.4%

EBIT margin 4.3% 16.9% 11.6% -122.1% 4.5% 11.8% -2.8% -3.4% 2.4% 8.1% -2.4% -5.5% 0.7% -171 616

Net profit 1.9 5.9 2.1 -48.7 1.1 3.4 -0.1 -0.2 0.2 3.6 -0.1 -0.7 0.3 111.1% -144.3%

Net margin 6.0% 12.3% 8.9% -264.5% 5.0% 11.9% -0.9% -1.7% 0.8% 18.6% -0.6% -4.0% 1.3% 47 529


Fig. 2. Tesgas: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 78.9 78.9 0.0% 93.7 93.7 0.0% 103.4 103.4 0.0%

EBITDA 4.2 4.2 0.2% 5.0 7.0 -27.9% 7.4 7.8 -4.8%

EBIT 2.1 2.1 -1.2% 2.8 4.7 -40.1% 5.1 5.4 -6.1%

Net profit 0.0 3.0 n.a. 3.7 5.8 -37.0% 5.8 6.4 -8.8%


Fig. 3. Tesgas: Valuation changes In PLN per share, unless otherwise stated

New Previous Change


Comparable valuation (based on 2014-2016E) 4.3 4.4 -2.3% Source: Company data, DM BZ WBK estimates

Fig. 4. Tesgas: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 91.6 60.7 78.9 93.7 103.4

COGS 74.8 50.1 66.3 79.6 86.6

Gross profit 16.8 10.6 12.6 14.0 16.8

SG&A 10.9 9.7 10.5 11.2 11.8


EBITDA -13.1 3.7 4.2 5.0 7.4




Income tax 0.8 -0.5 0.0 0.0 0.0

Net profit -14.6 3.5 0.0 3.7 5.8

Gross margin 18.3% 17.5% 16.0% 15.0% 16.3%

EBITDA margin -14.3% 6.1% 5.3% 5.4% 7.2%




Fig. 5. Tesgas: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 69.7 70.1 77.5 86.2 94.7

Fixed assets 51.4 49.2 50.1 51.5 53.2

Total assets 122.6 121.4 129.9 139.9 150.1


bank debt 2.9 2.3 2.3 2.3 2.3


bank debt 14.4 12.3 12.3 12.3 12.3

Equity 76.1 79.5 79.5 83.2 89.0

share capital 11.4 11.4 11.4 11.4 11.4



Net debt -16.8 -22.2 -20.3 -21.6 -25.2


Fig. 6. Tesgas: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



CF from financing -31.2 -2.8 0.6 0.1 0.1




151


November 12, 2014

TRAKCJA RECOMMENDATION

BUY (MAINTAINED)

Relatively cheap CURRENT PRICE: PLN1.15


Equity story. We maintain our positive view on Trakcja and see

an upside risk to our 2014E financial forecast following the strong

and slightly better-than-expected 3Q14 results (net profit +63%

y/y, positive operating CF, leverage q/q reduction). Even keeping

our original FY forecasts intact, the company is relatively cheap,

trading at a 2014E P/E of 11.3x, which offers 20% and 27%

discounts to its Polish and Western peers, respectively. The

healthy gross margin at 9.5% in 9M14 also suggests a significant

upside risk to our FY15 forecast (6% expected by us), we

maintain, however, our profit projection to stay on the safe side.

We are also optimistic on the LT outlook for Trakcja since

investments in the sector should accelerate in the coming years

underpinned by EU funds (see the note below for details). Having

said that, we believe in Trakcja’s backlog development in 2015,

although some delay cannot be excluded given the poor track

record of PKP PLK when it comes to smooth contracts’

distribution). We also like the company’s plans for entering new

foreign markets, such as in Scandinavia and the Belarus, which

would constitute an upside to our projections.

Change in forecasts. We maintain our financial forecast for

Trakcja intact.

Results outlook. We estimate that our FY2014/15 sales forecast

is secured by the backlog in 100%/80%, which is high. We

maintain our view that the company’s sales should rebound after

2015 thanks to EU funds’ flow. According to initial estimates, PKP

PLK may get up to PLN45bn from the EU for railway tracks’

construction/renovation in the 2014–2020 period (cash transfers

over 2016– 2022). All in all, spending might reach a total of

approx. PLN60bn, assuming PKP PLK’s contribution is at 25%. If

PKP uses 75% of the available funds, annual investments could

reach PLN6.4bn. We estimate that this would be 35% more than

the average for the 2009–2015E period.

Triggers & Risks. Potential triggers: 1) strong 4Q14 results, 2)

further leverage reduction, 3) signing of new large railway

contracts co-financed by EU finds, 4) dividend payment, 5)

expansion into new foreign markets (Scandinavia, Belarus).

Risks: 1) growth in construction material prices at times of an

accumulation of construction projects in the railway sector, 2)

foreign contractors putting pressure on margins in the sector, 3)

PKP PLK’s inefficiency in utilising EU funds and distributing

contracts to contractors.

Change in Valuation & Recommendation. We maintain our TP

for Trakcja at PLN1.22. We also maintain our Buy

recommendation.

STOCK PERFORMANCE





on issue date

12 month target


Buy 10-22-2014 1.11 1.22 3.6% 3.1

Hold 7-9-2014 1.00 0.97 11.0% 5.9

Sell 4-28-2014 1.30 0.93 -23.1% -21.4

Sell 1-30-2014 1.3 0.8 0.0% -2.3

Sell 10-23-2013 1.1 0.8 18.2% 23.7

COMPANY DESCRIPTION

Trakcja is a contractor with focus on building railways and roads. The insignificant part of the Company’s business constitutes residential development activity.


Comsa 28.8%


ANALYST

Adrian Kyrcz (+48) 22 586 81 59

[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes TRKP.WA / TRK PW

Sales 1 675.0 1 756.3 1 750.0 1 841.3 Market capitalisation (PLNm) 473


EBIT 50.5 64.8 50.1 61.7 Free float (%) 60.6%



1M 3M YTD



152

Fig. 1. Trakcja: 3Q14 results review PLN in millions, unless otherwise stated


Sales 726.5 748.7 201.2 381.6 404.0 359.0 150.0 405.8 531.3 587.8 239.1 340.0 459.0 -13.6% 35.0%

EBITDA 32.3 93.2 -0.2 50.6 12.9 -12.9 -11.4 36.0 33.1 15.8 3.9 28.5 38.7 16.8% 35.9%

EBITDA margin 4.4% 12.4% -0.1% 13.3% 3.2% -3.6% -7.6% 8.9% 6.2% 2.7% 1.6% 8.4% 8.4% 0.4 0.0

EBIT 22.2 67.9 -6.3 43.1 5.9 -19.6 -17.1 30.3 27.5 9.8 -1.9 22.5 32.6 18.7% 45.0%

EBIT margin 3.1% 9.1% -3.1% 11.3% 1.5% -5.5% -11.4% 7.5% 5.2% 1.7% -0.8% 6.6% 7.1% 0.4 0.1

Net profit 1.0 84.8 -7.8 28.3 -1.1 -33.6 -21.3 21.8 21.3 16.0 -5.1 14.1 23.8 11.6% 68.0%

Net margin 0.1% 11.3% -3.9% 7.4% -0.3% -9.4% -14.2% 5.4% 4.0% 2.7% -2.1% 4.2% 5.2% 0.3 0.2


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

2014E 2015E 2016E


Sales 1756 1756 0% 1750 1750 0% 1841 1841 0%

EBITDA 88 88 0% 74 74 0% 86 86 0%

EBIT 65 65 0% 50 50 0% 62 62 0%


Fig. 3. Trakcja: Valuation changes In PLN per share, unless otherwise stated

New Previous Change


Comparable valuation 0.89 0.89 0% Source: Company data, DM BZ WBK estimates

Fig. 4. Trakcja: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 1347 1675 1756 1750 1841

COGS 1305 1530 1637 1646 1721

Gross profit 42 108 119 104 120

SG&A 58 59 54 54 58


EBITDA 55 74 88 74 86




Income tax -13 5 -10 -7 -9

Net profit -12 38 42 30 39

Gross margin 3.1% 6.5% 6.8% 6.0% 6.5%

EBITDA margin 4.1% 4.4% 5.0% 4.2% 4.7%




Fig. 5. Trakcja: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 628 923 927 948 1024

Fixed assets 699 720 713 706 698

Total assets 1327 1643 1640 1653 1723


bank debt 186 202 202 200 200


bank debt 111 69 50 50 50

Equity 494 635 677 707 745


Net debt 176 188 205 181 147


Fig. 6. Trakcja: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

CF from operations 118 -120 12 54 65



Net change in cash -63 -136 -37 22 33



153


November 12, 2014

UNIBEP RECOMMENDATION

BUY (INITIATION)

Capitalizing on housing boom CURRENT PRICE: PLN 7.96


Equity Story. Unibep has become the ‘first choice contractor’ for

many top residential developers, thanks to its high-quality service

in home-building. We think that the housing boom in Poland

should further support the company’s backlog development and

performance of the construction division, as well as homes sale

volumes of its Unidevelopment subsidiary. We also believe the

company already learnt its lesson from its presence in the

Norwegian market and the modular home construction there, as

well as road construction in Poland (poor margins so far). This is

why we think the profitability of both these business lines should

finally reach targeted levels. Valuation-wise, Unibep is relatively

cheap. The P/E multiple for 2015 at 11.1x is not demanding and

offers a double-digit discount for the peers’ median.

Financials. The 4Q14 outlook is promising. The company is

scheduled to complete two residential projects (Lycke and

Czarnieckiego), which should boost its q/q notary sales. We also

expect y/y growth in sales and profits from residential business in

2015E. Residential construction is a high margin business line

and these projects should strongly and positively help Unibep’s

quarterly figures, in our view. In 2015E, we forecast a double-digit

profit growth on some margin rebound and a marginal sales

increase. In details, we forecast flat sales from the construction

business, with risk on the upside, and a slight (6%) increase in

sales from the modular home construction, with respect to the

company’s further expansion into Norway and Germany. We also

expect a flat sales from road projects. Beyond 2015, we forecast

flat sales from the aforementioned business lines and gross

margin stabilisation.

Triggers/Risks. The company’s high reliance on the construction

business in Eastern markets (>20% of backlog) is the major risk

factor. Any worsening of the investment climate in Russia may

harm business development there. On the other hand, the

expected profit growth in 2015E might be a trigger for the share

market price. Also conclusion of the disposal of non-core property

(of BV of c. PLN22mn) could be another share price trigger.


arrived at 12 month TP at PLN9.2 per share. We issue Buy

recommendation.

STOCK PERFORMANCE





on issue date

12 month target


- - - - - -

COMPANY DESCRIPTION

Unibep is a general contractor and residential projects developer. Company is focusiing on general construction works and roads construction.


