We uphold our recommendations for the Company: LT fundamental Hold and ST relative Underweight. Our expectations of a yoy and qoq deterioration of 1Q23 operating results materialized, though the results are a tad better than we assumed.
The market conditions remained unfavorable which was reflected in the Group’s 1Q23 falling revenues (down 19% yoy) with the deepest slump in Poland and Hungary (down >30% yoy). The heating systems segment witnessed the weakest performance while the segment of batteries and accessories fared slightly better and the installation fittings segment experienced the smallest revenue yoy decline.
In 1Q23 the Company’s profits were supported by favorable conditions on the commodities market and a significant drop of freight prices. We expect some pressure on sales in a few upcoming quarters, albeit we hope for the cost side to support margins.
The management believes that in the coming months the Group’s financial results will be affected by (i) weak consumer sentiment, (ii) worsening performance of the construction and assembly sector, (iii) uncertainty related to heating systems, especially gas boilers, (iv) high stocks in some distribution channels (high costs), (v) launch of the logistic center in Romania and ERP system implementation (temporary impact on revenues, occasional lower working capital turnover), (vi) high interest rates, (vii) FX rates fluctuations (negative impact of PLN weakening vs US$ and EUR on margins), (viii) social programs (Bezpieczny Kredyt 2%, Mój Prąd 5.0, Czyste Powietrze) likely to trigger the demand for construction materials and heating systems.
