WOOD Flash – Kruk: buying opportunity

In our view, Kruk’s recent weak performance is unjustified, and we see it as a BUYing opportunity. We are of the opinion that this underperformance has been driven by the following factors: i) press speculation on the leakage of data from the bailiff chancellery to GetBACK; and ii) Kruk’s CEO selling shares on 13-15 December. Since the press speculation on the leakage of data from the bailiff chancellery to GetBACK, published on 14 December, Kruk has dropped by 11%. We believe that the market might be unnecessarily extrapolating this case onto the whole debt collection industry in Poland. We note that Kruk has always been well-known for its: i) amicable strategy; ii) social and legal norms of debt repayment; iii) treating debtors as clients. Overall, Kruk’s approach has always been considered consumer-friendly.
We highlight that Kruk’s CEO sells small packages of shares regularly. The analysis of historical transactions does not provide any insight into the company’s future performance.
On our estimates, Kruk trades at a 2018E P/E of 11.5x and a 2018E EV/cash EBITDA of 5.9x. We see this as an attractive entry point. We believe that its current valuation already prices in the seasonally weaker 4Q17E results, due to higher costs and the income tax expenses. In our view, the mid- to long-term story for Kruk remains intact: at least 15% EPS growth in the coming years, driven by Poland and Romania in the short term, and Italy in the long term.