Small & Mid Cap coverage Poland

Transcription

1 November 12, 2014 Small & Mid Cap coverage Poland Our Polish Small- & Mid-Caps coverage includes an overview of 58 names. With this report we are initiating coverage of 30 stocks and maintaining coverage of 28. Of the 30 newly covered stocks we are rating 21 as BUYs, 7 as HOLDs and 2 as SELLs. As for the already covered companies, we are making changes to price targets/recommendations for three names only. We are upgrading our target price and recommendation for Netia (Hold from SELL, TP raised to PLN 5.71), reducing target price for ABC Data (down 2% to PLN4, HOLD maintained) and re-initiating coverage of Work Service (Hold rating, Target Price set at PLN19.5). Companies covered in the note are significantly diversified in terms of sectors, valuations and growth prospects. To make the research more user-friendly, pages 5-6 include a comparison of the stocks by valuation metrics (P/Es and EV/EBITDAs), estimated mid-term EPS/revenue growth and finally past share price performance. Below we are listing the most expensive/cheap stocks as well as the names offering the strongest/weakest growth prospects. 2015E P/E (x) 2015E EV/EBITDA (x) 10 Highest 10 Lowest 10 Highest 10 Lowest BPH BOS 9.8 MW Trade 38.8 Farmacol 5.9 Voxel 97.0 MW Trade 9.0 Medicalalgorithmics 24.9 Open Finance 5.4 Medicalalgorithmics 31.0 Action 8.9 Work Service 11.1 Tesgas 5.2 Netia 29.2 Ovostar 8.4 CD Projekt 11.0 ZAP 5.2 Atrem 26.5 Pozbud 8.3 DOM Development 10.2 Ovostar 5.1 Emperia 23.9 Paged 8.2 PRESCO 10.1 Hawe 4.6 Budimex 19.5 AB 7.7 Apator 9.9 Asseco SEE 4.5 Pekaes 18.3 ZEPAK 7.7 Synektik 9.9 Emperia 4.5 Synektik 18.0 ABC Data 6.7 Ronson 9.8 Netia 4.4 Work Service 17.5 Hawe 5.4 Forte 9.6 ZEPAK 4.3 Source: DM BZ WBK estimates EPS CAGR (%) E EBITDA CAGR (%) 10 Highest 10 Lowest 10 Highest 10 Lowest Bytom 64% Budimex -5.4% CD Projekt 41% Unibep 2.2% Ciech 48% Hawe -5.8% Medicalalg. 40% Pozbud 0.6% CD Projekt 44% Wielton -6.4% Bytom 32% ZAP 0.4% Atrem 40% Wojas -6.9% Elemental 28% Budimex -3.5% PCE 33% Farmacol -7.5% Work Service 25% PRESCO -3.7% Medicalalg. 33% Open Finance -7.5% PCE 22% Ovostar -3.7% Work Service 31% Monnari -12% Ronson 22% Open Finance -5.4% ACE 29% Ovostar -13% Atrem 21% Netia -5.9% Gino Rossi 24% Echo -15% Tesgas 21% Monnari -5.9% Alumetal 21% PHN -29% Pekaes 20% Hawe -6.7% Source: DM BZ WBK estimates Research analysts: Pawel Puchalski, CFA ; [email protected] Dariusz Gorski ; [email protected] Tomasz Kasowicz ; [email protected] Adrian Kyrcz ; [email protected] Tomasz Sokolowski ; [email protected] Lukasz Kosiarski ; [email protected] Andrzej Bieniek Securities broker, Investment advisor ; [email protected] Michal Sopiel ; [email protected] Tomasz Kucinski ; [email protected] Dom Maklerski BZ WBK is a separated organizational unit of Bank Zachodni WBK S.A. seated in Wrocław at Rynek 9/11, Wrocław, registered by the District Court for Wrocław-Fabryczna in Wrocław, 6th Business Division of the National Court Register, under KRS no , NIP: , share capital: PLN paid up in full..the disclaimers concerning the nature of the published document are found on the last page of the document and constitute its integral part..

2 Contents SMC Radar: A stock picking tool... 5 AB... 7 ABC DATA... 9 ACE...11 ACTION...15 ALUMETAL...17 AMBRA...21 AMICA...25 APATOR...29 ASSECO SEE...33 ASSECO BUSINESS SOLUTIONS...37 ATREM...41 BANK BPH...43 BENEFIT SYSTEMS...47 BOS BANK...49 BUDIMEX...53 BYTOM...55 CD PROJEKT...59 CIECH...61 DOM DEVELOPMENT...63 ECHO INVESTMENT...65 ELEMENTAL HOLDING...67 EMPERIA...71 ERBUD...73 EUCO...77 FARMACOL...79 FORTE...81 GINO ROSSI...85 GRAJEWO...89 HAWE...93 GRUPA KETY...97 MEDICALGORITHMICS...99 MIDAS MONNARI MW TRADE NETIA NEUCA OPEN FINANCE OVOSTAR UNION PAGED PRIME CAR MANAGMENT PEKAES PELION PHN POZBUD PRESCO RONSON SYNEKTIK TESGAS TRAKCJA UNIBEP VOTUM VOXEL WIELTON WOJAS WORK SERVICE ZA PULAWY ZCH POLICE ZE PAK

3 Throughout the report we use share prices as of November 5,

4 Fig. 1. BZ WBK coverage: Initiations of coverage Company Recomemndation 12M Target Price current previous change current previous chng. % upside % ACE Buy n.a n.a. n.a. 54% Alumetal Buy n.a n.a. n.a. 19% Ambra Buy n.a n.a. n.a. 36% Amica Buy n.a n.a. n.a. 37% Apator Hold n.a n.a. n.a. 12% Asseco BS Buy n.a n.a. n.a. 37% Asseco SEE Buy n.a n.a. n.a. 33% Bank BPH Buy n.a n.a. n.a. 15% BOS Bank Buy n.a n.a. n.a. 18% Bytom Buy n.a n.a. n.a. 43% Elemental Holding Buy n.a n.a. n.a. 35% Erbud Hold n.a n.a. n.a. 12% Forte Buy n.a n.a. n.a. 19% Gino Rossi Buy n.a n.a. n.a. 29% Grajewo Buy n.a n.a. n.a. 16% HAWE Buy n.a n.a. n.a. 75% Medicalgorythmics Hold n.a n.a. n.a. 13% Monnari Buy n.a n.a. n.a. 42% MW Trade Buy n.a n.a. n.a. 16% Paged Buy n.a n.a. n.a. 62% PCM Buy n.a n.a. n.a. 18% Pekaes Buy n.a n.a. n.a. 17% Presco Sell n.a n.a. n.a. -18% Ronson Sell n.a n.a. n.a. -10% Unibep Buy n.a n.a. n.a. 16% Votum Buy n.a n.a. n.a. 32% Voxel Hold n.a n.a. n.a. 11% Wielton Hold n.a n.a. n.a. 7% Wojas Hold n.a n.a. n.a. 5% ZE PAK Hold n.a n.a. n.a. 7% Source: DM BZ WBK estimates Fig. 2. BZ WBK coverage: Changes to valuations & recommendations Company Recomemndation 12M Target Price current previous change current previous chng. % upside % AB Buy Buy % 33% ABC Data Hold Hold % 4% Action Buy Buy % 50% Atrem Buy Buy % 45% Benefit Systems Buy Buy % 30% Budimex Hold Hold % 13% CD Projekt Buy Buy % 8% Ciech Buy Buy % 22% Dom Development Hold Hold % 0% Echo Investment Buy Buy % 18% Emperia Buy Buy % 65% EuCO Buy Buy % 20% Farmacol Buy Buy % 31% Kety Buy Buy % 12% Midas Buy Buy % 132% Netia Hold Sell % 3% Neuca Buy Buy % 63% Open Finance Buy Buy % 23% Ovostar Hold Hold % 7% Pelion Hold Hold % 5% PHN Buy Buy % 15% Pozbud Buy Buy % 71% Synektik Buy Buy % 38% Tesgas Buy Buy % 64% Trakcja Buy Buy % 6% Work Service Hold Restricted Restricted - 3% ZA Pulawy Buy Buy % 17% ZCH Police Sell Sell % -46% Source: DM BZ WBK estimates 4

5 SMC Radar: A stock picking tool Fig. 3. Small& Mid caps Value Radar 2015E P/E (x) 2015E Net debt to Equity (x) 10 Highest 10 Lowest 10 Highest 10 Lowest BPH BOS 9.8 MW Trade 8.6 Asseco BS -0.2 Voxel 97.0 MW Trade 9.0 Midas 5.0 Bytom -0.2 Medicalalgorithmics 31.0 Action 8.9 PCM 1.4 Tesgas -0.3 Netia 29.2 Ovostar 8.4 Ciech 1.3 Benefit -0.3 Atrem 26.5 Pozbud 8.3 Echo 0.7 Votum -0.3 Emperia 23.9 Paged 8.2 Pelion 0.7 Medicalalgorithmics -0.3 Budimex 19.5 AB 7.7 ABC Data 0.6 Synektik -0.4 Pekaes 18.3 ZE Pak 7.7 Presco 0.6 CD Projekt -0.4 Synektik 18.0 ABC Data 6.7 Voxel 0.5 Monnari -0.5 Work Service 17.5 HAWE 5.4 Paged 0.5 Budimex -2.1 Source: DM BZ WBK estimates 2015E ROE (%) 2015E EV/EBITDA (x) 10 Highest 10 Lowest 10 Highest 10 Lowest CD Projekt 45.3% ZE PAK 5.1% MW Trade 38.8 Farmacol 5.9 EuCO 36.1% Pekaes 4.9% Medicalalgorithmics 24.9 Open Finance 5.4 Budimex 33.2% Tesgas 4.4% Work Service 11.1 Tesgas 5.2 Bytom 32.0% Trakcja 4.4% CD Projekt 11.0 ZAP 5.2 Votum 31.8% Emperia 4.0% Dom Development 10.2 Ovostar 5.1 Benefit 29.2% Atrem 2.6% Presco 10.1 Hawe 4.6 Action 23.5% Netia 2.1% Apator 9.9 Asseco SEE 4.5 MW Trade 23.1% PHN 1.4% Synektik 9.9 Emperia 4.5 Medicalalgorithmics 22.9% Voxel 1.1% Ronson 9.8 Netia 4.4 Forte 22.0% BPH 0.7% Forte 9.6 ZE PAK 4.3 Source: DM BZ WBK estimates E EPS CAGR (%) 2015E Net margin (%) 10 Highest 10 Lowest 10 Highest 10 Lowest Bytom 64.1% Budimex -5.4% Medicalalgorithmics 54.0% Erbud 1.7% Ciech 47.6% Hawe -5.8% Echo 39.9% Neuca 1.7% CD Projekt 44.3% Wielton -6.4% CD Projekt 30.7% Atrem 1.5% Atrem 39.6% Wojas -6.9% Euco 24.2% Action 1.4% Police 33.1% Farmacol -7.5% MW Trade 22.0% Emperia 1.4% Medicalalgorithmics 32.7% Open Finance -7.5% Hawe 20.7% ABC Data 1.2% Work Service 31.3% Monnari -11.6% Asseco BS 18.4% Voxel 1.1% ACE 29.1% Ovostar -12.5% PHN 17.0% Pelion 1.1% Gino Rossi 24.2% Echo -14.5% Ovostar 15.1% AB 1.0% Alumetal 20.5% PHN -28.7% Apator 14.4% Midas 1.0% Source: DM BZ WBK estimates E EBIT CAGR (%) E EBITDA CAGR (%) 10 Highest 10 Lowest 10 Highest 10 Lowest Bytom 62.2% Pelion 0.4% CD Projekt 40.9% Unibep 2.2% Ciech 47.6% Pozbud 0.2% Medicalalgorithmics 39.7% Pozbud 0.6% CD Projekt 45.2% Wojas 0.1% Bytom 32.0% ZAP 0.4% Tesgas 44.2% Presco -2.5% Elemental 28.1% Budimex -3.5% Police 39.7% Budimex -4.1% Work Service 25.0% PRESCO -3.7% Medicalalgorithmics 39.6% Echo -5.8% PCE 22.0% Ovostar -3.7% Atrem 33.1% Monnari -8.3% Ronson 21.5% Open Finance -5.4% Work Service 25.6% Ovostar -9.1% Atrem 20.8% Netia -5.9% Alumetal 22.7% Hawe -10.0% Tesgas 20.8% Monnari -5.9% Votum 22.3% Open Finance -12.4% Pekaes 20.1% Hawe -6.7% Source: DM BZ WBK estimates 5

6 2015E EBITDA Margin (%) E Revenues CAGR (%) 10 Highest 10 Lowest 10 Highest 10 Lowest Echo 71.4% Atrem 4.0% Medicalalgorithmics 41.3% ACE 1.2% Medicalalgorithmics 59.9% Erbud 3.3% Midas 40.0% ZAP 1.1% CD Projekt 37.3% Unibep 3.2% Work Service 26.7% ZEPAK 0.6% Hawe 31.3% Emperia 3.2% CD Projekt 22.0% Phn 0.5% Asseco BS 29.4% Neuca 2.3% Tesgas 16.3% Ciech -1.5% MW Trade 27.5% Action 2.0% Action 13.7% Hawe -2.4% Netia 27.3% Pelion 2.0% Forte 13.2% Pozbud -2.6% Euco 27.1% AB 1.6% MW Trade 11.6% PRESCO -3.1% Presco 27.0% ABC Data 1.6% Bytom 11.4% Open Finance -3.1% Ovostar 26.7% Midas -4.6% Votum 11.2% Netia -4.2% Source: DM BZ WBK estimates Fig. 4. Small& Mid caps Momentum Radar 1M Market Performance (%) 3M Market Performance (%) 10 Highest 10 Lowest 10 Highest 10 Lowest Voxel 24.3 ACE -1.9 Bank BPH 36.7 Voxel -3.9 Bank BPH 21.5 Police -2.7 Work Service 35.4 Ambra -4.2 Medicalgorithmics 13.0 Netia -2.8 PCM 34.1 ABC Data -4.8 Midas 11.3 Budimex -3.4 Grupa Kety 33.7 BOS Bank -4.9 Paged 11.0 Farmacol -4.3 Forte 28.3 ACE -6.2 Votum SA 11.0 ZE PAK -4.9 Elemental Holding 26.1 Wojas -6.4 Prime Car Management 10.0 Ambra -5.3 Alumetal 25.3 Wielton -6.5 Benefit Systems 8.2 Presco Group PHN 24.5 Emperia Holding Alumetal 8.1 Open Finance Paged 24.3 Hawe Ovostar 8.0 Wielton Amica Wronki 23.5 Open Finance Source: DM BZ WBK estimates 1Y Market Performance (%) YTD Market Performance (%) 10 Highest 10 Lowest 10 Highest 10 Lowest Forte 69.1 Ambra Euco 79.9 Farmacol Medicalgorithmics 66.4 Ovostar Work Service 49.6 Pelion Work Service 58.7 Farmacol Monnari Trade 48.9 Ovostar Euco 57.6 Pelion Forte 44.9 Hawe Kety 50.9 Emperia Paged 35.9 Atrem Paged 46.9 Atrem Ciech 34.6 ACE Votum 42.3 Voxel Kety 33.4 Voxel Ciech 41.2 Hawe Wojas 26.1 Emperia Monnari Trade 33.2 Presco Votum 25.8 Presco Synektik 30.5 Open Finance Tesgas 24.3 Open Finance Source: DM BZ WBK estimates 6

7 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland AB Negative earnings dynamics 1Q14/15 Results Preview. We expect that AB continued its top-line improvement in 1Q14/15, although its earning may prove to be a small disappointment. We expect that in the Czech Republic and Slovakia AB kept its strong dynamics, driven by the distribution agreement with Apple. In Poland, we expect a 4% y/y sales expansion. We expect the gross margin at 3.95% vs. 3.90% in 1Q13/14. We also forecast a visible increase in SG&A costs - PLN40.1mn vs. PLN29.5mn in 1Q13/14 (SG&A/sales ratio at 2.81%). We assume revenues of PLN1.43bn (+13.7% y/y), an EBITDA of PLN19.4mn. The net profit should settle at PLN10.7mn (net margin at 0.75%). Outcome: NEGATIVE. Recent developments. The company mulls paying a dividend and a launch of a buyback tender offer. The company has recently completed a PLN100mn 2019 bond issue priced Wibor6M + 1.6%. Outlook. During its last results presentation, AB said that it saw signs of market improvement in the Czech Republic, mainly in the enterprise sector but also in the public sector. Change in Forecasts. We apply no changes to our model. Change in Valuation & Recommendation. We keep our 12-month Target Price for AB at PLN43.0 and maintain our Buy rating for the stock. The comparative valuation points to PLN29.2 per share IT Distribution NOVEMBER 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN32.4 TARGET PRICE: PLN43.0 (MAINTAINED) ABE WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute TP relative (p.p) Buy % 3.2 Buy % -0.6 Hold % 4.4 Hold % MAIN SHAREHOLDERS % of votes Mr. Andrzej Przybylo 15.0% ING pension fund 13.1% Mrs. Iwona Przybylo 10.0% Allianz pension fund 9.1% Aviva mutual fund 5.7% COMPANY DESCRIPTION One of the largest IT distribution company in Poland and Czech Republic. ANALYST Lukasz Kosiarski (+48) [email protected] Company Data PLNm 2013/14E 2014/15E 2015/16E 2016/17E Reuters/Bloomberg codes ABEP.WA / ABE PW Sales 5,758 6,092 6,339 6,596 Market capitalisation (PLNm) 524 EBITDA Number of shares (m) 16.2 EBIT Free float (%) 79.1% Net income Avg. daily turnover 3M (PLNm) 0.2 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 22.3% -0.3% Fig. 1. AB: 1Q14/15 results preview 7

8 1Q11/12 2Q11/12 3Q11/12 4Q11/12 1Q12/13 2Q12/13 3Q12/13 4Q12/13 1Q13/14 2Q13/14 3Q13/14 4Q13/14 1Q14/15E y/y q/q Sales 944 1,429 1, ,123 1,730 1,355 1,306 1,256 1,637 1,348 1,517 1, % -5.9% EBITDA % -15.7% EBITDA margin 2.6% 2.6% 1.4% 1.8% 1.3% 1.6% 1.1% 1.2% 1.6% 2.0% 1.4% 1.5% 1.4% EBIT % -18.4% EBIT margin 2.3% 2.4% 1.2% 1.5% 1.1% 1.5% 0.9% 1.1% 1.4% 1.9% 1.2% 1.3% 1.1% Net profit % -13.6% Net margin 1.1% 1.5% 0.8% 0.8% 0.8% 1.0% 0.5% 0.7% 1.0% 1.3% 0.8% 0.8% 0.8% Fig. 2. AB: Forecasts changes 2014/15E 2015/16E 2016/17E New Previous Change New Previous Change New Previous Change Sales 6,092 6, % 6,339 6, % 6,596 6, % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. AB: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation % Comparable valuation (based on 2013/ /16E) % Fig. 4. AB: Income statement forecast 2012/ / /15E 2015/16E 2016/17E Net sales 5,430 5,758 6,092 6,339 6,596 COGS 5,220 5,484 5,839 6,075 6,322 Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 3.9% 4.8% 4.2% 4.2% 4.2% EBITDA margin 1.4% 1.7% 1.6% 1.6% 1.6% Operating margin 1.2% 1.5% 1.4% 1.4% 1.4% Net profit margin 0.8% 1.0% 1.0% 1.0% 1.0% Fig. 5. AB: Balance sheet forecast 2012/ / /15E 2015/16E 2016/17E Current assets 1,002 1,091 1,213 1,306 1,393 Fixed assets Total assets 1,167 1,260 1,398 1,485 1,565 Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities 1,167 1,260 1,398 1,485 1,565 Net debt Fig. 6. AB: Cash flow forecast 2012/ / /15E 2015/16E 2016/17E CF from operations CF from investment CF from financing Net change in cash

9 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland ABC DATA Least preferred IT distributor IT Distribution NOVEMBER 12, 2014 RECOMMENDATION HOLD (MAINTAINED) CURRENT PRICE: PLN3.83 TARGET PRICE: PLN4.00 (PREV. PLN4.10) 3Q14 Results Review. ABC Data reported 3Q14 results way below expectations due to PLN10mn impairment on receivables; adjusted results came in line with expectations. Revenues expended 13% y/y to PLN1.37bn, matched expectations (PLN bn); revenues from Polish market increased by 15% y/y to PLN703mn (we expected a 5% growth), sales in EU countries came flat y/y at PLN506mn (huge disappointment, we expected +20% y/y), while export sales outside EU increased by 69% y/y to PLN166mn. Gross margin stood at 4.79% vs. 4.46% in 3Q13 and 5.11% in 2Q14. Our assumption was 4.70%. SG&A came at PLN56.8mn vs. PLN36.4mn in 3Q13. Sales costs include PLN10mn one-off costs of impairment on receivables. SG&A to sales ratio stood at 4.13% vs. 3.01% in 3Q13. EBIT came at PLN7.5mn (-59% y/y), adjusted EBIT came at PLN17.5mn vs. expectations of PLN19.2mn (market) and PLN18.2mn (BZ WBK). Net earnings came at PLN2.0mn, tax rate in 3Q14 at 54.7%. Operating CF in 3Q14 stood at PLN30.8mn guidance. Company slashed its FY14 official guidance: new forecast is sales at PLN5.54bn (vs. PLN5.76bn), EBITDA at PLN74.8mn (vs. PLN92.1mn). New FY14 guidance implies 4Q14 sales at PLN1.61bn and EBITDA at PLN31.6mn. Recent developments. Mrs. Ilona Weiss, deputy CEO, will replace Mr. Norbert Biedrzycki as CEO on 1 January, Change in Forecasts. We have applied some changes to our model following 3Q14 results release. Change in Valuation & Recommendation. We cut our 12-month Target Price for ABC Data at PLN4.00 and maintain our Hold rating for the stock. The comparative valuation points to PLN3.76 per share ABC WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute TP relative (p.p) Hold % 4.7 Sell % Sell % 9.8 Sell % -7.4 MAIN SHAREHOLDERS % of votes ABCD Management 41.0% MCI Venture Projects 20.5% PZU pension fund 9.3% Aviva pension fund 7.0% BZ WBK Asset Management 5.0% COMPANY DESCRIPTION One of the largest IT distribution company in Poland. ANALYST Lukasz Kosiarski (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes ABCP.WA / ABC PW Sales 4,822 5,623 5,924 6,267 Market capitalisation (PLNm) 480 EBITDA Number of shares (m) EBIT Free float (%) 37.2% Net income Avg. daily turnover 3M (PLNm) 0.2 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % -4.5% -10.9% Fig. 1. ABC Data: 3Q14 results review 9

