Inter Cars: May the new year be better than the old (HOLD - transfer of coverage)

Due to changes in analyst responsibilities, we transfer coverage of Inter Cars with a HOLD rating and a price target (PT) of PLN 229/share. We believe the company’s last 12M share price performance of -30% (-21% vs. the WIG) reflects its lower 2018E results vs. the current consensus (-8% on EBITDA and -14% on net income, on our estimates, vs. Bloomberg). We expect that, going forward, Inter Cars should improve its margin to 5.4% in 2020E (vs. 4.8% in 2018E), thanks to its: i) focus on profitable clients, meaning lower investments in sales volumes; and ii) costs savings on logistics and marketing. Additionally, due to its low capex needs (as the peak investment cycle appears to be behind the company), we expect positive FCF (FCF/EBITDA at 32%+) and deleveraging (net debt/EBITDA at 3.1x in 2018E) starting from 2019E. We also note that Inter Cars operates in a steadily growing, but very fragmented and competitive market, with many M&A deals done in the past couple of years. With its 7.3% market share in CEE, it is a regional leader and the second-largest car parts distributor in Europe in terms of revenue, which makes it a perfect M&A target for global players/funds planning to step into the region or strengthen their positions locally, in our view.