Eurocash BRE Bank Securities BRE Bank Securities 17 January 2011 Update
Retail Poland Eurocash Accumulate ERCS.WA; EUR PW (Resumed) Current price PLN 33.7 Leader Deserves a Premium Target price PLN 37.4 FMCG companies can be divided into those that invest in volumes Market cap PLN 4 778m before taking care of profitability and working capital management, Free float PLN 2 319m and those that focus on profitability. The Polish FMCG market is very competitive and local companies will find it difficult to sustain or Avg daily trading volume (3M) PLN 10.44m increase profitability in the presence of leading global wholesalers and retailers. The progressing consolidation of the market leads to Shareholder Structure additional pressure on margins. By purchasing Tradis, Eurocash has become the leader of the FMCG distribution market. The Company Luis Amaral 51.47% wants to participate in further market consolidation processes and aims at sales of PLN 20bn by 2015. We believe this will be hard to Pozostali 48.53% achieve as there are fewer and fewer sizable acquisition targets. That said, we do see a potential in the recently-acquired CEDC and Tradis. With some synergies taken into account, Eurocash does have further potential for organic growth. We are resuming coverage of Eurocash with an accumulate rating and target price of PLN 37.4 per share. Sector Outlook Tradis The FMCG wholesale market has been growing very We expect Tradis to add PLN 109m to the Company’s 2011 EBITDA and fast over the past few years and this trend seems set PLN 180m to its 2012 EBITDA. Eurocash is hoping to see an impact on to continue in the near future. The industry’s condition EBITDA as big as PLN 240m, taking into account synergies in the form of is strongly affected by the positive trends observed in lower purchasing prices (PLN 70m) and savings on logistic expenses (PLN retail sales. The number of FMCG wholesalers in 60m). Additional impact on working capital should reach PLN 130m, and Poland has been declining systematically, which is a consequence of ongoing consolidation of the industry. gains on the sale of properties taken over with Tradis some PLN 100m. No New Transactions on the Horizon Company Profile We expect stable growth and sustained profitability in traditional wholesale Eurocash is one of Poland’s biggest distributors of and active distribution. CEDC distribution companies bought in 2010 are in foods, household chemicals, alcohol and tobacco in need of restructuring, which, coupled with the Tradis acquisition, will keep terms of the value of sales and the number of stores. Eurocash busy enough to force it to postpone further acquisition efforts. Operating in several distribution segments, the New takeovers will be necessary, however, if the Company is to meet the Company focuses on wholesale distribution to Management’s PLN 20bn revenue target in 2015. Our forecasts do not take traditional retailers, gas stations and restaurants. such transactions into account. Valuation at a Premium Among WSE listed peers, Eurocash is the leader as far as cash flows from operations are concerned. The Company’s low investment outlays are Eurocash vs. WIG financed with working capital and depreciation. Eurocash pays dividends and actively participates in market consolidation processes. In our opinion 35 this, along with its policy of repaying loans quickly, warrants a premium to PLN peers. The Company’s current P/E is 18.6 for 2012 and 15.0 for 2013, Eurocash WIG 30.8 which entails premiums of 38% and 22%, respectively, to foreign peers. WSE listed retailers are trading at a premium of ca. 30% to foreign peers.
26.6
(PLN m) 2009 2010F 2011F 2012F 2013F 22.4 Revenue 6 698.3 7 834.2 13 895.0 15 455.3 16 546.2 EBIT 145.2 176.8 319.6 422.4 496.7 18.2 EBIT margin 2.2% 2.3% 2.3% 2.7% 3.0% EBITDA 194.5 236.5 411.0 521.5 593.7 14 Net income 102.5 131.3 202.0 287.8 357.5 10 01 13 10 05 11 10 09 06 11 01 02 DPS 0.29 0.37 0.49 0.76 1.08 P/E 44.3 35.0 24.6 18.6 15.0 Gabriela Borowska (48 22) 697 47 36 P/CE 29.9 24.1 17.0 13.8 11.8 [email protected] P/BV 12.4 10.0 4.6 4.2 3.6 www.dibre.com.pl EV/EBITDA 22.5 20.0 13.3 10.6 8.9 DYield 0.9% 1.1% 1.3% 1.9% 2.7% BRE Bank Securities does not rule out offering brok17 January 2011 erage services to an issuer of securities being the subject of a recommendation. Information concerning a conflict of interest arising in connection with issuing a recommendation (should such a conflict exist) is located on the final page of this report. BREBRE Bank Bank Securities Securities Eurocash
Summary
Acquisition of Tradis Tradis is expected to add about PLN 110m per year to Eurocash's consolidated EBITDA. The acquisition will also generate synergies in the form of better purchase prices (a ca. PLN 70m boost to annual EBITDA) and lower logistics expenses (ca. PLN 60m added to EBITDA). Restructuring of working capital, mainly accounts payable, will generate additional cash flows of an estimated PLN 130m. Finally, Tradis brought in real estate (including two distribution centers) which Eurocash hopes to sell for PLN 100m. Through the acquisition, Eurocash is now the uncontested market leader with a 17% market share.
