Inter Cars: The best part is yet to come (upgraded to BUY)

We have upgraded Inter Cars (CAR) to BUY from Hold, tweaking our price target (PT) to PLN 328/share (vs. PLN 326). We are still confident about our long-term prospects for the company and see the recent underperformance as unjustified, as the 1Q18 weak results were just a one-off stemming from the unfavourable weather, in our view. We believe this could be a good buying opportunity, given the strong growth catalysts in the near term. Firstly, we forecast strong 2Q18E results, on a robust SG&A drop and the shift of seasonal sales from 1Q, breaking six quarters of negative results dynamics. Secondly, we expect that, after four years of negative cash flow generation, 2018E could break the trend, due to: 1) a capex drop; and 2) inventory level optimisation in the new warehouse. We also note that the cash conversion cycle could improve further next year, due to the new solutions that Inter Cars aims to introduce, such as reversed factoring, as well as offering its warehousing space to its suppliers. We see Inter Cars as undervalued, trading at our 2019E P/E of 10.4x, 27% below its five-year average 2YF P/E and 15% below its peers, despite its 2017-20E EPS CAGR of 22%, double its peers’ median.