Eurocash Accumulate ERCS.WA; EUR PW

Transcription

1 17 January 2011 Update Retail Poland Accumulate ERCS.WA; EUR PW (Resumed) Current price PLN 33.7 Target price Market cap Free float Avg daily trading volume (3M) Shareholder Structure PLN 37.4 PLN 4 778m PLN 2 319m PLN 10.44m Luis Amaral 51.47% Pozostali 48.53% Sector Outlook The FMCG wholesale market has been growing very fast over the past few years and this trend seems set to continue in the near future. The industry s condition is strongly affected by the positive trends observed in retail sales. The number of FMCG wholesalers in Poland has been declining systematically, which is a consequence of ongoing consolidation of the industry. Company Profile is one of Poland s biggest distributors of foods, household chemicals, alcohol and tobacco in terms of the value of sales and the number of stores. Operating in several distribution segments, the Company focuses on wholesale distribution to traditional retailers, gas stations and restaurants. Leader Deserves a Premium FMCG companies can be divided into those that invest in volumes before taking care of profitability and working capital management, and those that focus on profitability. The Polish FMCG market is very competitive and local companies will find it difficult to sustain or increase profitability in the presence of leading global wholesalers and retailers. The progressing consolidation of the market leads to additional pressure on margins. By purchasing Tradis, has become the leader of the FMCG distribution market. The Company wants to participate in further market consolidation processes and aims at sales of PLN 20bn by We believe this will be hard to achieve as there are fewer and fewer sizable acquisition targets. That said, we do see a potential in the recently-acquired CEDC and Tradis. With some synergies taken into account, does have further potential for organic growth. We are resuming coverage of with an accumulate rating and target price of PLN 37.4 per share. Tradis We expect Tradis to add PLN 109m to the Company s 2011 EBITDA and PLN 180m to its 2012 EBITDA. is hoping to see an impact on EBITDA as big as PLN 240m, taking into account synergies in the form of lower purchasing prices (PLN 70m) and savings on logistic expenses (PLN 60m). Additional impact on working capital should reach PLN 130m, and gains on the sale of properties taken over with Tradis some PLN 100m. No New Transactions on the Horizon We expect stable growth and sustained profitability in traditional wholesale and active distribution. CEDC distribution companies bought in 2010 are in need of restructuring, which, coupled with the Tradis acquisition, will keep busy enough to force it to postpone further acquisition efforts. New takeovers will be necessary, however, if the Company is to meet the Management s PLN 20bn revenue target in Our forecasts do not take such transactions into account. vs. WIG 35 PLN WIG Valuation at a Premium Among WSE-listed peers, is the leader as far as cash flows from operations are concerned. The Company s low investment outlays are financed with working capital and depreciation. pays dividends and actively participates in market consolidation processes. In our opinion this, along with its policy of repaying loans quickly, warrants a premium to peers. The Company s current P/E is 18.6 for 2012 and 15.0 for 2013, which entails premiums of 38% and 22%, respectively, to foreign peers. WSE-listed retailers are trading at a premium of ca. 30% to foreign peers Gabriela Borowska (48 22) gabriela.borowska@dibre.com.pl (PLN m) F 2011F 2012F 2013F Revenue EBIT EBIT margin 2.2% 2.3% 2.3% 2.7% 3.0% EBITDA Net income DPS P/E P/CE P/BV EV/EBITDA DYield 0.9% 1.1% 1.3% 1.9% 2.7% BRE 17 January Bank Securities 2011 does not rule out offering brokerage services to an issuer of securities being the subject of a recommendation. Information concerning a conflict of interest arising in connection with issuing a recommendation (should such a conflict exist) is located on the final page of this report.