Valuation Premium Eurocash is trading at 18.6x 2012E P/E (by 2012, Tradis’s revenues will be fully reported on the consolidated income statement) and 10.6x EV/EBITDA, showing a premium to the sector which is all the more deserved after the acquisition. Eurocash is currently the leader of industry consolidation. The company generates positive operating cash flows and has a low CAPEX (except for M&A expenses) which is fully covered with working capital and depreciation.
CFO, CAPEX, Dividend Eurocash is the leader among publicly traded FMCG companies in working capital management, although its negative conversion cycle is less impressive when compared to international leaders. Working capital and depreciation are sufficient to cover the costs of organic growth. Eurocash’s operating cash flows were 1.5x higher than EBITDA in 2007 and 2008, and have been on a level with EBITDA since 2009, and the ratio is expected to remain the same or rise in the years ahead. Strong operating cash flows, combined with low capital expenses (Eurocash leases store space), mean considerable cash resources that can be shared with shareholders or spent on M&A deals. On the occasion of announcing the Tradis acquisition, Eurocash also announced a 51% distribution to shareholders from 2010 earnings.
Working capital, depreciation, CAPEX CFO/Net profit
Source: Eurocash, BRE Bank Securities, company reports
PLN 20 Billion Sales Target Eurocash has set itself a goal of achieving PLN 20 billion sales in 2015. To accomplish this ambitious goal while competition (Biedronka, Tesco, Carrefour) continues its aggressive expansion in Poland, the company has to carry on with mergers and acquisitions. And since targets with appropriately high sales volumes are increasingly harder to come by, achievement of sales growth at the target rate will be a challenge. Our financial forecasts for Eurocash account only for the M&A deals already completed.
Focus On Volumes In our opinion, a focus on sales growth rather than profitability, and effective working capital management, are what it takes to succeed in a consolidating industry. Eurocash plans to utilize a portion of the higher margins saved on cheaper purchases to lower sales prices as a way of increasing market share. This, combined with a negative cash conversion cycle, will be key to maintaining a leading position as an FMCG distributor.
Cross Sales Eurocash is hoping to increase cross-sales across the enlarged customer base built through M&A activity.
17 January 2011 2 BREBRE Bank Bank Securities Securities Eurocash
Business Profile
Eurocash is one of Poland’s largest FMCG wholesalers in terms of revenues and locations. Its key customers include retail stores, fuel stations, and restaurants.
Eurocash sells FMCG through five channels: (i) the discount wholesale chain Eurocash Cash&Carry (which offers loyalty incentives to owners of abc franchise stores), (ii) the retail franchise Delikatesy Cetrum, (iii) the distributor of tobacco and impulse products KDWT, (iv) Eurocash Dystrybucja which caters to restaurants, hotels, and fuel stations, and (v) Premium Distributors – a network of alcoholic beverage retailers and wholesales (acquired from CEDC). Just recently, Eurocash acquired distribution operations from Emperia which include cash&carry outlets and delivered wholesale.
Organizational Chart
Source: Eurocash
Sales Structure
Sales by product group Sales by channel
Source: Eurocash, BRE Bank Securities
Cash & Carry Eurocash operates one of the largest self-service wholesale discount chains in Poland called Eurocash Cash&Carry. The chain consists of wholesale outlets conveniently located near customers, mostly in medium-sized cities with populations around 50,000. The average outlet has a floor area of 1500-2000 square meters. The target customer is a small to medium-sized store with a floor area of 100 sqm. An average cash&carry outlet carries 3500 products of which 85% are food and beverage items. Eurocash Cash&Carry has 80,000 registered customers including (i) abc stores, (ii) regular customers who shop at least once a month, and (iii) others.
17 January 2011 3 BREBRE Bank Bank Securities Securities Eurocash
The abc chain, which benefits from a loyalty program, accounts for over 40% of Eurocash Cash&Carry’s total sales.
Eurocash wants to expand cash&carry sales through same-store growth and new stores. Like- for-like sales growth is to be achieved by broadening the product range (e.g. by introducing local specialties), loyalty programs, promotions, etc. Further, Eurocash is expanding the abc franchise which is a major customer of the cash&carry outlets. Moreover, the company will be opening new outlets in cities with over 25,000 populations. At 30 September 2010, Eurocash had 124 cash&carry outlets (including three Batna stores). We assume that the company opened 10 new cash&carry locations in 2010, and that it will continue to open about 10 stores a year in future years. Sales are expected to grow at a CAGR of 6.6%, with 3.5% of the growth owed to network expansion.
