Doomed to success - Dom Maklerski BZ WBK

Doomed to success - Dom Maklerski BZ WBK

Bank Zachodni WBK is a member of Allied Irish Banks Group
Netia
Poland, Telecommunications sector
Reuters: NTIA.WA Bloomberg: NET PW
13 August 2010
Recommendation
Doomed to success
BUY
Portfolio weighting
—
Upgrade from Hold to BUY, TP upped 10% to PLN 5.7
Recently Polkomtel come up with idea of the potential purchase of Dialog, Exatel and
P4, of which the two former represent Netia’s key field of interest. We find this
announcement quite awkward, for the issues of controlling parties and business
rationale. KGHM and PGE control Polkomtel, and KGHM and PGE are the sellers of
Dialog/Exatel – any transaction there should be monitored with utmost vigilance.
Secondly, Polkomtel would be far better off buying Netia than buying Dialog or Exatel –
the EV/EBITDA ratio implied by PLN 800m to be paid for any of these two would imply
Netia’s share price of PLN 6.6.
Another solid consecutive quarterly result allowed us to marginally increase Netia’s
long-term EBITDA margins, up to the average of 27.4%. Along with the passage of
time, this resulted in the nudging upwards of our DCF-based 12-month TP for Netia to
PLN 5.7, a 9.6% increase. The company trades at a decent +20% discount to its peers,
a discount we find unjustified given the company’s prospects. On March 12 we
downgraded the stock to Hold, awaiting a good entry point. We believe the time has
just come – the company’s results will be improving and either Netia will complete a
value-boosting acquisition, or it will be paying a certain +11% dividend yield. TPSA is
reluctant to engage in any price wars, and given the 21% upside to our TP, we
reinstate Netia as a Buy.
4.65
Target price (PLN, 12M)
5.70
Market cap. (PLN m)
1,810
Free float (%)
100.0
Number of shares (m)
389.3
Average daily turnover 3M (shares)
397k
EURPLN
3.99
USDPLN
3.10
6
Price
Buy
Sell
WIG Rebased
Hold
5
4
2008
1,121.2
170.6
-99.7
230.6
7.8
9.5
2009
1,505.9
312.8
14.2
88.7
20.4
5.0
2010E
1,542.2
360.6
62.1
57.2
31.8
4.1
2011E
1,598.2
411.3
122.1
106.7
17.2
3.7
2012E
1,662.1
443.8
159.8
137.6
13.4
3.4
Jul 10
The chart measures performance against the WIG index. On
12/08/2010, the WIG index closed at 42,332.
Rec.
Date
Price
Performance
on issue 12 month
date
target
absolute
relative
(p.p)
-11.0
Hold
3/12/2010
5.04
5.20
-7.7%
Buy
2/10/2010
4.40
5.10
14.5%
5.5
Hold
12/22/2009
4.95
5.10
-11.1%
-6.1
Main shareholders
% of votes
Third Avenue Management
24.1
Sisu Capital
10.0
ING pension fund
12.3
Company description
Netia is the largest alternative fixed line telecommunication
service provider in Poland.
Netia: Financial summary
PLN in millions, unless otherwise stated
2007
Revenues
838.0
EBITDA
168.7
EBIT
-105.8
Net profit
-271.4
P/E (x)
n.a.
EV/EBITDA (x)
10.7
Jun 10
Apr 10
May 10
Mar 10
Feb 10
Jan 10
Dec 09
Nov 09
Oct 09
3
Sep 09
Netia delivered solid 2Q’10 results, delivering 5.3% top line growth y/y and maintained
a robust quarterly EBITDA margin of 24.2%. The broadband client base expanded by
3.3% q/q to 624k customers, while the pool of ‘unbundled’ customers (LLU) grew to 80k
in August. Netia’s cash pile also surged to PLN 272m in 2Q’10, and the company
maintained all its FY’2010 forecasts: 700k broadband customers and revenue/EBITDA
in excess of PLN 1.55bn/360m.
