Warsaw Stock Exchange: ELEKTROTIM ANALYTICAL REPORT - SUMMARY
Aa
Share
BUY
(PREVIOUS: ACCUMULATE)
TARGET PRICE 13,0 PLN
10th MAJ 2023, 09:22 CEST
The company positively surprised with its results in Q3'22 and Q4'22. The cash position was very good at the end of the year. The company finalised the sale of its subsidiary Procom System in December and Zeus is also up for sale. The strategy presented in April (2023-25) assumes the realisation of min. PLN 350m revenue and PLN 10m net profit per year. In our view, compared to the industry, these are not demanding targets, but the key for the company should be to build repeatable results and return to dividend payments. In recent months, the company has also secured a fairly significant number of medium-sized contracts for 2023 and 2024, which should limit revenue erosion once the Belarus border contract is completed. Management's outlook for 2023 at the earnings conference was upbeat, results should be above minimum targets from the strategy, the company would like to maintain high margins. This prompts us to raise our modelled earnings forecasts. We set our current target price at PLN 13.0, which implies a Buy rating.
In Q3'22, the company managed to break a negative run of reporting disappointing results and Q4'22 was a confirmation of this trend. In the last quarter of 2022, Elektrotim reported revenue of PLN 234m and net profit of PLN 15.6m. For the year as a whole, it was PLN 506 / 22.0m respectively. At the end of the year, net cash stood at PLN 51m (the company stated in its presentation that it did not use loans at the end of April either, which we view positively in light of the increase in working capital commitment on the finalisation of the border contract).
After Q4'22, the Group's backlog amounted to PLN 558m (ca. PLN 90m border contract) and after Q1'23 it increased to >PLN 600m. According to the management, the contracts have an average completion horizon of <18m, which should bring 2023 revenue closer to the 2022 level. Management's goal also seems to be to maintain margins. Seasonally, we note that Q1 is usually the weakest of the year (often with a net loss), with cumulative results coming in Q3/4 - this year, Q1'23 should end on a positive note, with Q2'23 likely to see the border contract settlement (while still 2H'23 should be seasonally better).
DCF valuation [PLN] 13,5
Peer valuation [PLN] 11,8
Target price [PLN] 13,0
Price upside/downside 23,0%
Cost of capital 13,8%
Price [PLN] 10,6
Market cap [PLNm] 105,8
No. of shares [mn] 10,0
Max. price 6M [PLN] 10,80
Min. price 6m [PLN] 6,82
Rate of return 3M 27,4%
Rate of return 6M 35,2%
Rate of return 9M 32,8%
Shareholders
Krzysztof and Ewa Folta 17,2%
Krzysztof Wieczorkowski 13,2%
Aviva OFE 9,8%
Mirosław Nowakowski 6,1%
NN OFE 5,9%
Others 47,8%
Following the finalisation of the sale of Procom in 4Q'22, work is currently underway on the possible divestment of the Zeus subsidiary. On the one hand, it would allow further capital release on the other hand, however, this company has certificates and competences overlapping with Elektrotim, which could potentially create new competition.
We maintain that in the medium/long term, the company can be a beneficiary of increased spending on power grids and the military area (references and certificates held). In its 2023-25 strategy, the management has outlined that the company is targeting a minimum of PLN 350m in revenue and PLN 10m in net profit at the standalone level (50-75% to be allocated to dividends). In light of the 2022 results and 2023 prospects, these targets do not seem demanding. At the same time, the company has struggled to stabilise results in recent years, which translates into a valuation discount. In 2017-21, it posted a net loss three times, with the result ranging from PLN -15m to +17m.
Valuation summary
DCF valuation
WACC calculation
DCF - sensivity analysis
Peer valuation
Main risks:
- risk of a surge in material costs translating into a decrease in margins during project execution,
- risk of a significant contract on the Belarusian border worth PLN 279m resulting from the value of the contract (and very tight deadlines
- risk of lack of qualified employees (a significant drop in employment in 2020-2021 after the departure of the previous
- potential supply of shares by previous MB/SB members;
- payment bottlenecks and bankruptcies in the construction industry;
- problems with obtaining financing and bank guarantees;
- risk of not obtaining new orders and high competition;
- risk of problems and bankruptcy of subsidiaries
Krzysztof Pado
tel. (0-32) 208-14-32
Dom Maklerski BDM S.A.
ul. 3-go Maja 23, 40-096 Katowice
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