Ciech: Sweetener and salt – both far away (downgraded to SELL)
We have downgraded Ciech from Hold to SELL, with a new price target (PT) of PLN 29.4/share (11% downside). In our previous report, we believed that the company was at a crossroads (a good strategy, but a long way to go, while the costs are mounting, along with high capex needs). Since then, the situation has developed worse than we expected – we see a risk of lower yoy volumes of soda ash in 2020E and a price contraction in 2021E. We also believe that management’s forecast of EUR 25m of annual EBITDA from the new salt plant in Germany may be too optimistic. Moreover, Ciech has announced that the capex on this project is to be 40% (EUR 40m/PLN 180m) higher than assumed previously. Also, the only sweetener in the equity story (large buyback programme) may not be launched soon, due to the negative FCF and high leverage (ND/EBITDA at 3.0x and 3.1x, respectively) that we expect in 2020E and 2021E. Finally, the current valuation does not seem to be too cheap (Ciech trades at our 2020E EV/EBITDA of 6.0x, i.e., 4% above its long-term average).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.
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