PKP Cargo: The glass is half full (upgraded to HOLD)
We upgrade PKP Cargo to HOLD from Sell, and raise our price target (PT) to PLN 52.0 (from PLN 37.0). Management changes since October 2017 have led to issues with corporate communication, and several guidance changes. The previous management board had published very bearish guidance, which was reconfirmed by the new management in May 2018. Then, it was surprised by higher freight rates in the market and raised its EBITDA guidance in August to more than PLN 900m in 2018E, in line with our bullish report preceding the downgrade to Sell. We believe that investors may not be able to fully benefit from the current strong market environment, however, as high capex may limit the dividend potential over the coming years. Therefore, we are somewhat puzzled, right now: on the one hand, we see a strong market environment; while, on the other, management seems to have limited visibility towards the market. Moreover, PKP Cargo needs to spend a lot to benefit from the strong market and there may not be enough cash for investors. As a result, we see rather limited further upside.PKP Cargo SA is a Poland-based company active in the transportation sector. The Company's main activity is domestic and international transport of goods by rail and provision of logistic services in the field of railway cargo transport services. The Company divides its services into six divisions: Transport, offering rail transport carried out by PKP Cargo, road transport and ferry transport; Intermodal, providing intermodal rail transport; Forwarding, services carried out by Trade Trans, Cargosped and PKP Cargo International; Terminals, offering service of reloading terminals; Sidings, providing railway sidings; and Rolling Stock, which provides repairs of the rolling stock. It operates through Advanced World Transport BV (AWT).
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