2 Summary Acquisition of Tradis Tradis is expected to add about PLN 110m per year to 's consolidated EBITDA. The acquisition will also generate synergies in the form of better purchase prices (a ca. PLN 70m boost to annual EBITDA) and lower logistics expenses (ca. PLN 60m added to EBITDA). Restructuring of working capital, mainly accounts payable, will generate additional cash flows of an estimated PLN 130m. Finally, Tradis brought in real estate (including two distribution centers) which hopes to sell for PLN 100m. Through the acquisition, is now the uncontested market leader with a 17% market share. Valuation Premium is trading at 18.6x 2012E P/E (by 2012, Tradis s revenues will be fully reported on the consolidated income statement) and 10.6x EV/EBITDA, showing a premium to the sector which is all the more deserved after the acquisition. is currently the leader of industry consolidation. The company generates positive operating cash flows and has a low CAPEX (except for M&A expenses) which is fully covered with working capital and depreciation. CFO, CAPEX, Dividend is the leader among publicly traded FMCG companies in working capital management, although its negative conversion cycle is less impressive when compared to international leaders. Working capital and depreciation are sufficient to cover the costs of organic growth. s operating cash flows were 1.5x higher than EBITDA in 2007 and 2008, and have been on a level with EBITDA since 2009, and the ratio is expected to remain the same or rise in the years ahead. Strong operating cash flows, combined with low capital expenses ( leases store space), mean considerable cash resources that can be shared with shareholders or spent on M&A deals. On the occasion of announcing the Tradis acquisition, also announced a 51% distribution to shareholders from 2010 earnings. Working capital, depreciation, CAPEX CFO/Net profit Source:,, company reports PLN 20 Billion Sales Target has set itself a goal of achieving PLN 20 billion sales in To accomplish this ambitious goal while competition (Biedronka, Tesco, Carrefour) continues its aggressive expansion in Poland, the company has to carry on with mergers and acquisitions. And since targets with appropriately high sales volumes are increasingly harder to come by, achievement of sales growth at the target rate will be a challenge. Our financial forecasts for account only for the M&A deals already completed. Focus On Volumes In our opinion, a focus on sales growth rather than profitability, and effective working capital management, are what it takes to succeed in a consolidating industry. plans to utilize a portion of the higher margins saved on cheaper purchases to lower sales prices as a way of increasing market share. This, combined with a negative cash conversion cycle, will be key to maintaining a leading position as an FMCG distributor. Cross Sales is hoping to increase cross-sales across the enlarged customer base built through M&A activity. 17 January

3 Business Profile Organizational Chart is one of Poland s largest FMCG wholesalers in terms of revenues and locations. Its key customers include retail stores, fuel stations, and restaurants. sells FMCG through five channels: (i) the discount wholesale chain Cash&Carry (which offers loyalty incentives to owners of abc franchise stores), (ii) the retail franchise Delikatesy Cetrum, (iii) the distributor of tobacco and impulse products KDWT, (iv) Dystrybucja which caters to restaurants, hotels, and fuel stations, and (v) Premium Distributors a network of alcoholic beverage retailers and wholesales (acquired from CEDC). Just recently, acquired distribution operations from Emperia which include cash&carry outlets and delivered wholesale. Source: Sales Structure Sales by product group Sales by channel Source:, Cash & Carry operates one of the largest self-service wholesale discount chains in Poland called Cash&Carry. The chain consists of wholesale outlets conveniently located near customers, mostly in medium-sized cities with populations around 50,000. The average outlet has a floor area of square meters. The target customer is a small to medium-sized store with a floor area of 100 sqm. An average cash&carry outlet carries 3500 products of which 85% are food and beverage items. Cash&Carry has 80,000 registered customers including (i) abc stores, (ii) regular customers who shop at least once a month, and (iii) others. 17 January

4 The abc chain, which benefits from a loyalty program, accounts for over 40% of Cash&Carry s total sales. wants to expand cash&carry sales through same-store growth and new stores. Likefor-like sales growth is to be achieved by broadening the product range (e.g. by introducing local specialties), loyalty programs, promotions, etc. Further, is expanding the abc franchise which is a major customer of the cash&carry outlets. Moreover, the company will be opening new outlets in cities with over 25,000 populations. At 30 September 2010, had 124 cash&carry outlets (including three Batna stores). We assume that the company opened 10 new cash&carry locations in 2010, and that it will continue to open about 10 stores a year in future years. Sales are expected to grow at a CAGR of 6.6%, with 3.5% of the growth owed to network expansion. Delikatesy Centrum At 30 September 2010, the Delikatesy Centrum franchise consisted of 523 supermarkets with an average floor area of 250 square meters, located in small and medium-sized cities in southeastern Poland. supplies about 55% of the merchandise (except, for example, perishable foods), and delivers to stores which are mostly located close to the distribution centers. Future growth in the revenues generated by Delikatesy Centrum is to be achieved through: (i) increased distribution to Delikatesy Centrum stores, and (ii) expansion of the franchise network throughout the country. We estimate that the Delikatesy Centrum chain grew to 541 stores by the end of 2010, and we assume that future expansion will progress at a fast rate of 113 outlets per year. The sales CAGR estimated for the forecast horizon is 10.8%, of which 7.4% will be achieved through store space expansion. Cash&Carry Delikatesy Centrum Source:, KDWT KDWT supplies tobacco and impulse products (sweets, beverages, batteries) to nearly 20,000 stores and kiosks through two distribution centers (Komorniki, Czeladź) and 84 branches across Poland. Tobacco and cigarettes represent the majority of the sales mix (77% in 2009), but wants to increase the share of impulse products going forward. KDWT s future growth will be driven by increased sales within the existing customer base and expansion into new regions supported by the cash&carry outlets. Moreover, increased sales of impulse products are expected to boost margins and improve working capital (through inventory optimization and reduced trade credit offered to buyers). Our sales CAGR estimate for KDWT is 1.9% throughout the forecast horizon, with EBITDA margins expected to remain flat. We do not expect major changes in the segment s working capital. Dystrybucja Dystrybucja supplies consumer packaged goods to fuel stations, hotels, and restaurants (making up a total of 2400 locations) through distribution centers. 17 January

