Ciech: Salt and pepper (upgraded to BUY)
We have upgraded Ciech to BUY (from Sell), with a new price target (PT) of PLN 37.7/share (22% upside). First, the company delivered a stronger set of 2Q20 results than both we and the market expected, performing better than its peers on soda ash volumes sales, which encourages us to assume a smaller yoy soda price contraction in 2021E for Ciech (-2% yoy vs. our previous forecast of -5% yoy). Second, Ciech has announced subsidies and free CO2 emission allowances that it has received, which should improve its FCF by PLN 85m (PLN 1.61/share, i.e., 5% of the current stock price) in total in 2020-21E. Finally, the reduction of the risk free rate in our model from 3.50% to 3.15% increases our DCF valuation by 8%. On the other hand, we still see headwinds in the equity story (mainly high economic uncertainty, inflated capex, and higher leverage), but we see the risk-reward as attractive, at this stage.Ciech is engaged in the production, trade and distribution of chemicals as well as comprehensive service activities directed at the domestic and foreign market. The main products sold by Co. are soda ash, TDI, plastics, resins, chemical fertilizers, plant protection chemicals, glass blocks and glass packaging, salt and other chemicals.
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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