10 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q Sales 752 1, ,300 1,089 1,096 1,212 1,425 1,169 1,391 1, % -1.1% EBITDA % -64.3% EBITDA margin 1.6% 1.5% 1.7% 1.1% 1.1% 2.2% 1.5% 1.4% 1.6% 2.0% 1.1% 1.6% 0.6% EBIT % -65.9% EBIT margin 1.4% 1.4% 1.6% 1.0% 1.0% 2.1% 1.5% 1.3% 1.6% 1.9% 1.0% 1.6% 0.5% Net profit % -82.2% Net margin 0.9% 2.3% 0.8% 0.0% 0.6% 1.5% 1.0% 1.3% 1.2% 1.4% 0.6% 0.8% 0.1% Fig. 2. ABC Data: Forecasts changes 2014E 2015E 2016E New Previuos Change New Previuos Change New Previuos Change Sales 5,623 5, % 5,924 5, % 6,267 6, % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. ABC Data: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation % Comparable valuation (based on E) % Fig. 4. ABC Data: Income statement forecast Net sales 3,693 4,822 5,623 5,924 6,267 COGS 3,509 4,596 5,358 5,650 5,977 Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 5.0% 4.7% 4.7% 4.6% 4.6% EBITDA margin 1.6% 1.6% 1.3% 1.6% 1.6% Operating margin 1.5% 1.6% 1.2% 1.6% 1.6% Net profit margin 0.8% 1.2% 0.7% 1.1% 1.1% Fig. 5. ABC Data: Balance sheet forecast Current assets ,065 1,152 Fixed assets Total assets ,076 1,151 1,239 Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities ,076 1,151 1,239 Net debt Fig. 6. ABC Data: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

11 Poland ACE A highly probable rise in earnings Automotive NOVEMBER 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN10.7 TARGET PRICE: PLN16.5 Equity Story. We are initiating our coverage of ACE, a leading supplier of disc brake system components in Europe, with a Buy recommendation and a target price of PLN16.5 per share (54% upside!). We expect the company to improve its profitability in the coming years due to efficiency improvements in Fuchosa (Spain), implementation and utilisation of nodular iron technology in Feramo (Czech Rep.) and new aluminium projects in EBCC (Poland). That said, we expect the gross margin to rise on improving sales in 2015E and 2016E, by 1.5pp and by 0.5pp to 23.5% and 24%, respectively. We thus expect company to show substantial net profit dynamics in years ahead. Given ACE s strong cash generation nature we see the company as attractive from dividend pay-outs point of view. Automotive market outlook. According to PWC, Autofacts passenger and light-commercial vehicle production (key driver for ACE volumes) should grow y/y by 5.4% in EU in 2014, though fall by 0.3% in the CEE region. For 2015 and beyond, PWC expects the European automotive market to continue to grow, albeit at a slower pace ( CAGR at 3.4%). Financials. We forecast ACE revenues in 2014E at EUR98.1mn (- 3% y/y), while in 2015E company s sales should go up to EUR101.1mn (+3% y/y). For 2016E We expect ACE revenues to grow 5% y/y (above the market CAGR for ), when the company should be fully utilising its new capacities and projects. EBIT is expected to rise to EUR4.9mn (+10% y/y) in 2014E, to EUR5.8mn (+19% y/y) in 2015E and to EUR7.1mn (+21% y/y) in 2016E. That said, the net profit margin should rise to 4.1% (2015E) and 4.9% (2016E) from 2.8% in 2014E. Risks/triggers. The deepening slowdown in the European economy could hit sales of passenger cars and LCV sales and this is the key risk that we see for ACE s business. Among other risks, the delay in obtaining homologation for its products could also harm the pace of the company s earnings growth in the future years. Valuation & recommendation. Based on our DCF model, we arrived at a 12 month TP of PLN16.5 per share, which implies a 54% upside potential. We thus initiate our coverage of ACE with a Buy recommendation. STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) n/a n/a n/a n/a n/a n/a COMPANY DESCRIPTION The ACE group (casting company) is a leading supplier of disc brake system components to the production-focused European automotive industry (Tier 2). The company s main products are: iron anchors and aluminum calipers. The company s production is based in three plants in Spain (Fuchosa), Poland (EBCC) and the Czech Republic (Feramo). Main shareholders % of votes Casting brake (Spain) 11.45% PZU pension fund 15.91% Aviva pension fund 14.70% ING pension fund 14.13% ANALYST Tomasz Kasowicz (+48) [email protected] Company Data EURmn E 2015E 2016E Reuters/Bloomberg codes ACEP.WA / ACE PW Sales Market capitalisation (PLNm) EBITDA Number of shares (m) 21.2 EBIT Free float (%) 82.7% Net income Avg. daily turnover 3M (PLNm) 0.1 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % -9.7% -33.9% Source: Company data, BZ WBK Brokerage research 11

12 Fig. 1. ACE: DCF valuation EUR in millions, unless otherwise stated DCF valuation 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E beyond EBIT Tax rate 19% 19% 19% 19% 19% 19% 19% 19% 19% 19% 19% Taxes on EBIT NOPLAT Depreciation Capital expenditures Change in working capital Free cash flow Terminal growth rate 1.0% Terminal value 93.7 Discount factor Discounted free cash flow at Enterprise value 92.3 Net debt at Minorities 0.0 Proceeds from non-core assets 0.0 Fair value at Number of shares 21.2 Fair value per share at Cost of equity 9.0% 12M Target Price in EUR 4.0 EUR/PLN rate M Target Price in PLN 16.5 Curren value per share 10.7 Up/downside 54.3% PV FCF/PV TV 49% 2015E TP (x) E TP (x) 8.7 Source: Company data, BZ WBK Brokerage Fig. 2. ACE: Comparable valuation P/E EV/EBITDA 2014E 2015E 2016E 2014E 2015E 2016E BREMBO SPA ELRINGKLINGER AG FISCHER (GEORG)-REG SOGEFI VALEO SA LE BELIER TRW AUTOMOTIVE HOLDINGS CORP POLYTEC HOLDING AG AKEBONO BRAKE INDUSTRY CO n/a CIE AUTOMOTIVE SA NISSIN KOGYO CO LTD Median international peers ACE Premium/discount 53% 21% 8% 34% 49% 48% Implied value (in PLN per share) Source: BZ WBK Brokerage research, company data, Bloomberg 12

13 Fig. 3. ACE: 3Q14 results preview EUR in millions, unless otherwise stated 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Sales % -10.5% EBITDA % -15.5% EBITDA margin 11% 11% 8% 10% 7% 9% 8% 11% 9% 14% 11% 10% 10% EBIT % -35.0% EBIT margin 5% 4% 3% 5% 3% 2% 3% 6% 4% 5% 7% 5% 4% Net profit % -6.7% Net margin -1% 2% 3% 1% 3% 3% 1% 2% 2% 2% 4% 2% 2% Source: Company data, BZ WBK Brokerage Fig. 4. ACE: Forecast changes EUR in millions, unless otherwise stated 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 98.1 n/a n/a n/a n/a n/a n/a EBITDA 10.4 n/a n/a 11.3 n/a n/a 12.6 n/a n/a EBIT 4.9 n/a n/a 5.8 n/a n/a 7.1 n/a n/a Net profit 2.7 n/a n/a 4.1 n/a n/a 5.2 n/a n/a Source: Company data, BZ WBK Brokerage Fig. 5. ACE: Valuation changes In PLN per share, unless otherwise stated New Previous Change Weight DCF valuation 16.5 n/a n/a 100% Comparable valuation (based on E) 9.0 n/a n/a 0% Source: Company data, BZ WBK Brokerage Fig. 6. ACE: Income statement forecast EUR in millions, unless otherwise stated Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 17.2% 19.3% 22.4% 23.5% 23.8% EBITDA margin 8.4% 10.3% 10.6% 11.2% 11.8% Operating margin 3.1% 4.4% 5.0% 5.8% 6.6% Net profit margin 2.4% 1.9% 2.8% 4.1% 4.9% Source: Company data, BZ WBK Brokerage Fig. 7. ACE: Balance Sheet forecast EUR in millions, unless otherwise stated Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Source: Company data, BZ WBK Brokerage Fig. 8. ACE: Cash flow forecast EUR in millions, unless otherwise stated CF from operations CF from investment CF from financing Net change in cash Source: Company data, BZ WBK Brokerage 13

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15 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland ACTION IT Distribution NOVEMBER 12, 2014 RECOMMENDATION BUY (MAINTAINED) In line with official guidance CURRENT PRICE: PLN46.62 TARGET PRICE: PLN69.7 (MAINTAINED) 3Q14 Results Preview. Most of the growth in 3Q14 sales at Action, as was the case in the previous quarter, should come from operations abroad. For 3Q14, we expect export sales to expand by 42% y/y and the domestic sales, in line with the market, by 3% y/y. Overall, we expect the company s sales at PLN1.33bn (+17% y/y). We see the gross margin at 6.10% vs. 6.02% in 3Q13 and estimate the SG&A costs at PLN59.0mn (SG&A/sales ratio at 4.43%). The EBIT should reach PLN21.3mn and the net profit PLN15.7m (+12% y/y, net margin at 1.17%). Outcome: POSITIVE STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended TP ACT WIG Relative Recent developments. The company has recently signed two large contracts for hardware shipments with science universities in Krakow and Gdynia worth PLN41.0mn and PLN30.6mn, respectively. CEO Mr. Piotr Bielinski recently sold 150k shares at PLN47/share. According to his statement, the cash will be used to capitalise game developer Action Game Labs (Action 40% subsidiary) guidance. The company sees its 2014 revenues at PLN5.45bn and the net profit at PLN70.9mn. 1H14 results account for 46% of the forecasted FY14 sales and 47% on the net level. Our forecasts for 2014 are higher than the guidance by 3% both on the top-line and the net level. Change in Forecasts. We apply no changes to our model. Change in Valuation & Recommendation. We keep our 12-month Target Price for Action at PLN69.7 and maintain our Buy rating for the stock. The comparative valuation points to PLN39.40 per share. The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Buy % 0.9 Buy % 1.8 Buy % -6.6 Buy % -6.6 MAIN SHAREHOLDERS % of votes Mr. Piotr Bielinski 20.9% Mrs. Aleksandra Matyka 18.6% Generali pension fund 10.8% Mr. Wojciech Wietrzykowski 7.2% Aviva pension fund 5.9% COMPANY DESCRIPTION One of the largest IT distribution company in Poland. ANALYST Lukasz Kosiarski (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes ACT.WA / ACT PW Sales 4,749 5,640 6,619 7,396 Market capitalisation (PLNm) 774 EBITDA Number of shares (m) 16.6 EBIT Free float (%) 53.2% Net income Avg. daily turnover 3M (PLNm) 0.6 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 12.7% -2.9% 15

16 Fig. 1. Action: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Sales 669 1, ,148 1, ,140 1,488 1,324 1,197 1, % 11.3% EBITDA % -1.3% EBITDA margin 2.5% 2.3% 2.3% 2.2% 2.3% 2.3% 2.0% 2.1% 1.8% 1.8% 1.9% 2.0% 1.8% EBIT % -1.4% EBIT margin 2.1% 2.1% 1.9% 1.9% 1.9% 2.0% 1.8% 1.9% 1.6% 1.6% 1.8% 1.8% 1.6% Net profit % -1.5% Net margin 1.5% 1.5% 1.4% 1.2% 1.3% 1.5% 1.3% 1.3% 1.2% 1.3% 1.3% 1.3% 1.2% Fig. 2. Action: Forecasts changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 5,640 5, % 6,619 6, % 7,396 7, % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. Action: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation % Comparable valuation (based on E) % Fig. 4. Action: Income statement forecast Net sales 3,515 4,749 5,640 6,619 7,396 COGS 3,288 4,452 5,293 6,220 6,957 Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 6.5% 6.3% 6.2% 6.0% 5.9% EBITDA margin 2.3% 1.9% 1.9% 2.0% 1.9% Operating margin 1.9% 1.7% 1.7% 1.8% 1.7% Net profit margin 1.4% 1.3% 1.3% 1.4% 1.3% Fig. 5. Action: Balance sheet forecast Current assets 763 1,021 1,090 1,157 1,229 Fixed assets Total assets 901 1,172 1,273 1,328 1,389 Current liabilities ,011 bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities 901 1,172 1,273 1,328 1,389 Net debt Fig. 6. Action: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

17 Jul-14 Jul-14 Aug-14 Aug-14 Aug-14 Sep-14 Sep-14 Sep-14 Oct-14 Oct-14 Oct-14 Nov-14 Polish Equity Research Poland ALUMETAL Automotive shift to CEE Industrials NOVEMBER 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN44.0 TARGET PRICE: PLN52.4 Equity Story. Alumetal is the fourth biggest secondary aluminium (aluminium casting alloys) producer in Europe, enjoying superior profitability over its competitors thanks to an advanced metal management system, its modern facilities and lower staff costs. The company is capitalising on the shift of the automotive industry production to the CEE region from Western Europe. According to OICA data, the share of the CEE5 countries (Poland, Hungary, Czech Republic, Slovakia and Slovenia) in EU engine and gearbox production (main use for aluminium casting alloys) rose to 13% in 2012 from 1% in 2005 and this trend continues. Following the second stage of the Nowa Sol project, which expanded capacities by additional 33kt, we expect Alumetal to reach a nearly 93% utilisation this year. The company decided to launch a greenfield investment in Hungary, which will expand its capacities by another 60kt (to 225kt), starting from 4Q16. We believe that this a good move for Alumetal as it has a dominant position on the domestic market (with a 50% market share) and has already established a base of clients in Southern Europe (Hungary is, for instance, its third biggest export market so far). The Hungarian project should allow Alumetal to grow by leaps and bounds once more. The strong balance sheet and cash generation will enable it to finance this project (CAPEX of PLN120mn) and to simultaneously maintain its 50% dividend payout and safe indebtedness levels (net debt/ebitda 16 at 1.2x) Financials. We assumed the alloy-to-scrap spread at PLN1,365/t for the forecasted period, in line with the historical average. Having said that, the company should be able to maintain its 8.5% gross profit margin. We also expect the new capacities in Hungary to be utilised in 65% in the first full year of their running (though this will cannibalise the previous Hungarian sales). Triggers/Risks. The company is heavily exposed to the automotive segment (90% of sales), so any worsening environment in this industry will have a negative impact on the company s financials. The company has a good track record of utilising new capacities but the Hungarian project is Alumetal s first greenfield investment. Valuation & recommendation. Our DCF model points to a TP of PLN52.4 per share. The comparative valuation points to PLN41.8 but since the peer group is flawed (no listed close peers), we have set our TP at PLN52.4, implying a 19% upside potential. Company Data STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended WIG Relative AML The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. COMPANY DESCRIPTION Company is a biggest polish and 4 th biggest in Europe manufacturer of secondary aluminium casting alloys used primarily in automotive sector. Main shareholders % of votes Ipopema 30 FIZAN 40.0% Aviva pension fund 10.0% ING pension fund 5.5% ANALYST Tomasz Kucinski [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes AMT.WA / AML PW Sales Market capitalisation (PLNmn) EBITDA Number of shares (mn) 15.1 EBIT Free float (%) 42.5% Net income Avg. daily turnover 3M (PLNm) 0.7 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 25.8% n.a. 17

18 Fig. 1. Alumetal: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Revenues 1, , , , , , , , , ,717.5 EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditures Net investment Free cash flow WACC 8.2% PV FCF Terminal growth 1.0% Terminal value (TV) PV TV Total EV Net debt 74.8 Equity value Number of shares (mn) 15.1 Value per share (PLN, 31 Dec 2014) 48.3 Month 11.0 Curent value per share (PLN) M target price 52.4 Fig. 2. Alumetal: Comparable valuation Price Mkt cap (EURmn) P/E EV/EBITDA 2014E 2015E 2016E 2014E 2015E 2016E Alumetal SA AMAG Austria Metall AG Hindalco Industries Ltd , Alcoa Inc , United Co RUSAL PLC , Grupa Kety SA Impexmetal SA Median Premium/discount vs. median -15.0% 16.7% -17.4% -3.9% 0.6% 14.9% Source: BZ WBK Brokerage research, company data 18

19 Fig. 3. Alumetal: 3Q14 results review 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q Sales n.a. n.a. n.a. n.a. n.a. n.a % -4.2% EBITDA n.a. n.a. n.a. n.a. n.a. n.a % 48.1% EBITDA margin n.a. n.a. n.a. n.a. n.a. n.a. 3.8% 4.2% 6.0% 6.8% 7.3% 4.4% 6.7% EBIT n.a. n.a. n.a. n.a. n.a. n.a % 75.3% EBIT margin n.a. n.a. n.a. n.a. n.a. n.a. 2.1% 2.4% 4.5% 5.2% 5.8% 2.8% 5.1% Net profit n.a. n.a. n.a. n.a. n.a. n.a % 30.8% Net margin n.a. n.a. n.a. n.a. n.a. n.a. 2.3% 2.1% 4.5% 4.8% 5.5% 3.5% 4.8% Fig. 4. Alumetal: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales n.a. n.a n.a. n.a n.a. n.a. EBITDA 75.4 n.a. n.a n.a. n.a n.a. n.a. EBIT 56.2 n.a. n.a n.a. n.a n.a. n.a. Net profit 55.8 n.a. n.a n.a. n.a n.a. n.a. Fig. 5. Alumetal: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 52.4 n.a. n.a. Comparable valuation (based on E) 41.8 n.a. n.a. Fig. 6. Alumetal: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 7.2% 6.2% 8.5% 8.5% 8.5% EBITDA margin 6.3% 5.3% 6.3% 7.1% 7.1% Operating margin 4.7% 3.6% 4.7% 5.5% 5.2% Net profit margin 4.1% 3.5% 4.7% 4.9% 4.6% Fig. 7. Alumetal: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 8. Ambra:: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

21 Poland AMBRA Growing on cider Equity Story. Ambra is the leading wine and strong, non-vodka alcohol distributor in Poland with a high c.50% share of own brands in its portfolio. Ambra also distributes its products in Romania (c.13% share) and the Czech Republic (c.10%). The company s portfolio includes popular brands, such as: Dorato, Cin&Cin, Piccolo, ElSol, Fesco and Cydr Lubelski. Ambra offers investors exposition to the continuously growing wine market (c-4-5% pa), despite the recent slowdown to just 0-1% in The company has recently invested in cider production and a new brand Cydr Lubelski to benefit from the rising popularity of this soft apple drink in Poland. The cider market is likely to grow to 40mn litres in the next five years, which would constitute just c.1% of the beer market. Ambra can be distinguished from other WSE companies by a good FcF profile. Since its managers turned the company around from when it faced problems with foreign investments in 2008, Ambra generates a stable OCF (avg. conversion ratio at 0.8x), which, along with the limited CAPEX, makes it possible to deliver an attractive FcF yield (11.5% in on average). This has allowed Ambra to start paying attractive DY since 2012, which should, in our view, continue in the coming years. Financials. We expect the 2014/15E results to be pretty much flat y/y, with growth appearing in 2015/16E on the rising positive impact of Cydr Lubelski. We expect Ambra to earn a net profit of PLN16mn and an EBITDA of PLN42mn on sales of PLN468mn (+12% y/y due to the rising sales of cider). In regards to the cider project, we expect an EBIT loss of PLN2mn on sales of 29mn in 2014/15E, which will turn into an EBIT profit of PLN2mn next year. In the long run (2018/19E), we estimate that cider might give a PLN6mn boost to Ambra s bottom line. FMCG NOVEMBER 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN8.8 TARGET PRICE: PLN12.0 STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. COMPANY DESCRIPTION Ambra is one of the largest Polish beverage manufacturers and distributors. Main shareholders % of votes Sektkellerei Schloss-Wachenheim 61.1% Aviva pension fund 7.6% Mr. Nick Gunther Reh 1.3% Free float 30.0% ANALYST Tomasz Sokolowski (+48) [email protected] Valuation & recommendation. Ambra is currently trading with a PE of 14x and 11x in 2014/15-15/16, respectively, which implies a premium vs. fair PE (c.10x). On the other hand, we believe that the relatively high FcF yield justifies such a premium. Based on our DCF model, we arrived at a 12-month TP of PLN12.0 per share, which implies a 38% upside potential. We initiate Ambra s coverage with a Buy rating. Company Data PLNm 2013/ /15E 2015/16E 2016/17E Reuters/Bloomberg codes AMB.WA / AMB PW Sales Market capitalisation (PLNm) 222 EBITDA Number of shares (m) 25.2 EBIT Free float (%) 37.3% Net income Avg. daily turnover 3M (PLNm) 0.1 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % -3.5% -13.4% 21

22 Fig. 1. Ambra: DCF valuation 2014/15E 2015/16E 2016/17E 2017/18E 2018/19E 2019/20E 2020/21E 2021/22E 2022/23E 2023/24E Net sales EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditure Free cashflow WACC ( ) 8.0% PV FCF Terminal growth 2.5% Terminal Value (TV) 447 PV TV 207 Total EV 364 Net debt 86 minorities 4 Equity value 274 Number of shares (m) 25.2 Value per share (PLN, 1 Jan 2014/15) 10.9 Month 11 Current value per share (PLN) 11.0 Year-end target price (PLN) 12.0 Fig. 2. Ambra: Comparable valuation P/E EV/EBITDA ROE g'13-15e PEG2Y Name 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E Sales EBITDA net WHOLESALE METRO % 12% 13% 0% -4% -324% 0.0 BOOKER % 19% 20% 2% 9% 7% 3.1 SYSCO % 19% 20% 5% 7% 10% 2.0 SIAM MAKRO % 49% 54% 15% 25% 22% 1.3 BIZIM % 21% 24% 12% 14% 1% 23.2 Median % 19% 20% 5% 9% 7% 2.0 Ambra % 9% 9% 14.7% 12.8% 18.6% 0.6 vs. wholesalers -47% -48% -44% -28% -33% -30% Source: BZ WBK Brokerage research, company data 22