5 Its strategy focuses on expansion in active distribution and maintenance of the leading position in the market for impulse product supplies to fuel stations, restaurants, and chain hotels. We expect Dystrybucja to grow sales at a CAGR of 2.5% in the forecast horizon. KDWT Dystrybucja Source:, Premium Distributors The takeover of Premium Distributors from CEDC was aimed at increasing wholesale sales of alcoholic beverages, mostly those with an over-18% alcohol content, including sales to s other distributors. Premium Distributors offers about 700 alcohol brands to retailers, supermarkets, hypermarts, fuel stations, and food service outlets (a total of 19,000 locations) via 91 regional branches across Poland. As one of the largest Polish alcohol wholesalers, the organization manages a network of over 80 warehouses and distribution centers. Premium Distributors was acquired using bank credit and internal cash resources for a price of PLN 385.9m. The estimated values of the acquired assets and liabilities are PLN 503.5m and PLN 389.9m respectively. The goodwill is PLN 272.3m. We expect Premium Distributors to increase sales at a CAGR of 2.5%, and expand the EBITDA margin from 2.0% in 2010 to 2.5%, in the forecast horizon. Tradis is buying Emperia's interests in FMCG distribution companies worth an estimated PLN m. The takeover will be carried out either through a stock-for-stock transaction between the acquirees and at PLN per EUR share (the shares issued as merger compensation would represent 14% of 's equity), or through a sale of interests. The tentative price of these interests is subject to change depending on auditor assessments expected in February. The new shares will entitle their holders to 2010 profit distributions. The two companies set certain operational and financial goals for the years which, if met, will entitle Emperia to an additional 1 million shares per year. Moreover, the profits generated by the distribution companies in 2011 will be divided equally between the two parties. The takeover still has to be approved by the antitrust office UOKiK. Tradis is expected to add about PLN 110m per year to 's consolidated EBITDA, and to generate cost synergies through lower purchase prices (ca. PLN 70m a year) and logistics costs (ca. PLN 60m). Restructuring of working capital, mainly accounts payable, will generate additional cash flows of an estimated PLN 130m. Finally, Tradis brought in real estate (including two distribution centers) which hopes to sell for PLN 100m. After discontinuing its partnership with Emperia and sales to the Stokrotka stores (estimated at PLN 700m a year) in, we are guessing, 2012, will be able to release working capital in the amount of PLN 50m. 17 January

6 Premium Distributors Tradis Source:, Seasonality The sales generated by the Cash&Carry segment and the volumes sold to Delikatesy Centrum are shaped by consumer demand. The high sales seasons are the summer months of July and August and the final months of each year, followed by a slower period in January and February. In case of Premium Distributors, about 30% of sales and 40% of EBITDA are generated in the fourth quarter. Profitability and Working Capital expects to garner higher margins thanks to cheaper purchases going forward, and plans to give back a portion of these margins to its customers to allow them to offer competitive prices. A comparison with other FMCG wholesalers shows that still has potential to expand its profitability. The average for the retail sector in was two times higher at each level, but is a wholesaler. Poland s leading wholesaler Makro achieved an EBIT margin of 4.8%, and the wholesale business of Jeronimo Martins generated margins of 6.0%. Our forecasts for assume flat EBITDA margins in the wholesale segment and improving margins in the active distribution segment, fueled partly by the addition of Premium Distributors to the family, and partly by an increasing share of impulse products. After factoring in synergies and lower logistics costs, we expect Tradis to increase EBITDA margins from 3% to 4%. The overall EBITDA margin is expected to increase from 3.0% in 2010 to 3.7% in Working Capital The distribution models applied by typically generate negative working capital (Cash&Carry, Delikatesy Centrum, Tradis). enjoys the best cash conversion ratios of all retailers and wholesalers listed on the Warsaw Stock Exchange, but still has room for improvement when compared to international leaders. Following restructuring at the recently acquired CEDC distribution operations and Tradis, through improved payables turnover ratios, in two years time, will be generating stronger cash flows. 17 January

