GEVORKYAN: the power of powder (BUY - initiation of coverage)
We initiate coverage of GEVORKYAN, a European leader in powder metallurgy component production, with a BUY rating and a 12M price target (PT) of CZK 348/share (37% upside). Its high-tech production process allows it to develop intricate components, which its customers cannot easily procure elsewhere. This gives GEVORKYAN significant pricing power, driving an industry-leading EBITDA margin (2018-23 average of 26%, vs. 16% for its peers). Its contracts are long term, giving good visibility on its medium-term revenues. Since 2020, GEVORKYAN has been expanding its production capacity to meet excess demand, consuming c.EUR 8-9m FCFF p.a., on average. Operating at full capacity, these investments are critical for its continued growth. We expect a2023-26E EBITDA CAGR of 21%, slightly below the 2018-22 CAGR of 26% but well above its peers (13% 2023-26E CAGR). The investment cycle is now coming to an end, and we expect FCFF to turn positive in 2025E. The growth and positive cash flow should help to reduce leverage from an end-2023 net debt to EBITDA at 3.4x, to sub-2x in 2026E, on our estimates. At 9.3x 2024E EV/EBITDA, an 11% discount to its peers, GEVORKYAN seems to be valued attractively for the growth profile and revenue visibility it offers, especially considering that its peers, which operate at similar margins, trade at 2024E EV/EBITDA of c.19x. Transatlantic expansion (new factory in US or Mexico) could be a trigger.
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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