Police – 3Q19E results’ preview
We remain negative towards the equities of the Company (Sell, Underweight, 12M EFV of PLN 12.2 per share) mainly on the back of disappointing results in 2019, but above all as a consequence of the planned major stock issue.
- The planned stock issue negatively affects our valuation. We assume Police will execute the planned stock issue this year in accordance with EGM proposals. We assume Police will gather PLN 1.1 billion from Azoty and other investors by issuing the additional 110 million shares at a price of PLN 10.0 per share. The discount of the assumed issue price to the current share market prices has a dilutive effect on our valuation. It is worth mentioning that the scale of the planned issue has strongly negative consequences on the Company’s forward P/E multiples which increase to the levels of 19x for the years 2020-2021.
- Results of 2019 are a major disappointment due to planned and unplanned stoppages. Based on our estimates the Company will be able to reach PLN 180 million of EBITDA in 2019 – a figure which will imply some improvement in comparison to the devastating results of 2018 but at the same still a weak figure which is substantially below what we would expect from the Company at a normalized macro environment. The disappointing results are directly tied to the planned and unplanned stoppages at the Company’s ammonia and urea installations which could have lowered this year’s EBITDA in 2Q19 and 3Q19 by c. PLN 60-70 million.
- The performance of the titanium white segment is a risk factor for 4Q19 and 2020. Given the deteriorating macro outlook in Western Europe and seeing the negative effects of the tariff war between the USA and China we believe that the Company’s non-agro business could show weakening profitability in 4Q19 and 2020 which will not be a supportive for EBITDA as in previous quarters.
Zaklady Chemiczne Police SA is a Poland-based company that is engaged in the production of mineral fertilizers, titanium dioxide and chemicals. The Company divides its business activities into two main segments: Titanium White segment, which offers titanium dioxide pigments, used in the paints, plastics, rubber, textiles, ceramics and paper industries, and Mineral Fertilizers segment, which offers multi-component mineral fertilizers, and such nitrous fertilizer as urea, as well as ammonia, phosphoric and sulphuric acids, sodium fluosilicate, ferric sulphate II and distarpol. The Company operates through several subsidiaries and affiliates companies, such as PDH Polska SA or African Investment Group. The Company's majority stakeholder is the Polish State, which controls 59.43% of the shares.
BOS Brokerage, with over 20-year experience, offers brokerage services on the Polish capital market to satisfy numerous needs of institutional and retail investors.
Our comprehensive offer includes brokerage services on both the stock exchange and the forex market as well as brokerage services on the energy market, debt and equity issues, distribution of investment funds and assets management.
BOS Brokerage analytical team belongs to the most appreciated and acclaimed on the market. According to Parkiet daily’s poll (as of January 7, 2019), DM BOŚ equity research team was selected by institutional investors as the third best in Poland. Moreover, the team members won several individual best analysts awards, including Sobiesław Pająk – IT (best analyst), media/telco (ranked 2.), strategy (ranked 4.), Tomasz Rodak – video games (best analyst), overall ranked 5., Łukasz Prokopiuk – chemicals (ranked 2.), mining (ranked 3.), Maciej Wewiórski – real estate (ranked 3.).
In August 2017 Parkiet daily indicated DM BOŚ recommendations as the most accurate over 12 months and according to the Puls Biznesu daily (as of April 11, 2017) DM BOŚ research team was the most prolific on the Polish market and issued the biggest number of recommendations (247) in the years 2014-2016.
The analysts handle over 80 companies listed on the Warsaw Stock Exchange.
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