7 Profitability Working capital cycle (days) Source:, Valuation Capital Expenditure spends little on organic expansion through new store openings and renovations in existing stores (whether owned or franchise locations) because most of the locations, primarily cash&carry outlets, are leased. The standard lease term is 10 years. Our average annual CAPEX estimate (excluding acquisitions) for the forecast horizon is PLN 104.8m. Using DCF analysis and relative valuation, we set the nine-month price target on EUR stock at PLN 34.7 per share. Valuation Summary Weight PLN DCF Valuation 100% 34.7 Relative Valuation 0% 24.7 Price M target price 37.4 DCF Model Assumptions FCF growth rate beyond the forecast period = 3.0%. Risk-free rate is 6.2% (10Y T-bond yield). Beta = 0.9. is trading at a 2010 P/BV ratio of 10x and a 2011 ratio of 4.6x, resulting from regular dividend payments in the past. has no debt except for the credit taken to acquire CEDC and Tradis, expected to be paid back within 2.5 years. Given the minimum debt policy, we do not think WACC should remain at 11.2% in the long term, hence the lowered beta. We assume that Tradis will be recognized on s consolidated statements as of Q We expect EBITDA synergies of PLN 70m a year owing to the Tradis acquisition, except for 2011 when the positive effect will be lower at ca. PLN 30m because of only partial consolidation and restructuring expenses approximating PLN 10m. Owing to effective working capital management, most notably longer aging of payables, 2011 will see increased working capital inflows. Working capital will continue to be released in 2012 once ceases sales to Emperia s convenience store chain Stokrotka. The discontinuation of sales to Stokrotka will result in a PLN 700m drop in 2012 revenue. 17 January

8 Relative valuation of A comparison of s earnings multiples with those of foreign peers produced a pershare valuation of PLN Polish retailers are trading at premiums to their international peers (for example, the premium for clothing retailers is an average 30%). Due to a lack of comparable companies in Poland, the multiples comparison has a zero weight in the final valuation of. Foreign peers P/E EV/EBITDA 2011F 2012F 2013F 2011F 2012F 2013F JERONIMO MARTINS ,3 CARREFOUR SA ,2 TESCO PLC ,7 METRO INC -A ,2 COLRUYT SA ,4 SAINSBURY (J) PLC ,0 BIM BIRLESIK MAGAZALAR AS ,1 Maximum ,1 Minimum ,2 Median , ,9 (premium / discount) 65.79% 37.45% 21.58% 67.02% 44.35% 33,21% Implied price Median ,7 Multiple weight 50.00% 50.00% Year weight 33.33% 33.33% 33.33% 33.33% 33.33% 33,33% Value per share (PLN) January

9 DCF Model (PLN m) 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F 2019F 2020F Revenue change 77.36% 11.23% 7.06% 5.67% 4.22% 3.97% 3.80% 3.68% 3.57% 3.46% 3.00% EBITDA EBITDA margin 2.96% 3.37% 3.59% 3.61% 3.63% 3.64% 3.66% 3.67% 3.68% 3.69% 3.73% D&A expenses EBIT EBIT margin 2.30% 2.73% 3.00% 3.06% 3.09% 3.12% 3.14% 3.16% 3.18% 3.20% 3.20% EBIT tax NOPLAT CAPEX Working capital Capital investment FCF WACC 9.79% 10.32% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% discount factor 91.46% 82.90% 74.93% 67.71% 61.20% 55.31% 49.98% 45.17% 40.82% 36.90% 36.90% PV FCF WACC 9.76% 10.28% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% Cost of debt 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% 5.75% Risk-free rate 6.15% 6.15% 6.15% 6.15% 6.15% 6.15% 6.15% 6.15% 6.15% 6.15% Risk premium 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Effective tax rate 19.00% 19.00% 19.00% 19.00% 19.00% 19.00% 19.00% 19.00% 19.00% 19.00% Net debt / EV 9.34% 3.89% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Cost of equity 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% 10.65% Risk premium 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% Beta FCF growth after the forecast horizon 3.00% Sensitivity Analysis Terminal value FCF growth in perpetuity Present value of terminal value (PV TV) % 1.00% 2.50% 3.00% 4.00% Present value of FCF in the forecast horizon Beta= Equity value Beta= Net debt (incl. SPO) Beta= Properties held for sale Beta= Equity value Beta= Number of shares (millions) post dilution Value per share (PLN) M cost of equity 7.99% Target Price 37.4 EV/EBITDA ( 12) for the target price 10.7 P/E ( 12) for the target price 20.6 TV to EV 58% 17 January