Delikatesy Centrum At 30 September 2010, the Delikatesy Centrum franchise consisted of 523 supermarkets with an average floor area of 250 square meters, located in small and medium-sized cities in south- eastern Poland. Eurocash supplies about 55% of the merchandise (except, for example, perishable foods), and delivers to stores which are mostly located close to the distribution centers.
Future growth in the revenues generated by Delikatesy Centrum is to be achieved through: (i) increased distribution to Delikatesy Centrum stores, and (ii) expansion of the franchise network throughout the country. We estimate that the Delikatesy Centrum chain grew to 541 stores by the end of 2010, and we assume that future expansion will progress at a fast rate of 113 outlets per year. The sales CAGR estimated for the forecast horizon is 10.8%, of which 7.4% will be achieved through store space expansion.
Eurocash Cash&Carry Delikatesy Centrum
Source: Eurocash, BRE Bank Securities
KDWT KDWT supplies tobacco and impulse products (sweets, beverages, batteries) to nearly 20,000 stores and kiosks through two distribution centers (Komorniki, Czelad ź) and 84 branches across Poland. Tobacco and cigarettes represent the majority of the sales mix (77% in 2009), but Eurocash wants to increase the share of impulse products going forward.
KDWT’s future growth will be driven by increased sales within the existing customer base and expansion into new regions supported by the cash&carry outlets. Moreover, increased sales of impulse products are expected to boost margins and improve working capital (through inventory optimization and reduced trade credit offered to buyers). Our sales CAGR estimate for KDWT is 1.9% throughout the forecast horizon, with EBITDA margins expected to remain flat. We do not expect major changes in the segment’s working capital.
Eurocash Dystrybucja Eurocash Dystrybucja supplies consumer packaged goods to fuel stations, hotels, and restaurants (making up a total of 2400 locations) through distribution centers.
17 January 2011 4 BREBRE Bank Bank Securities Securities Eurocash
Its strategy focuses on expansion in active distribution and maintenance of the leading position in the market for impulse product supplies to fuel stations, restaurants, and chain hotels. We expect Eurocash Dystrybucja to grow sales at a CAGR of 2.5% in the forecast horizon.
KDWT Eurocash Dystrybucja
Source: Eurocash, BRE Bank Securities
Premium Distributors The takeover of Premium Distributors from CEDC was aimed at increasing wholesale sales of alcoholic beverages, mostly those with an over-18% alcohol content, including sales to Eurocash’s other distributors.
Premium Distributors offers about 700 alcohol brands to retailers, supermarkets, hypermarts, fuel stations, and food service outlets (a total of 19,000 locations) via 91 regional branches across Poland. As one of the largest Polish alcohol wholesalers, the organization manages a network of over 80 warehouses and distribution centers.
Premium Distributors was acquired using bank credit and internal cash resources for a price of PLN 385.9m. The estimated values of the acquired assets and liabilities are PLN 503.5m and PLN 389.9m respectively. The goodwill is PLN 272.3m.
We expect Premium Distributors to increase sales at a CAGR of 2.5%, and expand the EBITDA margin from 2.0% in 2010 to 2.5%, in the forecast horizon.
Tradis Eurocash is buying Emperia's interests in FMCG distribution companies worth an estimated PLN 925.975m. The takeover will be carried out either through a stock-for-stock transaction between the acquirees and Eurocash at PLN 22.21 per EUR share (the shares issued as merger compensation would represent 14% of Eurocash's equity), or through a sale of interests. The tentative price of these interests is subject to change depending on auditor assessments expected in February.
The new Eurocash shares will entitle their holders to 2010 profit distributions. The two companies set certain operational and financial goals for the years 2011-2012 which, if met, will entitle Emperia to an additional 1 million Eurocash shares per year. Moreover, the profits generated by the distribution companies in 2011 will be divided equally between the two parties. The takeover still has to be approved by the antitrust office UOKiK.
Tradis is expected to add about PLN 110m per year to Eurocash's consolidated EBITDA, and to generate cost synergies through lower purchase prices (ca. PLN 70m a year) and logistics costs (ca. PLN 60m). Restructuring of working capital, mainly accounts payable, will generate additional cash flows of an estimated PLN 130m. Finally, Tradis brought in real estate (including two distribution centers) which Eurocash hopes to sell for PLN 100m. After discontinuing its partnership with Emperia and sales to the Stokrotka stores (estimated at PLN 700m a year) in, we are guessing, 2012, Eurocash will be able to release working capital in the amount of PLN 50m.
17 January 2011 5 BREBRE Bank Bank Securities Securities Eurocash
Premium Distributors Tradis
Source: Eurocash, BRE Bank Securities
Seasonality
The sales generated by the Cash&Carry segment and the volumes sold to Delikatesy Centrum are shaped by consumer demand. The high sales seasons are the summer months of July and August and the final months of each year, followed by a slower period in January and February. In case of Premium Distributors, about 30% of sales and 40% of EBITDA are generated in the fourth quarter.