Price (PLN, 12 August 2010)
Aug 09
2Q’10 company results proved solid, with the broadband client base
growing to 1H’s 624k. Netia’s heavy CAPEX program comes to an end
in 2010, likely allowing the company to deliver some PLN 200m of net
free cash flow p.a. as of 2011. While we believe Polkomtel’s expansion
plans might represent some risk to Netia, it is rather apparent the
company remains an attractive bet on its own merits. It is currently
trading at a heavy +20% discount to Western peers and 15% to TPSA,
while Netia’s EBITDA growth and net free cash flow both widen this
discount to an unjustified 31% in 2012. Moreover, in the worst-case
scenario (lack of sizeable acquisitions) the company will be capable
of paying a PLN 200m dividend per year, resulting in a very healthy
11% DY annually (TPSA trades at DY of 9%). Last but not least, Netia’s
well-recognized internet brand will grant the company a free lunch
(thousands of complimentary clients) once TPSA connects new
internet customers to the network. We raised our 12-month DCF-based
TP to PLN 5.7, and on the basis of Netia’s 21% share price upside we
upgrade Netia to Buy.
Research team:
Paweł Puchalski, CFA
+48 22 586 80 95 [email protected]
Source: Company data, DM BZ WBK estimates
DISCLAIMER: Disclosure statements provided on the last page of this report are an integral part of this document.
Netia
13 August 2010
Why acquisitions are so cool
We have decided to show a simplified presentation of the impact that a major acquisition
could have on Netia’s financials and valuation. None of the below-mentioned figures
represent a detailed DM BZWBK forecast, except for those of Netia alone. Below we have
presented our assumptions behind the calculations:
-
Netia acquires either Dialog or Exatel for the total EV of PLN 800m each;
-
for the sake of simplicity we assume Netia acquires these both on January 1, 2010;
-
Exatel adds PLN 120m EBITDA (23% EBITDA margin) in year one and two, then
Netia’s restructuring lifts Exatel’s EBITDA margin to 30% in year three and 35% in
year four;
-
Dialog adds PLN 120m EBITDA (20% EBITDA margin) in year one and two, then
Netia’s restructuring lifts Dialog’s EBITDA margin to 28% in year three and four;
-
Netia generates PLN 200m in net cash alone per annum, each acquisition boosts net
cash generation by PLN 100m annually.
Fig. 1. Estimated EBITDA – impact of potential acquisitions
In PLNm
900
651
700
600
646
607
600
531
480
500
400
799
760
800
455
444
411
360
300
200
100
0
Year 1
Year 2
Netia
Netia + Exatel
Year 3
Year 4
Netia + Exatel + Dialog
Source: DM BZ WBK estimates
Restructuring is the key to understanding the economics of either deal. We believe Netia
could make Exatel’s EBITDA margin grow from 23% currently to 35% in the long term,
while we could expect Dialog’s margin to expand from 20% to 28%. Under these
assumptions we would expect Netia’s EBITDA to surge to PLN 646m in ‘year four’ (up
42% vs. Netia alone) with Exatel, or to PLN 799m in ‘year four’ (up 76% vs. Netia alone)
with Exatel and Dialog.
Should Netia trade at the long-term EV/EBITDA of 4.5x (we still believe this level is too low
vs. peers) with two acquisitions made, on the basis of our research we advocate that
Netia’s price should settle at PLN 7.2 per share in ‘year three’ and PLN 8.6 per share in
‘year four’. The high acquisition price paid weakens ‘year two’ readings, but we are
convinced investors will be looking for synergies to come, allowing for Netia to trade at a
much higher EV/EBITDA ratio in ‘year two’.
