Kruk – Quick Return to the Right Track
We expect that the rebound in the debt management sector will be V-shaped, much unlike that in the banking sector. Extensive fiscal and aid programmes should, on the one hand, translate into smaller growth in non-performing loans than was expected back in March 2020, but on the other hand, they will significantly support consumers, and consequently, Kruk’s portfolio recoveries. This means that the scenario envisaged for Kruk before the pandemic needs to be adjusted for lower recoveries and portfolio outlays in 2020, but at the same time, the expected availability of portfolios in the coming years needs to be increased. The coronavirus crisis has dealt a painful blow to Kruk's earnings this year, but we believe the Company can quickly regain lost ground, as confirmed by the results for the second quarter. In FY2021, the first stage of the expected rebound, operating costs will remain low with little upward adjustment on portfolios and equally low one-off write-offs, e.g. goodwill. In the second stage, we expect that, from FY2022 onwards, results will be fuelled by a growing portfolio supply, resulting from a higher NPL ratio in the banking sector coupled with cost normalisation. We expect the nominal value of non-performing loans in Poland (which is Kruk’s main market) to go up by 20% in 2021, which will have a positive impact on the receivables market, but not earlier than in 2022. Finally, we need to remember about Kruk's plans for a share buyback at PLN 350 apiece, which also puts the Company in a better light than the banking sector. We had to slash our FY2020 net profit estimate for Kruk by 66%, but the adjustments to FY2021-2022 expectations are much less harsh at as little as 10-11%. We renew our buy recommendation for KRU.
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.
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