Warsaw Stock Exchange: SELENA FM - ANALYTICAL REPORT – SUMMARY
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ACCUMULATE
(PREVIOUS: BUY)
TARGET PRICE 28,8 PLN
8th MAY 2023, 11:35 CEST
Selena FM reported better y/y reported results for Q4'22. However, these were supported by the settlement with Bank Millennium. Adjusted profitability was below our assumptions. On the earnings conference call, management signalled weaker demand in the construction industry. So far, falling volumes have been covered up by price increases, but this effect will now be less noticeable. We assume, however, that lower raw material prices should have a positive impact on profitability over time. We emphasise that we have already assumed in previous recommendations that the 2022 results will be difficult to repeat. On the positive side, we note the strong improvement in the company's cash position and the announcement of a record dividend for 2022 (DPS=1.40 PLN), which may signal a qualitative change in the company's policy in this regard. On the fundamental risk side, Selena FM still has a significant sales position in the Russian market (we see a significant reduction in exposure to this area in the future as a potential upside to our valuation). The company is valued at EV/EBITDA'23=3.8x according to our forecasts (3.4x after adjusting for loans to the main shareholder). We leave our target price at PLN 28.8, which, given the stock's rise in recent months (22% since our last recommendation), implies a downgrade to Accumulate (from Buy).
DCF valuation [PLN] 24,4
Peer valuation [PLN] 46,4
Target price [PLN] 28,8
Price upside/downside 6,8%
Cost of capital 15,8%
Price [PLN] 27,00
Market cap [PLNm] 616,5
No. of shares [mn] 22,8
Max. price 6M [PLN] 27,3
Min. price 6m [PLN] 19,0
Rate of return 3M 0,0%
Rate of return 6M 40,6%
Rate of return 9M 21,6%
Shareholders (% of votes):
Domarecki Krzysztof 78,0%
Own shares 5,2%
Pozostali 16,8%
The reported Q4'22 results were above our expectations on EBITDA and net profit, but this was mainly driven by a PLN 15m gain on the settlement with Bank Millennium. Revenues (+6% y/y) were in line with our forecasts, while profit on sales was noticeably weaker (the effect of both a lower-than-expected gross margin and higher SG&A cost pressure). On the other hand, the drop in net debt to PLN 34m (of which PLN 52m finances loans to entities related to the main shareholder) was a positive surprise.
For the full year 2022, the company generated record results (PLN 1.96bn revenue, PLN 199m EBITDA and PLN 112m net profit). We emphasise that we had already assumed in previous recommendations that these would be difficult to repeat in subsequent years. During the earnings conference call, the Management Board hinted at a deteriorating market environment since Q4'22, especially in Poland. 1H'23 could be marked by revenue pressure. The company wants to react flexibly to raw material prices and competitors' actions (price pressure in a falling market). In 2023, we expect EBITDA to decline by 24% y/y. We assume a return to an upward trajectory in 2024.
The still sizable escrow for the Russian market raises risks that are difficult to quantify in our view. We note that the company's main European competitors are still present in Russia. The company maintains its interest in acquisitions (entities with a recognisable brand and access to the market). At the same time, the company's strategy regarding investments in the RES area remains unclear to us.
Valuation summary
DCF valuation
WACC calculation
DCF - sensivity analysis
Peer valuation - Polish producers of building materials
Peer valuation - foreign producers of construction chemicals
Main risks:
- high exposure to Eastern European markets
- risks related to the macroeconomic situation, the economic situation in the construction industry and seasonality of revenues;
- high prices of strategic raw materials: MDI and polyols and problems with their availability;
- strong competition (in the markets where the company operates there is competition in the form of large, international companies offering a wide range of products);
- risk related to M&A transactions;
- exchange rate risk (mainly euro and EM currencies)
- transactions with related entities (loans);
- low free float and trading liquidity.
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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