Kruk - Borrowers show resilience amid pandemic
We upgrade Kruk to accumulate and we raise our target price to PLN 295.77 per share despite the recent rally. Kruk beat analysts’ estimates with its quarterly results for the last two quarters thanks to the enduring capacity of borrowers to meet their payments, which has resulted in record-high recoveries and gains on fair value adjustments. Contrary to what we had predicted last September, the coronavirus crisis did not trigger a surge in bad debt; in fact, between March 2020 and March 2021, in Poland the non-performing loan portfolios of local banks shrunk by PLN 0.6 billion, thanks in no small part to government stimulus – as it turns out, Polish borrowers took the relief funds as an opportunity to pay down debt balances on an unexpected scale. On the one hand, the resulting decrease in delinquency rates indicates a contraction in the debt collection market, but on the other hand we currently expect a larger supply of bank NPLs than what we had predicted last September. Outside of Poland, Kruk has also registered improved collections on its portfolios in Italy and Spain, where we expect the Company to increase purchases moving forward. On the whole, we have raised our 2021 portfolio spend forecast for Kruk by a considerable 53%. With larger portfolios comes an increase in court fees for Kruk relative to voluntary settlements. All told, we have raised our FY2021-2023 earnings estimates for Kruk by 56%-33%, and after updating our valuation models we upgrade the stock to accumulate.
Kruk SA. Kruk SA is a Poland-based company, which is engaged in the business support industry. The Company is a multi-operator, which offers loss prevention and debt collection services. The Company divides its business into two main operating segments: Debt Purchase, including acquisition of non-performing debt portfolios, and Debt Collection Outsourcing, offering fee-based collection of debt on client's behalf, focused on consumer and corporate loans. The Company provides services to financial institutions and large corporate customers. It manages receivables of banks, credit intermediaries, leasing companies and digital platform providers, among others. The Company's operating activities concentrate in a number of countries, such as Poland, Romania, Czech Republic, Slovakia and Spain. The Company's subsidiaries include Kruk Deutschland GmbH, Presco Investments Sarl and Espand Soluciones de Gestion y Recuperacion de Deuda SL, among others.
Set up in 1986, mBank (originally BRE – Export Development Bank) is Poland’s 4th largest universal banking group in terms of total assets and 5th by net loans and deposits at the end of June 2019. mBank has one of the oldest brokerages in Poland – we have been providing brokerage services since 1991 - and the biggest, serving about 300 ths clients.
We provide all brokerage services available in the Polish capital market (i.e. Warsaw Stock Exchange, non-public markets and forex) in a way that meets the expectations of all groups of investors, both individual and institutional. Participating in the dynamic growth of the Polish capital market since its inception, we have acquired competences and experience needed to provide the highest quality of service and we have won the trust and satisfaction of our Clients.
Over the past decade, mBank's Equity Research Team has been consistently ranked among the top research teams in Parkiet's annual institutional investor surveys (Parkiet is Poland's leading daily business newspaper). mBank analysts provide coverage on an extensive list of companies, mainly in Poland but also elsewhere in the CEE region: Austria, Czechia, Portugal, Ukraine and Hungary.
Clients get access to a comprehensive selection of research products including daily market insights, monthly roundups, macroeconomic views, industry- and company- specific analyses, investing strategies, earnings comments, etc.
We give our institutional clients numerous opportunities to connect with industry professionals, top executives, and leading analysts:
- Get direct access to senior management teams at listed companies (over 30 meetings in 2018),
- Engage in our many industry events, featuring listed Polish and global firms (in 2018, we hosted sector-themed conferences around industrials, chemical companies, telecoms, retail, and financials, and co-hosted a Best of Poland investors' with Commerzbank and the Warsaw Stock Exchange),
- Stay informed through an array of enlightening discussion panels, workshops, and briefing sessions with regulatory officials.
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