23 Fig. 3. Ambra: 3Q14 results review 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q Sales % -1.9% EBITDA % % EBITDA margin 8.3% 17.8% 6.4% 2.0% 9.9% 18.3% -1.1% 0.8% 11.3% 17.9% -0.2% 0.0% 10.1% EBIT % % EBIT margin 5.4% 16.4% -4.5% -1.2% 6.7% 16.9% -4.7% -2.4% 8.2% 16.4% -4.1% -3.0% 7.1% Net profit % -57.9% Net margin 3.3% 11.0% -6.7% -3.0% 2.0% 11.0% -4.9% -2.9% 3.9% 11.6% -4.9% 6.5% 3.4% Fig. 4. Ambra: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 468 n.a. n.a. 479 n.a. n.a. 493 n.a. n.a. EBITDA 41 n.a. n.a. 46 n.a. n.a. 47 n.a. n.a. EBIT 30 n.a. n.a. 34 n.a. n.a. 35 n.a. n.a. Net profit 15 n.a. n.a. 19 n.a. n.a. 21 n.a. n.a. Fig. 5. Ambra: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 12.0 n.a. n.a. Comparable valuation (based on E) 15.4 n.a. n.a. Fig. 6. Ambra: Income statement forecast 12/13 13/14 14/15E 15/16E 16/17E Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 33.1% 31.6% 31.7% 31.7% 31.4% EBITDA margin 10.0% 9.8% 8.9% 9.6% 9.6% Operating margin 7.5% 7.2% 6.5% 7.2% 7.2% Net profit margin 3.9% 6.2% 3.4% 4.1% 4.3% Fig. 7. Ambra: Balance Sheet forecast 12/13 13/14 14/15E 15/16E 16/17E Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 8. Ambra: Cash flow forecast 12/13 13/14 14/15E 15/16E 16/17E CF from operations CF from investment CF from financing Net change in cash

25 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland AMICA Hot investment Industrials NOVEMBER 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN109 TARGET PRICE: PLN149 Equity Story. Following the 2010 plans sale to Samsung, we estimate that 2014 will be the fourth year in a row with EBITDA growth exceeding 20%. This year could mark, however, a turnaround for Amica and be the first year of strong growth without a contribution from the Russian market that used to be the main driver in the past. Amica is doing extraordinarily well on the Polish market, taking full advantage of the good market environment, Mastercook s bankruptcy, and combining these two factors with a successful marketing campaign. It has also started to grow dynamically on some of the Western markets (Germany and UK above all). We believe that exports, mainly to the Western markets, and growth in the non-heating segment in Poland should in the coming years be offsetting the likely further slowdown on the Russian market and problems with retaining a very high (ca. 60%) market share in free-standing heating equipment in Poland. We believe that Amica is a company that doesn t bite off more than it can chew it picks new markets wisely and enters them cautiously, yet effectively. It does so without taking too much risk either by entering big distribution channels without huge marketing expenditures or by making opportunistic acquisitions. What is more, Amica has strong balance sheet, with its net debt*/ebitda at 0.9x much lower than its peers. Financials. We estimate Amica s 2014 y/y sales growth at 17.3% (domestic market up by 26% y/y, and the Russian, PLN-denominated sales down 4% y/y), which implies an EBITDA of PLN155mn (+23.8% y/y) and a net profit of PLN80.6mn. We estimate the 2015 and 2016 sales growth at 5.8% and 3.7%, respectively, which translates into an EPS CAGR of 9.3%. Triggers/Risks. The Russian market remains the key risk for Amica the Russian economy is deteriorating and further RUB depreciation could be at some point impossible to be passed onto the final consumer. The situation with Fagor s assets in Poland could be an additional risk but we don t believe Mastercook brand will be able to make a comeback. Valuation & recommendation. Based on our DCF model, we arrived at the 12 month TP at PLN149 per share, which implies a 37% upside potential. Amica is currently trading with a P/E 14 of 10.5x (please also note that the company s PnL and cash tax rates differ significantly) and the EV/EBITDA 14 at 6.4x, i.e. with significant discounts to its international peers. The comparative valuation yields a similar result and points to PLN150. Company Data AMC WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. COMPANY DESCRIPTION Amica is a producer of household appliances. Company specializes in heating equipment and is a clear leader on the Polish market in free-standing segment. Main shareholders % of votes Holding Wronki 56.3% ING pension fund 8.4% ANALYST Tomasz Kucinski [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes AMCP.WA / AMC PW Sales 1,656 1,942 2,055 2,131 Market capitalisation (PLNmn) EBITDA Number of shares (mn) 7.8 EBIT Free float (%) 35.8% Net income Avg. daily turnover 3M (PLNm) 1.3 P/E (x) M 3M YTD Price performance EV/EBITDA (x)* % 23.9% 2.4% *taking into account factoring of PLN100mn in 2014 (growing accordingly to sales growth afterwards) 25

26 Fig. 1. Amica: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Revenues 1, , , , , , , , , ,451.7 EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditures Net investment Free cash flow WACC 9.1% PV FCF Terminal growth 1.0% Terminal value (TV) 1,388.6 PV TV Total EV 1,208.9 Net debt Equity value 1,065.4 Number of shares (mn) 7.8 Value per share (PLN, 31 Dec 2014) Month 11.0 Current value per share (PLN) M target price Fig. 2. Amica: Comparable valuation Price Mkt cap (EURmn) P/E EV/EBITDA 2014E 2015E 2016E 2014E 2015E 2016E Amica Wronki Indesit , Arcelik , n.a. n.a. n.a. Electrolux , Whirlpool , Gorenje De' Longhi , Median Premium/discount vs. median -44.6% -31.4% -23.6% -25.9% -12.4% -9.2% Source: BZ WBK Brokerage research, company data 26

27 Fig. 3. Amica: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Sales % 15.9% EBITDA % 7.6% EBITDA margin 5.7% 5.8% 5.2% 4.5% 9.1% 6.3% 7.3% 5.0% 7.5% 9.3% 7.9% 8.6% 8.0% EBIT % 8.7% EBIT margin 4.4% 4.4% 3.6% 2.7% 7.7% 4.7% 5.4% 2.9% 5.9% 7.8% 6.0% 6.9% 6.5% Net profit % 16.0% Net margin 5.1% 13.8% 3.4% 0.1% 4.1% 3.6% 3.7% 1.5% 9.3% 6.0% 3.1% 4.6% 4.6% Fig. 4. Amica: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 1942 n.a. n.a n.a. n.a n.a. n.a. EBITDA 155 n.a. n.a. 160 n.a. n.a. 172 n.a. n.a. EBIT 123 n.a. n.a. 128 n.a. n.a. 133 n.a. n.a. Net profit 81 n.a. n.a. 93 n.a. n.a. 96 n.a. n.a. Fig. 5. Amica: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 149 n.a. n.a. Comparable valuation (based on E) 150 n.a. n.a. Fig. 6. Amica: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 27.8% 31.1% 31.8% 31.7% 31.7% EBITDA margin 6.3% 7.6% 8.0% 7.8% 8.1% Operating margin 4.7% 5.8% 6.3% 6.2% 6.2% Net profit margin 3.0% 5.4% 4.1% 4.5% 4.5% Fig. 7. Amica: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig.8. Amica: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

29 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland APATOR Obstacles for growth? Industrials NOVEMBER 12, 2014 RECOMMENDATION HOLD (INITIATION) CURRENT PRICE: PLN38.0 TARGET PRICE: PLN42.4 Equity Story. Apator has a long track record of growth, attributable to successful acquisitions and growth of the traditional meters market. Now that the markets seem either mature or declining, its products offer is comprehensive and market share high, the company needs to come up with something new. Apator sees significant opportunities in the smart meter market (hence the idea of the Elkomtech acquisition). According to EU guidelines, each country should replace 80% of all the electricity meters with a smart version by Only 16 EU countries decided, however, to do so (five EU countries also decided to implement intelligent gas meters) and others (including most of Poland s neighbours) decided against a massive rollout, claiming that it is, at least to a significant extent, poor value for money. So far, based on the first tenders, it does not look like this will be a producer s market competition is high and pricing, the most important criterion, aggressive. The situation on the export markets does not look much different either. Apator just signed its first electricity smart metering contract, but it looks like conquering this potentially attractive market will not be a piece of cake, even for such an experienced company. Financials. We are of the opinion that Apator will not reach its management s sales forecast, likely reporting PLN711mn. It will, however, in our opinion exceed the net profit forecast of PLN75-78mn (+22.8% y/y, roughly flat, however, if adjusting for Elkomtech and other operating income). The upcoming years will bring slow growth (EPS14-16 CAGR assumed at 5.1%), with only finally offering a pickup in the company s results due to the smart metering project s reaching its final and most valuable stages. Triggers/Risks. The main risk for Apator s future is the shape of the smart metering market, mainly in Poland but also on the company s export markets, and, more specifically, the factors that will drive this market. Please note also that Apator has quite a significant exposure to the Russian market 9.2% of its consolidated sales in 1H14 Valuation & recommendation. We are initiating coverage with a Hold recommendation and a TP of PLN42.4 (adding back the interim dividend that will be paid in December). The comparative valuation points to PLN41.1, treating the treasury shares as a cash equivalent (without the possible tax impact, however) or PLN43.7, assuming the treasury shares get cancelled. Company Data APT WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. COMPANY DESCRIPTION Apator is a polish leading Polish supplier of metering systems for all the utility services and also low voltage switchgear. Main shareholders % of votes Mariusz Lewicki 9.8% Tadeusz Sosgórnik 8.7% Danuta Guzowska 7.8% Zbigniew Jaworski 6.4% Apator Mining 6.4% Janusz Marzyglinski 6.2% ANALYST Tomasz Kucinski [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes APTP.WA / APT PW Sales Market capitalisation (PLNmn) 1,257.4 EBITDA Number of shares (mn) 33.1 EBIT Free float (%) 51.5% Net income Avg. daily turnover 3M (PLNm) 0.3 P/E (x) / / /12.1 1M 3M YTD Price performance EV/EBITDA (x) % 10.1% 3.7% 29

30 Fig. 1. Apator: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Revenues EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditures Net investment Free cash flow WACC 8.4% PV FCF Terminal growth 1.0% Terminal value (TV) 1,281.1 PV TV Total EV 1,216.4 Net debt Minority interests 1.5 Equity value 1,273.5 Number of shares (mn) 33.1 Value per share (PLN, 31 Dec 2014) 38.5 Month 11.0 Curent value per share (PLN) 38.2 interim dividend per share M target price 42.4 Fig. 2. Apator: Comparable valuation Price Currency P/E EV/EBITDA 2014E 2015E 2016E 2014E 2015E 2016E Apator SA Aplisens SA n.a. n.a. 7.3 n.a. n.a. Schneider Electric SE , Osaki Electric Co Ltd Vaisala OYJ Badger Meter Inc n.a. Itron Inc , Median Premium/discount vs. median -27.1% -14.0% 6.0% -6.1% -6.0% 14.5% Source: BZ WBK Brokerage research, company data 30

31 Fig. 3. Apator: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Sales % -1.1% EBITDA % 0.9% EBITDA margin 20.1% 15.1% 16.0% 15.6% 25.5% 11.0% 13.4% 16.2% 20.1% 14.1% 17.6% 18.3% 18.7% EBIT % 1.0% EBIT margin 17.2% 12.5% 13.4% 12.5% 23.0% 8.0% 10.3% 13.3% 16.9% 11.2% 14.3% 15.2% 15.5% Net profit % -1.2% Net margin 11.6% 9.4% 10.0% 22.8% 18.2% 6.3% 7.7% 9.8% 13.4% 9.6% 10.5% 12.1% 12.0% Fig. 4. Apator: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales n.a. n.a n.a. n.a n.a. n.a. EBITDA n.a. n.a n.a. n.a n.a. n.a. EBIT n.a. n.a n.a. n.a n.a. n.a. Net profit 83.7 n.a. n.a n.a. n.a n.a. n.a. Fig. 5. Apator: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 42.4 n.a. n.a. Comparable valuation (based on E) 41.1 n.a. n.a. Fig. 6. Apator: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 27.6% 29.5% 31.3% 31.0% 31.0% EBITDA margin 17.4% 15.7% 18.3% 18.3% 18.2% Operating margin 14.7% 12.6% 15.2% 15.0% 15.0% Net profit margin 14.2% 10.0% 11.8% 11.8% 11.9% Fig. 7. Apator: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 8. Apator: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

33 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland ASSECO SEE Overcoming headwinds IT NOVEMBER 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN7.51 TARGET PRICE: PLN10.30 Equity Story. Asseco South Eastern Europe (ASE) operates in 11 Balkan countries and in three segments banking systems, payments and integration. The company is a regional leader and, in countries like Serbia, has a market position as strong as Asseco Poland on the Polish market. ASE was created from a merger of many smaller local companies and it remains active on the M&A field. It has a relatively good track record in acquisitions and has a transparent capital group structure. It successfully carried out buyouts of minority stakes at the acquired companies, something that Asseco Poland seems unable to do. ASE operates on markets that are less developed than in Poland and which should yield higher growth rates in the long-term. But the poor macro environment has so far not allowed the positive scenario to materialise. Financials. From the beginning of 2014, the company has been switching its payments business into a full outsourcing model. This leads to higher CAPEX on payment terminals, which is mostly financed by bank debt. The P&L impact is a higher top-line and EBITDA, flat EBIT. In our opinion, the mix of organic growth and acquisitions will allow ASE to continue the recovery that started in The payments business unit should report the fastest pace of growth, while the share of the least marginable integration segment in revenues should shrink. We expect ASE to report a net profit of PLN36.4mn and PLN37.7mn in 2014E and 2015E, respectively, which implies the 2014E P/E at 11.1x and 2015E P/E 10.4x. We expect the dividend pay-out at 60% of the net profit, which gives an attractive DY close to 6%. At our TP, Asseco SEE still offers an attractive 4% DY. Triggers/Risks. The company is a play for the macro recovery in the SEE region. It has had troubles coping with the difficult market conditions in the last couple of years. The macro rebound should, however, be very positive to ASE s business. We have not factored in any solid recovery into our model and are, therefore, leaving it as a pure upside for the company s shareholders. Valuation & recommendation. Based on our DCF model, we arrived at a 12 month TP of PLN10.30 per share, which implies a 37% upside potential. In our model, we applied a beta of 1.2 due to the presence on the less developed Balkan markets. The comparative valuation points to PLN8.9 per share. Company Data ASE STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended WIG Relative The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. COMPANY DESCRIPTION Asseco South Eastern Europe is a developer of IT solutions for business. MAIN SHAREHOLDERS % of votes Asseco Poland 51.1% EBRD 9.3% Liatris 7.4% Aviva pension fund 7.4% ANALYST Lukasz Kosiarski (+48) [email protected] PLNmn E 2015E 2016E Reuters/Bloomberg codes ASEP.WA / ASE PW Sales Market capitalisation (PLNm) 390 EBITDA Number of shares (m) 51.9 EBIT Free float (%) 32.3% Net income Avg. daily turnover 3M (PLNm) 0.0 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % -1.1% -19.1% 33

34 Fig. 1. Asseco South Eastern Europe: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Net sales EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditure Free cashflow WACC ( ) 9.0% PV FCF Terminal growth 1.0% Terminal Value (TV) PV TV Total EV Net debt Equity value Number of shares (m) Value per share (PLN, 1 Jan 2014/15) 8.87 Month 11 Current value per share (PLN) month target price (PLN) Fig. 2. Asseco South Eastern Europe: Comparable valuation Market Cap P/E EV/EBITDA Company Price Currency (EURmn) 2014E 2015E 2016E 2014E 2015E 2016E Asseco South Eastern Europe 7.51 PLN Peers Asseco Poland PLN Asseco Business Solutions PLN Asseco Central Europe PLN n.a. n.a. n.a. n.a. Comp PLN Sygnity 17 PLN GFI Informatique 5.06 EUR Neurones 14 EUR Reply EUR Cap Gemini 52 EUR 8, Computacenter GBp 1, SAP 54 EUR 66, Indra Sistemas 8 EUR 1, Median Implied share price vs. peers (PLN) Implied price (PLN) 8.9 Source: BZ WBK Brokerage research, company data 34

35 Fig. 3. Asseco South Eastern Europe: 3Q14 results review 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q Sales % -4.8% EBITDA % 11.8% EBITDA margin 14.8% 14.5% 14.1% 12.7% 14.0% 14.1% 13.0% 11.1% 12.3% 11.4% 12.7% 13.4% 15.7% EBIT % 12.9% EBIT margin 12.9% 12.8% 11.7% 10.4% 11.5% 11.8% 9.8% 8.0% 9.1% 8.9% 8.1% 8.7% 10.3% Net profit % 1.4% Net margin 11.4% 12.5% 12.1% 9.4% 10.6% 10.9% 7.8% 6.5% 8.0% 8.1% 7.1% 7.5% 8.0% Fig. 4. Asseco South Eastern Europe: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales n.a. n.a n.a. n.a n.a. n.a. EBITDA 66.3 n.a. n.a n.a. n.a n.a. n.a. EBIT 44.2 n.a. n.a n.a. n.a n.a. n.a. Net profit 37.7 n.a. n.a n.a. n.a n.a. n.a. Fig. 5. Asseco South Eastern Europe: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 10.3 n.a. n.a. Comparable valuation (based on E) 8.9 n.a. n.a. Fig. 6. Asseco SEE: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 26.9% 24.9% 24.4% 24.3% 24.4% EBITDA margin 13.7% 11.9% 13.9% 15.2% 15.5% Operating margin 11.4% 8.9% 9.3% 9.5% 9.8% Net profit margin 10.7% 7.6% 7.9% 7.7% 7.9% Fig. 7. Asseco SEE: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 8. Asseco SEE: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

37 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland ASSECO BUSINESS SOLUTIONS Programmed to generate cash IT NOVEMBER 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN12.30 TARGET PRICE: PLN16.40 Equity Story. Asseco Business Solutions (ABS) is a unique company in the Asseco group. It is a product company, not a simple software integrator, and this is why it is able to generate one of the highest margins in the Asseco group. The company operates in two segments ERP systems and FMCG-dedicated mobile applications that both have a similar share in the revenues. ABS is one of market leaders in the saturated FMCG mobile applications market in Poland. To maintain growth in this segment, ABS decided this year to start selling its Mobile Touch product abroad. The company is a typical cash cow. It has low CAPEX and working capital requirements, it generates stable and high FCFs. It also has a strong balance sheet despite its dividend payouts of 100% of the net profit for the last couple of years. Financials. In our opinion 1) the supportive ERP market, which is correlated with the overall macro situation in Poland and 2) the company s foreign expansion with the FMCG application should allow it to sustain mid-single digit y/y growth pace for the next three-four years. Asseco BS trades at 2014E P/E 13.9x and 2015E P/E 13.5x, with a premium vs. the parent company, for example, but offers an attractive DY at above 7%. At our TP, Asseco BS still offers a decent 5% DY. Triggers/Risks. In our opinion, the foreign expansion with the FMCG-dedicated products is the major valuation driver for Asseco BS. It aims to sustain growth in the segment now that the local market is already saturated. Asseco BS is planning to expand in two directions and in cooperation with other companies in the Asseco group Western Europe with Asseco Solutions and Russia with R-Style. The company has already signed its first large contract in this regard. That said, we also see a potential upside from further distribution of the cash surplus to its shareholders in addition to the 100% dividend, the company can easily afford to launch a share buyback program. Valuation & recommendation. Based on our DCF model, we arrived at a 12 month TP of PLN16.40 per share, which implies a 33% upside potential. In our opinion, due to the attractive product mix, high DY and strong balance sheet, ABS fully deserves the premium vs. its peers. The comparative valuation points to PLN10.3 per share WIG Relative ABS STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. COMPANY DESCRIPTION Asseco Business Solutions is a developer of IT solutions for business. MAIN SHAREHOLDERS % of votes Asseco Poland 46.5% Metlife pension fund 10.5% Aviva pension fund 9.8% ANALYST Lukasz Kosiarski (+48) [email protected] Company Data PLNmn E 2015E 2016E Reuters/Bloomberg codes ABSP.WA / ABS PW Sales Market capitalisation (PLNm) 411 EBITDA Number of shares (m) 33.4 EBIT Free float (%) 47.2% Net income Avg. daily turnover 3M (PLNm) 0.0 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 10.6% -5.4% 37

38 Fig. 1. Asseco Business Solutions: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Net sales EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditure Free cashflow WACC ( ) 8.0% PV FCF Terminal growth 1.0% Terminal Value (TV) PV TV Total EV Net debt Equity value Number of shares (m) Value per share (PLN, 1 Jan 2014/15) Month 11 Current value per share (PLN) month target price (PLN) Fig. 2. Asseco Business Solutions: Comparable valuation Market Cap P/E EV/EBITDA Company Price Currency (EURmn) 2014E 2015E 2016E 2014E 2015E 2016E Asseco Business Solutions PLN Peers Asseco Poland PLN Asseco South Eastern Europe 7.51 PLN Asseco Central Europe PLN n.a. n.a. n.a. n.a. Comp PLN Sygnity 17 PLN GFI Informatique 5.06 EUR Neurones 14 EUR Reply EUR Cap Gemini 52 EUR 8, Computacenter GBp 1, SAP 54 EUR 66, Indra Sistemas 8 EUR 1, Median Implied share price vs. peers (PLN) Implied price (PLN) 10.3 Source: BZ WBK Brokerage research, company data 38

39 Fig. 3. Asseco Business Solutions: 3Q14 results review 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q Sales % 4.4% EBITDA % 8.9% EBITDA margin 28.5% 27.2% 28.0% 23.2% 30.5% 35.2% 31.4% 25.8% 32.0% 29.7% 30.8% 30.1% 31.4% EBIT % 15.2% EBIT margin 20.7% 22.8% 20.7% 15.3% 22.8% 28.7% 22.7% 17.0% 22.8% 23.7% 23.5% 20.3% 22.4% Net profit % 13.6% Net margin 17.8% 19.2% 18.1% 13.9% 19.4% 24.3% 19.9% 14.8% 18.8% 19.4% 19.7% 17.2% 18.7% Fig. 4. Asseco Business Solutions: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales n.a. n.a n.a. n.a n.a. n.a. EBITDA 47.3 n.a. n.a n.a. n.a n.a. n.a. EBIT 35.1 n.a. n.a n.a. n.a n.a. n.a. Net profit 29.8 n.a. n.a n.a. n.a n.a. n.a. Fig. 5. Asseco Business Solutions: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 16.4 n.a. n.a. Comparable valuation (based on E) 10.3 n.a. n.a. Fig. 6. Asseco BS: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 32.5% 31.4% 34.0% 33.1% 32.9% EBITDA margin 29.4% 29.7% 30.5% 29.4% 29.3% Operating margin 22.0% 21.8% 22.6% 21.6% 21.6% Net profit margin 19.0% 18.4% 19.2% 18.4% 18.3% Fig. 7. Asseco BS: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 8. Asseco BS: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