Ms. Zofia Mikoluszko 26.2%

Ms. Zofia Iwona Stajkowska 17.1%

Ms. Beata Maria Skowronska 16.9%



ANALYST

Adrian Kyrcz (+48) 22 586 81 59

[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes UERB.WA / ERB PW

Sales 920.5 1 177.8 1 204.1 1 186.6 Market capitalisation (PLNm) 279.2


EBIT 28.1 27.9 32.9 30.2 Free float (%) 38.9%



3M 3M YTD



154

Fig. 1. Unibep: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Net sales 1178 1204 1187 1197 1190 1183 1183 1183 1183 1183

EBIT 28 33 30 31 29 28 27 27 26 25


NOPAT 23 27 24 25 24 23 22 22 21 20

Depreciation 6 6 6 6 6 6 6 6 6 7

Change in operating WC -67 -4 3 -2 1 1 0 0 0 0


Free cash flow -44 22 27 23 25 24 22 22 21 20


Risk free rate 3.0%

WACC 8.0%


Residual value 292.7

Present value of the residual value 135.7

Unibep’s EV 229.3

Cash and equivalents (2014 bop) 90.5

Interest-bearing debt (2014 bop) 67.4

Dividends 4.2

Equity value 248.2


Equity value of Unibep per share (PLN) 7.1

Month 11 Current equity value of Unibep per share (PLN)

7.6

12M equity value per share (PLN) 8.2

Real estate per share (PLN)* 0.9

12M TP inc. Real Estate (PLN) 9.2

Source: Company data, DM BZ WBK estimates, *please see table below for details

Fig. 2. Unibep: Real estate value calculation PLN in millions, unless otherwise stated

Property name Property BV Discount applied Estimated value Estimated value per share (PLN)

Prymasa Tysiaclecia Land 22 20% 17.7 0.50

Przytycka Land 31 50% 15.3 0.44


Fig. 3. Unibep: Comparable valuation

P/E EV/EBITDA

Name 2014E 2015E 2016E 2014E 2015E 2016E

Acciona 51.2 27.0 18.6 8.8 8.4 8.1

Astaldi 5.8 4.9 4.3 5.6 5.2 4.9

Bilfinger Berger 12.7 9.9 8.7 6.0 4.9 4.4

Eiffage 12.7 10.6 8.9 7.8 7.6 7.3

Ferrovial 33.7 30.0 25.9 20.1 19.2 18.3

Skanska 17.2 15.0 13.9 11.3 10.2 9.7

Strabag 13.0 11.2 9.8 3.6 3.4 3.3

Vinci 12.6 12.4 11.6 7.5 7.4 7.2

Hochtief 17.5 14.3 11.8 4.3 4.1 3.9

Median - Western peers 13.0 12.4 11.6 7.5 7.4 7.2

Atrem 13.1 24.1 11.3 5.0 6.5 4.3

Tesgas - 12.6 7.9 6.1 4.8 2.8

Erbud 15.5 13.5 11.8 15.5 13.6 11.9

Trakcja 10.8 15.0 11.7 8.7 7.5 8.5

Budimex 20.7 19.8 14.7 10.6 9.8 6.7

Elektrobudowa 15.3 10.1 8.5 6.3 4.7 4.2

Median - Polish peers 15.3 14.3 11.5 7.5 7.0 5.5

Average implied share price of Unibep in PLN (Polish peers) 9.2 10.2 7.6 6.6 7.5 5.9

Average implied share price of Unibep in PLN (Western peers) 8.5 8.5 7.3 6.6 8.0 7.7

Average implied share price of Unibep (PLN) 7.8

Source: Bloomberg, BZ WBK research, company data


155

Fig. 4. Unibep: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 271.3 300.0 141.6 225.5 250.5 220.3 195.5 240.2 256.1 228.8 201.3 260.6 307.2 19.9% 17.9%

EBITDA 11.6 15.3 6.6 4.7 10.3 4.1 5.8 9.0 9.5 9.7 4.4 10.3 10.0 4.8% -3.1%

EBITDA margin 4.3% 5.1% 4.6% 2.1% 4.1% 1.9% 3.0% 3.8% 3.7% 4.3% 2.2% 3.9% 3.2% -0.1 -0.2

EBIT 9.9 15.2 5.2 3.3 9.0 2.7 4.3 7.6 8.0 8.2 2.7 8.6 8.2 3.0% -3.7%

EBIT margin 3.7% 5.1% 3.7% 1.5% 3.6% 1.2% 2.2% 3.2% 3.1% 3.6% 1.4% 3.3% 2.7% -0.1 -0.2

Net profit 3.8 11.0 2.4 6.4 4.1 3.8 2.5 4.1 4.5 2.5 3.0 4.7 4.7 4.6% 1.1%

Net margin 1.4% 3.7% 1.7% 2.9% 1.7% 1.7% 1.3% 1.7% 1.8% 1.1% 1.5% 1.8% 1.5% -0.1 -0.1

Source: Company data. DM BZ WBK estimates

Fig. 5. Unibep: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E







Fig. 6. Unibep: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 7. Unibep: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 838 921 1178 1204 1187

COGS 788 862 1119 1140 1124


SG&A 31 31 31 32 32


EBITDA 26 34 34 39 36




Income tax 1 -7 -5 -6 -5

Net profit 17 16 21 25 23

Gross margin 5.9% 6.3% 5.0% 5.4% 5.3%

EBITDA margin 3.1% 3.7% 2.9% 3.2% 3.1%




Fig. 8. Unibep: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 473 409 498 521 532

Fixed assets 107 145 145 145 145

Total assets 580 554 643 666 677


bank debt 107 33 33 33 33


bank debt 24 34 34 34 34

Equity 172 186 202 220 235


Net debt 94 -23 23 9 -8


Fig. 9. Unibep: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

CF from operations 29 46 -31 33 37






156



157

Poland FINANCIALS

NOVEMBER 12, 2014

VOTUM RECOMMENDATION

BUY (INITIATION)

History likes to repeat itself? CURRENT PRICE: PLN 7.5


Equity Story. Votum provides a broad range of services related to

assistance in obtaining compensation from insurance companies.

Assistance in claiming compensation for personal injuries of road accident

victims, bodily injuries and death of a close relative represents the vast of

majority of its business. The company also has its own clinic, where its

clients and those injured can get rehab (the clinic should be around its

breakeven point in 2014). Votum derives its revenues from two main

segments: cases settled directly with insurers that typically agree to pay

more (c. 2x) than they would pay the claimants otherwise and the more

complex or larger cases that are typically settled by Votum’s law firm in

court proceedings, allowing Votum to earn a higher fee. Based on our

estimates, the company trades at 10x 2015E P/E and an EV/BITDA of

5.8x. Our DCF and peer group-derived TP of PLN9.9/share implies a 32%

upside potential. We are initiating our coverage with a BUY rating.

Financials. We expect strong growth in the years ahead. We expect a

more modest growth rate ahead resulting in a CAGR of 15% in revenues.

This, coupled with stable margins, should translate into a 24% CAGR of

net profit in the period. Strong cash generation should allow Votum to pay

substantial dividends (pay-out ratio of PLN6mn and 50% above the

PLN6mn of net profit) and, unless it embarks on major acquisitions or

broader geographical expansion, its dividend yield could be as high as 8%

in 2016E vs. 6% in 2013. Its ROE could be above 41% by 2016.

Triggers/Risks. In 2Q14, Votum’s casework was worth PLN970mn

(PLN394mn in courts and PLN577 pre-courts), up from PLN358mn in

YE12. The number of cases rose to 24 from 14 in 2012. The average

length of a court case is about two years and one year for the pre-court

cases. We expect cases from 2012-2013 to start closing in 2015-2016

and the company is set to show a significant rise in revenues and

earnings. The story should be similar to EuCO’s in 2013.

Valuation & recommendation. We have set a 12-month TP of PLN

9.9/share using a blend of DCF and comparable company multiples. The

implied 32% upside may seem steep, but at our TP Votum multiples

(13.5x 2015 earnings and 8.3 EV/EBITDA) it would only be marginally

above the current median for the peers. We think our TP is justified by

Votum’s superb ROE and net profit margin (11%).

STOCK PERFORMANCE

VOTWIG

Relative

0

1

2

3

4

5

6

7

8

9

Oct-

11

Ja

n-1

2

Apr-

12

Ju

l-12

Oct-

12

Ja

n-1

3

Apr-

13

Ju

l-13

Oct-

13

Ja

n-1

4

Apr-

14

Ju

l-14

Oct-

14






on issue date

12 month target



COMPANY DESCRIPTION

Votum specialises in servicing personal injury claims typically on behalf of victims of motor accidents. It is one of the leading player in Poland. It’s in house legal practice pursues more complex cases in courts..


DSA Financial Group 47.3%

Mr. Adam Gilowski 22.3%

Quercus TFI 7.1%

Mr. Andrzej Dadełło 5.8%

ANALYSTS


Company Data

PLNmn 2013 2014E 2015E 2016E Reuters/Bloomberg codes VOT.WA / VOT PW

Sales 58 69 79 88 Market capitalisation (PLNm) 90

EBITDA 7 10 13 14 Number of shares (m) 12

EBIT 6 8 11 13 Free float (%) 17.5%

Net income 5 6 9 10 Avg. daily turnover 3M (PLNths) 11


1M 3M YTD

EV/EBITDA (x) 10.9 7.9 6.0 5.5 4.2% 14.5% 19.64 Source: Company data, DM BZ WBK estimates


158

Fig. 1.Votum: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Net sales 68.6 78.9 88.4 97.6 106.3 114.0 120.5 125.5 128.7 130.0

y/y 15% 12% 10% 9% 7% 6% 4% 3% 1%

EBIT 8.3 11.3 12.8 13.6 14.3 14.7 15.0 15.0 14.7 14.2

EBIT margin 12.1% 14.4% 14.4% 13.9% 13.4% 12.9% 12.4% 11.9% 11.4% 10.9%

Taxes on EBIT 1.6 2.2 2.4 2.6 2.7 2.8 2.8 2.8 2.8 2.7

NOPAT 6.7 9.2 10.3 11.0 11.6 11.9 12.1 12.1 11.9 11.5

Depreciation 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3

Capex -1.3 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3 -1.3

WC change -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5

Free cash flow 6.2 8.7 9.8 10.5 11.1 11.4 11.6 11.6 11.4 11.0

WACC (2014-23E) 9.1%

PV FCF (2014-23E) 64


PV Terminal value 58

Total EV 121

Net debt (cash) (YE13) 11

Equity value 110


Equity value per share-current (PLN) 9.2

Target price (12-month) 10.0

Upside/downside 33%


Fig. 2. Votum: Comparable valuation

Market Cap Current P/E EV/EBITDA

Company Price Currency (EURm) fiscal year 2014E 2015E 2016E 2014E 2015E 2016E

Domestic peers

Kruk S.A. 106.35 PLN 429 12/14 Y 13.3 12.0 10.0 12.7 11.3 9.7

EuCO 25.50 PLN 34 12/14 Y 11.5 10.6 9.8 9.6 8.3 7.5

Open Finance SA 5.78 PLN 74 12/14 Y 9.4 7.2 5.8 5.1 5.0 4.6

Magellan SA 77.99 PLN 122 12/14 Y 10.0 8.8 7.9 22.1 21.0 20.1

GPW 43.85 PLN 436 12/14 Y 16.6 15.1 14.1 10.8 9.3 8.5

Median 11.5 10.6 9.8 10.8 9.3 8.5

International peers Median 16.7 14.8 13.8 10.8 9.6 9.2

Median 13.0 11.4 10.0 10.8 9.4 8.6

Votum

14.9 10.5 9.3 7.9 6.0 5.5

Premium/(discount), %

15% -8% -7% -27% -36% -36%

Votum - implied share price (PLN)

6.5 8.1 8.1 8.7 9.9 10.1

Weights

17% 17% 17% 17% 17% 17%

Votum - implied fair value (PLN) 8.6



159

Fig. 3. Votum: 3Q14 results review PLN in millions, unless otherwise stated


Revenues 12.9 13.3 12.1 13.7 13.1 15.3 12.9 16.4 15.0 17.6 16.6 29% -5%

Gross profit 1.8 2.2 0.9 1.5 0.9 2.2 0.7 2.2 1.7 2.7 2.6 267% -5%

Opex -11.1 -11.1 -11.2 -12.2 -12.2 -13.1 -12.2 -14.2 -13.3 -14.9 -14.0 15% -5%

EBITDA 2.9 1.5 1.2 1.6 1.4 2.1 1.0 2.5 2.0 2.8 2.3 127% -16%

EBIT 1.7 2.2 0.9 1.3 1.1 1.8 0.7 2.2 1.6 2.4 2.3 246% -2%

Net profit 1.4 1.4 0.7 1.8 1.2 1.5 0.5 1.9 1.2 1.7 1.8 244% 10%

Gross profit margin 13.8% 16.7% 7.2% 11.1% 7.0% 14.2% 5.4% 13.3% 11.4% 15.4% 15.5% n.a n.a

EBITDA margin 22.8% 11.6% 9.7% 11.8% 10.6% 13.7% 8.0% 15.3% 13.3% 15.8% 14.1% n.a n.a

EBIT margin 13.4% 16.4% 7.3% 9.4% 8.3% 11.6% 5.2% 13.1% 10.7% 13.6% 14.1% n.a n.a

Net profit margin 10.5% 10.2% 6.0% 13.5% 9.0% 9.5% 4.1% 11.8% 8.1% 9.5% 11.0% n.a n.a Source: Company data, DM BZ WBK estimates