Profitability and Working Capital
Eurocash expects to garner higher margins thanks to cheaper purchases going forward, and plans to “give back” a portion of these margins to its customers to allow them to offer competitive prices.
A comparison with other FMCG wholesalers shows that Eurocash still has potential to expand its profitability. The average for the retail sector in 2007-2009 was two times higher at each level, but Eurocash is a wholesaler. Poland’s leading wholesaler Makro achieved an EBIT margin of 4.8%, and the wholesale business of Jeronimo Martins generated margins of 6.0%.
Our forecasts for Eurocash assume flat EBITDA margins in the wholesale segment and improving margins in the active distribution segment, fueled partly by the addition of Premium Distributors to the Eurocash family, and partly by an increasing share of impulse products. After factoring in synergies and lower logistics costs, we expect Tradis to increase EBITDA margins from 3% to 4%. The overall EBITDA margin is expected to increase from 3.0% in 2010 to 3.7% in 2020.
Working Capital The distribution models applied by Eurocash typically generate negative working capital (Cash&Carry, Delikatesy Centrum, Tradis). Eurocash enjoys the best cash conversion ratios of all retailers and wholesalers listed on the Warsaw Stock Exchange, but still has room for improvement when compared to international leaders. Following restructuring at the recently acquired CEDC distribution operations and Tradis, through improved payables turnover ratios, in two years’ time, Eurocash will be generating stronger cash flows.
17 January 2011 6 BREBRE Bank Bank Securities Securities Eurocash
Profitability Working capital cycle (days)
Source: Eurocash, BRE Bank Securities
Capital Expenditure Eurocash spends little on organic expansion through new store openings and renovations in existing stores (whether owned or franchise locations) because most of the locations, primarily cash&carry outlets, are leased. The standard lease term is 10 years. Our average annual CAPEX estimate (excluding acquisitions) for the forecast horizon is PLN 104.8m.
Valuation
Using DCF analysis and relative valuation, we set the nine-month price target on EUR stock at PLN 34.7 per share.
Valuation Summary Weight PLN DCF Valuation 100% 34.7 Relative Valuation 0% 24.7 Price 34.7 9M target price 37.4
DCF Model Assumptions • FCF growth rate beyond the forecast period = 3.0%. • Risk-free rate is 6.2% (10Y T-bond yield). • Beta = 0.9. Eurocash is trading at a 2010 P/BV ratio of 10x and a 2011 ratio of 4.6x, resulting from regular dividend payments in the past. Eurocash has no debt except for the credit taken to acquire CEDC and Tradis, expected to be paid back within 2.5 years. Given the minimum debt policy, we do not think WACC should remain at 11.2% in the long term, hence the lowered beta. • We assume that Tradis will be recognized on Eurocash’s consolidated statements as of Q2 2011. • We expect EBITDA synergies of PLN 70m a year owing to the Tradis acquisition, except for 2011 when the positive effect will be lower at ca. PLN 30m because of only partial consolidation and restructuring expenses approximating PLN 10m. • Owing to effective working capital management, most notably longer aging of payables, 2011 will see increased working capital inflows. Working capital will continue to be released in 2012 once Eurocash ceases sales to Emperia’s convenience store chain Stokrotka. • The discontinuation of sales to Stokrotka will result in a PLN 700m drop in 2012 revenue.
17 January 2011 7 BREBRE Bank Bank Securities Securities Eurocash
A comparison of Eurocash’s earnings multiples with those of foreign peers produced a per- share valuation of PLN 24.7. Polish retailers are trading at premiums to their international peers (for example, the premium for clothing retailers is an average 30%). Due to a lack of comparable companies in Poland, the multiples comparison has a zero weight in the final valuation of Eurocash.