41 Poland ATREM Waiting for margin recovery Construction & Real Estate NOVEMBER 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN 4.9 TARGET PRICE: PLN 7.1 (MAINTAINED) Equity story: The long-awaited margin rebound in the construction niches where Atrem operates is not materialising and it is unlikely to emerge any time soon. In our view, we will take a little longer before better times arrive for Atrem in terms of generating margins on contracts. On the other hand, we do not change our overall view on Atrem. For us, Atrem operates in attractive niches of the construction market (mainly automatics and high-voltage power engineering), which offers an exposure to the new round of EU funds flows, and is well-balanced, with an estimated FY 14 net cash of PLN7mn. In this light, we believe Atrem is well-prepared for a rebound in margins, which we expect to finally materialise some time ahead. 3Q14 Results Preview. 3Q14 was another weak period for Atrem. Despite the fact that its sales are still growing nicely, the company continues to suffer from low margins, which makes it impossible to make money from its core business. Sales should be by 27%y/y higher at PLN25mn, with the gross margin at 9.0% or PLN2.2mn in 3Q14. We expect the SG&A costs at PLN3.1mn (12.4% vs. 12.6%) and PLN1.5mn of other operating gains in 3Q14 due to the release of provisions. Overall, we expect a positive EBITDA of PLN1.4mn. On an adj. basis, EBITDA would turn negative to a tiny loss of PLN0.1mn, compared to positive PLN0.9mn last year. With no major changes in financials or taxes, this should result in a bottom line of PLN0.5mn or a loss of PLN0.7mn on an adj. basis. Outcome: NEGATIVE. Change in valuation & recommendation. We maintain our Buy recommendation. Our DCF-based valuation points to PLN7.10/share. The comparative valuation points to PLN5.20/share. PUBLICATION DATE NOVEMBER 14, Q14 RESULTS PREVIEW 3Q14E y/y (%) q/q (%) Sales EBITDA EBIT Net profit STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Buy 10/22/ % 2.4 Hold 4/28/ % Buy 1/30/ % Buy 10/23/ % 36.8 COMPANY DESCRIPTION Atrem is an engineering company with a wide range of products and services related to industrial process automation, telemetrics, regulation, electronics and metrology. Company Data ANALYST Tomasz Sokolowski (+48) [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes ATRP.WA / ATR PW Sales Market capitalisation (PLNm) 45 EBITDA Number of shares (m) 9.2 EBIT Free float (%) 27.4 Net income Avg. daily turnover 3M (PLNm) 0.0 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 0.4% -28.9% 41

42 Fig. 1. Atrem: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%) Sales % -28.8% EBITDA % -24.1% EBITDA margin -0.4% 5.7% 4.6% -16.0% -9.9% -15.5% 4.6% 3.1% 4.7% 6.9% 7.2% 5.1% 5.4% EBIT % -40.9% EBIT margin -3.1% 4.5% 2.8% -18.6% -12.6% -17.7% 1.1% 0.1% 2.0% 5.0% 3.8% 3.2% 2.6% Net profit % -23.7% Net margin -3.9% 2.9% 1.4% -16.9% -11.2% -14.8% 0.7% 0.5% 1.0% 3.6% 3.0% 2.0% 2.1% Fig. 2. Atrem: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales % % % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. Atrem: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation n.a. Comparable valuation (based on E) % Fig. 4. Atrem: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 7.3% 15.7% 11.6% 13.1% 14.5% EBITDA margin -8.1% 5.1% 5.4% 4.0% 5.3% Operating margin -10.3% 2.5% 3.0% 1.5% 3.0% Net profit margin -9.3% 1.7% 2.5% 1.4% 2.6% Fig. 5. Atrem: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 6. Atrem: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

43 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland BANK BPH Who s going to buy? FINANCIALS NOVEMBER 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN TARGET PRICE: PLN Equity story. We are initiating our coverage of Bank BPH with a Buy rating and a TP of PLN (15% upside potential). The bank is not a technology leader and does not offer strong growth prospects, but it is officially up for sale by GE. Our calculations show that banks in Poland were generally sold between P/BV 1.11x (BGZ) and 1.77x (Santander CB), while BPH is currently trading at P/BV 0.7x, which implies PLN Our TP is based equally on weight valuation for a strategic investor (PLN78.11) and for a financial investor (PLN41.39). Earnings outlook. Following the 43% fall in earnings in 2014E, we expect earnings to drop further to PLN25mn (down 80% y/y) in 2015E and to improve to PLN103mn in 2016E. We expect the drop in 2014 to be mainly caused by a lower NII due to interest rate cuts in Poland. Our estimates show that the bank has around PLN4bn in cash loans and most of these are at 16%. BPH s CFO Andras Bende said, when commenting on the bank s 2Q14 results, that if interest rates fell by 25 bp, with both loans and deposits repriced by 25bp ceteris paribus, the NII would fall by more than PLN25mn. We assume that the bank will continue its restructuring process, leading to a probable fall in the cost of risk (BPH shows very good results in AQR tests). Dividend prospects. We expect no dividends in the period. Valuation. Based on our 2014E estimates, BPH trades at 35.6x earnings and P/Book of 0.77x, while offering a 2% ROE. These multiples may seem very expensive for a financial investor (high P/E) and very cheap for a strategic investor (P/BV). When calculating the valuation for a strategic investor, we used a regression model of ROE and P/BV of the recent M&A bank transactions. Assuming the ROE at 4%, the valuation should be at around P/BV 1.2x. We used a residual income model for the financial investor. Price target and recommendation. We set our TP at PLN59.75 (15.4% upside potential), deriving it from a 50/50 blend of two methodologies regression of P/BV and ROE from the recent M&A, from which we get fair P/BV 1.2x and PLN78.11 (53% upside potential), as well as a residual income model. We used a RFR of 3.0% (3-month average), Beta of 0.9, risk premium of 5% and g of 1.0% and got PLN (19% downside potential). Triggers/Risks. BPH has been in a state of permanent restructuring ever since its takeover by GE but with no positive result. The bank s C/I is currently one of the highest in the sector (80%+) and its loans portfolio is shrinking pretty much every quarter. We suspect that BPH might be a good bridge for a foreign bank that wants to enter the Polish market and we expect that the transaction could be closed by the end of next year, offering a trigger for the stock s price. If GE changed its mind and did not sell it, BPH s share price would stand at around PLN41. Company Data BPH WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) n.a. n.a. n.a. n.a. n.a. n.a. COMPANY DESCRIPTION BPH is Poland 12 th largest bank by assets. The bank was established in its current shape back in 2009 when a slimmed-down BPH was merger with GE Money Bank.. Main shareholders % of votes GE capital group 89.1% Andrzej Bieniek Securities broker, Investment advisor (+48) [email protected] Dariusz Górski (+48) [email protected] ANALYSTS PLNmn E 2015E 2016E Reuters/Bloomberg codes BPH.WA /BPHR PW NII Market capitalisation (PLNm) 3,910 Total income 1,536 1,333 1,164 1,260 Number of shares (m) 76.7 Provisions Free float (%) 10.9% Net profit Avg. daily turnover 3M (PLNm) 0.34 P/E (x) M 3M YTD Price performance P/BV (x) % 23.6% -6.4% 43

44 Fig. 5. Bank BPH: Residual Income valuation 2014E 2015E 2016E Net profit Equity (YE) 5,070 5,095 5,198 ROE 2.2% 0.5% 2.0% COE 7.5% 7.5% 7.5% Excess return -5.3% -7.0% -5.5% Residual income PV of residual income ( E) -784 Growth (CAGR) ROE (avg.) Pay-out (avg.) Total value PV Transition period ( E) 18.8% 4.7% 91% -1, Perpetuity 1.0% 5.7% 95% -1, Total intrinsic value -2,212 # of shares (m) 77 Value per share Last reported BVPS 65.1 Fair value (Jan'14) 36.2 Month 10 Fair value (current) 38.5 Upside potential 41.4 Upside potential -19% Fig. 6. Bank BPH: Peers for M&A transactions Polbank 1.68 n.a. Kredyt Bank Nordea Santander CB BGZ Meritum Median avg Market cap weight Implied BPH price from Median Implied BPH price from average Implied BPH price from market cap weight Implied BPH price from ROE regression n.a. Upside potential 53% Source: BZ WBK Brokerage research, company data P/BV P/E Fig. 7. Bank BPH: Regression of P/BV and ROE for banks M&A transactions 25% 25% R² = ROE (Y-1) ROE (current) Santander CB 20% 20% Meritum R² = Santander CB 15% 15% Kredyt Bank 10% Nordea BGZ 5% Meritum P/BV Bank BPH 0% % BGZ Kredyt Bank 5% BPH Nordea P/BV 0% Source: BZ WBK Brokerage research, company data 44

45 Fig. 8. Bank BPH: Sensitivity analysis to P/BV multiple P/BV Price Source: BZ WBK Brokerage research, company data Fig. 9. Bank BPH: 3Q14 results preview 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q NII % 1% F&C % -12% Other income % 24% Revenues % -1% Operating costs % -5% Operating profit % 16% Provisions % 12% Net profit % 18% Fig. 10. Bank BPH: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change NII 878 n.a. 0% 703 n.a. 0% 794 n.a. 0% F&C 359 n.a. 0% 366 n.a. 0% 371 n.a. 0% Other income 96 n.a. 0% 95 n.a. 0% 95 n.a. 0% Total income 1,333 n.a. 0% 1,164 n.a. 0% 1,260 n.a. 0% Opex -1,117 n.a. 0% -1,087 n.a. 0% -1,067 n.a. 0% Provisions -63 n.a. 0% -37 n.a. 0% -57 n.a. 0% Net profit 110 n.a. 0% 25 n.a. 0% 103 n.a. 0% Fig. 11. Bank BPH: Valuation changes In PLN per share, unless otherwise stated New Previous Change Residual income 41.4 n.a. 0% M&A peers transaction 78.1 n.a. 0% Blended average target price 59.8 n.a. 0% Fig. 12. Bank BPH: Income statement forecast NII 1, F&C Other income Total income 1,797 1,536 1,333 1,164 1,260 Total opex -1,335-1,132-1,117-1,087-1,067 EBIT (pre-prov.) Net provisions Other Pre-tax Income tax Net profit Key ratios (%) NIM (IEA) Risk adjusted NIM (IEA) Non-interest income/assets Total income/assets Cost/income ratio Cost/assets Cost of risk (bps) Effective tax rate Fig. 13. Bank BPH: Balance Sheet forecast Cash/interbank 5,377 1,073 1, Customer loans 25,376 22,862 21,264 21,331 21,118 Debt securities 5,085 6,841 7,598 6,157 5,690 Total assets 34,416 33,004 32,440 31,039 30,384 Due to banks Customer deposits 13,015 13,361 13,290 12,622 12,570 Equity 4,767 4,960 5,070 5,095 5,198 Loans (yoy, %) -9% -10% -7% 0% -1% Deposits (yoy, %) -4% 3% -1% -5% 0% Assets (yoy, %) -7% -4% -2% -4% -2% L/D Fig. 10. Bank BPH: Key ratios NPLs Coverage ROE ROA

47 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland BENEFIT SYSTEMS Strong momentum 3Q14 Results Review. Benefit Systems reported 3Q14 results visibly above expectations. Revenues stood at PLN109.8mn vs. expectations of PLN mn; company maintained sales y/y growth pace at 22%, which is slightly higher than in previous quarters. Number of active sport cards at the end of 3Q14 increased by 71.4k y/y to 489.0k, 4.7k lower q/q, but seasonality effect was lower than we expected. Gross margin came at record high 31.9% vs. our expectation of 30.1% and 30.6% in 3Q13; in sport cards segment gross margin reached 33.5% vs. 31.5% in 3Q13, over 1.3pp higher than our assumptions. Sport cards segment generated PLN105.3mn revenues and PLN27.3mn EBIT; contribution of new products was sales of PLN3.1mn and EBIT loss PLN4.6mn. EBITDA stood at PLN23.6mn, +34% y/y, above our expectations and market consensus, while net result came at PLN17.7mn, also above expectations. Recent developments. The company issued 68.72k new shares of the C series as part of a motivational scheme. Insiders sold 32.35k shares between Sept.29 and Oct. 2. Benefit Systems hired Grzegorz Haftarczyk as its management s foreign expansion advisor. Expansion of the fitness club chain. Affiliated fitness club chains recently opened several new locations. Calypso Fitness now operates 20 fitness clubs (new clubs in Siedlce and Pila), Fabryka Formy 10 clubs (new clubs in Torun and Zielona Gora), Fitness Academy 5 clubs (unchanged). The newest chain in the BFT group Zdrofit - operates in 9 locations. Change in Forecasts. We apply no changes to our model. Change in Valuation & Recommendation. We keep our 12-month Target Price for Benefit Systems at PLN391 and maintain our Buy rating for the stock. The comparative valuation points to PLN299.2 per share Other NOVEMBER 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN300 TARGET PRICE: PLN391 (MAINTAINED) BFT WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute TP relative (p.p) Buy % 1.9 Buy % 8.2 Buy % MAIN SHAREHOLDERS % of votes Mr. James Van Bergh 24.2% Benefit Invest 23.2% Metlife pension fund 12.9% Mr. Marek Kamola 10.5% ING pension fund 8.2% COMPANY DESCRIPTION The Company provides fringe benefit system solutions including flagship MultiSport Scheme. ANALYST Lukasz Kosiarski (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes BFT.WA / BFT PW Sales Market capitalisation (PLNm) 766 EBITDA Number of shares (m) 2.6 EBIT Free float (%) 42.1% Net income Avg. daily turnover 3M (PLNm) 0.4 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 18.0% -4.8% 47

48 Fig. 1. Benefit Systems: 3Q14 results review 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q Sales % -4.1% EBITDA % 79.0% EBITDA margin 19.1% 10.5% 4.8% 14.6% 21.0% 9.4% 4.7% 9.0% 19.1% 6.8% 4.0% 11.5% 21.5% EBIT % 87.6% EBIT margin 17.9% 9.5% 3.7% 13.4% 19.8% 8.0% 3.5% 7.9% 17.9% 5.6% 2.6% 10.4% 20.3% Net profit % 92.5% Net margin 14.9% 25.5% 3.2% 12.0% 15.7% 5.8% 3.2% 6.3% 13.8% 4.4% 2.5% 8.0% 16.1% Fig. 2. Benefit Systems: Forecasts changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales % % % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. Benefit Systems: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation % Comparable valuation (based on E) % Fig. 4. Benefit Systems: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA reported EBITDA exc. SOP Operating profit reported Operating profit exc. SOP Net financial income (costs) Profit before tax Income tax Net profit Fig. 5. Benefit Systems: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Gross margin 22.2% 22.1% 21.7% 22.3% 22.7% EBITDA margin 12.5% 9.8% 10.9% 11.9% 12.6% Operating margin 11.3% 8.6% 9.8% 10.9% 11.6% Net profit margin 9.3% 7.4% 8.2% 9.1% 9.8% Fig. 6. Benefit Systems: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

49 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland BOS BANK Is ecology trendy enough? Equity story. We are initiating our coverage of BOS with a Buy rating and TP of PLN49.1 (18% upside potential). The bank has been transformed by its new management that took over in The share of the brokerage house s net profit fell to 17% in the group s earnings from 50% in The new management realised it would be hard to earn like a universal bank and began to specialise in ecological products and ecological investments. BOS is also relatively insensitive to interest rate changes. It loses its margin when interest rates are volatile but stabilises when interest rates are calm. The management expects the ecological awareness to grow in Poland in the years ahead, with ecological heating and electricity becoming more popular. It plans to offer comprehensive services for ecological projects (both retail and corporate). For this reason, the group has launched companies that will supply ecological products (solar, wind power etc.), install and service them. Media also speculate that the bank plans to buy FM bank, which, in our opinion, would be positive. FM Bank could increase the scale of operations, add know-how in the SME and smart bank (mobile technology) segments, while BOS could reprice deposits lower. Earnings outlook. We expect a 17% CAGR in the 2014E-16E earnings, mainly driven by ecological products. In 2013, the National Fund for Environmental Protection and Water Management (NFOSiGW) did not subsidise retail clients in their installations of ecological equipment at home. This slowed down the entire retail ecological market and we expect that this programme will start next year, adding PLN20mn in 2015E and PLN15mn in 2016E in fees. In the core revenues, we expect improvement in NIM to 176bp and 195bp in 2015E-16E. In 2016E, we expect to see the biggest improvement in the funds costs, when the bank will be paying off its high-yield bond. The F&C should increase with a 2% CAGR 2014E- 16E. Opex should increase by a mere 2% CAGR E, mainly due to cost optimisation projects that are in progress (back office centralisation, change of the sales model in branches). The cost of risk used to be at very low levels (17-46bp), but it should rise to 60bp in This, however, would still be a very low level relative to other banks. Dividend prospects. We expect no dividends in the E period. Triggers/Risks. We assume that the market of green power for retail will move on and add PLN20mn in 2015 and PLN15mn in If the market remains frozen, the bank will trade at P/E 12.6 for 2015 and P/E 9.8x for Valuation. Based on our sub-consensus 2014E estimates, BOS trades at 11.4x P/E and P/Book of 0.6x, which is below the sector s average. The subsequent years should bring a drop in the multiples, with P/E falling to a single digit territory and ROE rising to 6% from 4% in Price target and recommendation. We set our TP at PLN49.10 (18% upside potential, Buy), deriving it from a 50/50 blend of two methodologies residual income and warranted equity value. We used a RFR of 3.00% (3-month average), Beta of 1.0, risk premium of 5% and g of 2.0% BOS FINANCIALS NOVEMBER 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN 41.5 WIG Relative TARGET PRICE: PLN 49.1 STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) n.a. n.a. n.a. n.a. n.a. n.a. COMPANY DESCRIPTION BOS is Poland 18 th largest bank by assets. Bank is creating innovative banking products in environmental protection field. It also finance corporates in environmental investments and support their business development. Main shareholders % of votes NFOSiGW 56.6% ING OFE 5.2% Andrzej Bieniek Securities broker, Investment advisor (+48) [email protected] Dariusz Górski (+48) [email protected] ANALYSTS Company Data PLNmn E 2015E 2016E Reuters/Bloomberg codes BOS.WA / BOS PW NII Market capitalisation (PLNm) 938 Total income Number of shares (m) 22.9 Provisions Free float (%) 53.4% Net profit Avg. daily turnover 3M (PLNm) 1.2 P/E (x) M 3M YTD Price performance P/BV (x) % -4.3% -12.8% 49

50 Fig. 14. BOS Bank: Residual Income model E 2015E 2016E Net profit Equity (YE) 1,481 1,566 1,656 1,763 ROE 4.5% 5.2% 5.4% 6.0% COE 8.0% 8.0% 8.0% 8.0% Excess return -3.5% -2.8% -2.6% -2.0% Residual income PV of residual income ( E) -102 Growth (CAGR) ROE (avg.) Pay-out (avg.) Total value PV Transition period ( E) 6.5% 6.6% 21% Perpetuity 2.0% 6.5% 50% Total intrinsic value -515 # of shares (m) 23 Value per share Last reported BVPS 66.4 Fair value (Jan'14) 43.9 Month 10 Fair value (current) month target price 50.6 Upside potential 25% Fig. 15. BOS Bank: Warranted Equity Valuation 2016E ROE (%) 6.0 COE (%) 8.0 g (%) 2.0 Implied fair P/B (x) 0.7 YE16E BVPS 77.1 Fair value (YE16) 52.0 PV of fair value 41.3 DPS14E 0.0 DPS15E 0.0 DPS16E 0.0 PV of E DPS 0.0 PV of equity + DPS (Jan'14) 41.3 Month 10 PV (current) month price target 47.6 Upside potential 18% Fig. 16. BOS Bank: COE calculation RFR* (%) 3.0 Risk premium (%) 5.0 Beta 1.0 COE (%)

51 Fig. 17. BOS Bank: 3Q14 results review 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q Net interest income % -7% Fee income % 7% Other income % 6% Revenues % -1% Operating costs % -5% Operating profit % 8% Provisions % 1% Net profit % 1% Fig. 18. BOS Bank: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change NII 286 n.a. 0% 328 n.a. 0% 369 n.a. 0% F&C 106 n.a. 0% 112 n.a. 0% 118 n.a. 0% Other income 130 n.a. 0% 125 n.a. 0% 112 n.a. 0% Total income 522 n.a. 0% 564 n.a. 0% 599 n.a. 0% Opex -381 n.a. 0% -383 n.a. 0% -388 n.a. 0% Provisions -44 n.a. 0% -71 n.a. 0% -79 n.a. 0% Net profit 81 n.a. 0% 90 n.a. 0% 107 n.a. 0% Fig. 19. BOS Bank: Valuation changes In PLN per share, unless otherwise stated New Previous Change Residual income 50.6 n.a. 0% WEV 47.6 n.a. 0% Blended average target price 49.1 n.a. 0% Fig. 20. BOS Bank: Income statement forecast NII F&C Other income Total income Total opex EBIT (pre-prov.) Net provisions Pre-tax Income tax Net profit Key ratios (%) NIM (IEA) Risk adjusted NIM (IEA) Non-interest income/assets Total income/assets Cost/income ratio Cost/assets Cost of risk (bps) Effective tax rate Fig. 21. BOS Bank: Balance Sheet forecast Cash/interbank 1, Customer loans 11,122 12,055 12,440 12,725 12,892 Debt securities 3,937 4,670 5,700 5,700 5,700 Total assets 18,867 18,417 19,646 19,931 20,097 Due to banks Customer deposits 11,816 13,196 14,774 14,627 14,324 Equity 1,442 1,481 1,566 1,656 1,763 Loans (yoy, %) -2% 8% 3% 2% 1% Deposits (yoy, %) 4% 12% 12% -1% -2% Assets (yoy, %) 21% -2% 7% 1% 1% L/D Fig. 22. BOS Bank: Key ratios (%) NPLs Coverage ROE ROA