Fig. 4. Votum: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 69 n.a. 0% 79 n.a. 0% 88 n.a. 0%

EBITDA 10 n.a. 0% 13 n.a. 0% 14 n.a. 0%

EBIT 8 n.a. 0% 11 n.a. 0% 13 n.a. 0%

Net profit 6 n.a. 0% 9 n.a. 0% 10 n.a. 0% Source: Company data, DM BZ WBK estimates

Fig. 5. Votum: Valuation changes In PLN per share, unless otherwise stated

New Previous Change

DCF valuation 9.2 n.a. 0%

Comparable valuation (based on 2014-2016E) 8.6 n.a. 0%


Fig. 6. Votum: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net Sales 52 58 69 79 88


Opex -46 -52 -59 -67 -75

EBITDA 7 7 10 13 14

EBIT 6 6 8 11 13

Pre-tax profit 7 6 8 11 13

Income tax -2 -1 -2 -3 -3

Net profit 5 5 6 9 10

Gross margin 12.3% 10.3% 13.0% 15.0% 15.0%

EBITDA margin 14.0% 12.2% 14.0% 16.1% 16.0%

EBIT margin 11.7% 9.9% 12.1% 14.4% 14.4%

Pre-tax margin 13.1% 10.8% 11.4% 14.1% 14.2%

Effective tax rate 22.3% 18.2% 22.7% 22.7% 22.7%



Fig. 7. Votum: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 15.7 17.7 20.7 24.7 28.6

Cash and equivalents 7.0 7.6 8.6 11.1 13.5

L-t 18.3 22.0 21.7 22.0 22.5

PP&E 12.0 15.7 15.8 15.9 15.9

Total assets 34.0 39.7 42.3 46.7 51.0


Bank debt/bonds 0.7 0.9 0.9 0.9 0.9


Bank debt/bonds 0.6 3.7 3.7 3.7 3.7

Equity 18.5 18.5 19.6 22.2 24.9

Total liabilities and equity 33.7 39.4 42.3 46.7 51.0

Net debt 5.7 3.0 4.0 6.5 9.0


Fig. 8. Votum: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E




Net change in cash -4.6 0.6 1.0 2.5 2.4



160



161

Poland Health Care

NOVEMBER 12, 2014

VOXEL RECOMMENDATION

HOLD (INITIATION)

Play for M&A CURRENT PRICE: PLN11.25


Equity Story. Voxel’s core business is operating imaging diagnostic

clinics; five PET-CT clinics with own cyclotron, Gamma Knife and over a

dozen CT/MRI clinics. Due to the limited contracts with the Public

Healthcare Fund NFZ, all the PET/CT clinics are working way below their

potential. The new oncology law, due to come into force in 2015, should

boost the company’s volumes. Therefore, we see Voxel and Synektik as

best investments in light of the upcoming new regulations. We also think

Voxel could be a potential acquisition target, valued at a large discount

compared with the recent transactions (Lux-Med, EMC and Enel-Med

clinics sold at double-digit EV/EVITDA). The restructuring of Alteris, a

distributor of diagnostic devices, should also allow for some savings in

2015.

Financials. We expect Voxel to perform 6.0k PET-CT procedures in

2015E in four clinics and 7.7k procedures in 2016E in five locations,

assuming another contract for PET-CT and Gamma Knife in Katowice in

2016E. The company may also decide to relocate the device to another

city. We expect Voxel’s average revenue from the PET-CT procedures to

drop to PLN3.3k in 2015E and 3.0k from 2017E (to the end of the forecast

period) from PLN4.1k in 2014E. We expect no large new investments. At

the same time, better utilisation of the devices should increase the

company’s EBITDA margin to above 18% from current 16%. In 2016E, its

EBITDA should exceed PLN20mn. We believe that the net debt may

slightly rise due to further loans to Exira. The company trades at a 2014E

and 2015E EV/EBITDA of 10.0x and 9.2x, which is demanding but fair

valued. The stock offers some upside in case of a M&A story and a

positive scenario in PET-CT and Gamma Knife contracting.

Triggers/Risks. Concentrating on a single customer – NFZ – is the

largest threat to Voxel and other clinic operators. NFZ is a very tough

negotiations partner and contracting decisions are not always reasonable.

Voxel learnt this the hard way when it had nearly completed a PLN40mn

investment programme and all the new clinics lacked contracts and

generated losses for 12 months. Voxel is fully consolidating its three new

PET-CT clinics in Brzozow, Bialystok and Katowice. JV with Enterprise

Investors Exira (operator of Gamma Knife) is not consolidated, but it can

count on loans from Voxel until it secures its NFZ contract. It looks like

Brzozow and Bialystok will have contracts for 2015. The “when” and

“which” big contracts Voxel will have is the key driver of the company’s

results in upcoming years.


12-month TP of PLN12.5 per share. The TP implies a 14% upside

potential, which caused us to initiate our coverage of the stock with a Hold

recommendation. The comparative valuation points to PLN12.1 per share.

STOCK PERFORMANCE

VOX

WIG Relative

0

5

10

15

20

25

30

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11

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COMPANY DESCRIPTION

Operator of medical diagnostic clinics and distributor of radiology devices.

MAIN SHAREHOLDERS

% of votes

Voxel International 60.5%

PZU mutual fund 11.4%


ANALYST


[email protected]

Company Data

PLNmn 2013 2014E 2015E 2016E Reuters/Bloomberg codes VOXP.WA / VOX PW



EBIT 6.1 3.5 6.0 8.8 Free float (%) 27.4%

Net income 3.0 -0.5 1.2 3.5 Avg. daily turnover 3M (PLNm) 0.0

P/E (x) 38.3 n.a. 97.0 33.0 Price performance

1M 3M YTD

EV/EBITDA (x) 10.1 10.2 9.2 7.7 14.7% -1.3% -31.0% Source: Company data, DM BZ WBK estimates



162

Fig. 1. Voxel: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Net sales 101.0 108.3 120.3 126.5 132.7 134.2 135.7 137.3 138.9 140.6

EBIT 3.5 6.0 8.8 10.2 11.7 11.5 11.0 10.6 10.1 9.7


NOPAT 3.0 4.8 7.1 8.3 9.5 9.3 8.9 8.6 8.2 7.8

Depreciation 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0 13.0



Free cashflow 2.5 10.4 11.8 13.4 14.3 14.4 13.8 13.2 12.6 12.0

WACC (2014-23) 7.7%

PV FCF 2014-23 77.4



PV TV 85.7

Total EV 163.0

Net debt 49.2

Equity value 113.8



Month 11




Fig. 2. Voxel: Comparable valuation

Market

Cap P/E EV/EBITDA


Voxel 11.25 PLN 35 -252.7 99.2 33.8 10.3 9.3 7.8

Peers

Synektik 23.53 PLN 59 24.8 17.7 15.8 11.6 8.5 7.3

Medicalgorithmics 204.00 PLN 208 37.1 19.3 12.9 30.9 14.6 8.9

Eckert & Ziegler 23.67 EUR 157 13.0 11.7 10.8 5.4 4.8 4.1

Ion Beam Applications 13.75 EUR 487 20.2 17.4 16.9 15.4 12.3 9.8

Centrum Medyczne Enel-Med 11.20 PLN 78 7.3 52.1 42.3 4.9 12.7 11.2

Sonic Healthcare 19.02 AUD 6,548 18.3 16.5 15.3 11.8 10.6 9.8

Source Bioscience 10.13 GBp 51 14.5 12.7 11.3 6.7 5.7 4.7

Oral Hammaslaakarit 6.48 EUR 71 25.9 15.4 13.0 n.a. n.a. n.a.

Clinica Baviera 7.50 EUR 153 38.9 24.4 17.4 13.1 9.9 8.0

Athens Medical Center 0.80 EUR 87 40.0 n.a. n.a. 16.7 16.7 n.a.

Digirad 4.02 USD 75 33.5 16.1 11.5 n.a. n.a. n.a.

CHC Healthcare 65.10 TWD 277 19.4 16.2 n.a. 11.9 n.a. n.a.

Median 22.5 16.5 14.1 11.8 10.6 8.4

Implied share price vs. peers (PLN) -1.0 1.9 4.7 13.6 13.7 12.4




163

Fig. 3. Voxel: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 20.0 34.9 22.3 23.8 20.2 40.2 19.3 25.3 32.9 25.7 21.4 22.7 23.7 -28.1% 4.1%

EBITDA 2.1 4.6 4.4 2.4 3.2 11.2 5.0 3.5 3.6 4.3 5.7 2.9 3.9 9.9% 37.4%

EBITDA margin 10.4% 13.0% 19.8% 10.2% 15.7% 27.9% 26.2% 13.6% 10.9% 16.7% 26.5% 12.6% 16.7% 5.8 4.0

EBIT 0.1 2.4 2.2 0.1 0.8 8.8 2.5 0.9 1.0 1.7 2.4 0.1 1.2 13.0% 13x

EBIT margin 0.7% 6.9% 9.7% 0.5% 4.0% 21.9% 13.1% 3.5% 3.1% 6.6% 11.1% 0.4% 4.9% 1.8 4.5

Net profit -1.0 -0.4 0.7 -0.8 -0.5 6.9 1.4 0.5 0.4 0.6 1.3 -0.9 -0.2 n.a. n.a.

Net margin -5.2% -1.1% 3.0% -3.2% -2.6% 17.1% 7.5% 2.0% 1.3% 2.5% 6.2% -3.7% -0.8% -2.2 2.9


Fig. 4. Voxel: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E





Net profit -0.5 n.a. n.a. 1.2 n.a. n.a. 3.5 n.a. n.a. Source: Company data, DM BZ WBK estimates

Fig. 5. Voxel: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 6. Voxel: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 106.5 103.2 101.0 108.3 120.3

COGS 80.1 77.0 76.1 80.2 88.7

Gross profit 26.5 26.3 24.9 28.1 31.6

SG&A 19.7 21.2 21.6 22.1 22.9


EBITDA 21.2 16.4 16.5 19.0 21.8



Profit before tax 6.3 2.6 -0.6 1.5 4.3

Income tax 0.2 -0.4 -0.1 0.3 0.8

Net profit 6.1 3.0 -0.5 1.2 3.5

Gross margin 24.8% 25.4% 24.6% 25.9% 26.3%

EBITDA margin 19.9% 15.9% 16.4% 17.5% 18.1%


Net profit margin 5.7% 2.9% -0.5% 1.1% 2.9%


Fig. 7. Voxel: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 34.3 40.2 48.4 45.2 53.4

Fixed assets 160.3 175.2 173.9 177.4 171.2

Total assets 194.6 215.4 222.3 222.5 224.6


bank debt 12.4 17.6 30.0 30.0 30.0


bank debt 34.9 36.5 36.5 36.5 35.0

Equity 90.6 108.9 108.4 109.6 113.1

share capital 9.7 10.5 10.5 10.5 10.5



Net debt 42.0 49.2 52.6 58.3 52.7


Fig. 8. Voxel: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

CF from operations 7.1 -0.4 2.8 20.8 12.5


CF from financing -0.3 22.1 12.4 0.0 -1.5




164



165

Poland Industrials

NOVEMBER 12, 2014

WIELTON RECOMMENDATION

HOLD (INITIATION)

Risky business CURRENT PRICE: PLN5.6


Equity Story. Wielton, similarly to Amica and other successful Polish

exporters on the Russian market, has grown rapidly in the last few years

(2009-2012 volumes CAGR at 46%, 187% on the Russian market). But

now that the fountain of growth is drying out fast, it is time to change

direction. So far growth on other markets (Southern Europe, Baltic Sea

Countries) and the rise in the market share on the domestic market on the

back of the broadening of the product mix have been enough to cover this

revenue whole. But what is the next step? Wielton will try to conquer

Western markets using its fresh acquisition – the French Fruehauf SAS.

Firstly, however, this deal need to be finalised and talks with the French

labour unions are extending a tad long (we assumed a 75% probability of

success in our model). Secondly, Fruehauf itself has some problems that

need to be addressed. The company has obsolete assets that will force

Wielton to incur additional CAPEX, an already high market share in

France (no space for growth) and no export sales that will need to be built

(and the company was unsuccessful here in the past). We believe that the

acquisition might actually work out because moving part of the production

(chassis) to Poland should yield cost synergies, helping Fruehauf to

become more competitive on other markets. But we believe that Wielton is

a risky pick (hence the high WACC) due to the cyclicality of the semi-

trailer business itself, exposure to the Eastern markets and the probability

that the acquisition will burden its balance sheet (net/EBITDA’14 at 2.9x, if

Fruehauf acquisition is finalised).

