Oponeo
Bloomberg: OPN PW Equity, Reuters: OPN.WA
Hold, PLN 37
Maintained
The wheel weaves as the wheel wills
We maintain our Hold recommendation, lowering our TP to PLN 37. The recommendation downgrading follows from the rising cost of capital and the risks associated with the looming crisis.
Tyre sales are already clearly affected by inflation burdening customers. In the first half of the year, sales figures declined by approx. 9% (volume). We expect this burden to deepen following the accelerating inflation and the unfolding crisis. High fuel prices give rise to reduced traffic and resulting lower tyre wear.
The overall downturn could clearly affect sales and margins in the crucial fourth quarter, although weather conditions will as usual also have a significant impact. Risks are exacerbated and visibility diminished by product inflation exceeding 20%.
1H22 results were burdened by several one-offs (previous year's bonus costs, moving to a new warehouse, Dadelo marketing). We are assuming normalisation in 2H22, through it unfortunately might be offset by potential pressure on margins.
Recently, there has been a visible increase in working capital, which we associate with price growth. However, Oponeo maintains a safe balance sheet structure. We expect the existing dividend policy to continue.
The last two years have been exceptionally successful for Oponeo and we believe a normalisation may now ensue. The ever-increasing popularity of all-season tires may also be a factor hindering market growth. On the other hand, we still see room for e-commerce growth in the segment (now approx. 30% of the market).
DCF valuation
Our valuation is based on the DCF model. We have additionally presented a peer valuation, taking into consideration pharmaceutical distribution companies. The DCF model consists of two phases. In the first phase (2022F-2026F), we have forecast in detail all the key parameters required for the company valuation, including in particular the value of revenue, capital expenditure, cost level, and balance sheet items. The second phase will start in 2027F. In it, we have assumed a constant free cash flow growth rate at the level of 2.0% per year. We have used a WACC-based discount rate. Risk-free rate is assumed at 5% which reflects the 10-year treasury bond yield. Beta is set at 1.1x. We have adopted an equity risk premium at 5.5%. We have discounted all free cash flows for the company as at 31 December 2022 and deducted the forecast net debt (added net cash).
Analyst
Piotr Åopaciuk, CFA
+48 609 091 976
piotr.lopaciuk@pkobp.pl
