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PKP Cargo: Unexpected capex hike in the price

We downgrade PKPC to NEUTRAL from Buy. While adjustments to our forecasts for the company’s freight turnover, as well as unitary core service price and selected operating expenses evolution for 18E-20E mean we cut our NI estimates by 5-18% for the period, we still expect them to show a healthy 116%/12% y/y increase in 18E/19E, before only a moderate 17% y/y decline in 20E. At the same time, though, factoring in the recent unexpected material upgrade to the firm’s official capex guidance for the current year, as well as likely no major softening in this respect in 19E-20E, and despite an anticipated clear pick-up to OCF in the period, we now expect the firm’s leverage ratios to show no major improvement in the years ahead and we no longer expect dividend payments in 18E-20E. As a sweetener, we note that we expect PKPC to face no significant liquidity constraints in the short-to-midterm. Given downward revisions to our earnings forecasts for the years ahead and more importantly, a material upgrade to our 18E-20E capex estimates, our FV falls 37.2% to PLN 44.25, implying 4.1% upside potential.