Financials. We believe that further falls on the Eastern markets will be

offset by growth on other markets but the pace of growth will not be

impressive – volumes 14-17 CAGR at a meagre 2.2%. The company will

also manage to keep its gross profit margin at about 16%. As far as

Fruehauf is concerned, due to the operational leverage and cost

synergies, its margins should converge to those of Wielton.

Triggers/Risks. We listed the key risks in the equity story section. The

completion of the Fruehauf acquisition could add another PLN0.25 to our

current valuation.

Valuation & recommendation. Our DCF model values Wielton’s

current business at PLN5.3 per share. The Fruehauf acquisition (at 75%

probability) is adding PLN0.6 to the current valuation. All in all, we set the

TP at PLN6.0 with a Hold recommendation.

STOCK PERFORMANCE

WLT

WIG Relative

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COMPANY DESCRIPTION

Wielton is Poland biggest’s semi-trailers and trailers producer and one of the 10 leading producers in Europe.


MP-FUND FIZAN 37.9%

Jakub Prozner 13.2%

Lukasz Tylkowski 10.6%

Pawel Szataniak 6.7%

Mariusz Szataniak 6.7%


ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes WLTP.WA / WLT PW



EBIT 35.8 25.9 30.5 31.2 Free float (%) 37.9%



1M 3M YTD




166

Fig. 1. Wielton: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Revenues 595.4 609.2 623.8 635.7 653.7 672.1 691.2 708.2 725.7 743.6

EBIT 25.9 30.5 31.2 31.8 32.7 33.6 34.6 35.4 36.3 37.2


NOPAT 25.9 29.7 30.3 25.7 30.9 31.6 32.4 33.1 33.8 30.1

Depreciation 14.7 14.7 14.7 14.7 14.7 14.7 14.7 14.7 15.7 16.7



Net investment 4.7 2.0 2.2 1.8 2.7 2.7 2.8 2.5 2.6 2.6

Free cash flow 21.2 27.7 28.2 24.0 28.2 28.9 29.6 30.6 31.2 27.5

WACC 9.8%

PV FCF 2014-2023 163.4



PV TV 153.5

Total EV 316.9

Net debt 28.6

Equity value 288.3



Month 11.0


Fruehauf acquisition (75% probability) 0.6



Fig. 2. Wielton: Comparable valuation


2014E 2015E 2016E 2014E 2015E 2016E

Wielton SA 5.25 75 16.0 12.2 12.3 9.0 8.1 7.7

Inter Cars SA 206.5 692 16.5 15.0 13.9 12.6 11.4 10.7

SAF-Holland SA 10.415 472 12.1 9.4 8.5 n.a. n.a. n.a.

Wabash National Corp 10.64 590 13.4 11.1 9.3 6.3 5.7 5.1

MAN SE 91.8 13,436 113.9 49.6 25.9 20.6 17.3 12.4

Volvo AB 85.45 19,772 22.8 14.4 11.0 12.2 9.4 8.0

Median 16.5 14.4 11.0 12.4 10.4 9.3

Premium/discount vs. median -2.9% -15.4% 11.9% -27.6% -22.1% -17.6%



167

Fig. 3. Wielton: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 135.8 149.5 154.7 160.5 156.2 133.9 109.3 163.6 164.6 150.6 147.4 158.8 154.2 -6.3% -2.9%

EBITDA 12.1 8.8 9.5 14.5 10.8 8.7 6.7 15.5 17.0 11.6 10.4 11.3 12.1 -28.8% 7.2%

EBITDA margin 8.9% 5.9% 6.1% 9.0% 6.9% 6.5% 6.1% 9.5% 10.3% 7.7% 7.1% 7.1% 7.8% -2.5 0.7

EBIT 9.1 5.9 6.4 11.2 7.3 5.0 3.1 11.7 13.2 8.0 6.8 7.6 8.4 -36.5% 10.3%

EBIT margin 6.7% 3.9% 4.1% 7.0% 4.7% 3.7% 2.9% 7.1% 8.0% 5.3% 4.6% 4.8% 5.4% -2.6 0.6

Net profit 3.3 6.9 7.0 7.2 5.6 3.1 2.1 8.0 10.6 5.4 2.7 8.7 7.0 -34.3% -19.6%

Net margin 2.4% 4.6% 4.5% 4.5% 3.6% 2.3% 1.9% 4.9% 6.5% 3.6% 1.9% 5.5% 4.5% -1.9 -0.9


Fig. 4. Wielton: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E







Fig. 5. Wielton: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 6. Wielton: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 605 588 595 609 624

COGS 512 493 501 512 524

Gross profit 93 95 95 97 100

SG&A 67 60 67 67 69

Other operating income, net 4 0 -2 0 0

EBITDA 43 51 41 45 46




Income tax 5 0 -3 0 0

Net profit 23 26 21 28 28

Gross margin 15.3% 16.2% 15.9% 16.0% 16.0%

EBITDA margin 7.1% 8.6% 6.8% 7.4% 7.4%




Fig. 7. Wielton: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 222 225 258 258 270

Fixed assets 157 154 126 141 141

Total assets 379 379 384 398 410


bank debt 32 30 30 30 30


bank debt 46 53 47 43 38

Equity 163 174 178 195 208




Net debt 70 56 29 28 17


Fig. 36. Wielton: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E


CF from investment -12 -14 14 -29 -15


Net change in cash -2 19 22 -4 7



168



169

Poland Retail

NOVEMBER 12, 2014

WOJAS RECOMMENDATION

HOLD (INITIATION)

NON-CORE INVESTMENTS TRIMMS UPSIDE CURRENT PRICE: PLN8.0


Equity Story. On first sight, Wojas looks just like another

successful Polish retail company that has been continuously

improving its sales and profits since the post-crisis bottom in

2008. Ever since then, the company has improved its sales to

PLN214mn (vs. PLN85mn in 2008) and its net profit to PLN9.5mn

(vs. 1mn in 2008) in 2014E. On the other hand, we believe that

there are some elements that effectively trim the upside. We do

not share the opinion that the debt financed (PLN10m) non-core

investment in the leisure & entertainment industry, like the

recently announced purchase of a 33% stake in Termy

Chocholowskie (no matter how profitable) create value for the

shoe retailer. We believe that it would be better for Wojas’s

business multiple valuation to remain a clean shoe retailer.

Moreover, the JPY denominated debt (cPLN18mn) also creates a

significant and unnecessary currency risk,, something that could

be easily avoided.

Financials. We expect Wojas to stay on its growth path in the

coming years. We assume that the company will add 1,345

(+7.7%)/1,121 (+6.0%) and 561 sqm in 2014-16E, respectively.

We also expect the LfL at 5.6%, 2.0% and 2.0% in 2014-16E,

respectively. Based on these assumptions, we expect Wojas to

report sales at PLN214mn (+14%y/y), PLN226mn (+5.3%y/y) and

PLN235mn (+4.2%y/y) in 2014-16E. We expect the gross margin

to grow to 44.6% (+138bps), 43.6% (-97bps) and 44.1% (+

47bps) in 2014-16E. In regards to SG&A, we expect the

SG&A/avg. sqm at PLN4,580 (+5.4% y/y), PLN4,387 (-4.2% y/y)

and PLN4,464 (+1.8% y/y). Overall, we expect Wojas to earn an

EBITDA of PLN21.0mn, PLN20.9mn and PLN21.3mn, while its

net profit should come in at PLN9.5mn, PLN9.3mn and

PLN9.7mn in 2014-16E, respectively.

Valuation & recommendation. Wojas is currently trading with a

PE of 10.5x and 10.9x in 2014-15E. Taking into account its

growth, ROE (14%) and leverage, we believe that a PE at c.12x

would be fairer. In this light, Wojas’ current multiple valuation

leaves some upside, which, however, might be trimmed by some

corporate governance issues. Based on our DCF model, we


8% upside potential. We initiate coverage with a Hold rating.

STOCK PERFORMANCE



COMPANY DESCRIPTION

Wojas is a retail company selling shoes under the brand Wojas and Relaks.


Mr. Wieslaw Wojas 83.9%

Free Float 16.1%

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes WOJ.WA / WOJ. P



EBIT 10.0 14.0 14.1 14.1 Free float (%) 16.1%



1M 3M YTD

EV/EBITDA (x) 8.2 6.1 5.9 5.5 0.1% -9.3% 26.4% Source: Company data, DM BZ WBK estimates



170

Fig. 1. Wojas: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Revenues 214 226 235 243 251 257 262 266 270 275

EBIT 14 14 14 10 11 9 11 12 14 14


NOPAT 13 12 12 9 9 8 8 9 10 9

Depreciation 7 7 7 8 8 9 9 9 10 10



Free cashflow 3 8 9 7 7 8 10 11 11 8

WACC (2014-2023, %) 7.9%

PV FCF 2013-2023 53.2



PV TV 71.0

Total EV 124.2

Net debt 33.0

Equity value 91.2



Month 11




Fig. 2. Wojas: Comparable valuation



LPP 33.1 28.7 22.2 20.3 17.7 13.8 1.5 0.7 30.2% 28.9% 30.6% 1.0% 1.2% 1.4%

Monnari 11.0 11.9 13.8 8.4 7.4 6.8 0.8 2.6 26.4% 19.3% 14.9% 0.0% 0.0% 5.0%

Bytom 13.9 10.5 10.9 9.3 7.4 6.4 0.02 0.01 29.3% 32.0% 27.5% 0.0% 4.9% 6.7%

average 19.3 17.1 15.6 12.7 10.8 9.0 0.8 1.1 28.6% 26.8% 24.4% 0.3% 2.0% 4.4%

CCC 26.2 19.9 16.9 18.1 14.1 12.2 0.9 0.4 28.7% 31.2% 1.2% 1.9% 2.5% 0.0%

Wojas 10.1 10.6 10.1 6.1 5.9 5.5 14.5 -2.5 14.8% 12.3% 11.4% 1.3% 1.9% 0.0%

Gino Rossi 20.5 13.4 12.3 8.4 7.2 6.6 0.1 0.0 10.5% 14.2% 13.5% 0.0% 0.0% 0.0%

average 18.9 14.6 13.1 10.9 9.1 8.1 5.1 -0.7 18.0% 19.2% 8.7% 1.1% 1.5% 0.0%

Total - average 19.1 15.9 14.4 11.8 10.0 8.5 3.0 0.2 23.3% 23.0% 16.5% 0.7% 1.7% 2.2%



171

Fig. 3. Wojas: 3Q14 results review PLN in millions, unless otherwise stated


Sales 33.8 38.3 40.5 54.7 35.9 45.0 46.1 60.8 44.5 54.3 49.7 7.7% -8.5%

EBITDA 3.0 2.9 2.7 6.7 1.6 3.0 3.0 8.8 3.2 5.1 3.1 2.9% -39.4%

EBITDA margin 9.0% 7.5% 6.8% 12.2% 4.5% 6.6% 6.5% 14.4% 7.1% 9.4% 6.2% -29 -318

EBIT 1.6 1.4 1.4 5.2 0.1 1.4 1.4 7.1 1.6 3.5 1.4 0.0% -59.4%

EBIT margin 4.6% 3.6% 3.4% 9.4% 0.2% 3.1% 3.1% 11.7% 3.5% 6.4% 2.8% -22 -356

Net profit 0.8 -0.3 0.6 1.4 0.1 1.7 1.4 6.8 0.3 2.5 1.4 0.0% -44.6%

Net margin 2.4% -0.8% 1.4% 2.5% 0.3% 3.7% 3.0% 11.2% 0.7% 4.6% 2.8% -22 -182


Fig. 4. Wojas: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E







Fig. 5. Wojas: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 6. Wojas: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 167 188 215 226 236

COGS 94 107 122 128 132

Gross profit 73 81 93 99 104

SG&A 64 71 80 85 90


EBITDA 15 16 21 21 22


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



Net profit 3 10 10 10 10

Gross margin 43.8% 43.2% 43.4% 43.6% 44.1%

EBITDA margin 9.2% 8.7% 9.6% 9.4% 9.2%




Fig. 7. Wojas: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



Total assets 143 135 148 159 170


bank debt 51 49 56 64 70


bank debt 2 0 0 0 0

Equity 48 63 73 82 92




Net debt 42 33 26 23 18


Fig. 8. Wojas: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

CF from operations -2 11 9 13 15


CF from financing 10 -12 0 0 0

Net change in cash -9 -3 0 4 7



172



173


NOVEMBER 12, 2014

WORK SERVICE RECOMMENDATION

HOLD (PREV. RESTRICTED)

Cash recent gains CURRENT PRICE: PLN19.0

TARGET PRICE: PLN19.5 (PREV. RESTRICTED)

Equity story. Following the completion of four takeovers in

2013/14, Work Service is not resting on its laurels. We expect the

company to maintain a fast growth path, this time aiming at the

Romanian temporary staffing market. As well as M&A, Work

Service should not slow down its organic growth in the coming

years, benefiting from its competitive advantages, positive

structural market changes and supportive forecasts pointing to

GPD growth. Based on these factors, we see Work Service to

show notable growth in sales and net profit, which we expect to

increase at 39% and 47%, on average, over 2014–16E.

