EUR 20.00 For Business Accounts Only

Bogdanka – 3Q19E results preview

We continue to believe the equities of Bogdanka are strongly fundamentally undervalued (Buy + Overweight, 12M EFV of PLN 60.0 per share). Below we present three main arguments which support our positive stance.

• Based on the Company’s preliminary 3Q19 results it can be estimated that Bogdanka should easily deliver over PLN 750 million of EBITDA this year which will bring the Company’s forward multiples for 2019 to screamingly low levels. Judging by the actual figures in 1H19, the OCF and FCFF in 2019 are likely to be strong and the Company’s net cash position is likely to further improve, possibly to PLN 450 million at the end of the year.
• Global steam coal price benchmarks, pressured by economic slowdown, have strongly dropped this year from around US$ 80-90 per tonne at the beginning of the year to around US$ 65 per tonne currently. Despite the decrease in prices, however, the benchmarks are roughly around the current levels of the PSCMI index. We believe that this implies that the global benchmarks would need to visibly drop much further in order to have any negative impact on coal pricing in Poland.
• In the past the Company’s coal prices had usually lagged behind the PSCMI index. For example in 2012-2014 Bogdanka showed relatively stable coal prices, even despite prevailing drops in the PSCMI index (this led to a narrowing of the Company’s coal price discount as compared to market prices). As another example in 2017-2018 Bogdanka’s prices were almost flat, while the performance of the PSCMI index was very bullish (in those years the price discount of Bogdanka’s coal products had visibly widened). The mentioned historical trend in coal price changes assures us that even if the PSCMI index drops next years, this may not have any influence of the Company’s prices (or at least this could only impact the offered prices only in the following year). In other words, we think that the Company has strong chances of delivering good figures also in 2020. According to our estimates, Bogdanka’s FY20 EBITDA could amount to PLN 700 million which also translates into surprisingly low forward multiples.