Grupa Kęty – Corona Recession Threatens Guidance
Manufacturing activity in Europe is being curtailed, hampering the prospects of Grupa Kęty's extrusions business which, according to our calculations, might be set for an 11% fall in sales volumes in 2020 (compared to a 16% drop in 2009). At the same time, near-term demand for the Company's aluminum systems is undercut by a slowdown in construction where many workers undergo coronavirus-related quarantine. This includes PLN 50m-worth of projects that Kęty was supposed to carry out in the United States, but which have been put on a standstill. We revise our FY2020 outlook for Kęty to reflect lower sales of extrusions and aluminum systems. In addition, we expect the Company's working-capital needs to increase by as much as PLN 90m this year due to likely payment delays. If profits in Q2 2020 fall as anticipated, Kęty might want to revisit its original 2020 annual dividend declaration, similarly to what happened in 2009, when the Company called off the planned distribution after its net debt/EBITDA ratio went up to 1.1x. This year, after a payout of 50% of the net profit for 2019 (PLN 15.39 DPS), according to our calculations by the end of December the leverage ratio would increase to 1.6x (1.8x for an 85% dividend payout ratio). To match our revised forecasts, Grupa Kęty might lower its FY2020 EBITDA guidance by 11% in the course of the year, and cut target net profit by 12%. We reduce our 9-month target price for KTY from PLN 360.29 to PLN 335.96 per share, and we maintain a hold rating for the stock.
Grupa Kety is an aluminum industry company based in Poland. Co.'s operations are organized in three business segments: Aluminum Extrusions, Aluminum Architectural Systems and Flexible Packaging. Co. offers aluminum extrusions in different shapes, bars, tubes and wires of aluminum and its alloys, which are used in the construction & building, advertising, indoor fittings, transportation, automotive industry, white goods, machinery engineering and electrical engineering. Co.'s Aluminum Architectural Systems produces aluminum joinery, realizing investment projects and selling systems. Co.'s flexible packaging segment offers packaging made of aluminum foil, films and paper.
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