GPW - Is It Lights Out For Guaranteed Power Trade?
GPW has seen revenues from capital markets soar beyond all expectations this year on high volatility, large trading volumes, and increased activity of individual investors, and so we opt to raise our FY2020 revenue estimate by 12.5%, and upgrade the net profit forecast by 25% after taking into account operating leverage. Our updated forecasts also include some inconsequential cost revisions. Looking beyond 2020, however, we see a number of potential setbacks clouding GPW's future prospects. One particularly big one is the potential removal of the requirement for energy companies to sell power through the TGE exchange – a concession that the Polish government might grant to coal mining unions who are demanding that Poland curb power imports and make more electricity domestically by burning coal. The resulting reduction in TGE volumes could lead to lower revenues for GPW from 2021. In the short term, the gap would most likely be filled by higher income from capital markets, but in the long term the negative impact of the lost trading volumes would become more tangible. We assume a 5.6% fall in total revenue as our baseline, and with operating leverage coming into play this indicates a big dent in bottom-line profit. Another reason behind our bearish call is that GPW's P/E ratio has now reached an all-time high at 15.8x, with the 2021E multiple on our estimates hovering around 15.7x. Expected dividend yields have also diminished as a result, with next year's implied payout currently around 5% compared to 6-7% anticipated not long ago. For these reasons, despite strong earnings performance this year, we lower our target price for GPW to PLN 39.19 and we downgrade the stock to sell.
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.
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