LPP: between a rock and a hard place (upgraded to BUY)
We have upgraded our rating for LPP to BUY, from Hold, with a new 12M price target (PT) of PLN 9,760 (from PLN 7,640). Since the beginning of February, LPP’s shares have dived by 50%, triggered by the Russian invasion of Ukraine. LPP is among the CEE names with the largest exposure to the turmoil, with CIS responsible for not only 1/3 of its current business, but also c.50% of its planned rollout. However, we believe that the market has overreacted, as the company has announced a major redirection of its rollout plans already, to deliver gross expansion of 400k sqm in its shopping space, and guided for 13% yoy sales growth this year. We estimate that, even assuming the loss of all the remaining assets in Russia, coupled with almost 6ppts yoy erosion in the gross margin and -5% lfl (excluding Sinsay), LPP should be able to keep its liquidity (PLN 1,049m cash at end-2022E) and leverage under control (0.0x ND/EBITDA at end-2022E). We expect the company to return to its growth path as early as in 2023E. On top of this, we do not exclude that LPP will recover part of its PLN 1.8m investments (12% of its current market cap) in the East, if the war is stopped within the next few months.LPP SA Gdansk is clothing manufacturing group based in Poland. Co. is engaged in the design and distribution of clothing. Co.'s headquarters is located in Gdan'sk, including designing resources for all its brands. Co.'s stores offer its customer products that include jackets, shirts, sweaters, dresses, skirts, trousers, jeans, underwear and garment products. Co. also sells promotion clothing under a special selected brand. Co.'s product offering is addressed to a variety of customers for whom separate brands and chain stores are set up. Co. launches clothing under such brand names as: RESERVED, CROPP, MOHITO, HOUSE, and PROMOSTARS.
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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