Ciech: At the crossroads (downgrade to HOLD)

We have cut our price target (PT) for Ciech to PLN 43.6/share (12% upside) from PLN 70.0, and downgraded our rating to HOLD (from Buy). We see the spike in CO2 certificates prices (shaving c.PLN 16/share off our previous PT) as the key reason for our downgrade, while the other factors behind our lower rating are: the higher price of steam; higher capex over 2019-21E; lower dividend payout ratios; and a cut in utilisation ratios in the soda business. Although, we believe that Ciech appears to be an attractive investment, it faces certain headwinds. On the one hand, it benefits from the strong soda ash market, and plans to add high-margin products (salt) and reduce its exposure to CO2 allowances prices, and it appears cheap (consensus 2019E EV/EBITDA at 5.2x, a 16% discount to the historical average). However, Ciech is also hit by the high prices of CO2 allowances, it is entering a capex-intensive period, and there is uncertainty over the production at its Romanian plant (c.21% of its total soda ash production capacity). On top of this, Ciech’s competitors are reportedly planning to expand their soda ash production capacities.