10 Income Statement (PLN m) F 2011F 2012F 2013F Revenue change 46.00% 29.70% 9.28% 16.96% 77.36% 11.23% 7.06% COGS Gross profit gross margin 8.50% 8.83% 9.32% 9.79% 10.76% 11.22% 11.28% SG&A expenses Other net operating income/expenses EBIT change 56.83% 33.38% 25.71% 21.77% 80.75% 32.17% 17.58% EBIT margin 1.83% 1.88% 2.17% 2.26% 2.30% 2.73% 3.00% Financial activity Extraordinary gains/losses Other Pre-tax income Tax Minority interests Net income change 40.96% 33.73% 30.82% 28.06% 53.83% 42.50% 24.23% margin 1.24% 1.28% 1.53% 1.68% 1.45% 1.86% 2.16% D&A expenses EBITDA change 40.11% 29.59% 22.75% 21.60% 73.77% 26.87% 13.85% EBITDA margin 2.59% 2.59% 2.90% 3.02% 2.96% 3.37% 3.59% Shares at year-end (millions) EPS CEPS ROA 6.59% 6.30% 7.37% 6.23% 5.01% 7.03% 8.40% ROE 25.11% 27.70% 27.95% 28.66% 18.59% 22.64% 24.13% 17 January

11 Balance Sheet (PLN m) F 2011F 2012F 2013F ASSETS Fixed assets Property, plant and equipment Intangible assets Goodwill Long-term receivables Other fixed assets Current assets Inventories Short-term receivables Accruals Cash and cash equivalents (PLN m) F 2011F 2012F 2013F EQUITY AND LIABILITIES Equity Share capital Other equity Reserves Long-term liabilities Loans Other Short-term liabilities Loans Trade creditors Accruals Other Debt Net debt (Net debt / Equity) % % % 27.39% 45.28% 15.21% -4.23% (Net debt / EBITDA) BVPS January

12 Cash Flows (PLN m) F 2011F 2012F 2013F Operating cash flows Net income D&A expenses Working capital Other Cash flows from investing activities CAPEX Capital investment Other Cash flows from financing activities Stock issue Debt Dividend (buy-back) Other Change in cash Cash at period-end DPS (PLN) FCF (CAPEX / Sales) 1.36% 1.18% 1.51% 0.75% 0.64% 0.54% 0.56% Multiples F 2011F 2012F 2013F P/E P/CE P/BV P/S FCF/EV 2.18% 3.25% 1.09% 2.97% 6.00% 6.27% 6.34% EV/EBITDA EV/EBIT EV/S DYield 0.68% 0.89% 0.88% 1.10% 1.35% 1.93% 2.75% Price (PLN) 33.7 Shares at year-end (millions) MC (PLN m) Equity attributable to minority shareholders (PLN m) EV (PLN m) January

13 Michał Marczak tel. (+48 22) Managing Director Head of Research Strategy, Telco, Mining, Metals Research Department: Kamil Kliszcz tel. (+48 22) Fuels, Chemicals, Energy Piotr Grzybowski tel. (+48 22) IT, Media Maciej Stokłosa tel. (+48 22) Construction, Real-Estate Developers Jakub Szkopek tel. (+48 22) Manufacturers Iza Rokicka tel. (+48 22) Banks Gabriela Borowska tel. (+48 22) Retail Sales and Trading: Piotr Dudziński tel. (+48 22) Director Marzena Łempicka-Wilim tel. (+48 22) Deputy Director Traders: Emil Onyszczuk tel. (+48 22) Grzegorz Stępien tel. (+48 22) Michał Jakubowski tel. (+48 22) Tomasz Jakubiec tel. (+48 22) Grzegorz Strublewski tel. (+48 22) Michał Stępkowski tel. (+48 22) Foreign Markets Unit: Adam Prokop tel. (+48 22) Foreign Markets Manager Michał RoŜmiej tel. (+48 22) Jakub Słotkowicz tel. (+48 22) Jacek Wrześniewski tel. (+48 22) "Private Broker" Jarosław Banasiak tel. (+48 22) Director, Active Sales Jacek Szczepański tel. (+48 22) Director of Sales Dom Inwestycyjny BRE Banku S.A. ul. Wspólna 47/ Warszawa 17 January