Change in valuation & recommendation. We have updated our

DCF model by 5mn new share issue as well as higher intrest

costs paid by company. Our DCF model implies 12 month TP at

PLN19.5/share. Following a recent price surge Work Service is

trading with PE’14-15 of 24.1x and 17.5x, respectively which

implies double digit premiums on FY14-16 numbers, which are

not justified, in our view. In this light, we are reinitiating coverage

of Work Service with a Hold recommendation and a 12-month

Target Price of PLN19.5/share.

STOCK PERFORMANCE





on issue date

12 month target


U/R 10/28/2014 n.a. n.a. n.a. n.a.

Buy 6/8/2014 15.3 19.0 n.a. n.a.

COMPANY DESCRIPTION

Work Service is the largest HR services company in Poland, with rising regional exposition in CEE and Germany.

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes WSE.WA / WSE PW

Sales 918 1,677 2,172 2,482 Market capitalisation (PLNm) 1,140.8


EBIT 48 87 110 127 Free float (%) 25.7%


P/E (x), adj. 47.1 24.1 17.5 15.1 Price performance

1M 3M YTD

EV/EBITDA (x), adj. 25.1 14.6 11.1 9.4 1.6% 33.3% 52.0% Source: Company data, DM BZ WBK estimates



174

Fig. 1. Work Service: 3Q14 results preview PLN in millions, unless otherwise stated


Sales 158.5 174.9 170.6 182.8 186.7 187.3 188.7 221.4 238.9 269.4 345.9 390.0 495.0 107.2% 26.9%

EBITDA 8.3 11.8 8.6 9.5 8.9 15.2 10.2 9.6 12.3 20.5 17.8 18.3 23.9 94.0% 30.6%

EBITDA margin 5.2% 6.8% 5.0% 5.2% 4.8% 8.1% 5.4% 4.3% 5.2% 7.6% 5.2% 4.7% 4.8% -33 13

EBIT 8.3 11.0 7.7 8.4 8.9 14.1 9.1 8.5 11.2 19.2 16.2 16.2 22.0 96.1% 36.1%

EBIT margin 5.2% 6.3% 4.5% 4.6% 4.8% 7.5% 4.8% 3.9% 4.7% 7.1% 4.7% 4.1% 4.4% -25 30

Net profit 5.4 10.5 3.9 3.4 2.0 11.0 5.7 2.5 4.5 13.8 11.5 3.2 11.0 147.2% 247.6%

Net margin 3.4% 6.0% 2.3% 1.9% 1.1% 5.9% 3.0% 1.1% 1.9% 5.1% 3.3% 0.8% 2.2% 36 141


Fig. 2. Work Service: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E







Fig. 3. Work Service: Valuation changes In PLN per share, unless otherwise stated

New Previous Change



Fig. 4. Work Service: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 727 918 1,677 2,172 2,482

COGS 652 806 1,476 1,913 2,185

Gross profit 75 113 201 259 297

SG&A 36 64 114 149 170

Other operating income, net (0) 1 0 - -

EBITDA 43 53 93 118 136




Income tax 4 6 14 22 28

Net profit 20 27 52 71 83

Gross margin 10.4% 12.3% 12.0% 11.9% 12.0%

EBITDA margin 6.0% 5.7% 5.6% 5.4% 5.5%




Fig. 5. Work Service: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 171 251 484 646 777

Fixed assets 185 219 333 337 342

Total assets 355 470 816 983 1,119


bank debt 69 37 77 77 77


bank debt 38 74 139 159 159

Equity 113 224 359 430 513



Total liabilities 355 470 816 983 1,119

Net debt* 104 76 107 63 24

Source: Company data, DM BZ WBK estimates,

Fig. 6. Work Service: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

CF from operations -5 -19 -2 45 41


CF from financing 66 91 195 31 12




175

Poland Chemicals

NOVEMBER 12, 2014

ZA PULAWY RECOMMENDATION

BUY (MAINTAINED)

Company hits its low in 3Q

CURRENT PRICE: PLN145.6


3Q14 Results Preview. As usual, the company’s earnings in 3Q

should be affected by maintenance stoppages and an off-seasonal

drop in demand and fertiliser prices. Nitrogen fertilizer prices hit their

inter-year low in 3Q14, keeping a lid on the company’s earnings

growth. Some nitrogen fertiliser prices were even lower on a y/y

basis. We Also expect the company’s financial performance to be

affected by the relatively tight spread between caprolactam and

benzene. All in all, we expect Pulawy to show 2% higher revenues y/y

at PLN856mn; EBITDA at PLN67mn (+23% y/y) and EBIT at

PLN31mn (+67% y/y). The bottom line is estimated at PLN28m

(+58% y/y). Outcome: NEGATIVE.

Fertiliser & chemical products’ price trends. 3Q14 brought about

a seasonal decrease in the benchmark fertiliser prices q/q. The

Ammonium Nitrate price dropped 1% y/y and 7% q/q. Prices of urea

were 8% higher y/y and q/q, while of UAN -1% y/y and -2% q/q.

Ammonium sulphate prices went up 10% y/y and 16% q/q. Prices of

melamine lost 6% y/y and 2% q/q, while average caprolactam prices

remained flat y/y. The Polish gas tariff was 1.5% higher y/y, while

benzene recorded a 10% y/y hike (up 5% q/q).

Outlook for future / our view on the stock. We believe Pulawy is

the first company that should benefit from a recovery in the fertiliser

markets. Although we have a negative view of the company’s

earnings, we keep our positive view on the stock. We prefer Azoty

Pulawy vs. Azoty Police, given its much bigger potential for

profitability improvement, cash generation capabilities and lower

valuation multiples.

Change in Forecasts. We made no changes to our forecasts for 2014E


Change in Valuation & Recommendation. The applied changes in

our modelling and forecasting led to our DCF-based Target Price of

PLN170.4 per share (17% upside potential). We keep our BUY

recommendation.

PUBLICATION DATE

NOVEMBER 12, 2014


3Q14E y/y q/q

Sales 856 2% 3%

EBITDA 67 23% 76%

EBIT 31 67% 156%

Net profit 28 58% 162%

STOCK PERFORMANCE

ZAP

TP

WIG Relative

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110

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170

190

210

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on issue date

12 month target


Buy 10/27/2014 141.0 170.4 3.3% 3.1

Buy 7/9/2014 145.8 174.5 -3.3% -8.8

Buy 4/28/2014 136.9 174.5 6.5% 8.2

COMPANY DESCRIPTION

ZA Pulawy is one of the largest nitrogen fertilizer manufacturer in Poland, with exposure to fast developing melamine and caprolactam segments.

ANALYST


[email protected]

Company Data

PLNm 12/13 2014E* 2015E 2016E Reuters/Bloomberg codes PULW.WA / ZAP PW



EBIT 429 347 327 403 Free float (%) 4.0%



1M 3M YTD

EV/EBITDA (x) 4.2 5.2 5.2 4.3 4.0% 4.1% -16.3% Source: Company data, Bloomberg, BZ WBK Brokerage, *Leap year consisting of six quarters 3Q13-4Q14



176

Fig. 1. Azoty Pulawy: 3Q14 results preview PLN in millions, unless otherwise stated

3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 2Q'13 3Q'13 4Q13 1Q14 2Q14 3Q14E y/y chg. q/q chg.

Sales 821 996 1,115 1,016 878 973 930 840 923 983 880 939 12% -6%

EBITDA

140 206 323 109 67 121 142 55 57 149 118 79 44% 50%

EBITDA margin 17.1% 20.7% 29.0% 10.7% 7.6% 12.4% 15.2% 6.5% 6.2% 15.1% 13.4% 8.4% 1.9 -5.1

EBIT

112 176 292 84 37 91 110 19 21 111 80 43 128% 87%

EBIT margin 13.7% 17.6% 26.2% 8.3% 4.2% 9.4% 11.9% 2.2% 2.3% 11.3% 9.1% 4.5% 2.3 -4.5

Net profit 99 137 245 120 34 87 105 18 19 98 73 37 111% 96%

Net margin 12.1% 13.7% 21.9% 11.8% 3.9% 9.0% 11.3% 2.1% 2.1% 10.0% 8.3% 3.9% 1.9 -4.3


Fig. 2. Azoty Pulawy: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 3,688 3,688 0% 3,928 3,928 0% 3,953 3,953 0%

EBITDA 456 456 0% 457 457 0% 460 460 0%

EBIT 307 307 0% 327 327 0% 329 329 0%

Net profit 271 271 0% 275 275 0% 278 278 0% Source: Company data, BZ WBK Brokerage

Fig. 3. Azoty Pulawy: Valuation changes In PLN per share, unless otherwise stated


DCF valuation 170.4 170.4 0% 100%


Fig. 4. Azoty Pulawy: Income statement forecast PLN in millions, unless otherwise stated

11/12 12/13 2014E* 2015E 2016E

Net sales 3,948 3,886 5,451 3,928 4,024

COGS -2,914 -3,011 -4,476 -3,190 -3,208

Gross profit 1,034 875 975 738 816

SG&A 397 458 635 411 414


EBITDA 779 554 491 457 534




Income tax 85 69 60 65 80

Net profit after minorities 601 390 308 275 339

Gross margin 26.2% 22.5% 17.9% 18.8% 20.3%

EBITDA margin 19.7% 14.3% 9.0% 11.6% 13.3%



Source: Company data, BZ WBK Brokerage, *leap-year 3Q13-4Q14; FY14 results: Revenues PLN3.69bn; EBITDA PLN455mn; EBIT PLN307mn; Net profit PLN271mn

Fig. 5. Azoty Pulawy: Balance sheet forecast PLN in millions, unless otherwise stated

11/12 12/13 2014E 2015E 2016E

Current assets 1,461 1,431 1,642 1,448 1,548

Fixed assets 1,756 1,982 2,142 2,301 2,424

Total assets 3,218 3,412 3,784 3,749 3,972


bank debt 7 9 22 20 24


bank debt 32 51 33 20 16

Equity 2,445 2,656 2,767 2,965 3,180

share capital 429 429 429 429 429



Net debt -472 -430 -225 -425 -507


Fig. 6. Azoty Pulawy: Cash flow forecast PLN in millions, unless otherwise stated

11/12 12/13 2014E 2015E 2016E







177

Poland Chemicals

NOVEMBER 12, 2014.

ZCH POLICE RECOMMENDATION

SELL (MAINTAINED)

Y/y rebound in earnings CURRENT PRICE: PLN21.5


3Q14 Results Preview. We expect Police to report a multi-

component fertiliser volumes at 241kt (+20%y/y), with the fertilizer

segment’s revenues 23% higher y/y. Compared with 3Q13, we expect

the company’s fertiliser business profitability to be supported by (1)

larger supplies of cheaper phosphate rock from Senegal and (2)

cheaper gas costs from other-than-PGNiG suppliers. The titanium

dioxide (TiO2) segment’s volumes are assumed at 10.0k tonnes

(+2% y/y), while prices (in EUR) at around -2% y/y (but +1% q/q). We

expect Azoty Police to report the headline EBITDA at PLN47.8mn

(+97% y/y), the EBIT at PLN30.5mn (vs. PLN5.5mn in 3Q13), while

the bottom line at PLN22.0mn (vs. PLN6.8mn in 3Q13). Outlook:

POSITIVE.

