Unimot Proved To Be Among The Biggest Beneficiaries Of Turbulent Market Changes

This report is prepared for the Warsaw Stock Exchange SA within the framework of the Analytical Coverage Support Program. 3.0. This is an excerpt from the Polish version of DM BOÅš SA’s research report.

Sector: Oil & gas Market Cap: US$ 133.5 m

Fundamental rating: Buy (↑) Bloomberg code: UNT PW

Market relative: Overweight (↑) Av. daily turnover: US$ 0.24 m

Price: PLN 64.50 12M range: 35.45-64.50 PLN

12M EFV: PLN 87.0 (↑) Free float: 33%

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Investment Summary

We have placed Unimot’s equities among our preferred stocks (Buy, Overweight + 12M EFV = PLN 87.0 per share). The huge opportunity has presented itself for the Company to acquire asphalt and logistic assets of Lotos and PKN Orlen at a bargain price, which may be a breakthrough moment for Unimot. We account for the assets to be acquired in our estimates, which considerably raises our financial forecasts for the Company and 12M EFV as well. The interesting acquisition story aside, we also like the Company’s current results’ prospects as FY22 financials may climb the record-high levels, we believe. Unimot proved to be among the biggest beneficiaries of turbulent market changes and we are impressed how the Company managed to generate EBITDA in this situation of high uncertainty and instability of the European energy sector. It is worth mentioning that the Group’s restructuring (Unimot Paliwa has taken over the fuel imports) gives the Company an opportunity to materially lower working capital for a year, it may lead to additional savings of c. PLN 30 million on the EBITDA level as well and dismissal of the need for a share issue to fund the above mentioned acquisitions.

Guide to adjusted profits

Figures adjusted for (i) other net operating income (ii) inventory valuation effects and (iii) results of Tradea (reclassification from financial income to EBIT).

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We assume that the takeover of assets from Lotos and PKN will take place in the turn of 2022 and 2023. We raise our EBITDA forecasts for 2023-24 and 2025-29 by c. PLN 70 million and c. 100 million, respectively. We also assumed that the lion’s share of acquisition costs will be incurred in 2023 (capex of c. PLN 360 million). Moreover, we include the remaining spending for 2024-25 in our forecasts. Our LT mid-cycle EBITDA for the Company increases to PLN 210 million from PLN 110.0 million expected earlier. Unimot’s new business arm (logistics and asphalts) may assume an important complimentary role to the current operations (results stabilization and market risk diversification). In our opinion, Unimot may become one of the biggest beneficiaries of Poland’s naphtha sector consolidation. We raised our forecast of the Company’s adj EBITDA for this year to PLN 290 million (vs PLN 67 million in 2021) which marks the record high level. These extraordinary results mostly derive from recordhigh volumes and margins realized on diesel, LPG, and biofuels. With the preliminary 2Q22 results incorporated, we forecast c. PLN 150 million EBITDA in 1H22 which implies 2H22 EBITDA close to PLN 140 million; albeit this figure does not include the EBITDA on the operations to be acquired, as we assume the assets takeover from January 2023, but it covers savings on the Group’s restructuring estimated by the Company at PLN 30 million. We would like to note that to date 3Q22 inland premium level on diesel seems higher than in previous quarters, which – combined with the seasonality effect - should instill investors with optimism. The completion of the Group’s restructuring will allow the Company to lower the mandatory inventories level for a year, which, given very high fuel prices currently, will exert a material impact on the working capital needs (inventories lowered even by PLN 150-200 million for a year); this is the more important as – depending on the cash generation (that looks promising) – it may help the Company avoid a new shares issue and carry out a purchase of Lotos’s assets based solely on financing from bank loans and ongoing operations.

Analyst: Łukasz Prokopiuk, CFA

GPW’s Analytical Coverage Support Programme 3.0