53 Poland BUDIMEX First choice contractor Construction & Real Estate November 12, 2014 RECOMMENDATION HOLD (MAINTAINED) CURRENT PRICE: PLN134.9 TARGET PRICE: PLN153 (MAINTAINED) Equity story. Budimex is the rare example of a WSE-listed general contractor, which managed to make money on large road contracts over the last few years. GDDKiA, the sector s key investor, is now starting to distribute motorway and express road contracts co- financed by EU funds and this should shortly translate into spending growth. As in the past, we think Budimex should be able to take full advantage of the rising road expenditures and gradually boost its profits from 2016, when growth in road expenditures should accelerate is also when the Turow power contract should start contributing. The rise in earnings should also be accompanied by cash generation and dividend payments. Overall, as the largest and the most liquid WSE-listed construction company, Budimex should remain the first choice company in the sector, in our view. However, in light of the <15% fundamental upside, we maintain our recommendation at Hold. Change in forecasts. We maintain our financial forecast intact. We expect flattish y/y earnings in 2015, and earnings growth in 2016, in which we project accumulation in construction works. Triggers & risks. Triggers include: 1) backlog q/q growth in 4Q since Budimex won a few tenders by offering the cheapest offers (likely the signing of the PLN1.32bn contract for Ostroleka road bypass construction), 2) we expect GDDKiA to continue to distribute contracts that are co-financed by EU funds, which should secure further backlog growth in 2015 and result in strong profits momentum in 2016E, 3) the housing boom opens room for gradual growth in flats sale volumes by the Budimex Nieruchomosci subsidiary, 4) probable high dividend payout next year. Risks include: 1) growth in construction costs (probable result of accumulation in construction works in Poland) may put pressure on margins, 2) new regulations prioritising subcontractors may have a slightly negative effect on the company s cash position in 2015 and beyond. Change in Valuation & Recommendation. We maintain our Target Price based on a DCF valuation at PLN153. We also maintain Hold recommendation. STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Hold % -1.7 Hold % 11.5 Hold % Hold % 2.8 Hold % 10.5 COMPANY DESCRIPTION Budimex is a general contractor, residential project developer and timber frame houses producer. It has a leading position among contractors specialising in comprehensive general construction works in Poland, with a focus on road building. Main shareholders % of votes Valivala Holdings BV 59.1% Aviva pension fund 7.1% ANALYST Adrian Kyrcz (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes BDXP.WA / BDX PW Sales Market capitalisation (PLNm) EBITDA Number of shares (m) 25.5 EBIT Free float (%) 40.9% Net income Avg. daily turnover 3M (PLNm) 1.1 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 15.8% 2.2% 53

54 Fig. 1. Budimex: 3Q14 results review 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y (%) q/q (%) Sales % 18.2% EBITDA % 14.1% EBITDA margin 6.3% -5.5% 4.7% 1.9% 3.8% 5.6% 5.8% 4.4% 4.6% 15.2% 7.0% 4.8% 4.6% EBIT % 15.3% EBIT margin 5.8% -6.0% 3.4% 1.1% 3.1% 4.9% 5.0% 3.7% 4.0% 14.6% 6.3% 4.4% 4.3% Net profit % 8.5% Net margin 4.7% -7.0% 3.4% -0.8% 3.2% 7.3% 4.1% 2.7% 3.2% 14.6% 5.1% 3.3% 3.1% Fig. 2. Budimex: Forecasts changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales % % % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. Budimex: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation % Comparable valuation % Fig. 4. Budimex: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Fig. 5. Budimex: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity Total liabilities Net debt Gross margin 7.6% 8.3% 8.1% 8.4% 8.5% EBITDA margin 3.8% 7.6% 4.8% 5.1% 5.6% Operating margin 3.0% 7.0% 4.1% 4.4% 5.0% Net profit margin 3.1% 6.3% 3.6% 3.7% 4.2% Fig. 6. Budimex: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

55 Poland BYTOM FRUITS OF RESTRUCTURING Equity Story. Following the gung-ho management s turn-around of the troubled company through a manufacturing site spin-off and closing of the loss-making subsidiaries, Bytom became a clean retailer of men s formal clothing, which expects to operate 79 stores in its retail chain or 8,053 sqm selling area in 2014E. The coming years should also bring further growth of the retail chain to reach a long-term target of 10,000k sqm. We think that Bytom, with the restructured balance sheet (net cash of PLN2mn), as well as the redesigned store interior and collection, is on the right track to achieve its target. Apart from its organic growth, Bytom mulls takeovers to speed up its growth. The company looks for a brand that offers men s fashion at a rather low price, something that would be more affordable for a wider audience. We view this to be a rational move and the potential success should create a great opportunity for growth on another mass market for the company. Financials. We expect Bytom to add 910/1,040/1,000 sqm in E, respectively. We expect the LfL at 10%, 4% and 4% in E, respectively. Based on these assumptions, we expect Bytom to report sales of PLN101mn/PLN114mn and PLN130mn in E. We expect the gross margin to grow to 62.7% (+207bps), 53.3% (+52bps) and 53.1% (down 12bps) in E. In regards to SG&A, we expect the SG&A/avg. sqm at PLN6,070 (+2.0% y/y), PLN5,952 (-1.9% y/y) and PLN5,977 (+0.4% y/y). Overall, we expect Bytom to earn an EBITDA of PLN10.2mn, PLN12.7mn and PLN14.8mn, while its net profit should come in at PLN7.2mn, PLN9.7mn and PLN9.4mn in E, respectively. Retail NOVEMBER 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN1.4 TARGET PRICE: PLN2.0 STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. COMPANY DESCRIPTION Bytom is a retail company selling mens formalwear. The company operates 79 stores retail chain. Main shareholders % of votes Forum mutual fund 18.4% Investors mutual fund 13.1% Mr. Jan Pilch 11.2% Mr. Michal Wojcik 2.6% Free float 54.7% ANALYST Tomasz Sokolowski (+48) [email protected] Valuation & recommendation. Bytom is currently trading with a PE of 14x and 11x in E. Taking into account its growth, the high ROE (29%-30%) and the clean balance sheet, we believe that PE at c.15-16x would be more fair, in our view. Assuming that we are correct with our FY forecasts, the FY15 still leaves a nearly 30% upside to these levels. Based on our DCF model, we arrived at a 12 month TP of PLN2.0 per share, which implies a 33% upside potential. We initiate coverage with a Buy rating. Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes BTM.WA / BTM PW Sales Market capitalisation (PLNm) 99.8 EBITDA Number of shares (m) 71.3 EBIT Free float (%) 72.3% Net income Avg. daily turnover 3M (PLNm) 0.3 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 27.3% 1.4% 55

56 Fig. 1. Bytom: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Revenues EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditure Net investment Free cash flow WACC ( , %) 8.0% PV FCF Terminal growth (%) 2.5% Terminal Value (TV) 167 PV TV 78 Total EV 123 Net debt -6 Equity value 128 Number of shares (m) 73.1 Value per share (PLN, 1 Jan 2014) 1.8 Month 11 Current value per share (PLN) month target price (PLN) 2.0 Fig. 2. Bytom: Comparable valuation P/E EV/EBITDA PEG ROE DY Name 2014E 2015E 2016E 2014E 2015E 2016E 1Y 2Y 2014E 2015E 2016E 2014E 2015E 2016E LPP % 28.9% 30.6% 1.0% 1.2% 1.4% Monnari % 19.3% 14.9% 0.0% 0.0% 5.0% Bytom % 32.0% 27.5% 0.0% 4.9% 6.7% average % 26.8% 24.4% 0.3% 2.0% 4.4% CCC % 31.2% 1.2% 1.9% 2.5% 0.0% Wojas % 12.3% 11.4% 1.3% 1.9% 0.0% Gino Rossi % 14.2% 13.5% 0.0% 0.0% 0.0% average % 19.2% 8.7% 1.1% 1.5% 0.0% Total - average % 23.0% 16.5% 0.7% 1.7% 2.2% Source: BZ WBK Brokerage research, company data 56

57 Fig. 3. Bytom: 3Q14 results review 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13E 1Q14 2Q14 3Q14 y/y q/q Sales % 7.1% EBITDA % -7.3% EBITDA margin -9.4% -3.1% -3.3% -3.2% -5.7% 10.1% 4.5% 7.6% -0.3% 11.1% 9.6% EBIT % -9.6% EBIT margin -13.8% -6.9% -7.0% -7.2% -9.5% 6.9% 1.7% 4.0% -3.4% 8.2% 7.0% Net profit % -29.7% Net margin -12.9% -8.2% -6.4% -3.3% -11.9% 3.4% 1.2% 7.9% -4.5% 8.3% 5.4% Fig. 4. Bytom: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 101 n.a. n.a. 114 n.a. n.a. 130 n.a. n.a. EBITDA 10 n.a. n.a. 12 n.a. n.a. 14 n.a. n.a. EBIT 7 n.a. n.a. 9 n.a. n.a. 10 n.a. n.a. Net profit 7 n.a. n.a. 9 n.a. n.a. 9 n.a. n.a. Fig. 5. Bytom: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 2.0 n.a. n.a. Comparable valuation (based on E) 1.9 n.a. n.a. Fig. 6. Bytom: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 48.4% 50.7% 52.7% 53.3% 53.1% EBITDA margin -4.6% 4.8% 10.0% 11.2% 11.4% Operating margin -8.5% 1.5% 7.1% 8.3% 8.7% Net profit margin -7.5% 1.2% 7.1% 8.5% 7.2% Fig. 7. Bytom: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 8. Bytom: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

59 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland CD PROJEKT Counting down to Witcher 3 release 3Q14 Results Preview. We expect CD Projekt to report weak quarterly results for several reasons: seasonally low sales in all segments, costs connected with the launch of The Witcher 3 (like participating in video game exhibitions) and costs of new features at GOG (Galaxy and movie distribution). In digital distribution we expect a c. 10% sales increase y/y, the gross margin at 35.0% vs. 27.2% in 3Q13 and the SG&A costs at PLN3.5mn vs. PLN1.5mn year ago. We expect the game development segment to report PLN4.0mn in revenues, which is unlikely to cover the rise in SG&A. The segment s net loss, the first since 1Q11, should equal to PLN2.2mn. The retail distribution segment should suffer a 33% fall in sales (weaker catalogue). Overall, we see the 3Q14 revenues at PLN30.1mn, an EBITDA of PLN-1.3mn, an EBIT of PLN-2.1mn and a net loss of PLN1.4mn. Outcome: NEGATIVE. The Witcher 3 remains high across all the pre-order rankings. According to VGChartz, more than 166k customers in the US alone have pre-ordered the game so far across all the three platforms. Recent Developments. The Company appealed against the court s verdict in the Optimus case. The court decided that CD Projekt will get PLN1.1mn and PLN1.2mn in interest, much below the demanded PLN35.7mn plus interest. The Company also performed an intra-group transaction for The Witcher brand, which should lead to several PLNmn in tax savings in next five years. 4Q14 outlook. Two smaller projects are due for release in 4Q14 a board game - The Witcher The Adventure Game - and a mobile MOBA game The Witcher Battle Arena. We expect their contribution in 4Q14 to sit at a low, singledigit PLNmn. Change in Forecasts. We apply no changes to our model. Change in Valuation & Recommendation. We keep our 12-month Target Price for CD Projekt at PLN18.0 and maintain our Buy rating for the stock. The comparative valuation points to PLN11.45 per share TMT NOVEMBER 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN16.73 TARGET PRICE: PLN18.0 (MAINTAINED) TP STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended CDR WIG Relative The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Buy % 0.7 Buy % 3.3 Hold % 3.9 Hold % -1.2 U.R n.a. 2.1% -1.5 Hold % MAIN SHAREHOLDERS % of votes Shareholders agreement 35.8% PKO mutual fund 9.5% Metlife pension fund 6.3% Aviva pension fund 5.2% COMPANY DESCRIPTION CD Projekt is a game developer and distributor. ANALYST Lukasz Kosiarski (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes CDR.WA / CDR PW Sales Market capitalisation (PLNm) 1,589 EBITDA Number of shares (m) 95.0 EBIT Free float (%) 60.9% Net income Avg. daily turnover 3M (PLNm) 1.2 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 10.9% -4.6% 59

60 Fig. 1. CD Projekt: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Sales % -31.2% EBITDA % % EBITDA margin 21.8% -1.7% 4.0% 26.5% 15.4% 18.8% 12.0% 14.7% 14.3% 9.6% 4.7% 11.9% -4.4% EBIT % % EBIT margin 20.1% -3.4% 0.9% 25.4% 13.7% 17.3% 9.4% 12.4% 12.3% 7.6% 2.0% 7.7% -7.1% Net profit % % Net margin 18.4% -4.2% 2.7% 24.8% 13.7% 16.8% 14.6% 10.3% 11.0% 7.1% 4.9% 7.0% -4.7% Fig. 2. CD Projekt: Forecasts changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales % % % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. CD Projekt: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation % Comparable valuation (based on E) % Fig. 4. CD Projekt: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 45.4% 37.5% 33.0% 50.7% 47.0% EBITDA margin 18.9% 12.7% 7.1% 37.3% 33.5% Operating margin 17.3% 10.5% 4.0% 35.9% 32.2% Net profit margin 17.1% 10.5% 4.0% 30.7% 28.5% Fig. 5. CD Projekt: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 6. CD Projekt: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

61 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland CIECH 3Q14: not that bad, upward trend ahead Chemicals NOVEMBER 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN42.3 TARGET PRICE: PLN51.4 (MAINTAINED) 3Q14 Results Preview. We expect Ciech to report revenues at PLN702mn (-14% q/q and -15% y/y). The y/y drop in revenues is caused by 2% lower soda ash volumes (due to maintenance stoppages), discontinued operations in organic/agro segments and contract end in sulphur trading with Siarkopol. Despite the drop in revenues y/y, improvement in restructuring and profitability in the soda business should lift the EBITDA margin to 16% (up 3p.p. y/y). We, therefore, expect the EBITDA to reach PLN113mn (+4% y/y), the normalised EBITDA at PLN116mn (-10% y/y). All in all, we expect the EBIT at PLN59mn (-29% q/q and +7% y/y). We also assume a negative net financial result of PLN28mn, the effective tax rate at 19%, and the net profit in 3Q14 at PLN25mn. Outlook: NEUTRAL. EBITDA from the segment s point of view: We expect the soda segment to deliver the reported EBITDA at PLN 97m (-18% q/q, -7% y/y). We also assume soda ash/baking soda volumes at 463kt/30kt, -2%/- 3% y/y. The y/y drop in soda volumes is due to small production stoppages in 3Q14, observed in the German and Romanian plants. On the other hand, we assume that average soda prices were 4% higher y/y. We expect the organic segment to report the EBITDA at PLN11mn compared to PLN8mn in 3Q14. The Agro&silicate segment is set to report a lower EBITDA y/y of PLN6mn (vs. PLN9mn in 3Q13). Other products &eliminations should consume PLN1mn. Strategy update for Company s strategy assumes the avg. annual normalized EBITDA at PLN660mn (margin at 17%), substantial debt reduction (net debt / EBITDA ratio at below 1.0x in 2019) and avg. DY at 3%. The strategy targets are to be achieved by development of the soda ash and crop protection plant segments. The strategy is also based on the assumption that the impact of the trona supply from Turkey to Europe is not material. The strategy goals are ambitious, however not unrealistic given bullish soda ash market outlook. Change in forecasts. We made no changes to our forecasts for 2014E and beyond. We leave our financial forecasts unchanged. Change in Valuation & Recommendation. We keep our DCF-based Target Price unchanged at PLN51.4 per share (21.5% upside potential). That said, we uphold our BUY recommendation for Ciech. PUBLICATION DATE NOVEMBER 14, Q14 RESULTS PREVIEW 3Q14E y/y q/q Sales % -14% EBITDA 113 4% -15% EBIT 59 7% -29% Net profit % 20% CIE WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute TP relative (p.p) Buy 10/27/ % 5.3 Buy 9/23/ % 4.6 COMPANY DESCRIPTION Ciech is the second largest soda ash producer in Europe. ANALYST Tomasz Kasowicz (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes CECH.WA / CIE PW Sales 3,501 3,050 3,046 3,204 Market capitalisation (PLNm) 2,160 EBITDA Number of shares (m) 52.7 EBIT Free float (%) 48.8% Net income Avg. daily turnover 3M (PLNm) 1.3 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % +7.3% +32.0% Source: Company data, Bloomberg, BZ WBK Brokerage 61

62 Fig. 1. Ciech: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y chg. q/q chg. Sales 1,018 1,019 1,173 1,120 1,065 1, % -14% EBITDA % -15% EBITDA margin 8.7% 7.3% 11.4% -21.6% 7.4% 8.0% 12.4% 10.5% 13.2% 2.8% 14.0% 16.4% 16.1% EBIT % -29% EBIT margin 3.2% 1.6% 6.1% -27.1% 2.2% 2.4% 7.2% 4.6% 6.7% -4.5% 8.0% 10.2% 8.4% Net profit % 20% Net margin 0.8% -0.9% 0.9% -31.1% -2.3% -8.7% 3.8% 1.7% 0.8% -2.8% 0.8% 2.5% 3.5% Source: Company data, BZ WBK Brokerage Fig. 2. Ciech: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 3,050 3,050 0% 3,046 3,046 0% 3,204 3,204 0% EBITDA % % % EBIT % % % Net profit % % % Source: Company data, BZ WBK Brokerage Fig. 3. Ciech: Valuation changes In PLN per share, unless otherwise stated New Previous Change Weight DCF valuation % 100% Comparable valuation (based on E) % 0% Source: Company data, BZ WBK Brokerage Fig. 4. Ciech: Income statement forecast E 2014E 2015E 2016E Net sales 4,378 3,501 3,050 3,046 3,204 COGS -3,781-2,894-2,398-2,352-2,435 Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit after minorities Gross margin 13.6% 17.3% 21.4% 22.8% 24.0% EBITDA margin 0.9% 10.2% 15.5% 17.1% 18.4% Operating margin -4.5% 4.0% 8.6% 9.8% 11.3% Net profit margin -9.8% 1.4% 2.4% 4.7% 6.3% Source: Company data, BZ WBK Brokerage Fig. 5. Ciech: Balance sheet forecast E 2014E 2015E 2016E Current assets 1, Fixed assets 2,546 2,300 2,394 2,515 2,577 Total assets 3,728 3,211 3,209 3,324 3,425 Current liabilities 1, ,037 2,009 1,911 bank debt ,478 1,456 1,336 Long-term liabilities 1,786 1, bank debt 1,499 1, Equity ,067 1,267 share capital Minority Interest Total liabilities 3,728 3,211 3,209 3,324 3,425 Net debt 1,480 1,213 1,393 1,371 1,246 Source: Company data, BZ WBK Brokerage Fig. 6. Ciech: Cash flow forecast E 2014E 2015E 2016E CF from operations CF from investment CF from financing, incl Net change in cash Source: Company data, BZ WBK Brokerage 62

63 Poland DOM DEVELOPMENT All priced in Equity story. We are positive on the Polish residential sector. The sale volumes of housing developers have been rising since the beginning of 2009 and we expect the trend to continue in Low interest rates should be supportive here (as the past correlation suggests), as is the case with the expected rise in mortgage originations and the likely rise in price limits in the MdM scheme. Nevertheless, we believe that this outlook is already reflected in the current valuation of DOM. Note, for example, that the company is trading at a P/BV of 1.36x, at a premium compared with the sector s median and estimated fair P/BV of Dom that we currently see at 1.25x (on the basis of the estimated 2015E ROE at c. 9.3%). With our TP close to current share market price, we maintain our neutral view on DOM. Residential market continued recovery in 3Q14. The eight reviewed developers sold a total of 2,511 flats, up 21% y/y and 12% q/q. In 9M14, they improved the volume by 36% y/y and they also all reported a double-digit y/y volume growth, with the growth rate ranging between 19% (Dom Development) and 109% (Budimex). The aggregate volume of the reviewed developers is also 39% higher y/y, taking into account the last four quarters. The annualised 9M14 aggregate sales volume implies a healthy 24% y/y growth in FY14. Sale volume of DOM relatively weak. The company announced that it had sold 495 housing units in 3Q14 (+7% q/q, +20% y/y), the most since the start of In 9M14 overall, the company sold 1,358 units in total, up 19% y/y, which, on the other hand, is a relatively weak result (the aggregate volume of the WSE developers rose 36% y/y). The annualised 9M14 aggregate volume of sales implies a 24% y/y rise in FY14, with the pace at Dom at a meagre 13%. In the long term, we expect the company to sell/hand over k units annually, which is above the implied FY14 sales volume and slightly above the 3Q annualised sale volume. Change in forecasts. We slightly decline our profits forecast, as we assume slightly lower margin at residential projects. We assume notary sales in 2014 at 1,950. We expect Dom to sell/hand over c k apartments annually after Change in Valuation & Recommendation. We maintain our Target Price for DOM intact at PLN45.1. We also maintain our Hold recommendation intact. Construction & Real Estate November 12, 2014 RECOMMENDATION HOLD (MAINTAINED) CURRENT PRICE: PLN44.91 TARGET PRICE: PLN45.1 (MAINTAINED) STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Hold % 0.5 Sell % -2.1 Sell % -7.5 Sell % Sell % 35.2 COMPANY DESCRIPTION Dom Development is a residential developer, focussing on Warsaw market. Main shareholders % of votes Dom Development BV 59.5% Aviva pension fund 6.8% Mr. Jaroslaw Szanajca 6.2% Mr. Grzegorz Kielpsz 5.2% ANALYST Adrian Kyrcz (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes DOMP.WA / DOM PW Sales Market capitalisation (PLNm) 1124 EBITDA Number of shares (m) 24.8 EBIT Free float (%) 27.2% Net income Avg. daily turnover 3M (PLNm) 0.0 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 8.0% -11.0% 63

64 Fig. 1. Dom Development: 3Q14 results review 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y (%) q/q (%) Sales % -1.9% EBITDA % 463.4% EBITDA margin 23.5% 22.7% 13.6% 12.1% 14.5% 13.8% 15.3% 2.2% 2.9% 17.1% 4.8% 2.3% 13.2% EBIT % 579.8% EBIT margin 23.3% 22.4% 13.1% 11.6% 14.4% 13.5% 15.0% 1.6% 2.3% 16.8% 4.5% 1.8% 12.7% Net profit n.m % Net margin 18.1% 18.5% 10.3% 9.5% 11.6% 10.7% 11.9% 0.9% 0.9% 12.2% 4.7% 1.0% 9.6% Fig. 2. Dom Development: Forecasts changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales % % % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. Dom Development: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation % Comparable valuation (based on P/BV) % Fig. 4. Dom Development: Income statement forecast Net sales COGS Gross profit SG&A Other operating income. net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Fig. 5. Dom Development: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity Total liabilities Net debt Gross margin 24.0% 23.2% 19.2% 23.0% 23.0% EBITDA margin 13.7% 11.3% 9.0% 12.4% 12.4% Operating margin 13.3% 10.8% 8.6% 12.1% 12.0% Net profit margin 10.7% 8.1% 6.6% 9.6% 9.6% Fig. 6. Dom Development: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