Relative valuation of Eurocash Foreign peers P/E EV/EBITDA 2011F 2012F 2013F 2011F 2012F 2013F JERONIMO MARTINS 20.8 17.6 15.3 10.5 9.2 8,3 CARREFOUR SA 12.6 10.5 9.2 6.5 5.9 5,2 TESCO PLC 12.5 11.2 10.0 8.0 7.4 6,7 METRO INC -A 11.3 10.4 9.7 6.6 6.3 6,2 COLRUYT SA 17.1 15.8 14.7 9.6 9.0 8,4 SAINSBURY (J) PLC 14.9 13.5 12.3 7.0 6.4 6,0 BIM BIRLESIK MAGAZALAR AS 27.8 23.0 23.5 17.9 14.9 13,1
Maximum 27.8 23.0 23.5 17.9 14.9 13,1 Minimum 11.3 10.4 9.2 6.5 5.9 5,2 Median 14.9 13.5 12.3 8.0 7.4 6,7 Eurocash 24.6 18.6 15.0 13.3 10.6 8,9 (premium / discount) 65.79% 37.45% 21.58% 67.02% 44.35% 33,21%
Implied price Median 14.9 13.5 12.3 8.0 7.4 6,7 Multiple weight 50.00% 50.00% Year weight 33.33% 33.33% 33.33% 33.33% 33.33% 33,33% Value per share (PLN) 24.7
17 January 2011 8 BREBRE Bank Bank Securities Securities Eurocash
DCF Model (PLN m) 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F 2020+ Revenue 13 895 15 455 16 546 17 485 18 223 18 947 19 666 20 390 21 118 21 849 22 505 change 77.36% 11.23% 7.06% 5.67% 4.22% 3.97% 3.80% 3.68% 3.57% 3.46% 3.00% EBITDA 411.0 521.5 593.7 631.9 661.7 690.6 719.2 747.9 776.5 805.2 838.6 EBITDA margin 2.96% 3.37% 3.59% 3.61% 3.63% 3.64% 3.66% 3.67% 3.68% 3.69% 3.73% D&A expenses 91.5 99.1 97.0 97.1 98.4 99.7 101.1 102.7 104.3 105.9 118.4 EBIT 319.6 422.4 496.7 534.8 563.3 590.9 618.1 645.2 672.3 699.2 720.2 EBIT margin 2.30% 2.73% 3.00% 3.06% 3.09% 3.12% 3.14% 3.16% 3.18% 3.20% 3.20% EBIT tax 60.7 80.3 94.4 101.6 107.0 112.3 117.4 122.6 127.7 132.9 136.8 NOPLAT 258.9 342.1 402.3 433.2 456.3 478.6 500.6 522.6 544.5 566.4 583.4
CAPEX -89.4 -82.7 -93.1 -104.3 -106.1 -106.9 -109.1 -111.1 -113.1 -114.9 -118.4 Working capital 162.4 97.8 41.6 38.4 30.9 30.4 30.5 31.2 32.0 25.4 26.2 Capital investment -926.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
FCF -502.8 456.3 447.8 464.3 479.5 501.8 523.2 545.4 567.7 582.8 609.6 WACC 9.79% 10.32% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% discount factor 91.46% 82.90% 74.93% 67.71% 61.20% 55.31% 49.98% 45.17% 40.82% 36.90% 36.90% PV FCF -459.8 378.3 335.5 314.4 293.4 277.5 261.5 246.4 231.8 215.0
WACC 9.76% 10.28% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% Cost of debt 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% Risk-free rate 6.15% 6.15% 6.15% 6.15% 6.15% 6.15% 6.15% 6.15% 6.15% 6.15% Risk premium 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Effective tax rate 19.00% 19.00% 19.00% 19.00% 19.00% 19.00% 19.00% 19.00% 19.00% 19.00% Net debt / EV 9.34% 3.89% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Cost of equity 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% Risk premium 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% Beta 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9
FCF growth after the forecast horizon 3.00% Sensitivity Analysis Terminal value 7 968.2 FCF growth in perpetuity Present value of terminal value (PV TV) 2 939.9 0.00% 1.00% 2.50% 3.00% 4.00% Present value of FCF in the forecast horizon 2 094.0 Beta=0.8 30.7 32.4 35.8 37.2 40.9 Equity value 5 033.9 Beta=0.9 29.1 30.5 33.4 34.7 37.7 Net debt (incl. SPO) -368.1 Beta=1 27.6 28.9 31.4 32.4 34.9 Properties held for sale 100.0 Beta=1.1 26.2 27.3 29.5 30.4 32.5 Equity value 5 502.0 Beta=1.2 25.0 26.0 27.9 28.6 30.4 Number of shares (millions) post dilution 158.7 Value per share (PLN) 34.7 9M cost of equity 7.99% Target Price 37.4
EV/EBITDA (’12) for the target price 10.7 P/E (’12) for the target price 20.6 TV to EV 58%
17 January 2011 9 BREBRE Bank Bank Securities Securities Eurocash
Income Statement (PLN m) 2007 2008 2009 2010F 2011F 2012F 2013F Revenue 4 726.1 6 129.7 6 698.3 7 834.2 13 895.0 15 455.3 16 546.2 change 46.00% 29.70% 9.28% 16.96% 77.36% 11.23% 7.06%
COGS 4 324.5 5 588.5 6 074.1 7 067.6 12 400.2 13 721.5 14 679.2 Gross profit 401.6 541.2 624.2 766.7 1 494.8 1 733.8 1 867.0 gross margin 8.50% 8.83% 9.32% 9.79% 10.76% 11.22% 11.28%
SG&A expenses 309.2 415.1 471.5 581.2 1 175.2 1 311.4 1 370.4 Other net operating income/expenses -5.8 -10.6 -7.6 -8.6 0.0 0.0 0.0