Fertilisers price trends in 3Q14: The multi-component fertiliser

benchmark prices varied in the last quarter. The DAP prices rose 9%

q/q and 11% y/y. The benchmark NPK(16,16,16) went up 3% q/q, but

dropped 3% y/y. The urea benchmark prices were 8% higher both q/q

and y/y, while those of ammonia rose 13% y/y (flat q/q). Potassium

chloride climbed 2% q/q (-20% y/y), while phosphate rock remained

flat q/q (-4% y/y).

Outlook for 2014 and beyond. Given the expected strong harvest

season and lower grains’ quotations, we see no reasons for the multi-

component fertiliser prices to go significantly up in coming years.

Change in Forecasts. We made no changes to our forecasts for 2014E


Change in Valuation & Recommendation. We leave our DCF-

based Target Price unchanged at PLN11.6 per share (46% downside

potential). We keep our SELL recommendation.

PUBLICATION DATE

NOVEMBER 12, 2014


2Q14E y/y q/q

Sales 608.1 19% -1%

EBITDA 47.8 97% -7%

EBIT 30.5 455% -4%

Net profit 22.0 222% -16%

STOCK PERFORMANCE

PCETPWIG Relative

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12 month target


Sell 10/27/2014 23.0 11.6 -6.7% -6.8

Sell 7/9/2014 23.3 11.9 -1.3% -6.8

Sell 4/28/2014 20.0 11.9 16.5% 18.2

COMPANY DESCRIPTION

ZCh Police is the largest domestic NPK fertilizer manufacturer in Poland, with exposure to titanium dioxide and nitrogen fertilizers segments.

ANALYST


[email protected]

Company Data

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes PICE.WA / PCE PW



EBIT 56 87 139 202 Free float (%) 20.2%



1M 3M YTD

EV/EBITDA (x) 8.1 7.0 5.8 4.9 -6.6% 1.0% -10.9% Source: Company data, Bloomberg, BZ WBK Brokerage



178

Fig. 1. Azoty Police: 3Q14 results preview PLN in millions, unless otherwise stated

3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q14 2Q14 3Q14E y/y chg. q/q chg.

Sales 591.9 884.0 726.3 923.4 759.6 571.9 725.4 728.4 510.4 500.1 631.5 617.2 608.1 19% -1%

EBITDA 71.0 101.1 82.6 57.9 50.1 20.3 61.3 52.8 24.2 3.6 50.7 51.7 47.8 97% -7%

EBITDA margin 12.0% 11.4% 11.4% 6.3% 6.6% 3.6% 8.5% 7.2% 4.7% 0.7% 8.0% 8.4% 7.9% 3.1 -0.5

EBIT 52.0 79.9 61.8 37.9 29.9 -1.8 39.6 31.9 5.5 -20.7 20.1 31.7 30.5 455% -4%

EBIT margin 8.8% 9.0% 8.5% 4.1% 3.9% -0.3% 5.5% 4.4% 1.1% -4.1% 3.2% 5.1% 5.0% 3.9 -0.1

Net profit 46.3 150.1 43.3 31.7 28.6 0.6 32.2 23.4 6.8 -10.9 16.3 26.2 22.0 222% -16%

Net margin 7.8% 17.0% 6.0% 3.4% 3.8% 0.1% 4.4% 3.2% 1.3% -2.2% 2.6% 4.3% 3.6% 2.3 -0.6


Fig. 2. Azoty Police: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E


Sales 2,448 2,448 0% 2,599 2,599 0% 2,745 2,745 0% EBITDA 173 173 0% 230 230 0% 298 298 0% EBIT 87 87 0% 139 139 0% 202 202 0% Net profit 66 66 0% 100 100 0% 151 151 0% Source: Company data, BZ WBK Brokerage

Fig. 3. Azoty Police: Valuation changes In PLN per share, unless otherwise stated

New Previous Change Weight DCF valuation 11.6 11.6 0% 100%


Fig. 4. Azoty Police: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 2,981 2,464 2,448 2,599 2,745

COGS -2,707 -2,226 -2,140 -2,236 -2,317

Gross profit 274 239 308 363 427

SG&A -185 -229 -224 -225 -225


EBITDA 211 142 173 230 298




Income tax -20 -10 -15 -23 -35

Net profit after minorities 104 51 66 100 151

Gross margin 9.2% 9.7% 12.6% 14.0% 15.6%

EBITDA margin 7.1% 5.8% 7.1% 8.9% 10.9%




Fig. 5. Azoty Police: Balance sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 653 713 691 728 761

Fixed assets 918 1,275 1,295 1,390 1,459

Total assets 1,571 1,988 1,986 2,118 2,220


bank debt 136 197 147 171 164


bank debt 72 55 147 171 164

Equity 977 970 1,013 1,080 1,181

share capital 750 750 750 750 750



Net debt 157 169 212 255 237


Fig. 6. Azoty Police: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



CF from financing, incl. -29 -29 38 36 -41

Net change in cash 3 33 -1 5 5



179

Poland UTILITY

November 12, 2014

ZE PAK RECOMMENDATION

HOLD (INITIATION)

Prime Polish play on electricity price CURRENT PRICE: PLN29.84


Equity Story. ZE PAK operates 2.5GW of lignite-fuelled old generation

units, of which 600MW is to be switched off in 2018 and 1.3GW in 2029.

The company is vertically integrated via its own lignite mines – the

company requires no external fuel except for its 50MW biomass unit. The

company is a key play on the growing Polish electricity price through its

relatively high generation fleet and low-cost units. The company is also

delivering decent gains on cost optimisation and further upside there

seems reasonable. CO2 pricing, in light of today’s respective low volume

of the free certificates held, is the key risk for the stock. PAK’s investment

outlays will exceed its OpCF until 2017E (construction of gas-fired units)

but a potential investment into another unit may delay this moment

further.

Financials. 3Q14 is certain to come in below expectations on the back of

the recently announced provision. Still, if the current prices of electricity

futures and CO2 certificates remain unchanged, ZE PAK is poised to

deliver a very strong EBITDA / bottom line expansion until 2017E – we

see its operating profit doubling in 2014-17E. Lignite extraction should

continue delivering +PLN200mn EBITDA p.a., while generation should

provide the strongest electricity price-driven upside, up from PLN296mn in

2014E to PLN674mn in 17E. Still, the switch-off scheduled for 2018

should trim PAK’s results substantially (see next page for EBIT at DCF).

Triggers / Risks. Growth in the electricity price beyond the current

market prices is the key upside for the company. Further cost optimisation

could also add value to ZE PAK. On the side of risks, the company’s

NetFCF may be delayed with the decision on the gas-fired unit

investment. Moreover, ZE PAK is a dirty producer and has a relatively

small amount of free CO2 certificates – any strong growth in their price

would leave the stock exposed. Finally, uncertainty over rights to future

lignite extraction remains intact.


12M TP of PLN20.8 per share, depressed with the high value of the

company’s provisions. On the other hand, the short-term inexpensiveness

at the P/E and EV/EBITDA ratios implies a per share price of PLN41.9.

With such a discrepancy in outcomes, we applied two valuation outcomes

with a 50% weight each, yielding a 12M TP of PLN31.9. We initiate the

stock with a Hold recommendation.

STOCK PERFORMANCE

ZEP

WIG Relative

18

20

22

24

26

28

30

32

34

36

Oct-

12

Ja

n-1

3

Apr-

13

Ju

l-13

Oct-

13

Ja

n-1

4

Apr-

14

Ju

l-14

Oct-

14






on issue date

12 month target



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

PLNm 2013 2014E 2015E 2016E Reuters/Bloomberg codes ZEEP.WA / ZEP PW

Sales 2,764 2,416 2,558 2,701 Market capitalisation (PLNm) 1,516.6


EBIT 359 144 311 438 Free float (%) 48.4%



1M 3M YTD




180

Fig. 1. ZE PAK: DCF valuation PLN in millions, unless otherwise stated

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

Net sales 2,416 2,558 2,701 2,826 2,371 2,368 2,366 2,379 2,391 2,404

EBIT 144 311 438 625 239 254 197 219 241 263


NOPAT 117 252 355 507 193 206 159 177 195 213

Depreciation 353 351 348 345 343 324 305 286 268 249

Change in operating WC -2 1 1 1 -3 0 0 0 0 0


Free cashflow -160 -270 -170 -1 327 318 253 252 251 250

PV FCF PV TV Total

Regulated businesses

Distribution 0 0 0

Heat 0 0 0

Renewables 0 0 0

Sub-total 0 0 0

Non-regulated businesses

Systemic generation -102 1,065 963

Coal extraction 523 653 1,176

Sales & others 18 19 37

Sub-total 439 1,737 2,176

Net Debt, provisions, other 1,261*

Total DCF Valuation [PLNmn, Jan2014] 916

Number of shares [mn] 50.8

SOPT / DCF valuation per share [PLN, Jan2014] 18.0

SOTP / DCF valuation per share - current [PLN, Nov2014] 19.3

12-month Target Price [PLN] 20.8

Source: Company data, DM BZ WBK estimates. * includes PLN599mn of provisions. .

Fig. 2. ZE PAK: Comparable valuation


2014E 2015E 2016E 2014E 2015E 2016E

ZE PAK 29.84 PLN 20.5 7.7 5.3 5.1 4.3 3.9

CEZ 604.50 CZK 11.1 13.2 14.4 7.1 7.6 7.7

Public Power Corp 6.68 EUR 12.6 6.4 5.0 6.0 5.4 5.0

Drax Group 580.50 GBp 26.4 17.3 11.1 11.1 8.7 6.5

Enel 3.97 EUR 12.5 11.7 11.2 6.0 5.9 5.8

RWE 28.68 EUR 13.2 13.2 13.7 4.9 4.6 4.4

SSE 1581.00 GBp 13.3 13.5 12.9 10.1 10.1 9.7

E.ON 13.58 EUR 14.9 14.4 14.4 5.6 5.5 5.3

Median 13.2 13.2 12.9 6.0 5.9 5.8

Source: BZ WBK Brokerage research, Bloomberg.


181

Fig. 3. ZE PAK: 3Q14 results preview PLN in millions, unless otherwise stated

3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E* y/y q/q

Sales 631.4 712.8 735.3 663.2 664.1 689.5 747.0 667.7 677.1 676 -2.0% -0.2%

EBITDA 99.8 117.1 139.5 96.2 106.7 216.0 134.1 169.0 140.8 140 -35.2% -0.6%

EBITDA margin 15.8% 16.4% 19.0% 14.5% 16.1% 31.3% 18.0% 25.3% 20.8% 20.7% -10.6 -0.1

EBIT 99.8 116.9 130.4 87.1 97.9 128.0 45.5 80.6 49.5 51 -60.2% 3.1%

EBIT margin 15.8% 16.4% 17.7% 13.1% 14.7% 18.6% 6.1% 12.1% 7.3% 7.5% -11.0 0.2

Net profit 58.8 101.8 90.2 47.3 48.3 102.7 18.6 52.4 34.4 36 -65.0% 4.8%

Net margin 9.3% 14.3% 12.3% 7.1% 7.3% 14.9% 2.5% 7.9% 5.1% 5.3% -9.6 0.3

Source: Company data, DM BZ WBK estimates. * based on market consensus, not adjusted for PLN76mn write-down in 3Q14.

Fig. 4. ZE PAK: Forecast changes PLN in millions, unless otherwise stated

2014E 2015E 2016E





Net profit 74 n.a. n.a. 197 n.a. n.a. 286 n.a. n.a. Source: Company data, DM BZ WBK estimates

Fig. 5. ZE PAK: Valuation changes In PLN per share, unless otherwise stated

New Previous Change


Comparable valuation (based on 2014-2016E) 42.9 n.a. n.a.

