EUR 900.00 For Business Accounts Only

AC - Autogas-fired dividend vehicle - BUY PLN 53.00 IPOPEMA

Autogas-fired dividend vehicle
We initiate coverage of AC with a BUY recommendation and a fair value of PLN
53.00 per share, which implies 14% upside potential. The reasons for our
positive view are: 1) the supportive relationship between Autogas (the common
name for automotive liquified petroleum gas (LPG)) and petrol prices; 2) the
promotion of LPG as an ecological fuel, which creates a solid foundation for
LPG system demand worldwide; 3) the international expansion of AC's partner,
Rameder; 4) competitive cost position, especially after launching 25%
additional capacity and finishing its automatization process in 4Q19; and 5) the
company’s long-term dividend policy, which offers a c.6% dividend yield (DY)
per annum.
Stable growth in global demand
AC has an opportunity to increase its turnover from foreign markets due to 1) the
attractive autogas/petrol price ratio; 2) the stable growth of autogas consumption and
autogas-fueled vehicles worldwide, especially in emerging markets; and 3) the rising
perception of LPG as an ecological fuel, which is leading government policies to
promote it in particular markets. We believe that after a temporary slump in revenues
in 3Q/4Q19E, the regulatory environment in Russia will stabilize after the law on
autogas-fueled vehicle registration and certification comes into force in July 2020. We
also expect Rameder to make a solid contribution to results from 2020E.
Limiting wages pressure
AC is due to finish its two-year investment program by the end of 2019 and as a
result should increase its production capacity by approx. 25% in the autogas system
and towbar kit segments. We assume that automatization will slow down wage
inflation by limiting overtime and, potentially, employment, and by optimizing raw
material costs by partially rearming production lines.
Dividend profile to be maintained
AC regularly pays dividends with a dividend payout ratio (DPR) of no less than 80%,
which translates into a DY of c.6%. We assume that strong EBITDA to cash
conversion will allow AC to maintain its dividend character in the long term with a
quite conservative long-term 80% DPR, which translates into DPS of PLN 2.9 in
2020E (6.1% DY) and PLN 3.4 (7.2 % DY) in 2021E.
Overall, we forecast AC’s EBITDA to be PLN 55m in 2019E and PLN 63m in
2020E, up 13% y/y. On our forecasts, AC trades at an EV/EBITDA of 8.7x for
2019E and 7.6x for 2020E, with a justified premium to peers given its ability to
pay sustainable dividends three times higher than the average offered by its
listed competitors.