EBIT 86.6 115.5 145.2 176.8 319.6 422.4 496.7 change 56.83% 33.38% 25.71% 21.77% 80.75% 32.17% 17.58% EBIT margin 1.83% 1.88% 2.17% 2.26% 2.30% 2.73% 3.00%
Financial activity -11.7 -19.1 -15.3 -26.6 -82.6 -79.4 -67.6 Extraordinary gains/losses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other 0.0 0.0 0.0 0.5 0.0 0.0 0.0
Pre-tax income 74.9 96.4 129.9 149.7 237.0 343.0 429.0 Tax 16.3 16.3 26.3 18.4 35.0 55.2 71.5 Minority interests 0.0 -1.8 -1.2 10.0 10.0 10.0 10.0
Net income 58.6 78.4 102.5 131.3 202.0 287.8 357.5 change 40.96% 33.73% 30.82% 28.06% 53.83% 42.50% 24.23% margin 1.24% 1.28% 1.53% 1.68% 1.45% 1.86% 2.16%
D&A expenses 35.7 43.0 49.3 59.7 91.5 99.1 97.0 EBITDA 122.3 158.5 194.5 236.5 411.0 521.5 593.7 change 40.11% 29.59% 22.75% 21.60% 73.77% 26.87% 13.85% EBITDA margin 2.59% 2.59% 2.90% 3.02% 2.96% 3.37% 3.59%
Shares at year-end (millions) 127.7 130.8 134.6 136.5 147.6 158.7 158.7 EPS 0.5 0.6 0.8 1.0 1.4 1.8 2.3 CEPS 0.7 0.9 1.1 1.4 2.0 2.4 2.9
ROA 6.59% 6.30% 7.37% 6.23% 5.01% 7.03% 8.40% ROE 25.11% 27.70% 27.95% 28.66% 18.59% 22.64% 24.13%
17 January 2011 10 BREBRE Bank Bank Securities Securities Eurocash
Balance Sheet (PLN m) 2007 2008 2009 2010F 2011F 2012F 2013F ASSETS 889.9 1 244.0 1 390.4 2 107.2 4 035.2 4 096.6 4 256.7 Fixed assets 278.3 403.0 456.9 785.2 1 715.7 1 699.3 1 695.4 Property, plant and equipment 121.0 171.7 187.6 219.5 399.4 383.1 379.2 Intangible assets 121.5 125.9 129.6 136.1 136.4 136.4 136.4 Goodwill 33.8 91.9 130.4 402.7 1 099.2 1 099.2 1 099.2 Long-term receivables 1.9 5.9 2.1 1.8 1.8 1.8 1.8 Other fixed assets 0.0 7.5 7.2 25.0 78.8 78.8 78.8
Current assets 611.6 841.0 933.4 1 322.0 2 319.6 2 397.3 2 561.3 Inventories 224.9 312.3 365.8 491.3 874.9 884.5 941.7 Short-term receivables 253.4 378.9 405.3 624.5 1 072.2 1 081.4 1 146.5 Accruals 1.9 5.7 4.9 12.1 14.6 14.6 14.6 Cash and cash equivalents 131.5 144.1 157.5 194.1 357.9 416.9 458.5
(PLN m) 2007 2008 2009 2010F 2011F 2012F 2013F EQUITY AND LIABILITIES 889.9 1 244.0 1 390.4 2 107.2 4 035.2 4 096.6 4 256.7 Equity 233.4 282.9 366.8 458.2 1 086.7 1 271.2 1 481.7 Share capital 127.7 130.8 134.7 136.3 629.9 629.9 629.9 Other equity 105.7 152.1 232.1 321.8 456.8 641.4 851.8
Reserves 5.7 24.8 24.8 29.4 50.0 50.0 50.0 Long-term liabilities 11.2 23.4 22.9 277.0 795.9 577.4 286.0 Loans 0.0 0.0 0.0 256.6 775.0 556.5 265.1 Other 11.2 23.4 22.9 20.4 20.9 20.9 20.9
Short-term liabilities 631.5 895.1 956.8 1 296.2 2 055.4 2 150.7 2 391.8 Loans 73.1 68.5 0.0 63.0 74.9 53.7 130.7 Trade creditors 535.7 793.8 919.5 1 194.6 1 941.9 2 058.4 2 222.5 Accruals 8.1 17.3 19.1 46.4 47.2 47.2 47.2 Other 22.7 32.8 37.3 38.6 38.6 38.6 38.6
Debt 73.1 68.5 0.0 319.6 849.9 610.2 395.8 Net debt -58.3 -75.7 -157.5 125.5 492.0 193.3 -62.7 (Net debt / Equity) -24.98% -26.75% -42.93% 27.39% 45.28% 15.21% -4.23% (Net debt / EBITDA) -0.5 -0.5 -0.8 0.5 1.2 0.4 -0.1
BVPS 1.8 2.2 2.7 3.4 7.4 8.0 9.3
17 January 2011 11 BREBRE Bank Bank Securities Securities Eurocash
Cash Flows (PLN m) 2007 2008 2009 2010F 2011F 2012F 2013F Operating cash flows 185.3 240.5 198.0 221.8 538.4 564.1 563.8 Net income 58.6 78.4 102.5 131.3 202.0 287.8 357.5 D&A expenses 35.7 43.0 49.3 59.7 91.5 99.1 97.0 Working capital 73.8 106.5 16.1 32.9 162.4 97.8 41.6 Other 17.2 12.6 30.1 -2.2 82.6 79.4 67.6
Cash flows from investing activities -61.8 -169.9 -86.5 -395.0 -1 015.4 -82.7 -93.1 CAPEX -64.2 -72.2 -101.0 -58.8 -89.4 -82.7 -93.1 Capital investment -10.0 -104.8 -31.7 -338.1 -926.0 0.0 0.0 Other 12.4 7.1 46.2 2.0 0.0 0.0 0.0
Cash flows from financing activities -33.3 -57.9 -98.3 209.9 596.2 -422.4 -429.1 Stock issue 0.0 8.2 18.1 11.7 493.6 0.0 0.0 Debt -1.3 -21.0 -71.6 255.9 169.6 -319.1 -282.0 Dividend (buy-back) -29.4 -39.1 -41.2 -50.4 -67.0 -103.2 -147.1 Other -2.5 -6.1 -3.5 -7.3 0.0 0.0 0.0
Change in cash 90.2 12.7 13.3 36.7 119.1 59.0 41.6 Cash at period-end 131.5 144.1 157.5 194.1 318.2 377.2 418.8
DPS (PLN) 0.2 0.3 0.3 0.4 0.5 0.7 0.9 FCF 92.8 140.8 47.5 140.2 328.0 347.3 335.1 (CAPEX / Sales) 1.36% 1.18% 1.51% 0.75% 0.64% 0.54% 0.56%