14 List of abbreviations and ratios contained in the report: EV net debt + market value EBIT Earnings Before Interest and Taxes EBITDA EBIT + Depreciation and Amortisation P/CE price to earnings with amortisation MC/S market capitalisation to sales EBIT/EV operating profit to economic value P/E (Price/Earnings) price divided by annual net profit per share ROE (Return on Equity) annual net profit divided by average equity P/BV (Price/Book Value) price divided by book value per share Net debt credits + debt papers + interest bearing loans cash and cash equivalents EBITDA margin EBITDA/Sales Recommendations of A recommendation is valid for a period of 6-9 months, unless a subsequent recommendation is issued within this period. Expected returns from individual recommendations are as follows: BUY we expect that the rate of return from an investment will be at least 15% ACCUMULATE we expect that the rate of return from an investment will range from 5% to 15% HOLD we expect that the rate of return from an investment will range from 5% to +5% REDUCE we expect that the rate of return from an investment will range from -5% to -15% SELL we expect that an investment will bear a loss greater than 15% Recommendations are updated at least once every nine months. This document has been created and published by S.A. The present report expresses the knowledge as well as opinions of the authors on day the report was prepared. The opinions and estimates contained herein constitute our best judgement at this date and time, and are subject to change without notice. The present report was prepared with due care and attention, observing principles of methodological correctness and objectivity, on the basis of sources available to the public, which S.A. considers reliable, including information published by issuers, shares of which are subject to recommendations. However, S.A., in no case, guarantees the accuracy and completeness of the report, in particular should sources on the basis of which the report was prepared prove to be inaccurate, incomplete or not fully consistent with the facts. S.A. bears no responsibility for investment decisions taken on the basis of the present report or for any damages incurred as a result of investment decisions taken on the basis of the present report. This document does not constitute an offer or invitation to subscribe for or purchase any financial instruments and neither this document nor anything contained herein shall form the basis of any contract or commitment whatsoever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. This document nor any copy hereof is not to be distributed directly or indirectly in the United States, Australia, Canada or Japan. Recommendations are based on essential data from the entire history of a company being the subject of a recommendation, with particular emphasis on the period since the previous recommendation. Investing in shares is connected with a number of risks including, but not limited to, the macroeconomic situation of the country, changes in legal regulations as well as changes on commodity markets. Full elimination of these risks is virtually impossible. It is possible that S.A. renders, will render or in the past has rendered services for companies and other entities mentioned in the present report. The present report was not transferred to the issuer prior to its publication. S.A., its shareholders and employees may hold long or short positions in the issuer's shares or other financial instruments related to the issuer's shares. S.A., its affiliates and/or clients may conduct or may have conducted transactions for their own account or for account of another with respect to the financial instruments mentioned in this report or related investments before the recipient has received this report. Copying or publishing the present report, in full or in part, or disseminating in any way information contained in the present report requires the prior written agreement of S.A. Recommendations are addressed to all Clients of S.A. This report is not for distribution to third parties. The activity of S.A. is subject to the supervision of the Polish Financial Supervision Commission. Individuals who did not participate in the preparation of this recommendation, but had or could have had access to the recommendation prior to its publication, are employees of S.A. authorised to access the premises in which recommendations are prepared, other than the analysts mentioned as the authors of the present recommendation. Strong and weak points of valuation methods used in recommendations: DCF acknowledged as the most methodologically correct method of valuation; it is based in discounting financial flows generated by a company; its weak point is the significant susceptibility to a change of forecast assumptions in the model. Comparative based on a comparison of valuation multipliers of companies from a given sector; simple in construction, reflects the current state of the market; weak points include substantial variability (fluctuations together with market indices) as well as difficulty in the selection of the group of comparable companies. Previous ratings issued for Rating Reduce Suspended Date issued Price on rating day WIG w rating day January