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The report was prepared by Dom Maklerski BDM at the request of the WSE as part of the Exchange's Analytical Coverage Support Programme
BUY
(PREVIOUS: ACCUMULATE)
TARGET PRICE 28,8 PLN
25th NOVEMBER 2022, 12:15 CEST
Selena FM reported very good results in Q3'22. The decrease in raw material pressures allowed the gross sales margin to improve. At the revenue level, the Eastern Europe and Asia segment contributed strongly to the result. In the Polish market, the company is experiencing pressure on sales volumes, but price increases offset this effect at the revenue level. On the fundamental risk side, Selena FM still has a significant sales position in the Russian market (we see a significant reduction in exposure to this area in the future as a potential upside to our valuation). The company is valued at EV/EBITDA'22=3.4x (3.1x after adjusting for loans to the main shareholder) according to our forecasts. These levels are already clearly below the average for the last 5 years. Better-than-expected Q3'22 results and the lower commodity price levels assumed in the model have a positive impact on our valuation of the company. Our current price target is PLN 28.8, which implies an upgrade to Buy.
The company's Q3'22 results were clearly above our expectations due to a very strong result (both revenue and EBITDA) in the Eastern Europe and Asia segment. The company mainly increased revenues from Asian companies (+48% y/y), but Eastern Europe also posted a 28% y/y increase. The positive trend continued in North and South America. Good sales in Q3'22 continued in the rest of the EU (with a decline in profitability). The Polish market was weak with only a 1% increase in sales, which, with significant inflation in the construction chemicals category, implies a clear decline in volumes. Net debt (PLN 162m, of which PLN 54m finances loans to entities related to the main shareholder) clearly fell thanks to strong operating cash flows. The company did not hold an earnings conference after Q3'22. Only in a press release did the CEO reiterate that the company is seeing a decline in demand and pressure on volumes and margins. The company wants to increase its presence in western markets (including the US and Western Europe). We view these activities as being derived from the need to develop production capacity (in Poland or Asia) previously intended for the Russian market. The constantly significant exposure to the Russian market (companies located in Eastern Europe, i.e. Ukraine and Russia, accounted for 15% of the group's sales in Q1-3'22) raises risks that are difficult to quantify in our opinion. We note that the company's main European competitors are still present in Russia (with Henkel, for example, having announced divestments),
The company also maintains its interest in acquisitions (entities with a recognisable brand and access to the market). The management also emphasised the high importance of working capital reduction measures. ).
Selena FM's current market capitalization is PLN 505m (PLN 478m after deducting treasury shares). Net debt at the end of Q3'22 was PLN 162m (PLN 108m after adjusting for loans). EBITDA for the last four quarters amounted to ca. PLN 174m. The company is therefore valued at current adjusted EV/EBITDA=3.4x. The level is relatively low, and the discount to the average for the last five years (4.5x for annually averaged net debt adjusted for loans) has become noticeably larger than a quarter ago.
• high exposure to Eastern European markets
• risks related to the macroeconomic situation, the economic situation in the construction industry and seasonality of revenues;
• high prices of strategic raw materials: MDI and polyols and problems with their availability;
• strong competition (in the markets where the company operates there is competition in the form of large, international companies offering a wide range of products);
• risk related to M&A transactions;
• exchange rate risk (mainly euro and EM currencies)
• transactions with related entities (in 2015, the purchase of bonds of a subsidiary from the main owner for PLN 60 million - repaid in 2020, and in 2020-2022 - PLN 58m loans);
• low free float and trading liquidity.
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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