Multiples 2007 2008 2009 2010F 2011F 2012F 2013F P/E 73.5 56.2 44.3 35.0 24.6 18.6 15.0 P/CE 45.7 36.3 29.9 24.1 17.0 13.8 11.8 P/BV 18.4 15.6 12.4 10.0 4.6 4.2 3.6 P/S 0.9 0.7 0.7 0.6 0.4 0.3 0.3
FCF/EV 2.18% 3.25% 1.09% 2.97% 6.00% 6.27% 6.34% EV/EBITDA 34.7 27.3 22.5 20.0 13.3 10.6 8.9 EV/EBIT 49.0 37.5 30.2 26.7 17.1 13.1 10.6 EV/S 0.9 0.7 0.7 0.6 0.4 0.4 0.3
DYield 0.68% 0.89% 0.88% 1.10% 1.35% 1.93% 2.75%
Price (PLN) 33.7 Shares at year-end (millions) 127.7 130.8 134.6 136.5 147.6 158.7 158.7 MC (PLN m) 4 304.9 4 407.2 4 536.9 4 600.3 4 974.7 5 349.2 5 349.2 Equity attributable to minority shareholders (PLN m) 0.0 0.6 0.0 0.0 0.0 0.0 0.0 EV (PLN m) 4 246.6 4 331.5 4 379.5 4 725.8 5 466.8 5 542.5 5 286.5
17 January 2011 12 BREBRE Bank Bank Securities Securities Eurocash
Michał Marczak tel. (+48 22) 697 47 38 Managing Director Head of Research [email protected] Strategy, Telco, Mining, Metals
Research Department: Sales and Trading :
Piotr Dudzi ński tel. (+48 22) 697 48 22 Kamil Kliszcz tel. (+48 22) 697 47 06 Director [email protected] [email protected] Fuels, Chemicals, Energy Marzena Łempicka-Wilim tel. (+48 22) 697 48 95 Piotr Grzybowski tel. (+48 22) 697 47 17 Deputy Director [email protected] [email protected] IT, Media Traders: Maciej Stokłosa tel. (+48 22) 697 47 41 [email protected] Emil Onyszczuk tel. (+48 22) 697 49 63 Construction, Real-Estate Developers [email protected]
Jakub Szkopek tel. (+48 22) 697 47 40 Grzegorz St ępien tel. (+48 22) 697 48 62 [email protected] [email protected] Manufacturers Michał Jakubowski tel. (+48 22) 697 47 44 Iza Rokicka tel. (+48 22) 697 47 37 [email protected] [email protected] Banks Tomasz Jakubiec tel. (+48 22) 697 47 31 [email protected] Gabriela Borowska tel. (+48 22) 697 47 36 [email protected] Retail Grzegorz Strublewski tel. (+48 22) 697 48 76 [email protected]
Michał St ępkowski tel. (+48 22) 697 48 25 [email protected]
Foreign Markets Unit:
Adam Prokop tel. (+48 22) 697 48 46 Foreign Markets Manager [email protected]
Michał Ro Ŝmiej tel. (+48 22) 697 48 64 [email protected]
Jakub Słotkowicz tel. (+48 22) 697 48 64 [email protected]
Jacek Wrze śniewski tel. (+48 22) 697 49 85 [email protected]
"Private Broker"
Jarosław Banasiak tel. (+48 22) 697 48 70 Director, Active Sales [email protected]
Jacek Szczepa ński tel. (+48 22) 697 48 26 Director of Sales [email protected]
Dom Inwestycyjny BRE Banku S.A. ul. Wspólna 47/49 00-950 Warszawa www.dibre.com.pl
17 January 2011 13 BREBRE Bank Bank Securities Securities Eurocash
List of abbreviations and ratios contained in the report: EV – net debt + market value EBIT – Earnings Before Interest and Taxes EBITDA – EBIT + Depreciation and Amortisation P/CE – price to earnings with amortisation MC/S – market capitalisation to sales EBIT/EV – operating profit to economic value P/E – (Price/Earnings) – price divided by annual net profit per share ROE – (Return on Equity) – annual net profit divided by average equity P/BV – (Price/Book Value) – price divided by book value per share Net debt – credits + debt papers + interest bearing loans – cash and cash equivalents EBITDA margin – EBITDA/Sales
Recommendations of BRE Bank Securities A recommendation is valid for a period of 6-9 months, unless a subsequent recommendation is issued within this period. Expected returns from individual recommendations are as follows: BUY – we expect that the rate of return from an investment will be at least 15% ACCUMULATE – we expect that the rate of return from an investment will range from 5% to 15% HOLD – we expect that the rate of return from an investment will range from –5% to +5% REDUCE – we expect that the rate of return from an investment will range from -5% to -15% SELL – we expect that an investment will bear a loss greater than 15% Recommendations are updated at least once every nine months.
