The report was prepared by Dom Maklerski BDM at the request of the WSE as part of the Exchange's Analytical Coverage Support Programme
The company surprised positively with its results for the first time this year (Q3'22). The contract for the construction of an electronic barrier on the border with Belarus contributed significantly more than we expected. The company also booked PLN 4m of indexation of contracts. Management's outlook for Q4'22 at the earnings conference was optimistic. These factors raise our assumptions for 2022 and increase our valuation. At the same time, the company failed to win a contract for the construction of an electronic barrier on the border with Kaliningrad, which poses more challenges to filling the portfolio for 2023-24. We set our current target price at PLN 8.17, which implies an Accumulate recommendation.
In Q3'22, the company managed to break the negative series of reporting disappointing results (which started in Q3'21). This was driven by strong revenues, a consequence of the higher-than-our-expected revenue recognition from the contract on the border with Belarus. Elektrotim also recognised in its results the achievement of contracts indexation. We associate the improvement in the cash position in Q3'22 mainly with a faster increase in trade payables over receivables (Q4'22 may be more demanding in terms of liquidity).
Q4'22 results will be determined by the progress of the work and the recognised profitability on the barrier contract at the border with Belarus. The contract is likely to finish around the middle of Q1'23, but given the likely late reporting of Q4'22 results (end of April), the company should already recognise the target margin on the contract in Q4'22 (we estimate it was around 10% in Q3'22).
After Q3'22, the Company's backlog amounted to PLN 711m, excluding the border contract, which is about PLN 500m, most of which is due in 2023 (we estimate about PLN 350m). The company failed to win a contract for the construction of an electronic barrier on the border with Kaliningrad, which investors believed quite strongly in November. The much smaller Telbud was selected in the tender. As of today, there is still no information about the final signing of the contract.
We maintain that in the medium/long term, the company may benefit from increased spending on power grids and the military area (references and certificates held). Elektrotim's current capitalization is PLN 72 m. Net cash at the end of Q3'22 amounted to PLN 27m. At the same time, the company has struggled to stabilize its results in recent years. In 2017-21, it had a net loss three times, with the result ranging from PLN -15m to +17m (average for the last five years: PLN 0m, for the last 10 years: PLN 4m). The smooth implementation of the longterm strategy is also not favored by a rather fragmented shareholder structure.
Analyst: Krzysztof Pado pado@bdm.com.pl tel. (0-32) 208-14-32 Dom Maklerski BDM S.A. ul. 3-go Maja 23, 40-096 Katowice
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