Warsaw Stock Exchange: Mostostal Zabrze (WSE:MSZ) – Update
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Mostostal Zabrze
Good results despite market turmoil
Mostostal Zabrze operates in the specialist construction, assembly and industrial production sectors, and in all these areas there are no signs of slowing down. Moreover, good results continued despite the strong increases in raw material prices. However, a new risk appeared on the horizon in the form of several times higher energy prices from the beginning of 2023. The degree of their impact on the results will depend on the possibility of transferring higher costs to consumers, which at the moment is unknown.
Mostostal Zabrze has three main segments, largely separate. In the segment of industrial implementations and design, it is primarily an engineering company. In the general and engineering construction segment, it focuses on specialist projects, including waste incineration plants, swimming pools, and hospitals, many of which are implemented outside Poland. In the Machinery segment, it produces components for vehicles and specialist equipment, almost entirely for foreign customers. It is also worth noting that in all three segments the company in the vast majority of contracts does not bear the risk of changes in the prices of raw materials and components, the deliveries of which are usually left by the ordering party or subcontracted.
The company recorded good results for Q2'22, which is due to high contracting, risk mitigation strategy, stabilization of prices of some raw materials and wage costs, and lower due to previously contracted electricity prices. The results achieved in recent quarters show that the strategy of avoiding the risk of steel price volatility works well. It also tries to contract energy prices in advance, thanks to which this year it still benefits from prices much lower than those currently applicable on the open market. However, the management board warns that the prices proposed by suppliers for 2023 are several times higher. These increases may have the greatest impact on the results of the Mechanical Engineering segment, which will depend on the possibility of transferring higher costs to customers.
Thanks to two large contracts, the company has an order portfolio almost twice as large as at the end of 2020. Both of the above contracts are mainly performed this year, therefore we conservatively forecast a lower level of revenues for next year. However, the company systematically communicates the acquisition of further significant contracts, which raises the expectation of further revenue growth in the coming years. We have prepared a valuation of Mostostal Zabrze using the comparative method and DCF in two variants. One of these options assumes the payment of PLN 200 million in 2028. compensation (Stadion ÅšlÄ…ski), the latter does not include such a payment. As a result, we obtained the value of the company at the level of PLN 235 million, or PLN 3.2 per share. This is a value lower than that established in the previous report, and the main reason for the decline is an increase in interest rates, increasing the discount rates. However, it still remains much higher than the current market price, so we are reiterating a buy recommendation for the company's shares.
Adam Zajler 22 598 26 88 adam.zajler@bankmillennium.pl
