Kruk: Harder, better, faster, stronger (BUY - reinitiation of coverage)
We reinitiate coverage of Kruk with a BUY rating and a 12M price target (PT) of PLN 439/share (36% upside). Our positive view comes from our belief that Kruk may raise the bar for the scale of its sustainable annual investments, up to PLN 1.5bn (past five-year average at almost PLN 1bn, the scale that we believe the market is pricing in currently). The 2022E market outlook and 2021 ytd suggest that the portfolio supply should support our thesis. In our view, such a scale of investments, assuming a cash multiple on 15-year recovery curves of 255-269%, would allow Kruk to reach c.PLN 700m in annual net profit by 2024E, and stay close to this level in the next two years. One of the company’s trademarks is its strong and stable management board, with a strong track record in delivering on its targets and communicating them in a fair manner, even though its execution of new initiatives has not always been smooth. Due to this, we have relatively more comfort in our assumptions on the operating KPIs in the medium term, which drive valuations, regardless of the short-term risks of the revenues being more volatile than on our forecasts. Kruk is trading at a single-digit 2022E P/E of 9.1x, on our forecasts, an 18% discount to its LTM average 12M FWD market P/E.Kruk SA. Kruk SA is a Poland-based company, which is engaged in the business support industry. The Company is a multi-operator, which offers loss prevention and debt collection services. The Company divides its business into two main operating segments: Debt Purchase, including acquisition of non-performing debt portfolios, and Debt Collection Outsourcing, offering fee-based collection of debt on client's behalf, focused on consumer and corporate loans. The Company provides services to financial institutions and large corporate customers. It manages receivables of banks, credit intermediaries, leasing companies and digital platform providers, among others. The Company's operating activities concentrate in a number of countries, such as Poland, Romania, Czech Republic, Slovakia and Spain. The Company's subsidiaries include Kruk Deutschland GmbH, Presco Investments Sarl and Espand Soluciones de Gestion y Recuperacion de Deuda SL, among others.
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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