65 Poland ECHO INVESTMENT FX rates to support 3Q profits 3Q14 Results Preview. We expect Echo to post quite a good set of results in 3Q14. We expect a flat q/q profit from rental activities and assume no completion of new project or changes in rent levels. We do, however, expect as much as PLN11.6mn in profit from selling flats on high notary sales volume. And so we project 18% q/q gross profit growth to PLN78.6mn. We also expect a revaluation gain of approx. PLN13.8mn, purely caused by the EUR/PLN q/q appreciation (+0.4% q/q). For the very same reason, we expect Echo to recognise a loss of PLN6.6mn in its financial activity (some loans are EUR denominated). All in all, we forecast Echo to earn PLN26.6mn, much more than in 2Q14 (PLN16.5mn) and 3Q13 (5.4mn). The forecasted profit growth would, however, only increase Echo s NAV by 1% q/q, which is why we expect market reaction to be neutral. Outcome: NEUTRAL. Financial forecasts. We maintain our financial forecasts. We expect 4Q14 and the results outlook to be quite positive. In 4Q14, we expect Echo to recognise the first revaluation gains from the nearly completed Katowice Business Park and the Wroclaw West Gate office projects. In 2015, we expect Echo to recognise approx. PLN200mn in positive revaluation from the continuation of the two aforementioned projects, extra gains from the Gdansk Tryton office project and gains from the scheduled enlargement of a shopping mall in Jelenia Gora. For 2016, we forecast revaluations of approx. PLN160mn, solely from the Q22 office building in Warsaw. Change in Valuation & Recommendation. We maintain our Target Price for Echo at PLN7.65 (weighted average of discounted 2016E NAV and peer comparison) and maintain our Buy recommendation on fundamental upside. The company trades at P/BV of 0.84x, which is close to its WSE peer GTC (0.80x P/BV), though it used to be traded at a more significant premium in the past. We also think that the premium over GTC is justified because GTC may decide again to issue new shares (for acquisitions), which we would view negatively with respect to the uncertainty regarding the number, size and operating data of the potential acquisition targets. We forecast Echo to rise its BVPS by 17% to PLN9.01 in 2016E from PLN7.7 in 2Q14. The discounted 2016E NAV (12M forward) sits at PLN7.96, which offers an upside to the current share price. At the top of that the spread between Warsaw prime office yields and T-bond 2Y yields significantly widened recently, which might be supportive for the share market price of Echo (as in the past). Construction & Real Estate November 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN6.47 TARGET PRICE: PLN7.65 (MAINTAINED) STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Buy % 3.3 Buy % Buy % 15.2 Buy % -9.2 Buy % -8.6 COMPANY DESCRIPTION Echo is a real estate and residential developer with focus on Polish market. Office and retail buildings constitute majority of assets. Main shareholders % of votes Mr. Michal Solowow 45.9% Aviva pension fund 10.0% ING pension fund 9.4% PZU pension fund 5.4% ANALYST Adrian Kyrcz (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes ECH.WA / ECH PW Sales Market capitalisation (PLNm) EBIT Number of shares (m) Adj. EBIT Free float (%) 53.9% Net income Avg. daily turnover 3M (PLNm) 0.6 BV M 3M YTD Price performance P/BV (x) % 3.2% -3.4%, *adjusted for revaluation gains/losses 65

66 Fig. 1. Echo Investment: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%) Sales % 39.0% EBITDA n.m. 90.4% EBITDA margin 296.7% 43.2% -17.7% 84.0% -24.8% 106.6% 168.1% 204.0% -2.6% 9.6% 439.8% 34.1% 46.8% EBIT n.m. 93.2% EBIT margin 295.7% 42.2% -20.8% 85.3% -25.5% 105.9% 167.3% 202.7% -3.9% 8.2% 438.2% 33.1% 46.0% Net profit n.m. 61.3% Net margin 66.0% 25.3% 19.9% 54.8% -12.3% 224.3% 111.1% 116.5% 3.8% 1.4% 365.1% 14.8% 17.1% Fig. 2. Echo Investment: Forecasts changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales % % % EBITDA % % % EBIT % % % Adj EBIT % % % Net profit % % %, *adjusted for revaluation gains/losses Fig. 3. Echo Investment: Valuation changes In PLN per share, unless otherwise stated New Previous Change SOTP valuation % Comparable valuation % Fig. 4. Echo Investment: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Fig. 5. Echo Investment: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity Total liabilities Net debt Gross margin 52.4% 55.4% 57.3% 53.5% 54.4% EBITDA margin 33.5% 95.1% 139.7% 71.4% 65.4% Operating margin 32.5% 94.1% 138.6% 70.6% 64.7% Net profit margin 64.2% 62.7% 100.2% 39.9% 32.2% Fig. 6. Echo Investment: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

67 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland ELEMENTAL HOLDING Building recycling tycoon Industrials NOVEMBER 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN2.88 TARGET PRICE: PLN3.9 Equity Story. Elemental Holding is a company that operates through its three Polish subsidiaries Syntom (non-ferrous metal trading), Tesla Recycling (PCB recycling) and Terra Recycling (WEEE recycling) and started from scratch just in The company is a clever mix of low volumes - high margin recycling (PCB, WEEE) and high volumes-low margin trading, which creates synergies for the whole group (bargaining power, supply of raw materials). WEEE recycling is heavily regulated by the EU, with the WEEE Directive setting the collection, recycling and recovery targets for different electro-waste groups. The Polish law, compliant with EU regulations, sets a collection target of 65% in 2021 of waste put one the market (vs. 35.3% in 2013 or 4.2kg per resident). But there are still markets that are far behind the current collection levels in Poland. Turkey, even if not an EU member, still regulates its market similarly and collects only 0.5kg per resident at the moment (target of 4kg in 2018). Elemental s current strategy stipulates acquisitions of recycling companies on underdeveloped markets in order to create a major CEE player. The company finalised two deals this year - catalytic converters and WEEE recycler from Lithuania EMP and metal trading company from Slovakia Metal Holding, is finalizing third (Turkish Evciler) and looking at the levels of financing that it had obtained, especially the new PLN50mn bond issue, it will probably not stop at the three. Financials. We expect the company s results to grow rapidly next year, mainly due to acquisitions (revenues up by 36.9% y/y, EBITDA up by 36.6%). A further increase of the high margin recycling should also gradually improve margins on the domestic market in the longer term. Triggers/Risks. The WEEE recycling markets, as many other recycling markets, are heavily afflicted by the grey market. There are, however, actions that could improve this, such as a distinction of refrigerators instead of just MDA in the product groups. The company will cumulatively acquire several companies in 2014, and aside from the obvious risks like overpaying, it may take some time to put all these puzzles together Valuation & recommendation. Using the DCF model, we set the company s TP at PLN3.9 (37% upside) and issued a Buy recommendation EMT WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. COMPANY DESCRIPTION Elemental Holding specializes in non-ferrous metal collecting and trading as well as PCB, WEEE and catalytic converter recycling. Company is currently gaining access to foreign markets through M&A s. Main shareholders % of votes Moearth Holdings Limited 23.8% Ibah Holdings Limited 18.2% Glaholm Investments Limited 15.0% EVF I Investments S.a.r.l 10.1% ING pension fund 5.8% ANALYST Tomasz Kucinski [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes EMPT.WA / EMT PW Sales Market capitalisation (PLNmn) EBITDA Number of shares (mn) EBIT Free float (%) 25.8% Net income Avg. daily turnover 3M (PLNm) 0.5 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 31.2% 9.2% Fig.1. Elemental: DCF valuation 67

68 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Revenues , , , , , , , , ,332.2 EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditures Net investment Free cash flow WACC 9.0% PV FCF Terminal growth 1.0% Terminal value (TV) PV TV Total EV Net debt -4.0 Minority interests 56.1 Equity value Number of shares (mn) Value per share (PLN, 31 Dec 2014) 3.6 Month 11.0 Curent value per share (PLN) M target price 3.9 Fig. 2. Elemental: Comparable valuation Price Mkt. cap (EURmn) P/E EV/EBITDA 2014E 2015E 2016E 2014E 2015E 2016E Elemental Holding SA Krynicki Recykling SA Aurubis AG , Waste Management Inc , Republic Services Inc , Waste Connections Inc , Jianxin Mining Co Ltd , Median Premium/discount vs. median -47.2% -40.3% -32.8% -22.3% -15.6% -15.0% Source: BZ WBK Brokerage research, company data 68

69 Fig. 3. Elemental: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Sales n.a. n.a. n.a. n.a % 13.7% EBITDA n.a. n.a. n.a. n.a % 25.7% EBITDA margin n.a. n.a. n.a. n.a. 3.4% 3.9% 3.0% 3.0% 3.9% 3.1% 6.0% 5.9% 6.5% EBIT n.a. n.a. n.a. n.a % 29.4% EBIT margin n.a. n.a. n.a. n.a. 3.1% 3.6% 2.7% 2.7% 3.5% 2.7% 5.5% 5.0% 5.7% Net profit n.a. n.a. n.a. n.a % 17.1% Net margin n.a. n.a. n.a. n.a. 2.1% 2.5% 2.5% 3.7% 3.6% 1.9% 5.3% 4.7% 4.9% Fig. 4. Elemental: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales n.a. n.a n.a. n.a n.a. n.a. EBITDA 46.7 n.a. n.a n.a. n.a n.a. n.a. EBIT 40.9 n.a. n.a n.a. n.a n.a. n.a. Net profit 35.2 n.a. n.a n.a. n.a n.a. n.a. Fig. 5. Elemental: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 3.9 n.a. n.a. Comparable valuation (based on E) 4.1 n.a. n.a. Fig. 6. Elemental: Income statement forecast Sales operating costs EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit EBITDA margin 3.2% 3.1% 6.3% 6.3% 6.4% Operating margin 3.0% 2.8% 5.5% 5.3% 5.4% Net profit margin 2.1% 2.8% 4.8% 4.0% 3.8% Fig. 7. Elemental: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 8. Elemental: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

71 Poland EMPERIA Still slow FMCG NOVEMBER 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN 49 TARGET PRICE: PLN 81 (MAINTAINED) Equity Story: In our view, Emperia s current market price values Stokrotka at c.1.3x monthly sales, which we believe to be too low when compared with the recent M&A transactions on the FMCG market. This limits any downside. On the other hand, in order to cash in the potential valuation gap, a positive decision of the management to put Emperia up for sale is needed. This is the largest risk to our investment story. 3Q14 RESULTS PREVIEW 3Q14E y/y (%) q/q (%) Sales % 4.0% EBITDA 15.5 n.a % EBIT 3.2 n.a % Net profit 3.6 n.a % 3Q14 Results Preview. 3Q14 failed to bring about much change on the FMCG market, which remained very slow. Emperia was not different from this bleak picture. As far as its retail arm is concerned, we expected Stokrotka s LfL at negative 1%. But new space contribution pushed total sales to +7% y/y to PLN494mn in 3Q14. We expect the gross margin at 25.5% and the SG&A costs at PLN130mn (26.3% of sales). The results will be adversely hit by inventory shrinkage at PLN2.0mn, which will lead to an EBITDA of PLN2.7mn vs. the previous year s negative EBITDA of PLN13mn. It must be remembered that 3Q13 was severely affected by a shifts in the business model towards own logistics in exchange for deliveries from Tradis. For the remaining segments, we assumed similar EBITDA results to 2Q14 (real estate - EBITDA at PLN10mn, IT - EBITDA at PLN3.4mn and other - EBITDA at PLN2.0mn). As far as the entire Emperia Group is concerned, we expect the EBITDA to reach PLN15mn (vs. the previous year s loss of PLN1mn) and we expect the bottom line at PLN4mn (vs. the previous year s loss of PLN1mn) in 2Q14E. On cash flow, we expect the OCF at c. 0 and the buyback (PLN10mn) will diminish the net cash position to c.pln106mn vs. PLN94mn in 3Q14. Outcome: NEUTRAL. Change in valuation & recommendation. We maintain our investment story and our SOTP valuation for Emperia, which assumes cash account at PLN106mn in 2Q14 (vs. the previous PLN120mn), PLN690mn for Stokrotka (3.9x 2014E sales of PLN2.097mn) and PLN368mn for real estate. A comparable valuation points to PLN56.00/ share. Company Data STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Buy 10/23/ % 2.2 Buy 9/7/ % Buy 4/28/ % Buy 1/30/ % -5.1 COMPANY DESCRIPTION Emperia has wholesale and retail operations in the FMCG segment. These are backed by a commercial real estate portfolio. ANALYST Tomasz Sokolowski (+48) [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes EMP.WA / EMP PW Sales 1,967 2,202 2,489 2,665 Market capitalisation (PLNm) 744 EBITDA Number of shares (m) 15.2 EBIT Free float (%) 86.6% Net income Avg. daily turnover 3M (PLNm) 0.5 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % -17.0% -34.7% 71

72 Fig. 1. Emperia: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Sales % 4.0% EBITDA n.a % EBITDA margin 6.2% 5.6% 4.6% 2.0% -5.9% 4.0% 4.8% 3.9% -0.2% 2.7% 3.7% 5.6% 3.0% EBIT n.a % EBIT margin 2.5% 2.3% 2.4% -0.2% -8.1% 2.2% 2.7% 2.1% -2.3% 0.5% 1.2% 3.2% 0.6% Net profit n.a % Net margin 8.6% 3.8% 5.3% 2.1% -6.1% 2.3% 2.8% 2.2% -2.3% 0.3% 0.7% 2.8% 0.7% , Fig. 2. Emperia: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 2,202 2, % 2,489 2, % 2,665 2, % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. Emperia: Valuation changes In PLN per share, unless otherwise stated New Previous Change SOTP n.a. Comparable valuation (based on E) %, Fig. 4. Emperia: Income statement forecast E 2015E 2015E Net sales 1,949 1,967 2,202 2,489 2,665 COGS 1,478 1,539 1,634 1,857 1,998 Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 24.2% 21.8% 25.8% 25.4% 25.0% EBITDA margin 1.4% 3.1% 3.6% 3.2% 2.9% Operating margin -0.8% -2.4% 1.4% 1.2% 1.0% Net profit margin 1.1% -2.4% 1.3% 1.2% 1.0% Fig. 5. Emperia: Balance Sheet forecast E 2015E 2015E Current assets Fixed assets Total assets 978 1,065 1,055 1,128 1,177 Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities 978 1,065 1,055 1,128 1,177 Net debt Fig. 6. Emperia: Cash flow forecast E 2015E 2015E CF from operations CF from investment CF from financing Net change in cash

73 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland ERBUD High reliance on developers Equity Story. Erbud offers exposition to the general construction market in Poland, which we expect to recover thanks to some economic growth acceleration and the flow of EU funds in the period that should support public investments. The company is, however, highly dependent on commercial developers and here we see limited room for growth due to the high market saturation in office and retail space (such deals constitute as much as 40% of the company s current backlog). On the other hand, Erbud is present in the power segment (service works), where prospects for growth look strong in the short to mid-term (the company has recently secured key employees, which should support this segment s development). We also like the company s plan to start its first residential project in Warsaw (so far it has only been present in Bydgoszcz and Torun), probably the most attractive city for residential developers at the moment. All in all, we are quite positive on the results outlook for Erbud, though we also believe its valuation to be demanding. Financials. We expect the net profit at a CAGR of 12% in 2014E- 2017E, supported by a gradual growth in sales from the road and power businesses. Following the expected gross margin compression in 2014E (-0,5pp to 6.9%), we forecast a margin recovery in and its stabilisation afterwards (at 7.7%). Growth in the margin should be supported by further growth in the construction capacity utilisation (data reported by the statistics office GUS) and rising investments thanks to the EU funds. Triggers/Risks. The key risks include: 1) a potential payment of c. PLN24mn in compensation (PLN2.7/shr) for the investor of the Modlin airport, and 2) potential provisions related to the Modlin contract. That said, a trigger for Erbud s share price could be the completion of the Deptak retail/office scheduled for 2015, which might be value-accretive (Erbud holds a 50% stake in JV) and asset disposal (if any). The company s claim for c. PLN20mn in compensation from its subcontractors of the Modlin contract (PLN1.6/shr) and any positive outcome in this regard could also be a trigger Construction & Real Estate ERB November 12, 2014 RECOMMENDATION HOLD (INITIATION) CURRENT PRICE: PLN WIG Relative TARGET PRICE: PLN 29.6 STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) n.a. n.a. n.a. n.a. n.a. n.a. COMPANY DESCRIPTION Erbud is a general contractor and residential projects developer. Company is focusing on general construction works, roads construction, engineering works, and servicing power sector. Main shareholders % of votes Wollf&Mueller Baubeteiligungen GmbH & Co. KG 32.7% Juladal Investment Limited 22.2% ING pension fund 9.96% AVIVA pension fund 9.3% Mr. Dariusz Grzeszkak 5.9% Valuation & recommendation. We issue a Hold recommendation for Erbud. Based on our DCF model, we arrived at a 12 month TP of PLN29.6 per share. In the TP calculation, we included a value assessment of the 50% stake in the retail/office Deptak project (value net of CAPEX at PLN22mn or PLN1.7/shr). The company is trading close to the peer median at the P/E 2015E multiple. Company Data ANALYST Adrian Kyrcz (+48) [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes UERB.WA / ERB PW Sales Market capitalisation (PLNm) EBITDA Number of shares (m) 12.7 EBIT Free float (%) 36.3% Net income Avg. daily turnover 3M (PLNm) 0.1 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 4.4% -24.7% 73

74 Fig. 1. Erbud: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Net sales* EBIT* Cash taxes on EBIT NOPAT* Depreciation Change in operating WC Capital expenditure Free cash flow Sum of FCFFs PVs 98.1 Risk free rate 3.0% WACC 8.0% Residual growth of FCFFs 1.0% Residual value 406 Present value of the residual value 188 Erbud's EV 286 Cash and equivalents (2014 bop) 125 Interest-bearing debt (2014 bop) 94 Dividends 8,9 Equity value 307 No. of shares (m) 12.8 Equity value of Erbud per share (PLN) 24.0 Month 11.0 Current equity value of Erbud per share (PLN) M equity value per share (PLN) 27.9 Real estate per share (PLN)** M TP inc. Real Estate (PLN) 29.6, * excluding contribution of Deptak office/retail building,**see table below for details Fig. 2. Erbud: Real estate value calculation GLA (ths sqm) NOI yield CAPEX total without land Estimated value net of CAPEX Net per share (PLN) Property name Estimated value Net CAPEX Stake Deptak retail/office % % 1.7 Fig. 3. Erbud: Comparable valuation P/E EV/EBITDA Name 2014E 2015E 2016E 2014E 2015E 2016E Acciona Astaldi Bilfinger Berger Eiffage Ferrovial Skanska Strabag Vinci Hochtief Median - Western peers Atrem Tesgas Unibep Trakcja Budimex Elektrobudowa Median - Polish peers Average implied share price of Erbud in PLN (Polish peers) Average implied share price of Erbud in PLN (Western peers) Average implied share price of Erbud (PLN) 24.1 Source: Bloomberg, BZ WBK research, company data 74

75 Fig. 4. Erbud: 3Q14 results review 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q Sales % 0.7% EBITDA % -13.0% EBITDA margin 2.0% 2.7% 3.7% 2.5% 3.0% 1.9% 1.8% 2.6% 4.8% 3.5% 2.7% 3.1% 2.7% EBIT % -8.3% EBIT margin 1.6% 2.2% 3.2% 1.8% 2.6% 1.4% 1.1% 1.8% 4.2% 2.9% 2.2% 2.5% 2.2% Net profit % 3.9% Net margin 0.9% 0.8% 1.4% 1.3% 1.1% 1.2% 0.2% 0.6% 2.6% 1.9% 0.5% 1.6% 1.6% Fig. 5. Erbud: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 1366 n.a n.a 1411 n.a n.a 1416 n.a n.a EBITDA 42 n.a n.a 47 n.a n.a 51 n.a n.a EBIT 34 n.a n.a 39 n.a n.a 43 n.a n.a Net profit 21 n.a n.a 24 n.a n.a 28 n.a n.a Fig. 6. Erbud: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation Comparable valuation (based on E) Fig. 7. Erbud: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 6.7% 7.4% 6.9% 7.2% 7.5% EBITDA margin 2.9% 3.3% 3.1% 3.3% 3.6% Operating margin 2.3% 2.7% 2.5% 2.7% 3.1% Net profit margin 1.6% 1.5% 1.6% 1.7% 2.0% Fig. 8. Erbud: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity Total liabilities Net debt Fig. 9. Erbud: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

