The year 2023 promises to be favourable for companies from the I&C industry, despite our earlier concerns about the economic situation. Sonel coped well with the rising costs of materials and labour, and the traditionally high profitability of the business is able to cushion the growth of other cost components. The new line of measures is to boost revenue growth in the core business and help defend margins. We raised our financial forecasts and on this basis we estimated the value of the shares at PLN 12.9, which gives a 22% growth potential.
Current price PLN 10.6
Valuation PLN 12.9
Upside/downside 22%
Market cap. PLNm 148
Free float 34.2%
Avg. Vol. 6M 1,039
Demand from the RES industry and market areas related to electromobility is growing. There is a visible increase in orders y/y, and the interest in Sonel products measured by the number of inquiries is even higher. For 2024, the launch of a new IT platform common for products from the new line of Sonel meters has been announced, which will increase the dynamics of the company's revenue growth in the core business.
A new production line is to be launched soon, allowing for further increases in the production of meters without the need to reduce assembly services. The additional line will allow for more flexible work, due to the time-consuming conversion of the line and its adaptation to the production of new series of products. Increasing production capacity and optimistic assumptions regarding the continuation of cooperation with Lioncoln allowed to raise forecasts in the area of assembly services.
Sonel signalled a change in the meter delivery schedule to Tauron. It also obtained certificates enabling it to apply for export contracts. In turn, the fall in the EUR exchange rate in 2023 improved the profitability of this part of the business. We are counting on the return of the margin to the levels from 2021 and a clear increase in Foxytech's profits.
The updated Strategy will include new higher revenue targets, and the plan to achieve a ROE of 17% is to be maintained. In order to implement this plan, the net result should increase in 2024 to approx. PLN 18.5-19 million (P/E'24=8x). We consider this goal to be realistic, though ambitious.
Among the main risk factors that we see for our forecasts is the slowdown of the upward trend in sales while maintaining high R&D expenditures, which will negatively affect the ability to generate free cash flows and pay dividends. At the operational level, the interruption of production continuity due to the lack of components is a threat, especially in the area of meter deliveries, where there are high financial penalties.
We estimated the value of Sonel's shares based on the following valuation methods: DCF (PLN 13.4) and comparative (PLN 12.4), which, after weighing the above valuations, allowed us to determine the present value at PLN 12.9.
COMPANY PROFILE
Manufacturer of measuring instruments for electricity and telecommunications.
SHAREHOLDERS
K. Wieczorkowski 22.5%
K. Folta 21.1%
Aviva OFE 10.0%
M. Nowakowski 8.3%
T. Sołkiewicz 7.1%
J. Walulik 6.9%
Others 24.1%
Source: Sonel, Noble Securities
Michał Sztabler
Equity Analyst
michal.sztabler@noblesecurities.pl
+48 22 244 13 03
