PGE – Buy For Supercharged Cash Flow
PGE is struggling to recoup the value lost in the first half of 2019 even though the downside risk has either been eliminated (with the profits lost ytd since Poland's power price freeze took effect in January balanced out by compensation offered by the state), or significantly weakened (curbed rise in EUA prices, no tightening of CDS). Another reason why we see PGE as undervalued at the current level is the improved earnings outlook for the second half of the year, with forecast Q3 EBITDA likely to show a 16% y/y rebound. this should be followed by sustained positive momentum in the next two years, with increasing production and capacity payments providing a PLN 2bn total boost to the period's adjusted EBITDA. PGE is also a bargain on the balance-sheet front with robust cash-generating potential emerging after four years of high capital investment during which net debt increased by PLN 10bn. This despite plans for extensive investment in clean energy, set to create a more agreeable CAPEX structure from an investor's standpoint, with 60% of the budget allocated to renewables, gas-based generation, and distribution in the 2020-26E period compared to 30% in 2015-19. We maintain our buy call for PGE, but we lower our target price by 8% to PLN 12.20 after adopting slightly more conservative assumptions as to power prices and WACC.
PGE Polska Grupa Energetyczna is an electricity company based in Poland. Co. is engaged in the generation and selling of electricity. Co. is a predominant power producer and supplier in Poland and a major heat and power sector company in Central and Eastern Europe. Co. supplies over 5 million households, businesses and institutions through a combination of its own fuel resources (lignite), power generation and final distribution networks. Co.'s activities focus on the following areas: Conventional Power Generation, Renewable Power Generation, Nuclear Power Generation, Wholesale, Distribution and Retail. Co. has 12.2 GW of installed generation capacity.
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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