ANY Security Printing - Printing Must Go On

ANY Security Printing - Earnings Revision
Rating: Accumulate (unch.)

Target price (12-month): HUF 1,450 (prev. HUF 1,395) 

Current share price: HUF 1,350

 

• ANY is well on track to outpace our previous earnings forecast in coming years. Although, the Company’s results were broadly in line with our expectations for 2018, it could have been even much better. In the first 9m of 2018, ANY grew at a faster pace on yearly comparison compared to our forecast, but an unexpected one-off of HUF 70mn related to provisioning hit the bottom line in Q4. ANY reached a net income of HUF 1,140mn or 79 HUF per share, which implies a dividend payment of HUF 81 per share for 2018. 
• We raise our 12-m ex-div TP for ANY Security Printing to HUF 1,450 to HUF (prev. HUF 1,395), leaving a 13% upside potential from the current share price. We keep our recommendation on Accumulate.
• In the recent 5 years ANY reached a stunning EPS CAGR of 10% on the back of its export expansion. In 2018, we experienced a temporary drop in export revenues, which accounted for only 36.3% in 2018 vs. 42.5% in 2017 of the total sales. The reason why it’s increasingly important is that after hitting a revenues of USD 100mn in a stand-alone year, ANY is capable of participating in more and more tenders on one’s own. Therefore, we are confident that ANY is expected to make a lot of bids and receive many of orders, more than ever beyond Hungary over the next years.
• We are not assuming a strong recovery in export ratio in 2019 as a result, low value-added EU and municipal elections are due to be held this year. We see that election ballots will likely have an approx. HUF 2bn positive impact on top line, whereas it might have a 4-5 HUF per share contribution to EPS. However, decreasing form production sales is also blamed for poor export numbers. As we earlier signalled, forms will be faded over time because of the widespread deployment of digital solutions and invoicing. However, in Romania and Bulgaria, which are considered as the greatest market of form products for ANY, a slower process in digitalization is expected. Although, form production segment shrank by 6% YoY (domestic: -8% YoY; export: -5% YoY) in 2018 vs. a year earlier, we expect a higher form sales (+4% YoY) in 2019F, whereas the annual growth rate of the segment is likely to come below inflation rate on lower volume of sales in the forthcoming years.
• We have become more positive for ANY due to the following facts.
• First, the new work hall might be finished in the second half of 2019 vs. the Management’s initial projection of 2020. As a result, ANY will be able to cut rental costs earlier than we previously anticipated. It will result more than HUF 100mn cost savings p.a., moreover the production will likely ramp-up from 2020.
• Second, ANY is committed to expand its activity in Middle Africa and Western Europe. On the back of value-accretive security products, like passport, which is considered as one of the highest value-added products of the company, ANY will likely create attractive profit. We think the Management makes huge effort to increase the Company’s presence in Africa and the Asian-Pacific region.
• Our third reason behind our optimism is that the Management is very likely to leave the dividend policy unchanged (in line with our previous expectation), despite spending a significant amount of cash for CAPEX. We strongly believe that the share price was under pressure in autumn 2018 as investors might have worried about a potential dividend cut. Despite this, we are still expecting a POR of 100% in the long run.
• We have made some changes in our forecast. We predict a more significant increase in material costs vs. our previous estimate due to the higher purchase prices. We saw in the previous Company report, despite the meaningful wage increase, personnel costs increased at a slower pace compared to our estimate. Although, higher salaries related to overtime will certainly occur this year thanks to the above-mentioned elections.
• We previously overestimated the other expenses of ANY, whereas interest expense will be considerably lower than that of our previous estimate. ANY is in a great position to finance its green field investment using up short-term bank loans, therefore a significantly lower credit interest rate is expected.
• ANY reported solid FCF figure for 2018. The HU-based Printing Company recorded a positive FCF despite having spent HUF 2.2bn for CAPEX. We strongly believe that operating CF will easily cover all investments of ANY in the long run, whereas, in our vision, they will need to take short-term loans to be able to expand aggressively in the future.

 

 

 

Gabor Bukta
analyst

CONCORDE SECURITIES LTD.

Hillside
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EXPLANATION OF RATINGS AND METHODOLOGY

Rating	Trigger
Buy	Total return is expected to exceed 20% in the next 12 months
Accumulate	Total return is expected to be in the range of 10-20%
Neutral	Total return is expected to be in the range of 10%-(-10%)
Reduce	Total return is expected to be in the range of -10-(-20%)
Sell	Total return is expected to be lower than -20%
Under Revision	The stock is put Under Revision if covering analyst considers new information may change the valuation materially and if this may take more time.
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