PGE – The 2019 debacle must not be extrapolated
The PGE stock price has tested its September 2018 lows, mainly driven by disappointing 1Q results and reports of potential further acquisitions in the context of market opportunities. In our opinion, however, the weak 1Q performance cannot be extrapolated to future periods, especially next years, because the vast majority of adverse factors were short-term. In the coming quarters, the Company should regain YoY momentum (as a result of the CO2 cost booking policy and the reference base in the heating segment), resulting in a major profitability improvement in 2020-21 being discounted and followed by strong cash flows. In the context of the recent symbolic declarations of the Management to resume dividend payments, this could suffice to largely improve the sentiment around PGE, whose EV has dropped 25% in the last five years despite maintained adjusted EBITDA and its 30% growth outlook in the next two years. We maintain the Buy recommendation and slightly downgrade the target price to PLN 13.26 due to conservative inclusion of perpetual usufruct in Net Debt (IFRS 16).
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.
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