Grupa Kęty – Softer Demand Dampens Outlook
We are prompted to revise our 2020 and 2021 earnings expectations for Ciech's soda ash business after the Company reported worse-than-expected results for Q1 2020, and based on more subdued guidance for the rest of the year outlined at the first-quarter earnings call. Most crucially, demand for soda ash is seen to be weakening according to Ciech, due mainly to smaller bookings by auto makers and the construction industry. If orders already placed were to be canceled, Ciech might have to sell excess production on the sport market. With this in mind, we revise our 2020 and 2021 soda ash sales forecasts downward by 4%, and we lower the corresponding segmental EBITDA estimates by 12% and 4%, respectively. The FY2020 revisions are also underpinned by reduced expectations for second-quarter profits due to the negative impact of the coronavirus crisis on the results of the Organic Division and the Silicates Division. Further, we currently expect Ciech to end FY2020 with a higher net debt/EBITDA ratio of 2.8x, and with this comes a strong possibility that the Company will not be able to repurchase treasury shares over the coming months. We downgrade CIE from buy to hold, and we lower the target price from PLN 45.14 to PLN 38.94 per share.
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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