GPW – Dividend Champion With a Plan To Rekindle Growth
GPW Group has experienced declining revenues in recent years amid lower trading volumes across its equity (the Warsaw Stock Exchange) and energy (the TGE exchange) marketplaces. The Group recognizes these challenges, and it is taking measures to address setbacks and improve growth as part of its #GPW2022 Strategy Plan. The planned initiatives, which include the development of a proprietary trading system, will require significant investment over the coming years, however we believe they create meaningful upside potential for GPW. Looking at its consistently strong cash-generation record, we believe GPW will be able to offer dividend yields as high as 6.1-6.3%, well above the 3.2% average paid by comparable exchange operators, even during periods of increased capital spend. A "stable dividend policy" is one of the targets explicitly identified in #GPW2022. Furthermore, the current expectations of analysts, including us, do not yet take into account the revenue-generating potential of initiatives like the establishment of an Agricultural Commodity Market and a GPW Private Market, or the transformation of the forward commodity trading venue into an organized trading facility. With this potential factored out, we see upside risk to the current forecasts. We believe the Warsaw Stock Exchange will see more trading activity again once Poland completes its pension reforms this year, with volumes additionally supported by the new nationwide workplace pension savings scheme, PPK. GPW stock is trading at a significant discount of 46% to the estimated 2020 P/E ratio of its peer group, but the gap will most likely be reduced once liquidity returns and assuming revenues bounce back as predicted. We initiate coverage of GPW Group with a buy recommendation and a target price of PLN 47.82.
Gielda Papierow Wartosciowych w Warszawie SA (Warsaw Stock Exchange, GPW) is a Poland-based stock exchange. It is a parent entity of WSE Group that offers products and services within its trading markets of equity, derivate, fixed income and structured products. It also distributes market data. The Company has two business lines: Financial market, which includes trading in equities, derivatives, fixed-income and other instruments, listing, and information services; and Commodity market, which includes trading in electricity and property rights in certificates of origin, operation of a register of certificates of origin, clearing, trade and technical trade operator services. As of December 31, 2011, it operates two wholly owned subsidiaries, WSEInfoEngine SA, providing data transmission and information services; and Instytut Rynku Kapitalowego WSE Research SA, engaged in publishing; as well as 92.47%-owned BondSpot SA.
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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