Bank Zachodni WBK is a member of Allied Irish Banks Group
2
Netia
13 August 2010
Fig. 2. Share price implied by EV/EBITDA at 4.0x
In PLN
Fig. 3. Share price implied by EV/EBITDA at 4.5x
In PLN
9.0
9.0
8.6
8.2
8.0
7.5
6.8
7.0
6.3 6.4 6.4
6.0
5.0
7.7
7.1 7.2
7.3
6.7
7.0
6.0
6.0
5.5
4.7 4.7 4.7
8.0
5.6
5.2
4.9
5.0
4.7 4.7 4.7
4.4
4.0
4.0
3.0
3.0
2.0
2.0
Year 1
Netia
Y ear 2
Y ear 3
Netia + Exatel
Y ear 1
Y ear 4
Netia
Netia + Exatel + Dialog
Source: DM BZ WBK estimates
Y ear 2
Netia + Exatel
Y ear 3
Year 4
Netia + Exatel + Dialog
Source: DM BZ WBK estimates
We would like to draw investors’ attention to one point – Netia remains an attractive
investment without acquisitions as well. Growth in EBITDA and strong cash flow should
allow for the company’s share price to increase to PLN 6.7 per share in ‘year three’ and
PLN 7.3 per share in ‘year four’ without a single acquisition made (under the assumption of
an EV/EBITDA of 4.5x; these values are reduced to PLN 6.3 and PLN 6.8 per share at an
EV/EBITDA of 4.0x).
Bank Zachodni WBK is a member of Allied Irish Banks Group
3
Netia
13 August 2010
Valuation
DCF
Fig. 4. Netia: DCF valuation
PLN in millions, unless otherwise stated
Revenues
EBIT
Cash taxes on EBIT
NOPAT
Depreciation
Change in operating WC
Capital expenditure
Net investments
Free cash flow
WACC (2010-2019)
PV FCF (2010-2019)
Terminal growth
Terminal Value (TV)
PV TV
Total EV
Net debt
Equity value (1 Jan 2010)
Month
Current equity value
Number of shares (m)*
Current value per share (PLN)
12M target price (PLN)
2010E
1,542
62
0
62
298
63
253
18
44
11.3%
1063
-1.0%
1,800
618
1,681
-246
1,927
8
2,072
402.6
5.15
5.73
2011E
1,598
122
0
122
289
-2
233
-58
180
2012E
1,662
160
30
129
284
-3
235
-51
181
2013E
1,721
191
36
155
265
-62
240
-87
242
2014E
1,764
233
44
189
251
-2
242
-10
199
2015E
1,796
255
48
207
237
-1
225
-13
220
2016E
1,820
248
47
201
249
-1
222
-28
229
2017E
1,838
256
49
208
248
-1
259
11
196
2018E
1,854
278
53
226
228
-1
226
-4
229
2019E
1,854
276
52
223
228
0
228
0
223
Source: Company data, DM BZ WBK estimates, * including all share option plans
Peer comparison
Fig. 5. Netia: Peer comparison
Company
Netia
TPSA
Netia's premium (discount) to TPSA
Vodafone
Telefonica
France Telecom
Deutsche Telekom
Telecom Italia
BT Group
Royal KPN
Telenor
Swisscom
Hellenic Telecommunications
Portugal Telecom
Telekom Austria
Median - Western Europe
Netia's premium (discount) to WE
Telefonica O2 Czech Republic
Magyar Telekom
Bezeq Israeli Telecommunication
Hrvatski Telekom
Median - EMEA region
Netia's premium (discount) to EMEA
United Internet
Fastweb
QSC
Teleste Oyj
Median - Internet providers
Netia's premium (discount) to Internet providers
Total Median
Netia's premium (discount) to Peer Group
Price
Currency
4.65
16.70
PLN
PLN
152.00
17.51
16.31
10.38
1.06
138.30
10.90
93.80
386.80
5.90
8.75
9.48
GBp
EUR
EUR
EUR
EUR
GBp
EUR
NOK
CHF
EUR
EUR
EUR
439.90
670.00
890.00
257.82
CZK
HUF
ILs
HRK
9.38
11.27
1.53
4.80
EUR
EUR
EUR
EUR
2010E
31.8
19.8
61%
9.7
9.8
9.1
13.7
9.3
9.3
9.4
13.1
10.8
8.3
14.6
14.4
9.8
225%
13.3
9.5
10.1
11.5
10.8
194%
11.7
17.0
15.0
17.4
16.0
99%
11.5
176%
Source: Bloomberg, DM BZ WBK estimates
Bank Zachodni WBK is a member of Allied Irish Banks Group
4
PE (x)
2011E
17.2
19.0
-10%
9.7
9.4
9.3
13.2
8.5
8.3
8.9
11.8
10.4
7.5
12.8
12.9
9.5
80%
12.8
9.8
10.1
11.6
10.9
58%
10.1
12.4
10.6
10.9
10.7
60%
10.4
66%
2012E
13.4
13.4
0%
9.5
8.9
9.2
12.6
7.9
7.6
8.5
10.1
10.2
6.8
11.2
10.9
9.4
43%
12.9
10.1
9.6
11.7
10.9
23%
9.0
9.1
8.2
n.a.