Weighted valuation* 31.9 n.a. n.a. Source: Company data, DM BZ WBK estimates. Based on 50% DCF valuation and 50% comparative valuation.

Fig. 6. ZE PAK: Income statement forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Net sales 2,723 2,764 2,416 2,558 2,701

COGS 1,960 2,047 1,919 1,896 1,915

Gross profit 764 716 497 662 786

SG&A 137 152 0 0 0


EBITDA 764 716 497 662 786




Income tax 94 68 20 49 71

Net profit 406 217 74 197 286

Gross margin 28.0% 25.9% 20.6% 25.9% 29.1%

EBITDA margin 28.0% 25.9% 20.6% 25.9% 29.1%




Fig. 7. ZE PAK: Balance Sheet forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E

Current assets 900 1,132 700 718 775

Fixed assets 5,360 5,339 5,605 6,131 6,660

Total assets 6,259 6,471 6,305 6,849 7,436

Current liabilities 925 1,072 988 1,023 1,057

bank debt 462 406 406 406 406

Long-term liabilities 1,792 1,616 1,495 1,842 2,142

bank debt 790 652 652 950 1,200

Equity 3,542 3,783 3,822 3,985 4,237

share capital 104 102 102 102 102



Net debt 934 627 1,003 1,305 1,521


Fig. 8. ZE PAK: Cash flow forecast PLN in millions, unless otherwise stated

2012 2013 2014E 2015E 2016E



CF from financing, incl. -99 -156 -24 276 232

dividends 0 0 -35 -35 -35

Net change in cash 318 113 -376 -5 34



182



183

Dom Maklerski BZ WBK

Jana Pawla II Avenue 17 00-854 Warszawa

fax. (+48) 22 586 81 09

Equity Research Department

Pawel Puchalski, CFA, Head tel. (+48) 22 586 80 95 [email protected] Telecommunications, Metals & Mining, Power

Dariusz Gorski, Deputy Head tel. (+48) 22 586 81 00 [email protected] Strategy, Banks

Tomasz Kasowicz tel. (+48) 22 586 81 55 [email protected] Oil&Gas, Chemicals

Tomasz Sokolowski tel. (+48) 22 586 82 36 [email protected] Pharma, Retail

Adrian Kyrcz tel. (+48) 22 586 81 59 [email protected] Construction, Real Estate

Lukasz Kosiarski tel. (+48) 22 586 82 25 [email protected] Media, IT, IT distribution, Video Games, Health Care

Andrzej Bieniek, Securities Broker, Investment Adviser tel. (+48) 22 586 85 21 [email protected] Financials

Tomasz Kucinski tel. (+48) 22 534 16 10 [email protected] Industrials

Michal Sopiel tel. (+48) 22 586 82 33 [email protected] Wood, Quantitative Analysis

Sales & Trading Department

Piotr Zagan , Head tel. (+48) 22 586 80 84 [email protected]

Wojciech Wosko tel. (+48) 22 586 80 82 [email protected] Kamil Cislo tel. (+48) 22 586 80 90 [email protected] Grzegorz Kolodziejczyk, Securities Broker tel. (+48) 22 586 81 93 [email protected] Blazej Leskow, Securities Broker tel. (+48) 22 586 80 83 [email protected]

Marcin Kuciapski, Securities Broker tel. (+48) 22 586 80 96 [email protected]

Marek Wardzynski, Securities Broker tel. (+48) 22 586 80 87 [email protected]

Alex Kaminski tel. (+48) 22 586 80 63 [email protected]

Robert Chudala tel. (+48) 22 586 85 14 [email protected]


184

LIMITATION OF LIABILITY This material was produced by Dom Maklerski BZ WBK which is a separate organizational unit of Bank Zachodni WBK S.A conducting brokerage activity (DM BZ WBK). DM BZ WBK is subject to the regulations of the Act on Trading in Financial Instruments dated July 29th 2005 (Journal of Laws of 2014, item 94 - consolidated text, further amended), Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies dated July 29th 2005 (Journal of Laws of 2013 item 1382 - consolidated text, further amended), Act on Capital Market Supervision dated July 29th 2005 (Journal of Laws of 2005, No.183 item 1537 further amended). It is addressed to qualified investors and professional clients as defined under the above indicated regulations and to Clients of DM BZ WBK entitled to gain recommendations based on the brokerage services agreements. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of Bank Zachodni WBK S.A. (BZ WBK) or entities belonging to BZ WBK Group. DM BZ WBK is an author of this document. All copyrights belong to BZ WBK .This document may not be reproduced or published, in part or in whole, without a prior written consent of BZ WBK. DM BZ WBK may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. DM BZ WBK will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for particular investor and it is recommended to consult an independent investment advisor in case of doubts about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to investor's individual circumstances, or otherwise constitutes a personal recommendation to particular investor. Whenever the document refers to "the Issuer" shall mean the company / companies which is / are the subject of the recommendations referred to in this document. In the case where recommendation refers to several companies, the name "Issuer" will apply to all of them. Affiliates of DM BZ WBK may, from time to time, to the extent permitted by law, participate or invest in financing transactions with Issuer, perform services for or solicit business from such Issuer and/or have a position or effect transactions in the financial instruments issued by the Issuer ("financial instruments"). DM BZ WBK may, to the extent permitted by applicable Polish law, UK law and other applicable law or regulation, effect transactions in the Financial instruments before this material is published to recipients. This document is valid at the time of its preparation and may change. DM BZ WBK may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and DM BZ WBK is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. DM BZ WBK informs that success in past recommendations is not a guarantee of success in future ones. Points of view expressed in the reports reflect Analyst personal opinion on the analysed company and its securities. With the exception of remuneration from the DM BZ WBK ,Analysts do not receive any other form of compensation for recommendations made. The sources of the data include WSE, PAP, Reuters, Bloomberg, EPFR, GUS /Central Statistical Office/, NBP /National Bank of Poland/, DM BZ WBK, Akcje.net, financial periodicals and business and finance websites. Information and opinions contained herein have been compiled or gathered, with due care and diligence, by DM BZ WBK from sources believed to be reliable, however DM BZ WBK cannot ensure their accuracy or completeness. Investor shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the Financial instruments forming the subject matter of this document. The information and opinions contained herein are subject to change without any notice. Dom Maklerski BZ WBK is not responsible for any losses incurred by Investors which were result of investment decisions based on recommendations issued by DM BZ WBK, if they were prepared with due care and diligence. This document does not constitute an offer or invitation to subscribe for or purchase or carry out transactions in any financial instruments and shall not be considered as an offer to sell or to buy any securities. This document is furnished and presented to you solely for your information and shall not be reproduced or redistributed to any other person. This document nor any copy hereof shall not be distributed directly or indirectly in the United States, Canada, Australia or Japan or to any citizen or resident of the United States, Canada, Australia or Japan where its distribution may be restricted by law. Its distribution may be restricted by law in other countries. Persons who distribute this document shall make themselves aware of and adhere to any such restrictions. This document may be distributed in the United States and in the United Kingdom to persons which have professional knowledge about investing in accordance with relevant regulations. Opinions in this document must not be relied upon as having been authorised or approved by issuer the opinions expressed herein are solely those of DM BZ WBK. DM BZ WBK informs that investing assets in financial instruments implies the risk of losing part or all the invested assets. DM BZ WBK indicates that the price of the financial instruments is influenced by lots of different factors, which are or cannot be dependent from issuer and its business results. These are factors such as changing economical, law, political or tax condition. More information on financial instruments and risk connected with them can be found on www.dmbzwbk.pl, section disclaimers and risk. The decision to purchase any of the financial instruments should be made only on the basis of the prospectus, offering circular or other documents and materials which are published on general release on the basis of polish law. Overweight/Underweight/Neutral - means that, according to the authors of this document, the stock price may perform better/worse/neutrally than the WIG20 index in a given month. When particular stocks are marked with Overweight/Underweight/Neutral - such information should not be construed as investment recommendation concerning a given financial instrument. The recommendation system of BZ WBK Brokerage S.A. is based on determination of target prices and their relations to current prices of financial instruments; in addition, when recommendations are addressed to a wide range of recipients, two methods of valuation are required. Overweight/Underweight/Neutral information contained herein does not meet any of the aforementioned requirements. Furthermore, depending on the situation, it can be grounds for taking different (including opposing) investment action in the case of particular investors. Mid-caps - if a stock is included into a mid-cap portfolio it means that, according to the authors of this document, a particular stock price may outperform the WIG20 index during one month. Stocks are added to or deleted from the list on the basis of the requirement to rotate the stocks included in the list. Any change in weight of stocks already included in the portfolio should not be construed as investment recommendation. Such changes are aimed exclusively at making the total weight of all stocks equal 100%. DM BZ WBK confirms that the adjustment for dividend paid, adjustment for preemptive rights, share split or merger, or any other purely technical adjustments to the share price will result in corresponding changes in the stocks' target prices - such situations must be considered within purely technical context and should not be considered as changes to recommendations in the meaning of the law. Explanations of special terminology used in the recommendation: EBIT - earnings before interest and tax EBITDA - earnings before interest, taxes, depreciation, and amortization P/E - price-earnings ratio EV - enterprise value (market capitalisation plus net debt) PEG - P/E to growth ratio EPS - earnings per share CPI - consumer price index WACC - weighted average cost of capital CAGR - cumulative average annual growth P/CE - price to cash earnings (net profit plus depreciation and amortisation) ratio NOPAT - net operational profit after taxation FCF - free cash flows BV - book value ROE - return on equity P/BV - price-book value Recommendation definitions: Buy - indicates a stock's total return to exceed more than 15% over the next twelve months. Hold - indicates a stock's total return to be in range of 0%-15% over the next twelve months. Sell - indicates a stock's total return to be less than 0% over the next twelve months. In the opinion of DM BZ WBK., this document has been prepared with all due diligence and excludes any conflict of interests which could influence its content. DM BZ WBK is not obliged to take any actions which could cause financial instruments that are the subject of the valuation contained in this document to be valued by the market in accordance with the valuation contained in this document. Brokerage activity conducted by DM BZ WBK, which is a separate organizational unit of Bank Zachodni WBK S.A., is subject to the supervision of the Financial Supervision Commission. The date on the first page of this report is the date of preparation and publication of the document. ANY PERSON WHO ACCEPTS THIS DOCUMENT AGREES TO BE BOUND BY THE FOREGOING DISCLAIMER AND LIMITATIONS.


