CCC: Slowing down to turn the corner (upgraded to BUY)
We have upgraded CCC back to BUY (from Hold), with a new 12M price target (PT) of PLN 146 (from PLN 173). 2019 has, so far, proven to be a troubled year, bringing a combination of one-off hits of c.PLN 160m to the EBITDA and extraordinarily high capex of PLN 700m. As a result, the leverage has surged to 3.3x. However, we believe that CCC is turning the corner eventually. First, we note the reduction in inventories/sqm by 12% yoy as at 9M19, which paved the way, when coupled with factoring for suppliers, for a 57-day yoy improvement in the cash conversion cycle, and allowed for a gross margin recovery. Secondly, CCC has also managed to curb the explosion in the marketing costs in online and stabilise losses on the Western front. Finally, with a strategy refocus from rapid growth to efficiency and profitability, we expect the capex to drop and the top line to decelerate, reducing the need for working capital financing. We forecast the EBITDA to accelerate from a 17% CAGR in 2012-18 to 29% in 2019-21E. Across that, we see a 2020E EV/EBITDA of 12x as attractive.CCC is engaged in the wholesale and retail trade of clothing and footwear. Co. offers its products to wide range of consumers, from demanding clientele of trendy boutiques to value-oriented medium segment customers, to less wealthy customers seeking reasonably priced quality footwear. Co. pursues a strategy of brand diversification, which is reflected in its three autonomous distribution channels: a chain of official CCC stores, BOTI footwear shops and QUAZI boutiques. Co. offers more than 2,500 designs of footwear. Co. also owns more than 67 proprietary brand names e.g. Lasocki.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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