9.0
49%
9.5
40%
EV/EBITDA (x)
2010E
2011E
4.1
3.7
4.8
5.0
-15%
-27%
7.8
8.0
5.6
5.5
5.0
5.1
4.5
4.6
4.5
4.4
3.3
3.3
5.1
5.1
6.5
5.9
6.4
6.3
3.8
3.8
5.3
5.1
4.5
4.6
5.1
5.1
-20%
-28%
5.9
5.9
4.4
4.5
5.6
5.6
4.7
4.7
5.1
5.1
-20%
-28%
7.0
6.6
4.1
4.0
2.6
2.6
7.2
5.4
5.5
4.7
-26%
-21%
5.0
5.1
-19%
-27%
2012E
3.4
4.8
-30%
7.9
5.4
5.1
4.6
4.4
3.2
5.1
5.5
6.3
3.8
4.9
4.5
5.0
-33%
6.1
4.6
5.5
4.8
5.1
-35%
6.1
3.8
2.6
n.a.
3.8
-12%
4.9
-31%
Netia
13 August 2010
Financial statements
Fig. 6. Netia: P&L account summary and forecast
PLN in millions, unless otherwise stated
Revenues
Fixed line telephony services
Broadband
P4/PF-driven revenues
Operating expenses
Impairment provision
Other operating profit
Operating profit
EBITDA
Interest expense and other financials, net
Other
Profit before income tax
Income tax
Profit after income tax before minority interest
Investments in associates
Minority interest
Net profit
2007
838.0
675.6
147.5
15.0
965.6
0.0
21.7
-105.8
168.7
-2.5
0.0
-103.3
2.3
-105.6
-165.2
-0.6
-271.4
2008
1,121.2
794.4
276.7
50.0
1,210.9
-10.0
0.0
-99.7
170.6
-0.8
353.4
254.5
1.3
253.2
-22.6
0.0
230.6
2009E
1,505.9
1046.8
423.7
35.4
1,486.0
-15.0
9.4
14.2
312.8
13.1
0.0
1.1
-87.6
88.7
0.0
0.0
88.7
2010E
1,542.2
952.9
574.3
15.0
1,480.5
-5.0
5.4
62.1
360.6
-8.5
0.0
70.6
13.4
57.2
0.0
0.0
57.2
2011E
1,598.2
895.9
687.3
15.0
1,476.1
0.0
0.0
122.1
411.3
-9.6
0.0
131.7
25.0
106.7
0.0
0.0
106.7
2012E
1,662.1
856.0
791.0
15.0
1,502.3
0.0
0.0
159.8
443.8
-10.0
0.0
169.8
32.3
137.6
0.0
0.0
137.6
2007
236
95
127
3
11
1,835
1,409
268
150
0
8
2,071
241
7
219
14
101
87
0
14
0
1,728
389
1,610
-271
2,071
2008
394
196
169
5
24
1,889
1,416
412
0
0
60
2,283
327
0
298
29
27
0
0
27
0
1,928
389
1,309
231
2,283
2009E
443
246
174
3
20
1,898
1,385
389
0
0
124
2,340.6
301
0
256
45
15
0
0
15
0
2,025
389
1,548
89
2,340.7
2010E
590
323
238
8
21
1,839
1,338
389
0
0
111
2,429
308
0
262
46
15
0
0
15
0
2,106
392
1,658
57
2,429
2011E
595
320
244
9
22
1,758
1,282
390
0
0
86
2,353
319
0
271
47
15
0
0
15
0
2,019
394
1,518
107
2,353
2012E
633
349
252
10
23
1,676
1,238
385
0
0
54
2,310
331
0
282
49
16
0
0
16
0
1,962
396
1,428
138
2,310
Source: Company data, DM BZ WBK estimates
Fig. 7. Netia: Balance sheet summary and forecast
PLN in millions, unless otherwise stated
Current assets
Cash and equivalents
Accounts receivable
Inventories
Other assets
Non-current assets
Property, plant and equipment
Intangible assets
Investments
Real estate investments
Deferred income tax asset
Total assets
Current liabilities
Short-term debt/license payments
Accrued expenses and other payables
Other current liabilities
Non-current liabilities
Interest–bearing liabilities
Long-term license payments
Other long-term liabilities
Minority interest
Equity
Common stock
Retained earnings
Net profit
Total liabilities and equity
Source: Company data, DM BZ WBK estimates
Bank Zachodni WBK is a member of Allied Irish Banks Group
5
Netia
13 August 2010
