EUR 1550.00 For Business Accounts Only

Famur: Opening up several fronts

We initiate coverage of Famur with a BUY rating and a FV of PLN 5.82 per share, implying 19% upside, as we believe the current macro environment favours mining machinery companies. First, following the Kopex acquisition Grupa Famur has become the undisputable leader in the Polish underground equipment market, which has strengthened its leverage in negotiations with its biggest clients. Second, we forecast a rebound in the Polish coal industry’s CAPEX budgets after 2-3 years of underinvestment. According to the Polish government, coal will remain the key fuel for power utilities at least in the mid-term and due to last year’s massive growth in coal imports we infer there is also a lot of room for domestic production in the market. Third, we believe its international expansion strategy is right. The high level of coal prices has spurred new investment and the majority of the biggest coal producing countries (including China, India and Russia) have ramped up production. Last but not least, we recognise the quality of management and operational excellence as an advantage. The ability to keep profitability high vs int’l peers along with more than a dozen of acquisitions carried out in the past illustrate the credentials of the Board. We also expect large dividends to be paid out in the next couple of years, yielding 5.0% on average. On our numbers Famur trades at a modest discount vs int’l peers (EV/EBITDA), which we believe is unjustified because of FMF’s higher profitability and more aggressive growth strategy stemming from its relatively small scale of business vs int’l peers.