Kety: Take profits (and high dividends) (downgraded to HOLD)

After the 33% rally since our Buy call on Kety in August 2019, we advise to take profits and we downgrade the stock to a HOLD, but increase our price target (PT) from PLN 366/share to PLN 448/share (12% upside). On the one hand, we like Kety’s very solid 4Q19 preliminary results and the optimistic, above consensus, 2020E forecasts released by the company. We also appreciate management’s reassuring comment on the recovery in the Extruded Product Segment (EPS), combined with the earlier full utilisation of the 2nd BOPP line in the Flexible Product Segment (FPS) than Kety had assumed. On top of this, we expect the company to pay out a solid DPS from its 2019E net profit, at PLN 30, implying a 7.6% yield. On the other, even though we see Kety’s valuation as still attractive (our 2020E EV/EBITDA is at 8.5x, 9% below its long-term average), it is not cheap enough, in our view, to rate it a Buy. Moreover, the industrial production recovery in the EU may be rather moderate, in our view, not allowing for the significant expansion of valuation multiples. Finally, we highlight the risks associated with the pension reform in Poland in 2020E (pension funds own 75% of the company).