Warsaw Stock Exchange: Pekabex (PBX) - So far so good (SUMMARY)
Aa
Share
Buy, PLN 20.6
Upgraded from: Hold
We are increasing our recommendation from HOLD to BUY, and TP to PLN 20.6 due to 1) higher anticipated margins in the construction sector (we now expect 4% margin vs. 2% previously), 2) solid prefabrication sector profitability (we expect a 11.8% margin in 2023F vs. 14% in 2022) despite lower volumes (-15% in 2023F), and 3) a decent development sector where we expect PLN 35m of revenue and PLN 12m of sector results due to handovers in Casa Fiore (compared to no handovers in 2022). It seems that Pekabex should be quite immune to the ongoing slowdown; however, we note that the company’s backlog is very short (more than 90% is <1 year) and thus a stronger recession may quickly translate into worse results.
Key data
Market price (PLN) 17.90
Upside 15% No. of shares (mn) 24.83
Market Cap (PLNmn) 444.39
Free float 52%
Free float (PLNmn) 232
Free float (USDmn) 56
EV (PLNmn) 475.95
Net debt (PLNmn) 31.56
ESG
ESG 6.8
Dividend
Div yield 2.3%
Ex-div –
Major Shareholders % of shares
STE Sp. z o.o. 40.88
Cantorelle Limited 11.90
Fernik Holdings 8.17
NN OFE 6.89
Previous recomm. Date & target price
Hold 23-02-23 17.60
Hold 24-01-23 15.00
Price performance
| WIG | Company | |
| 1 month | 7.1% | 6.2% |
| 3 months | 2.0% | 4.7% |
| 6 months | 19.9% | 49.8% |
| 12 months | 15.7% | 19.3% |
| Min 52 weeks | PLN 10.75 | |
| Max 52 weeks | PLN 18.50 | |
| Av. turnover/day PLN mn | 0.10 |
We note that since our previous recommendation Pekabex reported solid 4Q22 results with strong profitability improvement in the construction sector (9% of operating margin vs. an average of 0% in the previous 4 quarters). At the same time margins in prefabrication remained solid (14.4% in 4Q22); however, we expect that 2023F will not be as strong as 2022 was due to a lower production volume (-16% y/y after 1Q23) and thus operating leverage should depress the sector’s profitability.
Pekabex significantly reduced its debt (including leasing) from PLN 121.3m in 3Q22 to PLN 88m in 4Q22. The ND/EBITDA ratio decreased in that period from 1.1x to 0.7x. In our view, from the balance sheet perspective, the company is well prepared for the coming slowdown. We note that net debt will be seasonally higher after 1Q23 because of working capital requirements. However, due to a lower backlog and cheaper raw materials, we do not expect such a sharp increase as in 1Q22, when net debt rose 86% q/q.
The company’s backlog decreased by 7% y/y, while 1Q23 prefabrication production volumes decreased by 16%, the first signs of slowdown; however, such dynamics look quite good compared to other industrial companies.
Although in 2023F a lower sales volume in prefabrication sector can be seen, we maintain our long-term story for the company as we see much better perspective for prefabrication market compared to housing, which should be particularly visible on emerging markets such as Poland.
F - forecast by PKO BP Securities
We note that the company operates in fairly cyclical sectors, but such a business model provides some diversification - especially when prefabrication and construction sectors profitability dynamics are negatively correlated. Thus, Pekabex should be to some extent immune to the ongoing slowdown.
DCF valuation
Our valuation is based on the DCF model. We have additionally presented a comparative valuation taking into consideration construction sector companies. The DCF model consists of two phases. In the first phase (2023F-2027F), 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 starts after 2027F. Here, we have assumed a constant free cash flow growth rate at the level of 1.5% per year. The risk-free rate for PLN has been adopted at 6%. Beta has been assumed at 1.5x. 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 net debt without leasing.
Multiples
Pekabex is trading at a discount to other construction companies. However, the lack of a wide group of suitable peers reveals a weakness in this method.
Financial Forecasts
Analyst
Jakub Bronicki
+48 22 521 56 61
Address:
PKO BP Securities
ul. Puławska 15
02-515 Warszawa