185

Dom Maklerski BZ WBK is a separate organizational unit of Bank Zachodni WBK S.A. with its registered office in Wrocław, ul. Rynek 9/11, 50-950 Wrocław, registered by the District Court in Wrocław - Fabryczna, VI Commercial Division of the National Court Register under the number 0000008723. Share capital - PLN 992 345 340 fully paid up. Taxpayer Identification Number (NIP) 896-000-56-73. ---------------------------------------------------------------------------------------------------------------------------------------- DISCLOSURES This report contains recommendations referring to company/companies: AB S.A., ABC Data S.A., Action S.A., Alumetal S.A., Ambra S.A., Amica Wronki S.A., Apator S.A., Arctic Paper S.A., ASBISc Enterprises PLC, Asseco Business Solutions S.A., Asseco Poland S.A., Asseco South Eastern Europe S.A., Atrem S.A., Automotive Components Europe S.A., Bank BPH S.A., Bank Ochrony Środowiska S.A., Benefit Systems S.A., Budimex S.A., CCC S.A., CD Projekt S.A., CEZ A.S., CI Games S.A., Ciech S.A., Colian S.A., Comarch S.A., Cyfrowy Polsat S.A., Dom Development S.A., Echo Investment S.A., Elemental Holding S.A., Emperia Holding S.A., Enea S.A., Energa S.A., Erbud S.A., Eurocash S.A., Europejskie Centrum Odszkodowań S.A., Fabryka Mebli Forte S.A., Farmacol S.A., Giełda Papierów Wartościowych w Warszawie S.A., Gino Rossi S.A., Grupa Azoty S.A., Grupa Azoty Zakłady Azotowe Puławy S.A., Hawe S.A., Integer.pl S.A., International Personal Finance plc, Jastrzębska Spółka Węglowa S.A., Kęty S.A., KGHM "Polska Miedź" S.A., Kruk S.A., Lotos S.A., LPP S.A., Lubelski Węgiel "Bogdanka" S.A., M.W. Trade S.A., Magellan S.A., mBank S.A., Medicalgorithmics S.A., Midas S.A., Monnari Trade S.A., Netia S.A., Neuca S.A., Open Finance S.A., Orange Polska S.A., Ovostar Union N.V., P.R.E.S.C.O. Group S.A., Paged S.A., Pekaes S.A., Pelion S.A., Pfleiderer Grajewo S.A., PGNiG S.A., PKN Orlen S.A., Polska Grupa Energetyczna S.A., Polski Holding Nieruchomości S.A., Pozbud T&R S.A., Prime Car Management S.A., PZ Cormay S.A., Robyg S.A., Ronson Europe NV, Synektik S.A., Synthos S.A., Tauron Polska Energia S.A., Tesgas S.A., Trakcja S.A., TVN S.A., Unibep S.A., Vantage Development S.A., Votum S.A., Voxel S.A., Wielton S.A., Wojas S.A., Work Service S.A., Zakłady Chemiczne Police S.A., Zakłady Odzieżowe Bytom S.A., Zespół Elektrowni "Pątnów-Adamów-Konin" S.A. ("Issuer"). DM BZ WBK emphasizes that this document is going to be updated at least once a year. This document has not been disclosed to Issuer. In preparing this document DM BZ WBK applied at least two of the following valuation methods: discounted cash flows (DCF), comparative, mid-cycle, dividend discount model (DDM), residual income, warranted equity method (WEV), SOTP valuation, liquidation value. The discounted cash flows (DCF) valuation method is based on expected future discounted cash flows. One advantage of the DCF valuation method is that it takes into account all cash streams reaching Issuer and the cost of money over time. Some disadvantages of the DCF valuation method are that a large number of parameters and assumptions need to be estimated; and the valuation is sensitive to changes in those parameters. The comparative valuation method is based on the economic rule of "one price". Some advantages of the comparative valuation method are that the analyst need only estimate a small number of parameters; the valuation is based on current market conditions; the relatively large accessibility of indicators for companies being compared; and that there is an extensive knowledge of the comparative method among investors. Some disadvantages of valuation by the comparative method are the considerable sensitivity of the results of the valuation on the choice of companies to the comparative group; the method can lead to a simplification of the picture of the company which in turn can lead to omitting certain important factors (e.g. growth dynamics, extra-operational assets, corporate governance, the repeatability of results, differences in applied accounting standards); and the uncertainty of the effectiveness of a market valuation of companies being compared. The mid-cycle valuation is based on long-term averages for the two-year forward consensus P/E and EV/EBITDA multiples for the members of the peer group. The methodology is aimed calculating a fair, through the cycle value of cyclical stocks. Among its shortfalls is that at peaks and/or troughs of the cycle, the implied fair value may deviate substantially from the market's value of an analysed stock as well as the methods' reliance on the quality of external data (we use Bloomberg consensus here). Simplicity and average through-cycle value allowing to capture over as well as under-valuation of a given stock are the main advantages of this methodology. The dividend discount model (DDM) valuation is based on the net present value of the future dividends that are expected to be paid out by the company. Some advantages of the DDM valuation method are that it takes into account real cash flows to equity-owners and that the methodology is used in respect to companies with long dividend payout history. Main disadvantage of the DDM valuation method is that dividend payouts are based on a large number of parameters and assumptions, including dividend payout ratio. Residual income method is conceptually close to the discounted cash flows method (DCF) for non-financial stocks, the difference being that it is based on expected residual income (returns over COE) rather than expected future cash flows. One advantage of this valuation method is that it captures the excess of profit potentially available to shareholders and the cost of money over time. Main disadvantage of the valuation method is that a large number of parameters and assumptions need to be estimated; and the valuation is sensitive to changes in those parameters. The warranted equity method (WEV) is based on the formula P/BV = (two year forward ROE less sustainable growth rate)/(Cost of equity less sustainable growth rate) which allows estimating a fair value (FV) of a given stock in two years time. Subsequently the FV is discounted back to today. The main advantage of the WEV method is that it is a transparent one and based on relatively short term forecasts, hence substantially reducing the margin of forecasting error. The main disadvantage in our view is that the model is based on the principle that stock price should converge towards its fair value implied by company's ROE and COE. SOTP valuation - different assets of a company are being valued according to different valuation methods, and the sum of these valuations represents the final valuation of the company. SOTP valuation advantages / disadvantages are identical to advantages and disadvantages of the specific valuation methods used. Liquidation value method - liquidation value is the estimated amount of money that an asset or company could be quickly sold for, such as if it were to go out of business. Then, the estimated assets value is adjusted for liabilities and liquidation expenses. One advantage of this valuation method is its simplicity. This method does not account for intangible assets as goodwill, which is the main disadvantage. Over the last three months Dom Maklerski BZ WBK issued 27 Buy recommendations, 9 Hold recommendations and 8 Sell recommendations. % of Companies Rating Covered with This Rating Provided with Investment Banking in Past 12M Buy 58,06 5,56 Hold 20,97 7,69 Sell 12,90 25,00 Under Review 8,06 20,00 Definition of each rating was provided in the above section Limitation of liability. The Stock performance charts in this report include line graphs of the securities' daily closing prices for one year period. Information relating to a longer period (max 3 years) is available upon request. The Issuer may hold shares of BZ WBK S.A. Members of the Issuer's authorities or their relatives may be members of the management board or supervisory board of BZ WBK S.A. Among those, who prepared this document, as well as among those who didn't prepare it but had or might have had the access to it, there are such individuals who hold shares or financial instruments whose value is connected with the value of the financial instruments issued by: Giełda Papierów Wartościowych w Warszawie S.A., Grupa Azoty Zakłady Azotowe Puławy S.A., KGHM "Polska Miedź" S.A., Lotos S.A., PGNiG S.A., PKN Orlen S.A., PKO Bank Polski S.A., PZ Cormay S.A., Synthos S.A., Tauron Polska Energia S.A., Trakcja S.A., Zakłady Chemiczne Police S.A. BZ WBK Group, its affiliates, representatives or employees may occasionally under take transactions or may be interested in acquiring securities of issuers directly or indirectly related to those being analysed. During the last 12 months DM BZ WBK has been a party to agreements relating to the offering of financial instruments issued by Action S.A., Work Service S.A. During the last 12 months DM BZ WBK was a member of syndicate for financial instruments issued by Elemental Holding S.A., Energa S.A., Prime Car Management S.A. DM BZ WBK S.A. acts as market maker, on principles specified in the Regulations of the Warsaw Stock Exchange, for the shares of ABC Data S.A., Amica Wronki S.A., Asseco Poland S.A., Cyfrowy Polsat S.A., Enea S.A., Energa S.A., Eurocash S.A., Europejskie Centrum Odszkodowań S.A., Grupa Azoty S.A., Hawe S.A., Jastrzębska Spółka Węglowa S.A., Kęty S.A., KGHM "Polska Miedź" S.A., Lotos S.A., LPP S.A., Lubelski Węgiel "Bogdanka" S.A., Netia S.A., Orange Polska S.A., Pelion S.A., PGNiG S.A., PKN Orlen S.A., Polska Grupa Energetyczna S.A., Polski Holding Nieruchomości S.A., Synthos S.A., Tauron Polska Energia S.A., Tesgas S.A., TVN S.A. DM BZ WBK S.A. acts as issuer's market maker, on principles specified in the Regulations of the Warsaw Stock Exchange, for the shares of ABC Data S.A., Action S.A., Amica Wronki S.A., Benefit Systems S.A., CCC S.A., Dom Development S.A., Enea S.A., Erbud S.A., Europejskie Centrum Odszkodowań S.A., Fabryka Mebli Forte S.A., Hawe S.A., International Personal Finance plc, KGHM "Polska Miedź" S.A., Monnari Trade S.A., P.R.E.S.C.O. Group S.A., Pelion S.A., Polski Holding Nieruchomości S.A., Pozbud T&R S.A., Robyg S.A., Tesgas S.A., Work Service S.A. DM BZ WBK is not a part to the agreement with the Issuer related to issuing recommendations. During the last 12 months DM BZ WBK S.A. has received remuneration for providing services for the Issuer. These services covered acting as issuer's market maker for ABC Data S.A., Action S.A., Amica Wronki S.A., CCC S.A., Dom Development S.A., Enea S.A., Erbud S.A., Europejskie Centrum Odszkodowań S.A., Fabryka Mebli Forte S.A., Hawe S.A., International Personal Finance plc, KGHM "Polska Miedź" S.A., Monnari Trade S.A., P.R.E.S.C.O. Group S.A., Polski Holding Nieruchomości S.A., Pozbud T&R S.A., Robyg S.A., Tesgas S.A., Work Service S.A., managing the deposit of financial instuments issued by ABC Data S.A., Action S.A., Atrem S.A., Elemental Holding S.A., Kęty S.A., Magellan S.A., Ovostar Union N.V., Polska Grupa Energetyczna S.A., Polski Holding Nieruchomości S.A., Tesgas S.A., providing services of Lead Manager for Amica Wronki S.A., Apator S.A., Europejskie Centrum Odszkodowań S.A., KGHM "Polska Miedź" S.A., Synthos S.A., acting as issuing agent for ABC Data S.A., Gino Rossi S.A., managing the managerial scheme for ABC Data S.A., Kęty S.A., Kruk S.A., carrying out the over-the-market transaction for Paged S.A., conducting the tender offer for TVN S.A.


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During the last 12 months BZ WBK S.A. has received remuneration for providing services of investment banking from Action S.A. , Budimex S.A., KGHM "Polska Miedź" S.A., Polska Grupa Energetyczna S.A., TVN S.A., Work Service S.A. BZ WBK S.A. may be indirectly connected with the Issuer and does not rule out that in the period of preparing this document any Affiliate of BZ WBK S.A. might purchase shares of the Issuer or any financial instruments being the subject of this document which may cause reaching at least 5% of the share capital. BZ WBK Group has hold, in the period of preparing this document, shares of the following issuers: AB S.A., ABC Data S.A., Action S.A., Alumetal S.A., Ambra S.A., Asseco Business Solutions S.A., Asseco Poland S.A., Asseco South Eastern Europe S.A., Automotive Components Europe S.A., Budimex S.A., CCC S.A., CD Projekt S.A., Dom Development S.A., Echo Investment S.A., Erbud S.A., Fabryka Mebli Forte S.A., Farmacol S.A., Kęty S.A., Kruk S.A., Lubelski Węgiel "Bogdanka" S.A., Magellan S.A., Medicalgorithmics S.A., Netia S.A., Open Finance S.A., Ovostar Union N.V., Pelion S.A., Pfleiderer Grajewo S.A., PKN Orlen S.A., Synektik S.A., Tesgas S.A., Unibep S.A., in the amount reaching at least 5% of the share capital. BZ WBK Group may have hold, in the period of preparing this document, shares of the Issuer, in the amount reaching at least 1% of the share capital. Subject to the above, the Issuer are not bound by any contractual relationship with BZ WBK, which might influence the objectivity of the recommendations contained in this document. BZ WBK S.A. has hold, in the period of issuing this document, financial instruments issued by Action S.A., Amica Wronki S.A., Benefit Systems S.A., CI Games S.A., Kęty S.A., Lubelski Węgiel "Bogdanka" S.A., Netia S.A., Polski Holding Nieruchomości S.A., Work Service S.A. (except on the basis of being market maker and issuer's market maker). However, it cannot be ruled out that, in the period of the next twelve months or the period in which this document is in force, BZ WBK S.A. will submit an offer to provide services for the Issuer or will purchase or dispose of financial instruments issued by the Issuer or whose value depends on the value of financial instruments issued by the Issuer. Except for broker agreements with clients under which DM BZ WBK sells and buys the shares of the Issuer at the order of its clients, DM BZ WBK is not party to any agreement which would depend on the valuation of the financial instruments discussed in this document. Remuneration received by the persons who prepare this document may be dependent, in an indirect way, from financial results gained from investment banking transactions, related to financial instruments issued by the Issuer, made by DM BZ WBK or its Affiliates.

small & mid cap coverage poland - ambra.com.pl · action 23.5% netia 2.1% apator 9.9 asseco see...

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