77 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland EUCO Momentum remains strong Equity Story. A leading provider of personal injury claim services. EuCO provides a wide range of services related to obtaining compensation for its clients from insurance companies. Claiming compensation for personal injuries for victims of road accidents represents most of its business. The bulk of cases are settled directly with insurers, who typically agree to pay approximately twice the amount they would pay claimants. Most cases are settled by EuCO s law firm through the courts, allowing EuCO to earn approximately 30% of the settlement value. EuCO s success to date has been largely driven by a combination of an efficient claim processing centre and an extensive, well-motivated and low-cost (fee-based) network of agents. EuCO currently operates through over 25k agents. It is among the two largest companies of its kind in Poland and is developing a subsidiary in Romania. Financials. Strong growth looks set to stay. Inflows from insurance companies to the law firm increased to PLN64mn in 2013 from PLN2mn in 2009 (when it started up). We expect this to increase further to PLN140mn in 2016E. Revenues at EuCO s parent should stay stable at above PLN20mn, while its business in the Czech Republic, Slovakia and Hungary should stay stable. Romania, its new market, should be consolidated in 2014E and add around PLN mn to net profit. However, we are not yet including this in our forecasts. We conservatively assume a more modest growth rate ahead, resulting in annual average revenue growth of 11%. This, coupled with stable margins, should translate into 17% CAGR in the period. Strong cash generation should allow EuCO to pay substantial dividends (payout ratio of 60%+, DY 5%+) and, unless it embarks on major acquisitions or broader geographical expansion, its dividend yield could be as high as 8.9% in 2016E vs. 3.7% in ROE could be over 30% by Triggers/Risks. Apart from the usual risk of forecasting errors, we would highlight the gap between reported revenues and the claims actually received in cash in last years, as the company opted to recognise cases it had won or was very likely to win in revenues before receiving a payment. Reputation/perception risks are common in this sector. We also note that the sector is seriously under-regulated. Insurers, while generally cooperative, may become more obstructive as the recent increase in the share of court-settled claims indicates. Valuation & recommendation. We set a 12-month target price of PLN 31.70/share using a blend of DCF and comparable company multiples. The implied 20% upside may seem steep, but, at our target price, EuCO s multiples (13.4x 2014E earnings and 11.2x EV/EBITDA) would be only marginally above the current median for comparable companies. We think the TP is justified by EuCO s superior ROE (36% in 2014E) and net profit margin (25%). At the current price, the company trades at 9.5x 2015E P/E and an EV/EBITDA of 8.1x. Which we perceive as attractive level FINANCIALS NOVEMBER 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN 26.5 TARGET PRICE: PLN 31.7 (PREV. 30.9) STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended WIG Relative TP EUC The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Buy % 19.7 Hold % 3.9 Buy % 4.0 Buy % 47.7 COMPANY DESCRIPTION EuCO specialises in servicing personal injury claims, typically on behalf of victims of motor accidents. It is one of the leading players in Poland and the Czech Republic. Its inhouse legal practice pursues more complex cases in the courts. Main shareholders % of votes Spexar Ltd 31.1% Corpor Capital Ltd 31.1% ING Pension Fund 12.2% ANALYST Andrzej Bieniek Securities Broker, Investment Advisor (+48) ; [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes EUC.WA / EUC PW Sales Market capitalisation (PLNm) 148 EBITDA Number of shares (m) 5.6 EBIT Free float (%) 38% Net income Avg. daily turnover 3M (PLNm) 0.1 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 3.2% 83.2% 77

78 Fig. 23. EuCO: 3Q14 results preview 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Revenues % -1% Gross profit % 12% EBITDA % 11% EBIT % 12% Net profit % 17% Gross profit margin 44% 31% 34% 41% 35% 31% 37% 49% 36% 34% 38% EBITDA margin 24% 21% 23% 19% 20% 15% 23% 37% 22% 22% 24% EBIT margin 22% 19% 21% 18% 18% 13% 21% 36% 21% 20% 23% Net profit margin 19% 52% 17% 16% 14% 14% 20% 32% 19% 18% 21% Fig. 24. EuCO: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales % % % EBITDA % % % EBIT % % % Net profit % % % Fig. 25. EuCO: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation % Comparable valuation (based on E) % Blended average target price % Fig. 26. EuCO: Income statement forecast Net sales COGS Gross profit Sales costs Management costs Other operating income, net EBITDA EBIT Financial expenses/income Profit on ordinary activities Pre-tax profit Income tax Net profit Margins Gross margin 37.8% 38.5% 38.3% 40.2% 42.0% EBITDA margin 23.0% 24.6% 26.1% 27.2% 29.2% EBIT margin 21.4% 23.0% 24.8% 26.1% 28.1% Pre-tax margin 20.8% 22.6% 24.1% 25.5% 27.5% Effective tax rate 17.7% -8.2% -4.5% -5.0% -10.0% Net profit margin 24.5% 20.8% 23.1% 24.2% 24.8% Fig. 27. EuCO: Balance Sheet forecast Current assets L-t assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Fig. 28. EuCO: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

79 Poland FARMACOL Weaker quarter y/y expected 3Q14 Results Preview. We expect Farmacol to report weaker results y/y in 3Q14 due to lower gross margins on the refunded drugs. We had assumed that Farmacol s top line would rise by 4% y/y to PLN1,329mn. Due to the lower gross margins y/y and lack of any visible cost savings initiatives, we expect the EBITDA to come in at PLN21.9mn (-38% y/y, margin down by 110bps y/y to 1.7%) and the profit on sales to drop by 28% y/y to PLN20mn (margin down by 65bps to 1.5%). We had also assumed the other operating losses at PLN3mn in 3Q14 and the net financial income at PLN8mn. The expected 19% effective tax rate should yield a net profit of PLN20mn (-35% y/y). Outcome: NEGATIVE. Pharma / Health Care NOVEMBER 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN 50.2 TARGET PRICE: PLN 66.0 (MAINTAINDED) PUBLICATION DATE NOVEMBER 12, Q14 RESULTS PREVIEW 3Q14E y/y (%) q/q (%) Sales 1, % 13.5% EBITDA % 29.4% EBIT % 43.1% Net profit % 52.7% STOCK PERFORMANCE Farmacol is trading with a 6%/11% premium on PE 14 and a 18% /34% premium on PE 15 to Pelion and Neuca, respectively. On the other hand, when we take the Cash Adjusted PE into account (which equals to 10.5x and 9.4x in ), Farmacol offers double-digit discounts vs. its competitors and its fair PE (11.6x). We believe this limits any downside in case of a negative surprise from the results release and makes Farmacol an attractively priced stock. Change in valuation & recommendation. DCF-based valuation points to PLN66/shr. A comparative valuation to its Polish peers points to PLN52.1/share. The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Buy 10/21/ % -2.6 Buy 9/7/ % 4.5 Buy 4/28/ % -6.4 Buy 1/30/ % COMPANY DESCRIPTION One of the largest pharmaceutical distributors in Poland. With the acquisition of Cefarm Bialystok, Farmacol has significantly increased its exposure to the retail segment. ANALYST Tomasz Sokolowski (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes FCLP.WA / FCL PW Sales 5,206 5,424 5,626 5,843 Market capitalisation (PLNm) 1,175 EBITDA Number of shares (m) 23.4 EBIT Free float (%) 42.3% Net income Avg. daily turnover 3M (PLNm) 0.2 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 9.1% -25.9% 79

80 Fig. 1. Farmacol: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%) Sales 1,234 1,348 1,157 1,139 1,294 1,254 1,335 1,256 1,278 1,337 1,451 1,171 1, % 13.5% EBITDA % 29.4% EBITDA margin 1.3% 1.5% 2.6% 2.1% 1.3% 4.4% 2.6% 1.9% 2.8% 3.2% 1.5% 1.4% 1.7% EBIT % 43.1% EBIT margin 0.9% 1.2% 2.3% 1.8% 1.0% 4.1% 2.1% 1.4% 2.3% 2.8% 1.1% 1.0% 1.2% Net profit % 52.7% Net margin 0.7% 1.1% 2.3% 1.6% 1.1% 4.2% 2.3% 1.6% 2.4% 3.3% 1.3% 1.1% 1.5% Fig. 2. Farmacol: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 5,424 5, % 5,626 5, % 5,843 5, % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. Farmacol: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation n.a. Comparable valuation (based on E) % Fig. 4. Farmacol: Income statement forecast Net sales 4,844 5,206 5,424 5,626 5,843 COGS 4,406 4,826 5,044 5,233 5,434 Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 9.0% 7.3% 7.0% 7.0% 7.0% EBITDA margin 2.4% 2.6% 1.9% 2.0% 2.0% Operating margin 2.3% 2.2% 1.3% 1.4% 1.4% Net profit margin 2.3% 2.4% 1.6% 1.6% 1.6% Fig. 5. Farmacol: Balance Sheet forecast Current assets 1,518 1,729 1,814 1,938 2,069 Fixed assets Total assets 1,934 2,178 2,302 2,430 2,565 Current liabilities 931 1,037 1,080 1,120 1,163 bank debt Long-term liabilities bank debt Equity 918 1,047 1,128 1,216 1,308 share capital Minority Interest Total liabilities 1,934 2,178 2,302 2,430 2,565 Net debt Fig. 6. Farmacol: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

81 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland FORTE Strengthening abroad Industrials November 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN57.00 TARGET PRICE: PLN67.60 Equity Story. The market environment for the Polish furniture industry remains supportive. The CSO (Central Statistical Office) indicates robust momentum in sold furniture production, both in terms of volume (16% y/y increase in 3Q14) and value (14% y/y upswing). The double-digit pace of growth might be difficult to maintain in the long term (taking into consideration the long-term average of c. 6.5%), but we see the production output here in an upward trend. Compared with the Polish furniture sector, Forte outperforms its competitors in terms of production efficiency. We even expect the company to be able to improve its financial figures in tougher market conditions. The recent readings of the sold furniture output indicate flat export prices and a minuscule decline of the domestic ones. As a consequence, it could turn out that there is little room left for margins expansion in the medium term. We assume, however, that prices of raw materials should remain stable, which, combined with the planned investments in the Polish production plants (instead of developing a brand new one abroad) with the estimated CAPEX expenditure at PLN30-40mn scheduled for should allow Forte to boost its sales with sound margins levels. Financials. We expect Forte s sales to total PLN827mn in 2014, up by 24% y/y. For we forecast an average sales momentum of 10% y/y (15% in 2015 vs. 5% in 2017). The EBITDA / EBIT margins should amount to 14.8% / 12.8%, respectively. Looking ahead, we expect the NP margin to fluctuate at around 10% (reaching a record of 10.6% in 2015). In the mid-term, we expect the margins to stabilise with short-lived positive or negative deviations from the aforementioned levels. Close to the end of our forecasting period, we make a conservative assumption of a slight margin deterioration (inflationary costs increase vs. high production capacities utilisation with no additional growth in the CAPEX planned in the end of the model s horizon). Triggers / Risks. We look at export as a significant catalyst for the stock. In our model, we estimate that exports to France will develop steadily to reach PLN200mn in Other significant European markets (Spain and UK) are treated as a growth option for the future, with varied potential stemming from the differences in the market structure, however. The biggest downside risk we associate with deterioration of demand for furniture and ability to deliver the declared capacities enhancement in line with the schedule. The EURPLN exchange rate poses a threat to the financial outcome only to a limited extent thanks to the symmetric, no-cost option corridors hedging the exposure to the currency exchange rate risk for two years ahead, in line with the company s strategy. The high concentration of demand from the Steinhoff group constitutes an operational risk as well (at the same time the group remains the chief sales booster). Valuation & recommendation. Based on our DCF model, we arrived at a 12M TP of PLN67.60, which implies a 19% upside potential. A comparative valuation puts Forte s share price in a range from PLN43.02 to PLN Assigning equal weights to the P/E and EV/EBITDA ratios, we arrive at an average valuation of PLN49.27 per share. As a consequence of the upside potential of 19%, we are initiating coverage with a Buy recommendation. Company Data FTE WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) n.a. n.a. n.a. n.a. n.a. n.a. COMPANY DESCRIPTION Forte is one of the Polish leaders in the production of cabinet furniture for flats and offices. The recipients of the company s products are chiefly foreign customers. Main shareholders % of votes MaForm Holding 29.53% MetLife OFE 14.69% ING OFE 6.32% AVIVA OFE 5.58% ANALYST Michal Sopiel (+48) [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes FTEP.WA / FTE PW Sales ,043 Market capitalisation (PLNm) 1,354 EBITDA Number of shares (m) 23.8 EBIT Free float (%) 70.5% Net income Avg. daily turnover 3M (PLNm) 1.5 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % +29.8% +48.1% 81

82 Fig. 1. Forte: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Net sales ,043 1,093 1,118 1,140 1,160 1,180 1,201 1,222 EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditure Free cashflow WACC 7.9% PV FCF Terminal Value (TV) 1,775 PV TV 831 Total EV 1,369 Net debt -7 Equity value 1,376 Number of shares (m) 23.8 Value per share (PLN, 1 Jan 2014) 1,476 Month 10 Current value per share (PLN) month Target Price 67.6 Fig. 2. Forte: Comparable valuation Company Price Currency P/E EV/EBITDA 2014E 2015E 2016E 2014E 2015E 2016E Fabryki Mebli Forte SA 56.0 PLN Polish Industrials Grupa Kety SA PLN Inter Cars SA PLN Budimex SA PLN Elektrobudowa SA 77.5 PLN n.a. n.a. n.a. Paged SA 42.0 PLN n.a. n.a. n.a. Integer.pl SA PLN Pfleiderer Grajewo SA 31.0 PLN Kopex SA 11.0 PLN Pozbud T&R SA 5.0 PLN n.a. n.a. n.a. Famur SA 3.2 PLN Rovese SA 1.5 PLN n.a Median Foreign furniture sector representatives Ekornes ASA 73.3 NOK BoConcept Holding A/S 85.0 DKK Steinhoff International Holdings Ltd 5,511.0 ZAr Nobia AB 59.5 SEK Herman Miller Inc 31.8 USD Ethan Allen Interiors Inc 29.3 USD Knoll Inc 19.7 USD n.a. Hooker Furniture Corp 15.2 USD n.a n.a. Median Premium/discount vs. Polish peers median 4.7% 4.1% 4.5% 19.7% 17.8% 19.6% Premium/discount vs. foreign peers median -3.9% 10.2% 10.4% 29.5% 29.9% 30.2% Implied Forte price per share vs. Polish peers Implied Forte price per share vs. foreign peers Source: BZ WBK Brokerage research, Bloomberg 82

83 Fig. 3. Forte: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Sales % 5.4% EBITDA % 17.6% EBITDA margin 10.8% 9.2% 10.4% 7.2% 11.3% 11.3% 14.1% 11.9% 13.2% 14.0% 15.1% 13.4% 15.0% EBIT % 21.3% EBIT margin 8.2% 6.9% 7.8% 4.0% 8.5% 8.8% 11.5% 9.1% 10.7% 11.9% 13.1% 11.2% 12.9% Net profit % 27.6% Net margin 4.6% 5.2% 6.2% 4.2% 7.0% 6.8% 8.8% 7.1% 9.0% 9.6% 11.0% 9.0% 10.9% Fig. 4. Forte: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 827 n.a. n.a. 950 n.a. n.a. 1,043 n.a. n.a. EBITDA 122 n.a. n.a. 142 n.a. n.a. 155 n.a. n.a. EBIT 106 n.a. n.a. 123 n.a. n.a. 135 n.a. n.a. Net profit 87 n.a. n.a. 101 n.a. n.a. 109 n.a. n.a. Fig. 5. Forte: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation n.a. n.a. Comparable valuation (based on E) n.a. n.a. Fig. 6. Forte: Income statement forecast Net sales ,043.1 COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 33.0% 36.2% 36.9% 37.0% 37.0% EBITDA margin 10.8% 13.4% 14.8% 15.0% 14.9% Operating margin 8.1% 10.9% 12.8% 13.0% 13.0% Net profit margin 6.8% 8.7% 10.5% 10.6% 10.5% Fig. 7. Forte: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 8. Forte: Cash flow forecast CF from operations CF from investment CF from financing, incl dividends Net change in cash

85 Poland GINO ROSSI A succesfull restructuring story FMCG NOVEMBER 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN3.1 TARGET PRICE: PLN4.0 Equity Story. Gino Rossi s story is similar to Bytom. Following a successful restructuring process, the once troubled company is now healing in both its segments: Gino Rossi and Simple. Gino Rossi is now showing the first positive signs thanks to its restructuring efforts of the previous years. Taking into account 1) the increased share of its own production in Gino Rossi, as well as 2) the deep optimisation in Simple, including a change in management, that brought about shorter collections and lower inventories, Gino Rossi will not only notably improve its financial results in the coming years, but it is also set to regain its growing profile to some extent, especially in Simple. And while the company previously failed to see much space for opening new stores, now that the necessary changes had been implemented, the number of its Simple stores is likely to grow to 70 in the longterm from the current 50. The number of its own Gino Rossi stores is likely to grow to 99 in the long-term from the current 85. Financials. We expect a noteworthy improvement of Gino Rossi s financial results in the coming years. We expect the net profit at a CAGR of 85%, the EBITDA at 26.3% and sales at 12.8%. Our main assumptions are: 1) selling space growth (incl. franchising) by 2k/2k/1.8k sqm in E, respectively, 2) LfL at 8.5%, 4% and 4% in E, respectively, 3) the gross margin at 49.6% (+430bps), 50.2% (+64bps) and 50.9% (+69bps), 4) the SG&A/avg. sqm at PLN6,618 (+6.1% y/y), PLN6,784 (+2.5% y/y) and PLN7,042 (+3.8% y/y) and 5) lower interest on debt from Valuation & recommendation. Gino Rossi is currently trading at a PE of 20x and 13x in E, which seems demanding. But when we take into account the company s good corporate governance as well as its relatively high financial costs, the premium seems justified. Based on our DCF model, we arrived at a 12 month TP of PLN4.0 per share, which implies a 30% upside potential. We are initiating our coverage with a Buy rating. STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. COMPANY DESCRIPTION Gino Rossi is a retail company selling shoes under the brand Gino Rossi and women s fashion under the brand Simple. Main shareholders % of votes Forum mutual fund 14.9% Investors mutual fund 13.9% Mr. J. Pilch 13.0% Mr. K. Bajołek 9.7% Pioneer mutual fund 6.7% Nova Idea Farm sp. z o.o. SKA 6.3% Free Float 35.6% ANALYST Tomasz Sokolowski (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes GRIP.WA / GRI PW Sales Market capitalisation (PLNm) EBITDA Number of shares (m) 50.1 EBIT Free float (%) 87.0% Net income Avg. daily turnover 3M (PLNm) 0.2 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 5.1% 20.5% 85

86 Fig. 1. Gino Rossi: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Net sales EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditure Free cashflow WACC ( ) 7.8% PV FCF ( ) 78 Terminal growth 2.5% Terminal Value (TV) 290 PV TV 137 Total EV 216 Net debt 44 Equity value 172 Number of shares (m) 51 Value per share (PLN, 1 Jan 2014) 3.4 Month 11 Current value per share (PLN) 3.6 Year-end target price (PLN) 4.0 Fig. 2. Gino Rossi: Comparable valuation P/E EV/EBITDA PEG ROE DY Name 2014E 2015E 2016E 2014E 2015E 2016E 1Y 2Y 2014E 2015E 2016E 2014E 2015E 2016E LPP % 28.9% 30.6% 1.0% 1.2% 1.4% Monnari % 19.3% 14.9% 0.0% 0.0% 5.0% Bytom % 32.0% 27.5% 0.0% 4.9% 6.7% average % 26.8% 24.4% 0.3% 2.0% 4.4% CCC % 31.2% 1.2% 1.9% 2.5% 0.0% Wojas % 12.3% 11.4% 1.3% 1.9% 0.0% Gino Rossi % 14.2% 13.5% 0.0% 0.0% 0.0% average % 19.2% 8.7% 1.1% 1.5% 0.0% Total - average % 23.0% 16.5% 0.7% 1.7% 2.2% Source: BZ WBK Brokerage research, company data 86

87 Fig. 3. Gino Rossi: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Sales % 5.1% EBITDA % -50.7% EBITDA margin 0.9% 8.4% 4.4% 4.9% 6.6% 7.6% 2.2% 7.3% 5.3% 10.4% 4.7% 11.7% 5.5% EBIT % -65.7% EBIT margin -2.2% 5.4% 1.3% 1.8% 4.3% 4.4% -0.5% 4.2% 2.9% 7.8% 2.3% 9.2% 3.0% Net profit % -97.2% Net margin -9.5% 3.5% 0.0% 4.5% 1.7% 1.8% -2.7% 3.0% 0.5% 2.3% 0.3% 3.4% 0.1% Fig. 4. Gino Rossi: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 255 n.a. n.a. 287 n.a. n.a. 314 n.a. n.a. EBITDA 23 n.a. n.a. 26 n.a. n.a. 28 n.a. n.a. EBIT 3 n.a. n.a. 3 n.a. n.a. 3 n.a. n.a. Net profit 8 n.a. n.a. 12 n.a. n.a. 13 n.a. n.a. Fig. 5. Gino Rossi: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 4.0 n.a. 0.0% Comparable valuation (based on E) 3.9 n.a. 0.0% Fig. 6. Gino Rossi: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 42.3% 45.3% 49.6% 50.2% 50.9% EBITDA margin 5.9% 6.5% 9.2% 9.2% 9.1% Operating margin 3.0% 3.9% 6.6% 6.8% 6.7% Net profit margin 2.0% 0.9% 3.0% 4.1% 4.1% Fig. 7. Gino Rossi: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 8. Gino Rossi: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

89 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland GRAJEWO In full swing Equity Story. The Polish wood-based boards producer benefits from the recently observed strong growth in furniture output of the domestic manufacturers. As we see no early signs of significant deterioration of the furniture market, we expect the company to extrude more value for its shareholders. The positive readings of the German particleboard price index (4% q/q uptick) remain supportive of the sales volumes in the particleboards segment. However, in the forecast horizon we are more conservative and expect prices to rise on average by 2% y/y. Additionally, high capacities utilisation has led to the development of an investment plan that aims at boosting efficiency (6% y/y in regards to wood-based panels this year). Production efficiency is expected to start improving from 3Q14 onward and achieve a target performance in the end of 2015 with regards to particleboards production (investment plan for the HDF segment regarding conversion of the production profile is scheduled for ). In the mid-term, Grajewo plans to seek a value increase through the development of a modern production line of kitchen countertops, expansion of its product mix and introduction of prefabricated products production (packed furniture). We also expect Silekol to be an important driver of the financial results improvement due to rising sales beyond the group (inter alia to the construction industry). According to the company, a strategic move regarding its engagement in a new production plant project should materialise no sooner than in On the cost side, we assumed inflationary growth of raw material prices (2% y/y till 2016 and 2.5% in the long term). We expect prices of glues and resins to increase a touch more slowly (c. 2%) due to favourable urea (thus melamine) prices. Financials. We expect Grajewo to report a nearly c. 8.7% y/y sales growth in 2014 (PLN1.59bn). Our figures indicate hefty increases of its margins across all the P&L lines. We forecast the NP to stand at PLN106mn (6.7% margin). Looking forward, the adoption of measures aimed at operational performance improvement will lead to a margins uptick by 36bps in 2015 (in case of the EBITDA margin by 45bps, while the EBIT and NP should increase c. 37bps). We see the EBITDA growing to PLN212mn in 2015 and PLN228mn in Triggers / Risks. We identified several risks to our model scenario. Firstly, there is the possible upswing in the supply of wood-based boards from the East, which might pose a risk for the total sales volumes in the short term. High utilisation rates, on the one hand, push the maintenance cost up and, on the other, makes production less flexible in the event of an unplanned stoppage. In the long term, the EURPLN exchange rate could affect the company s financial results as well. However, the company hedges its currency position with forward contracts, which should give it a chance to adjust the price when needed. Valuation & recommendation. Based on the DCF valuation, we have set a 12M TP of PLN A comparison with Grajewo s peers indicates a valuation range from PLN22.75 to PLN37.93 per share. Since our valuation exceeds the current market price by 16%, we are initiating coverage of Grajewo with a Buy recommendation GRJ Industrials November 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN30.66 WIG Relative TARGET PRICE: PLN35.50 STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) n.a. n.a. n.a. n.a. n.a. n.a. COMPANY DESCRIPTION Grajewo is one of Poland s leading producers of wood-based boards Main shareholders % of votes Pfleiderer Service GmBH 65.11% AVIVA OFE 9.93% ING OFE 5.32% ANALYST Michal Sopiel (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes GRJ.WA / GRJ PW Sales 1,462 1, , ,716.2 Market capitalisation (PLNm) 1,521 EBITDA Number of shares (m) 49.6 EBIT Free float (%) 34.9% Net income Avg. daily turnover 3M (PLNm) 0.2 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % -8.9% +17.9% 89