Fig. 8. Netia: Cash Flow statement summary and forecast
PLN in millions, unless otherwise stated
Cash flow from operations
Net profit
Investments in associates
Depreciation and amortization
Minorities
Changes in WC, o/w
Inventories
Receivables
Payables
Change in deferred tax assets
Other, net
Cash flow from investments
CAPEX
Acquisitions
Change in long-term investments
Other net
Cash flow from financing
Change in long-term borrowing
Income from share issue
Dividends paid
Other, net
Net change in cash and equivalents
Beginning cash and equivalents
Ending cash and equivalents
2007
222
-271
165
275
-7
54
-1
4
51
3
4
-374
-253
0
-9
-111
96
95
2
0
-1
-55
150
95
Source: DM BZ WBK estimates
Bank Zachodni WBK is a member of Allied Irish Banks Group
6
2008
522
231
23
270
0
35
-2
-41
78
-52
16
-272
-422
0
150
0
-149
-87
2
0
-64
101
95
196
2009E
284
89
0
299
0
-45
2
-5
-42
-64
7
-221
-243
0
0
23
-14
0
2
0
-16
50
196
246
2010E
306
57
0
298
0
-63
-5
-64
6
13
0
-232
-253
0
0
21
3
0
2
0
1
77
246
323
2011E
424
107
0
289
0
2
-1
-6
10
25
1
-233
-233
0
0
0
-193
0
2
-197
1
-3
323
320
2012E
457
138
0
284
0
3
-1
-7
11
32
1
-235
-235
0
0
0
-194
0
2
-197
1
28
320
349
Netia
13 August 2010
Dom Maklerski BZ WBK S.A.
Institutional Sales Department
5A Grzybowska St.
00-132 Warszawa
fax. (+48) 22 586 81 09
Equity Research
Pawel Puchalski, CFA, Head
tel. (+48) 22 586 80 95
[email protected]
tel. (+48) 22 586 81 00
[email protected]
tel. (+48) 22 586 81 59
[email protected]
tel. (+48) 22 586 81 55
[email protected]
tel. (+48) 22 586 82 36
[email protected]
Zbigniew Porczyk
tel. (+48) 22 534 16 10
[email protected]
Maciej Marcinowski, Research Associate
tel. (+48) 22 586 82 33
[email protected]
Maciej Senderek, Research Associate
tel. (+48) 22 586 82 55
[email protected]
Telecommunications, IT, Mining, Power
Maciej Baranski
Banks
Andrzej Szymanski
Media, Real Estate, Wood & Paper
Pawel Burzynski
Strategy, Oil & Gas, Chemicals, Biotechnology
Tomasz Sokolowski
Pharma, Retail
Sales & Trading
Bartek Godlewski, Head
tel. (+48) 22 586 80 44
[email protected]
Wojciech Wosko
tel. (+48) 22 586 80 82
[email protected]
Kamil Cislo
tel. (+48) 22 586 80 90
[email protected]
Marcin Stosio
tel. (+48) 22 586 81 93
[email protected]
Pawel Szczepanski
tel. (+48) 22 586 85 15
[email protected]
Blazej Leskow
tel. (+48) 22 586 81 57
[email protected]
LIMITATION OF LIABILITY
This material was produced by Dom Maklerski BZ WBK S.A., entity that is subject to the regulations of the 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 2005, No.184 item 1539), Act on Trading in Financial
Instruments dated July 29th 2005 (Journal of Laws of 2005, No.184 item 1537), Act on Capital Market Supervision dated July 29th 2005 (Journal of Laws of 2005,
No.184 item 1538). It is addressed to qualified investors as defined under the above indicated regulations and to Clients of Dom Maklerski BZ WBK S.A. entitled to gain
recommendations based on the brokerage services agreements.