This document has been created and published by BRE Bank Securities S.A. The present report expresses the knowledge as well as opinions of the authors on day the report was prepared. The opinions and estimates contained herein constitute our best judgement at this date and time, and are subject to change without notice. The present report was prepared with due care and attention, observing principles of methodological correctness and objectivity, on the basis of sources available to the public, which BRE Bank Securities S.A. considers reliable, including information published by issuers, shares of which are subject to recommendations. However, BRE Bank Securities S.A., in no case, guarantees the accuracy and completeness of the report, in particular should sources on the basis of which the report was prepared prove to be inaccurate, incomplete or not fully consistent with the facts. BRE Bank Securities S.A. bears no responsibility for investment decisions taken on the basis of the present report or for any damages incurred as a result of investment decisions taken on the basis of the present report.
This document does not constitute an offer or invitation to subscribe for or purchase any financial instruments and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. This document nor any copy hereof is not to be distributed directly or indirectly in the United States, Australia, Canada or Japan.
Recommendations are based on essential data from the entire history of a company being the subject of a recommendation, with particular emphasis on the period since the previous recommendation. Investing in shares is connected with a number of risks including, but not limited to, the macroeconomic situation of the country, changes in legal regulations as well as changes on commodity markets. Full elimination of these risks is virtually impossible.
It is possible that BRE Bank Securities S.A. renders, will render or in the past has rendered services for companies and other entities mentioned in the present report.
The present report was not transferred to the issuer prior to its publication.
BRE Bank Securities S.A., its shareholders and employees may hold long or short positions in the issuer's shares or other financial instruments related to the issuer's shares. BRE Bank Securities S.A., its affiliates and/or clients may conduct or may have conducted transactions for their own account or for account of another with respect to the financial instruments mentioned in this report or related investments before the recipient has received this report.
Copying or publishing the present report, in full or in part, or disseminating in any way information contained in the present report requires the prior written agreement of BRE Bank Securities S.A.
Recommendations are addressed to all Clients of BRE Bank Securities S.A. This report is not for distribution to third parties. The activity of BRE Bank Securities S.A. is subject to the supervision of the Polish Financial Supervision Commission.
Individuals who did not participate in the preparation of this recommendation, but had or could have had access to the recommendation prior to its publication, are employees of BRE Bank Securities S.A. authorised to access the premises in which recommendations are prepared, other than the analysts mentioned as the authors of the present recommendation.
Strong and weak points of valuation methods used in recommendations: DCF – acknowledged as the most methodologically correct method of valuation; it is based in discounting financial flows generated by a company; its weak point is the significant susceptibility to a change of forecast assumptions in the model. Comparative – based on a comparison of valuation multipliers of companies from a given sector; simple in construction, reflects the current state of the market; weak points include substantial variability (fluctuations together with market indices) as well as difficulty in the selection of the group of comparable companies. Previous ratings issued for Eurocash Rating Reduce Suspended Date issued 2010-05-06 2010-10-05 Price on rating day 20.61 26.38 WIG w rating day 41287.90 45542.07
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