Kruk: Rome wasn’t built in a day (stays BUY)
We maintain our BUY rating on Kruk, but reduce our price target (PT) to PLN 285 (down from PLN 356), as a result of the 12-14% declines in our 2018-19E forecasts. We continue to consider Kruk very highly in terms of management’s strategy and its delivery, as well as its high-quality business. Its expansion into Western Europe could fuel growth in the longer term, in our view. We admit, however, that building its presence in Italy and Spain is a gradual process, and Kruk is focused currently on improving its efficiency. The shift towards court vindication in Italy could increase recovery costs and weigh on the underlying results in the short term, in our view. On the other hand, we believe that Kruk is likely to benefit from the improved competition landscape in Poland, which should allow the company to allocate more capital. On our estimates, Kruk trades at 2018-19E P/Es of 14.1-12x. We see this valuation as attractive. In our view, the risk of a negative revaluation in Italy has declined recently. Furthermore, Kruk has increased its dividend payout ratio significantly, which should enable it to not only chase its peers in terms of dividend yields, but also keep its ROE above 20%. In the short term, announcements on further investments in Poland should support the stock, in our view.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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