EUR 450.00 For Business Accounts Only

Ciech History to come full circle

We maintain our coverage of Ciech with a BUY recommendation and a fair value
of PLN 40.90 per share, which implies 12% upside potential. Ciech’s shares
showed a strong price spike at the start of the year with the successful
contracting of a soda ash price for 2019. Since then the share price has gradually
fallen to reach PLN 30.0, reflecting numerous negative factors affecting Ciech in
the course of the year. Several tax cases have attracted investors’ attention and
have caused significant cash outflows; this was coupled with an increase in
planned CAPEX which resulted in an unexpected dividend warning. Adding the
closure of CSR and uninspiring results in recent quarters due to unplanned
stoppages etc., we believe the share price is now close to rock bottom. We do
not include any new unpublished adverse tax cases in our calculations, although
we increase the equity risk premium for the company by 100bp due to recent
developments in this field. Nevertheless, we see upside from current levels
based on the strong outlook for the soda ash market in 2020, thus better
earnings momentum.
Soda ash outlook for 2020 provides some hope: Last year we expected Ciech to
introduce a 6% y/y increase in its soda ash price, while European prices rose by
around 7% to EUR 219, close to our expectations. At present we do not envisage
another meaningful boost to Ciech’s EBITDA, although given the expected
significant demand growth for soda ash in the decade ahead and only slight
exposure to the slowing automotive industry, we assume a 4% increase this time,
even allowing for difficulties in transferring costs to clients.