Sniezka
Paint not dry yet
We maintain our SELL recommendation on Sniezka and decrease our FV to PLN 53.27 per share, which implies 29% downside. The start of 2022 was not fortunate for the company with 1Q22 EBITDA seeing a 14% decrease y/y. Margins should be under pressure of persisiting high costs. However, implemented price hikes and slowly declining titanium white and steel prices should hamper that effect in 2H22. In 2023 we believe that the company may benefit from secured, elevated selling prices, while main costs should decrease significantly. Our EBITDA forecast for 2022 and 2023 amount respectively to PLN 107.6m (down 3% y/y) and PLN 143.9m (up 34% y/y), translating into EV/EBITDA of 11.6x and 8.2x, respectively (compared to the 5-years average 1Y forward ratio of 10.3x).
Demand outlook. The declines in volumes were confimed by management and we would expect them to persist over the current and next year. This year we would see hiked interest rates as the key factor negatively affecting the disposable income of consumers in Poland and Hungary. Unlike management we would also see a decline in demand for premium products given the higher propensity to save money. Regarding the potential demand stemming from post-war damages in Ukraine, we would assume a CAGR of sales in 2022E-26E at 22%. Assumed limited growth mostly stems from the fact that currency depreciation favours local producers as foreign companies tend to rise prices in response, so Sniezka’s growth won’t go much beyond output capacity of its Jaworow plant. Sales are expected to increase by 1.5% y/y in 2022 and decline by 2.1% y/y in following year.
Cost outlook. The situation here slightly improved with the current titanium white price (19% of total material costs) in China down 2.3% compared to the Apr’22 high. Even more substantial declines can be seen in steel prices (packaging including steel & plastic accounts for 19% of material costs) with 28% declines vs. the Mar’22 high. However, binders may still be at elevated levels given current oil prices. Additionaly, lower sales of products with better margins will affect profitability. Finally, Sniezka likely has secured quite expensive inventory for a couple of quarters. In 2022 we expect gross margins to decline to 39% from 40% in 2021 and increase to 43% in 2023 as we expect further material cost declines while product prices should be more or less sticky in 2023.
Capex & dividend expectations. In 2022 Sniezka will be concluding its investment in the Zawada logistics centre. In ensuing years we are expecting capex at levels slightly above depreciation. We increase our capex estimate for 2022E to PLN 60m vs. PLN 50m assumed earlier (management guides PLN 55m). In case of DPS, amid slightly lower net profit (PLN 44.2m vs. PLN 46.2m expected previously) and the company guiding a 50% payout (instead of 80% assumed by us earlier) until reaching a 1.0x net debt/EBITDA ratio, we expect it at PLN 1.7 from 2022 net profit vs. PLN 3.3 expected earlier.
Analyst Michal Pilch michal.pilch@ipopema.pl + 48 517 381 455