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Affiliates of Dom Maklerski BZ WBK S.A. may, from time to time, to the extent permitted by law, participate or invest in financing transactions with Netia S.A. (“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”). Dom Maklerski BZ WBK S.A. may, to the extent permitted by applicable UK law and other applicable law or regulation, effect transactions in the
Financial instruments before this material is published to recipients. Unless otherwise permitted by law in the applicable jurisdiction, only authorised affiliates of Dom
Maklerski BZ WBK S.A. will effect orders for Financial instruments from customers in such jurisdiction. This material may relate to investments or services of a person
outside of the United Kingdom or to other matters which are not regulated by the Financial Services Authority and further details as to where this may be the case are
available upon request in respect of this material.
Information and opinions contained herein have been compiled or arrived at by Dom Maklerski BZ WBK S.A. from sources believed to be reliable, but Dom
Maklerski BZ WBK S.A. does not accept liability for any loss arising from the use hereof or makes any representation as to their accuracy or completeness. This
document is not to be relied upon as such and should not be used in substitution for the exercise of independent judgement.
Dom Maklerski BZ WBK S.A. emphasizes that this document is going to be updated at least once a year.
Dom Maklerski BZ WBK S.A. 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.
Dom Maklerski BZ WBK S.A. and its affiliates shall have no responsibility or liability whatsoever in respect of any inaccuracy in or omission from this document
prepared by Dom Maklerski BZ WBK S.A. or sent by Dom Maklerski BZ WBK S.A. to any person in connection with the offering of the Financial instruments and any
such person 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 or other such document. The information and opinions contained herein are
subject to change without notice.
Dom Maklerski BZ WBK S.A. is not responsible for damages resulting from putting orders based on this document.
THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OR INVITATION TO SUBSCRIBE FOR OR PURCHASE ANY FINANCIAL INSTRUMENTS AND
NEITHER THIS DOCUMENT NOR ANYTHING CONTAINED HEREIN SHALL FORM THE BASIS OF ANY CONTRACT OR COMMITMENT WHATSOEVER. IT IS
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Netia
13 August 2010
BEING FURNISHED TO YOU SOLELY FOR YOUR INFORMATION AND MAY NOT BE REPRODUCED OR REDISTRIBUTED TO ANY OTHER PERSON. THIS
DOCUMENT IS NOR ANY COPY HEREOF NOT TO 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 SHOULD MAKE THEMSELVES
AWARE OF AND ADHERE TO ANY SUCH RESTRICTIONS.
TO ANY US PERSON OR TO ANY PERSON IN THE UNITED KINGDOM OTHER THAN AN AUTHORISED PERSON OR EXEMPTED PERSON OR ANY OTHER
PERSON FALLING WITHIN ARTICLES 19(5), 38, 47 AND 49 OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 (FINANCIAL PROMOTION) ORDER 2001.
NEITHER THIS REPORT NOR ANY COPY HEREOF MAY BE DISTRIBUTED IN ANY JURISDICTION OUTSIDE THE UK WHERE ITS DISTRIBUTION MAY BE
RESTRICTED BY LAW. PERSONS WHO RECEIVE THIS DOCUMENT SHOULD MAKE THEMSELVES AWARE OF AND ADHERE TO ANY SUCH
RESTRICTIONS.
THIS DOCUMENT HAS NOT BEEN PREPARED BY OR IN CONJUNCTION WITH ISSUER. INFORMATION IN THIS DOCUMENT MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORISED OR APPROVED BY ISSUER THE OPINIONS EXPRESSED HEREIN ARE SOLELY THOSE OF DOM MAKLERSKI BZ WBK S.A
DOM MAKLERSKI BZ WBK S.A. INFORMS THAT INVESTING OF FINANCIAL INSTRUMENTS IMPLIES THE RISK OF LOSING PART OR ALL THE INVESTED
ASSETS.
