EUR 900.00 For Business Accounts Only

GPW BUY - Pension reform can be a chance - IPOPEMA 2017-01-10

Warsaw Stock Exchange
Pension reform can be a chance
We initiate coverage of Warsaw Stock Exchange with BUY recommendation and set
TP at PLN 51.8, what implies healthy double digit 24% upside potential.
Pension reform can stimulate equity volumes
Pension reforms in Poland have created very unfavorable environment for equity
trading in recent years. Uncertainty made local asset managers, especially pension
funds, less prone to trade as there were several proposals how assets accumulated
in the second pillar should be distributed and their future existence was threatened.
Foreign investors, accounting for more than 50% of trading, reduced volumes as risk
regarding future of Polish capital market was high. We think that final proposals
create chance for Warsaw stock market operator. Details are still to be determined,
but key fact is that pension funds will be left with 75% of their assets and will be
converted into regular mutual funds. Increased competition should encourage them
to be more proactive in searching for additional returns for clients, thus to trade more.
To show growth potential we note that in recent three years local mutual funds were
9-10 times more active in terms of trading than Polish pension funds in relation to
AuM.
Huge discount to international peers
GPW trades with a huge discount to its international peers, both from developed and
emerging markets. P/E multiples of 13.3x and 11.5x are 29-31% lower for 2017E and
2018E respectively, while dividend yield is expected to reach 6.4-6.2% in 2017-18E
compared to 3.3-4.4% median range for peer group. Although some discount is
justified (our target price implies 12-15% discount on P/E ratio) due to anticipated
development of commodity segment and State Treasury amongst shareholders, we
think it is now at excessive level and the gap should narrow in time.
Commodity segment impacted by regulations, but gradually
Commodity segment is highly regulated, what should put some pressure on revenues
in coming years. The biggest negative impact will be observed in energy certificates,
but it should be spread over time. Moreover changes in support system for renewable
energy sources in Poland will effectively reduce revenues (20% of total) from this part
of business to zero by around 2030. Additionally support for co-generation expires
beginning of 2019 what should reduce top line by additional c. PLN 17m. Although
changes in commodity segment will have impact on company earnings in the near
few years, we believe we properly addressed them in our valuation model and
earnings forecasts.