Action - Financial forecasts, Valuation, Catalysts, Risk factors and Competitive advantages

Financial forecasts

We updated our financial forecast for Action following the release of FY22 consolidated financial statement and this year’s monthly sales and gross profit margin on sales readings for January-April. We expect a further growth of the Company’s revenues this year stemming from an expansion of the offer for suppliers and consumers regarding numerous groups of products and development of sales channels (like entering new auction portals). Nevertheless, our current sales forecasts for 2023 stay intact, while our projections for 2024-25 are marginally raised (by 1%). We assume the gross profit on sales margin should benefit from: (i) rising share of B2C sales or (ii) sales mix change (increasing share of products outside the IT category). In spite of mounting pressure on operating costs such as salaries, cost of logistics, energy or packaging Action should be able to deliver adjusted FY23 EBIT comparable yoy thanks to the high gross profit on sales margin and operating leverage. Our EBITDA forecasts for 2023/24/25 change by 0%/2%/3%. We expect the Company’s balance sheet position to further strengthen in the following years thanks to generated OCFs and gradual decline of the arrangement liabilities.

Valuation

On the back of (i) financial forecasts update, (ii) valuation horizon forward shift, and (iii) change of RFR assumptions, our 12M DCF valuation grows up 7% to PLN 22.6 per share. The peer-relative exercise (comparison to Polish and international peers) renders PLN 19.1 per share. Ultimately, our 12M EFV assessment representing a 50%-50% mix of the outcome of the DCF and peer-relative exercise increases by 7% to PLN 20.8 per share from PLN 19.4 per share previously.

Catalysts

1. Growth of demand for products related to (i)  remote work, such as notebooks, tablets, network infrastructure, (ii) entertainment – gaming products, consoles, computers, games
2. Growth of demand for network infrastructural solutions (i) cloud services: data storage, computing services, (ii) related to dynamic e-commerce development 3. Development of own e-commerce stores (krakvet.pl, sferis.pl, gram.pl) and own brands (Actina, ActiveJet)
3. Low involvement in the cooperation with commercial networks/ simultaneous high involvement in the dispersed resellers’ base
4. Growing demand from e-stores in Poland (cooperation with multiple e-shops and visible increase in their demand for goods) and from abroad (cooperation with several hundred stores in EU)
5. Good availability of products and 2 different pricing directions
6. Entry to new international markets
7. Increasing share of B2B channel in the sales mix should support profitability

Risk factors

1. Slower than expected growth rate of the IT hardware market (slower than assumed growth rates of the economy digitalization leading to smaller demand for hardware)
2. Price war on the distribution market in the case of a big decline in demand accompanied by high inventories at distributors
3. Problems with securing funding for further development or with obtaining new insurance limits despite forecasted negative net debt
4. Supply chains disruptions
5. Disturbances in goods turnover, payment bottlenecks, products aging, funding current sales with future purchases
6. Profitability drop due to the current supply gap squeeze and easier accessibility of IT hardware on the market
7. Material hike of logistic costs of both the freight and the services provided by courier firms
8. Demand drop related to accelerating inflation and squeeze of consumers’ disposable income
9. Increased FX risk due to huge volatility on the currency market (potential extraordinary losses/ profits related to, inter alia, hedging transactions)

Competitive advantages

1. Vast product offer and availability of products
2. Flexible distribution links with respect to sales of multiple products enabling flexible pricing policy based on partnership agreements with vendors
3. Relatively low commitment to sales to commercial chains – smaller negative impact on margin and lower burden for working capital
4. High share of export sales
5. Strong portfolio of own brands (Actina, ActiveJet, Actis, Sferis, Gram.pl, Krakvet)
6. Lack of interest debt in high interest rate environment

Analyst: Jakub Viscardi

GPW’s Analytical Coverage Support Programme 3.0