DOM MAKLERSKI BZ WBK S.A. INDICATES THAT THE PRICE OF THE FINANCIAL INSTUMENTS IS INFLUENCED BY LOTS OF DIFFERENT FACTORS, WHICH
ARE OR CAN BE INDEPENDENT FROM ISSUER AND ITS BUSINESS RESULTS, I.E. CHANGING ECONOMICAL, LAW, POLITICAL OR TAX CONDITION.
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.
In preparing this document Dom Maklerski BZ WBK S.A. made use of the following valuation methods:
1) discounted cash flows ("DCF"); and
2) comparative.
The 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 the 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.
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
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.
Over the last three months Dom Maklerski BZ WBK S.A. issued 5 Buy recommendations, 1 Hold recommendation and 1 Sell recommendation.
The Issuer does not hold shares of Dom Maklerski BZ WBK S.A.
Neither members of the Issuer authorities nor their relatives are members of the management board or supervisory board of Dom Maklerski BZ WBK S.A.
No person engaged in preparing the report is a relative of the members of the Issuer’s authorities and none of those persons or their relatives are party to any
agreement with the Issuer, which would be concluded on different basis than agreements between Issuer and consumers.
Among those, who prepared and who did not prepare this document but had or might have had the access to it, there might be such individuals who hold shares of the
Issuer in the amount which does not exceed 5% of the share capital.
During the past twelve months Dom Maklerski BZ WBK S.A. has not been a party to any agreements relating to the offering of financial instruments issued by Issuers
and connected with the price of financial instruments issued by Issuers.
Dom Maklerski BZ WBK S.A. did not buy or sell any financial instruments issued by the Issuer on its own account, in order to realize investment subissue or service
agreements.
Dom Maklerski BZ WBK S.A. does not act as issuer’s market maker for the shares of the Issuer on principles specified in the Regulations of the Warsaw Stock
Exchange.
Dom Maklerski BZ WBK S.A. does not act as market maker for the shares of the Issuer on principles specified in the Regulations of the Warsaw Stock Exchange.
During the last twelve months Dom Maklerski BZ WBK S.A. has not received remuneration for providing services to the Issuer.
During the last twelve months Bank Zachodni WBK S.A. which is connected with Dom Maklerski BZ WBK S.A. has not received remuneration for providing investment
banking services to the Issuer and has not signed any agreement connected with such services.
Dom Maklerski BZ WBK S.A. does not hold shares of the Issuer or any financial instruments of the Issuer being the subject of this document, exceeding 5% of the
share capital.
Bank Zachodni WBK S.A. which is directly connected to Dom Maklerski BZ WBK S.A. is not indirectly connected to the Issuer.
Dom Maklerski BZ WBK S.A. does not rule out that in the period of preparing this document any Affiliate of Dom Maklerski BZ WBK S.A. might purchase shares of the
Issuer or any financial instruments being the subject of this document which may cause exceeding 5% of the share capital.
Subject to the above, the Issuer is not bound by any contractual relationship with Dom Maklerski BZ WBK S.A. Dom Maklerski BZ WBK S.A. does not, directly or
indirectly, hold financial instruments issued by the Issuer or financial instruments whose value depends on the value of financial instruments issued by the Issuer.
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, Dom Maklerski 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 Dom Maklerski BZ WBK S.A. sells and buys the shares of the Issuer at the
order of its clients, Dom Maklerski BZ WBK S.A. 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 Dom Maklerski BZ WBK S.A. or its Affiliates.
In the opinion of Dom Maklerski BZ WBK S.A., this document has been prepared with all due diligence and excludes any conflict of interests which could influence its
content. Dom Maklerski BZ WBK S.A. 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.
Dom Maklerski BZ WBK S.A. is subject to the supervision of the Financial Supervision Commission and this document has been prepared within the legal scope of the
activity of Dom Maklerski BZ WBK SA.
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.
Dom Maklerski BZ WBK S.A. with its registered office in Poznan, Pl. Wolnosci 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.
Bank Zachodni WBK is a member of Allied Irish Banks Group
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