Warsaw Stock Exchange: RELPOL ANALYTICAL REPORT – SUMMARY
Aa
Share
BUY
(PREVIOUS: HOLD)
TARGET PRICE 8,03 PLN
16th MAY 2023, 08:55 CEST
2022 was a challenging year for Relpol. The company has been affected by the war in Ukraine (the industrial relay assembly plant temporarily curtailed operations), demand-side and cost-side turbulence (material price increases already felt in 2021, as well as energy and wages). These factors contributed to recording the lowest EBITDA level since 2013. At the same time, Q4'22 results have already shown some recovery from the weak Q2-3'22 period. The company has managed to stabilise the situation on the production side in recent months, and the pressure on the cost side is becoming less noticeable. On the demand side, the company is managing to compensate for a more difficult environment in the industry/construction sector and the cutback in sales to Russia by a good situation in the area of renewable energy or increased demand from Asia (Middle East). The risk for the company is a possible further strengthening of the PLN vs. the EUR, but at the same time it is well positioned in the idea of nearshoring and energy transition. We believe the market is not discounting the company's possible earnings trajectory in the current valuation. Following the model update, we set our target price at PLN 8.03, implying an upgrade to Buy (from Hold).
- DCF valuation [PLN] 7,35
- Peer valuation [PLN] 10,71
- Target price [PLN] 8,03
- Price upside/downside 31%
- Cost of capital 12,5%
- Price [PLN] 6,14
- Market cap [PLNm] 59,0
- No. of shares [mn] 9,6
- Max. price 6M [PLN] 6,78
- Min. price 6m [PLN] 5,50
- Rate of return 3M 2,0%
- Rate of return 6M 5,9%
- Rate of return 9M 5,5%
Shareholders (% of votes):
- Adam Ambroziak 33,0%
- Piotr Osiński 10,8%
- Pozostali 56,2%
The company published its full 2022 results rather late, at the end of April. They were slightly better than our expectations, both in terms of revenue and EBITDA margin (it was also comparable y/y). For FY2022 as a whole, the company generated revenue of PLN 151m (+13% y/y), EBITDA of PLN 12.7m (-20% y/y) and net profit of PLN 1.2m (- 81% y/y). At the operating level, we estimate that several million PLN may have been burdened by charges related to Ukrainian operations (the need to launch alternative assembly in Poland, which entailed additional outlays and is much more expensive due to wages; 100% of capacity in Ukraine has now been restored), as well as by an increase in the cost of materials and energy, which was reflected in price lists with a delay. At the gross level, results were also burdened by the write-down of the Russian company. The company indicated in its annual report that it continues to invest in growth and automation of production capacity (including in the industrial and RES/EV areas, but also for miniature relays, which felt the downturn in 2H'22). The CEO also highlighted sales growth and good prospects for 2023 from the Middle East. At the same time, we note that the risk for the company is a possible further appreciation of the PLN vs. the EUR (exports account for more than two-thirds of revenues, the surplus over currency costs is about EUR 8m, additionally, the weakening of the USD increases the competitiveness of supplies from China).
We currently assume that in 2023 the company will generate PLN 166m in revenue, PLN 17.9m in EBITDA and PLN 7.6m in net profit. The company is continuing its investment programme, the main investment being a line for the production of bistable relays for industry, which should be commissioned by the end of 2023. We assume PLN 15m CAPEX (after grants) in 2023. Our forecasts imply that the company is trading at EV/EBITDA'23=4.2, P/E'23=7.8x.
Valuation summary
DCF valuation
WACC calculation
DCF - sensivity analysis
Peer valuation - Polish producers of building materials
Peer valuation - foreign producers of construction chemicals
Main risks:
-
- Escalation of the war in Ukraine - shutdown of the Relpol Altera plant.
- High prices of strategic raw materials or problems with their availability.
- Decline in the EUR/PLN exchange rate - the company is a net exporter.
- Significant increase in labour, third-party services or energy costs.
- Technology risk - risk of increasing market share in SSR relays.
- Risk of losing major customers - company approx. 30% of sales to two strategic partners.
- Long operating cycle and high working capital requirements.
- Economic downturn.
- Competition from Chinese manufacturers.
Krzysztof Pado
tel. (0-32) 208-14-32
Dom Maklerski BDM S.A.
ul. 3-go Maja 23, 40-096 Katowice