90 Fig. 1. Grajewo: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Net sales 1,589 1,672 1,716 1,759 1,801 1,847 1,897 1,949 2,002 2,057 EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditure Free cashflow WACC 8.0% PV FCF Terminal Value (TV) 2,218 PV TV 1,025 Total EV 1,641 Net debt 138 Minority interest 0 Equity value 1,503 Number of shares (m) 49.6 Value per share (PLN, 1 Jan 2014) 1,618 Month 10 Current value per share (PLN) month Target Price 35.5 Fig. 2. Grajewo: Comparable valuation Company Price Currency P/E EV/EBITDA 2014E 2015E 2016E 2014E 2015E 2016E Pfleiderer Grajewo SA PLN Polish Industrials Grupa Kety SA PLN Inter Cars SA PLN Budimex SA PLN Elektrobudowa SA PLN n.a. n.a. n.a. Paged SA PLN n.a. n.a. n.a. Integer.pl SA PLN Fabryki Mebli Forte SA PLN Kopex SA PLN Pozbud T&R SA 4.99 PLN n.a. n.a. n.a. Famur SA 3.20 PLN Rovese SA 1.46 PLN n.a Median Foreign wood-based boards sector representatives Norbord Inc CAD Interface Inc USD Universal Forest Products Inc USD Surteco SE EUR Boise Cascade Co USD Greenply Industries Ltd INR Canfor Corp CAD Duratex SA 8.22 BRL Median Premium/discount vs. Polish peers median -18.2% -8.6% 21.9% 5.5% 13.7% 36.3% Premium/discount vs. foreign peers median -18.2% -8.6% 21.9% 5.5% 13.7% 36.3% Implied Grajewo price per share vs. Polish peers Implied Grajewo price per share vs. foreign peers Source: BZ WBK Brokerage research, Bloomberg 90

91 Fig. 3. Grajewo: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Sales % 3.5% EBITDA % -7.2% EBITDA margin 14.6% 13.4% 7.5% 9.3% 12.3% 11.3% 7.0% 9.2% 11.3% 14.2% 10.6% 13.9% 12.5% EBIT % -10.7% EBIT margin 10.2% 9.3% 4.4% 6.0% 8.1% 6.4% 4.1% 6.1% 8.5% 10.2% 7.6% 10.6% 9.1% Net profit % -5.7% Net margin 1.5% 4.8% 3.5% 1.6% 3.2% 4.7% 3.7% 1.7% 4.6% 6.5% 5.1% 7.8% 7.1% Fig. 4. Grajewo: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 1,589 n.a. n.a. 1,672 n.a. n.a. 1,716 n.a. n.a. EBITDA 194 n.a. n.a. 212 n.a. n.a. 221 n.a. n.a. EBIT 148 n.a. n.a. 162 n.a. n.a. 166 n.a. n.a. Net profit 106 n.a. n.a. 118 n.a. n.a. 121 n.a. n.a. Fig. 5. Grajewo: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation n.a. n.a. Comparable valuation (based on E) n.a. n.a. Fig. 6. Grajewo: Income statement forecast Net sales 1, , , , ,716.2 COGS 1, , , , ,374.9 Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 15.9% 17.9% 19.6% 19.9% 19.9% EBITDA margin 8.1% 10.7% 12.2% 12.7% 12.9% Operating margin 5.1% 7.4% 9.3% 9.7% 9.6% Net profit margin 3.5% 10.4% 6.7% 7.0% 7.1% Fig. 7. Grajewo: Balance Sheet forecast Current assets 1, Fixed assets Total assets 1, , , , ,341.1 Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities 1, , , , ,341.1 Net debt Fig. 8. Grajewo: Cash flow forecast CF from operations CF from investment CF from financing, incl dividends Net change in cash

93 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland HAWE Dark Fibre for Sale TELECOMS November 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN2.51 TARGET PRICE: PLN4.40 Equity Story. HAWE has built and now operates two parallel 4,000km dark fibre backbone rings in Poland, offering a unique high-speed connection capacity. On the one hand, these connect Poland s key cities, on the other, they offer a direct line between Germany and Belarus. The sale or lease of the backbone network has been HAWE s key EBITDA driver in the past (some 20k km sold) and we expect it to stay that way in the future - with the average contract profitability at above 90%. HAWE services all the main Polish telco players, both the mobile and fixed-liners, and its backbone network seems to be an ideal platform for the construction of Polandwide FTTH connections. On top of that, HAWE won two substantial network construction contracts to be completed by While these support the 2014/15E EBITDA, the scale of the construction works distorts the mid-term top line trends and inflates the EBITDA margin by Financials. Following the uninspiring 3Q14, we expect the seasonally high sales of dark fibre to boost the 4Q14E results to reach a flat FY14E EBITDA y/y. The completion of the heavy margin-eroding construction works will keep the top line inflated in 2015E, while focus on the dark fibre lease or sale (own assumption of 4,000km p.a.) should result in the EBITDA s stabilising at PLN58mn in 2016E. Assuming no dividend pay-out, we expect HAWE to become debt-free as of 2018E. Triggers / Risks. Annual sales of more than 5,000km of optic fibre p.a. are a substantial upside (+PLN1.5 per share to TP for additional 1,000km p.a.). The company is also looking for a strategic investor, which could change the picture. HAWE s key shareholder is facing some legal problems and we believe there future of Mr. Falenta s stake is uncertain. Finally, FTTH involvement could result in HAWE s increased investment outlays. Valuation & recommendation. Based on our DCF model, we arrived at a 12M TP of PLN4.40 per share, which implies a 75% upside potential. The price of acquiring the Italian dark fibre provider back in 2011 yields a HAWE per share price of PLN5.81, while a comparison with the Polish ATM on 2014E- 16E EV/EBITDA ratio yields a share price of PLN HWE WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) n.a. n.a. n.a. n.a. n.a. n.a. COMPANY DESCRIPTION HAWE operates most modern Polish backbone ring, consisting of two 3,800km-long fibre-optic main lines, with cross-border links with Russia, Belarus, Ukraine and Germany. It also provides network construction services. Main shareholders % of votes Trinitybay Investments Ltd. 26.1% Marek Falenta 7.7% ANALYST Pawel Puchalski, CFA (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes HWE.WA / HWE PW Sales Market capitalisation (PLNm) EBITDA Number of shares (m) EBIT Free float (%) 63.6% Net income Avg. daily turnover 3M (PLNm) 1.0 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % -15.3% -26.3% 93

94 Fig. 1. HAWE: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Net sales EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditure Free cashflow WACC 9.0% PV FCF Terminal Value (TV)* 657 PV TV 136 Total EV 534 Net debt** 132 Equity value 403 Number of shares (m) Value per share (PLN, 1 Jan 2014) 3.8 Month 10 Current value per share (PLN) month Target Price 4.4. * Terminal Value equals PV FCF E, before value of Fixed Assets reaches nil in 2030E; ** adjusted for 4.2mn own shares held, priced at market value. Comparative Valuation: Past transactions In 2011 an Italian dark fibre provider in the northern Italy was sold for EUR436mn. According to different sources it had network length in the range from 5,200km to 6,600km, and 2010 EBITDA at EUR42mn. Transaction price implies transactional EV/EBITDA at 10.3x, and EUR / km ranging from 66k to 84k. While we believe ratio of price per dark fibre network kilometre should not be applied to Poland due to very different economics of two countries, we see transactional EV/EBITDA at 10.3x as providing fair comparative approach, especially in light of current very low interest rates. If we apply this ratio, on basis of our 2014E-16E estimates HAWE should be priced at PLN5.81 per share. Fig. 29. HAWE: Comparable valuation Price Currency P/E EV/EBITDA 2014E 2015E 2016E 2014E 2015E 2016E HAWE 2.35 PLN ATM PLN Implied HAWE price per share Source: BZ WBK Brokerage research, Bloomberg. Own estimates for HAWE, market consensus for ATM. 94

95 Fig. 30. HAWE: 3Q14 results review 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q Sales % -27.5% EBITDA % -54.5% EBITDA margin 38.5% 12.8% 17.6% 65.5% 60.9% 17.1% 33.1% 24.7% 20.0% 12.6% EBIT % -71.2% EBIT margin 31.5% -5.9% 11.4% 60.1% 45.5% 7.0% 25.7% 16.1% 15.3% 6.1% Net profit % -76.0% Net margin 36.3% 36.6% 16.4% 26.3% 32.1% 27.9% 29.6% 19.3% 13.2% 4.1% Fig. 31. HAWE: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 232 n.a. n.a. 243 n.a. n.a. 157 n.a. n.a. EBITDA 76 n.a. n.a. 76 n.a. n.a. 58 n.a. n.a. EBIT 59 n.a. n.a. 58 n.a. n.a. 40 n.a. n.a. Net profit 48 n.a. n.a. 50 n.a. n.a. 38 n.a. n.a. Fig. 32. HAWE: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 4.40 n.a. n.a. Comparable valuation (based on E) 5.92 n.a. n.a. Fig. 33. HAWE: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 30.6% 43.9% 42.6% 39.8% 49.6% EBITDA margin 30.6% 43.9% 33.0% 31.3% 36.9% Operating margin 22.4% 34.9% 25.3% 23.9% 25.4% Net profit margin 15.7% 29.6% 20.5% 20.7% 24.4% Fig. 34. HAWE: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 35. HAWE: Cash flow forecast CF from operations CF from investment CF from financing, incl dividends Net change in cash

97 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland GRUPA KETY New strategy almost there Industrials RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN278 TARGET PRICE: PLN311 (MAINTAINED) Equity Story. Our investment story remains intact. We believe that export sales, especially in the aluminium systems segment, growth in margins and, finally, stabilisation in the extruded products will remain Kety s main drivers of growth. We also still believe that Kety can monetise the rising aluminium usage in the automotive segment. 3Q14 Results Review. Kety s management had previously announced that the company had the highest results in its history. Its sales amounted to PLN489 (+8% y/y), the EBITDA/EBIT to PLN103mn/PLN81.6mn (+32.9% y/y and +43.2% y/y, respectively). The net profit came in at PLN62.1mn (+41.1%). The bottom line was, however, burdened by FX losses due to the UAH devaluation (financial costs were at PLN5.4mn). The results growth was driven by improvement in the three main segments and all of them recorded growth in sales and margins, both in y/y as well as q/q terms. It also worth noting that both aluminium systems and the flexible packaging segments generated record-high margins, with the extruded products returning to margins unseen since The growth in sales was caused by a rise in demand on the domestic, as well as on the majority of its export markets (biggest export growth was recorded in Germany, Italy, Holland, UK and the Czech Republic). Kety s net debt stood at PLN192.7mn at the end of the quarter, slightly below the previously suggested level of PLN200mn. The operating cash flow amounted to PLN63.2mn (61% of the EBITDA due to the seasonal working capital spike) and CAPEX was at PLN30mn (PLN74mn after 9M). Moreover, the management suggested that y/y demand growth for products in 4 out of 5 segments will continue in 4Q14 (with the y/y demand growth in extrustion, aluminium systems and accessories seen at 5-10%, in flexible packaging at 5% and in constructional services flat). New strategy in 1Q15. The management announced that its strategic targets for 2015, which were set in the company s previous strategy, would be met or nearly met already in 2014 (we assume that the target of PLN325mn in EBITDA will be missed just by PLN1mn). Kety is due to present its new, five-year strategy in 1Q15. The company is set to focus on organic growth in its present segments but will not rule out acquisitions. Its CAPEX plans will be balanced with a satisfactory dividend level for its shareholders (according to our model, the company should be able to maintain the 60% pay-out ratio without a debt increase and still be able to finance its CAPEX of PLN mn in the coming years). Valuation & Recommendation. We made no changes to our forecasts and, as a consequence, to our valuation. Company Data KTY WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute TP relative (p.p) Buy % 4.1 Buy % 19.3 COMPANY DESCRIPTION Kety is a leading Polish aluminium products (extruded profiles and aluminium systems) and flexible packaging manufacturer. Main shareholders % of votes Aviva pension fund 18.0% ING pension fund 17.2% PZU pension fund 9.8% Allianz pension fund 5.3% ANALYST Tomasz Kucinski [email protected] PLNmn E 2015E 2016E Reuters/Bloomberg codes KTY.WA / KTY PW Sales 1,594 1,790 1,867 1,942 Market capitalisation (PLNmn) 2,610.7 EBITDA Number of shares (mn) 9.4 EBIT Free float (%) 98.8% Net income Avg. daily turnover 3M (PLNm) 1.8 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 27.1% 27.1% 97

98 Fig. 1. Kety: 3Q14 results review 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q Sales % 11.5% EBITDA % 26.7% EBITDA margin 17.0% 12.9% 13.5% 16.2% 16.8% 10.4% 13.5% 14.0% 17.1% 11.8% 16.4% 18.5% 21.3% EBIT % 33.6% EBIT margin 12.8% 7.9% 7.9% 10.7% 12.2% 4.9% 7.7% 8.7% 12.6% 6.8% 11.7% 13.9% 16.9% Net profit % 18.1% Net margin 8.3% 5.0% 6.8% 8.2% 9.9% 4.4% 5.1% 11.3% 9.7% 11.6% 7.5% 12.0% 13.1% 34.3% 8.9% Fig. 2. Kety: Forecasts changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 1,790 1, % 1,867 1, % 1,942 1, % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. Kety: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation % Comparable valuation (based on E) % Fig. 4. Kety: Income statement forecast Sales revenue: 1,568 1,594 1,790 1,867 1,942 operating cost, ex. depreciation 1,365 1,412 1,490 1,554 1,619 Depreciation EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit EBITDA margin 14.3% 14.2% 18.1% 18.0% 17.9% Operating margin 9.1% 9.1% 13.4% 13.5% 13.5% Net profit margin 7.5% 9.6% 10.3% 10.6% 10.6% Fig. 5. Kety: Balance sheet forecast Current assets Fixed assets Total assets 1,643 1,716 1,826 1,918 2,010 Current liabilities bank debt Long-term liabilities bank debt Equity 1,023 1,126 1,217 1,305 1,391 share capital ,021 1,100 Minority Interest Total liabilities 1,643 1,716 1,826 1,918 2,010 Net debt Fig. 6. Kety: Cash flow forecast CF from operations CF from investment CF from financing, incl dividends paid Net change in cash

99 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14 May-14 Aug-14 Polish Equity Research Poland MEDICALGORITHMICS Fair-valued growth story Health Care / IT NOVEMBER 12, 2014 RECOMMENDATION HOLD (INITIATION) CURRENT PRICE: PLN204 TARGET PRICE: PLN230 Equity Story. Medicalgorithmics success story is based on its own, stateof-the-art software system used in Pocket ECG. This allows the company to enjoy superb margins, the highest among all the WSE-listed companies. The SaaS sales model helps to stabilise its results and tie its customers for a long time. Medicalgorithmics is the first Polish company that received an FDA certificate and set a foothold on the most attractive US market. It has also started to enter new markets in Europe, Asia and Americas. We like the company s light business model (no expensive own distribution), its low CAPEX and working capital requirements, resulting in a strong cash generation ability, strong balance sheet, as well as excellent and sustainable pace of growth. Financials. The growth pace remains the key valuation driver for Medicalgorithmics. We believe that after the c80% sales y/y expansion in 2014E, the company will be able to expand its top-line by c50% in 2015E on orders from the largest US market and new contracts for Pocket ECG. The company s relocation to a new bigger factory and its headcount increase ballooned its opex and slightly lowered the margins. We expect, however, that the operating margin will return to levels seen last year from 2015, when the higher fixed costs will be diluted by higher revenues. Medicalgorithmics is trading at a 2015E and 2016E P/E of 31.0x and 24.8x, respectively. Triggers/Risks. Apart from the core Pocket ECG product, the company s R&D department is working on three new projects that may have a positive impact on the company s P&L. So far Medicalgorithmics is a single product company, which we think is a major risk. Regulatory risk in the US was minimised when its global expansion was kicked off, but the risk of companies like Apple or Samsung appearing on the market is hard to estimate. Medicalgorithmics does not have a clear policy about what to do with the cash surplus. A declaration of a higher dividend and a buyback program would receive a warmer welcome than investments in the Polish corporate bonds. The stock s share price has recently been under pressure from a share supply from the CEO and seed funds, as well as its lower-than-expected pace of growth. We believe that the current price levels balance the company s growth prospects and its downside risks. Valuation & recommendation. Based on our DCF model, we arrived at a 12-month TP of PLN230 per share. The TP implies a 13% upside potential, which caused us to initiate our coverage of the stock with a Hold recommendation. The comparative valuation points to PLN131 per share MDG WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. COMPANY DESCRIPTION The Company is focused on the development of solutions and systems for signal and data processing in cardiac monitoring. MAIN SHAREHOLDERS % of votes ING pension fund 13.1% Mr. Marek Dziubinski 11.6% New Europe Ventures 8.0% Nordea pension fund 7.5% BioInfoBank Seed Capital 6.3% Aviva mutual fund 6.0% ANALYST Lukasz Kosiarski (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes MDG.WA / MDG PW Sales Market capitalisation (PLNm) EBITDA Number of shares (m) 3.5 EBIT Free float (%) 73.4% Net income Avg. daily turnover 3M (PLNm) 0.5 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % -8.9% 17.9% 99

100 Fig. 1. Medicalgorithmics: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Net sales EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditure Free cashflow WACC ( ) 8.0% PV FCF Terminal growth 2.0% Terminal Value (TV) PV TV Total EV Net debt Equity value Number of shares (m) 3.5 Value per share (PLN, 1 Jan 2014/15) Month 11 Current value per share (PLN) month target price (PLN) Fig. 2. Medicalgorithmics: Comparable valuation Market Cap P/E EV/EBITDA Company Price Currency (EURmn) 2014E 2015E 2016E 2014E 2015E 2016E Medicalgorithmics PLN Peers LiveChat Software PLN BioTelemetry 8.25 USD n.a n.a. LifeWatch 9.67 CHF GN Store Nord DKK 3, Sonova Holding CHF 10, Nihon Kohden JPY 2, SHL TeleMedicine 8.70 CHF n.a. Medtronic USD 67, St Jude Medical USD 18, Boston Scientific USD 17, SHL TeleMedicine 8.70 CHF n.a. Lepu Medical Technology CNY 3, n.a. n.a. n.a. Median Implied share price vs. LiveChat (PLN) Implied share price vs. peers (PLN) Implied price (PLN) Source: BZ WBK Brokerage research, company data 100

101 Fig. 3. Medicalgorithmics: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Sales % 11.0% EBITDA % 3.8% EBITDA margin 53.7% 63.3% 77.4% 57.0% 71.3% 71.1% 66.6% 64.4% 76.5% 63.7% 65.7% 62.4% 58.3% EBIT % 3.9% EBIT margin 46.5% 57.8% 72.7% 53.6% 67.5% 67.0% 63.1% 61.3% 70.5% 61.1% 63.4% 60.1% 56.3% Net profit % 5.2% Net margin 48.7% 55.2% 58.3% 53.5% 75.2% 85.8% 76.7% 70.5% 73.3% 61.1% 63.5% 58.6% 55.6% Fig. 4. Medicalgorithmics: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 28.1 n.a. n.a n.a. n.a n.a. n.a. EBITDA 17.1 n.a. n.a n.a. n.a n.a. n.a. EBIT 16.5 n.a. n.a n.a. n.a n.a. n.a. Net profit 16.1 n.a. n.a n.a. n.a n.a. n.a. Fig. 5. Medicalgorithmics: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 230 n.a. n.a. Comparable valuation (based on E) 131 n.a. n.a. Fig. 6. Medicalgorithmics: Income statement forecast Net sales Opex Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit EBITDA margin 65.9% 64.7% 60.8% 59.9% 60.8% Operating margin 64.5% 63.7% 58.7% 58.5% 59.6% Net profit margin 67.6% 69.3% 57.3% 54.0% 53.2% Fig. 7. Medicalgorithmics: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 8. Medicalgorithmics: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

103 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland MIDAS Polkomtel s promo to boost 3Q volume? 3Q14 Results Preview. We expect Midas 3Q14 data transfer volume to increase by 29% q/q and 122% y/y to 18GB. We see the 9M data transfer expanding to 44.6GB, up 112% y/y. In our view the strength of the 3Q14 volumes may be attributed to Polkomtel s recent LTE-focused promotion, likely driving the September volume to some 7GB. We expect little surprises or expansion at the cost line, but an extra 1GB of the September 2014 transfer volume boosts the EBITDA by an additional PLN5mn. Flat transfer rates q/q will trim quarterly loss to PLN25mn. While we see the 3Q14 results broadly flat at the EBITDA / EBIT / net profit levels y/y, the quarter brings us much closer to the long-awaited EBITDA breakeven. Outcome: POSITIVE. Competitive LTE offers. The other Polish mobile players have all announced a launch of their own LTE services for mid But so far Midas remains the only fully-blown provider of LTE services in Poland. TMT NOVEMBER 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN0.60 TARGET PRICE: PLN1.39 (MAINTAINED) PUBLICATION DATE NOVEMBER 15, Q14 RESULTS PREVIEW 3Q14E y/y q/q Sales % 21% EBITDA n.a. n.a. EBIT n.a. n.a. Net profit n.a. n.a MDS WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended TP Auction for 800 / 2,600 MHz frequencies. The regulator announced an auction for five 800MHz and fourteen 2,600MHz blocks (5MHz width each), priced at PLN250mn and PLN25mn, respectively. Bids may be placed by 24 November, 2014 and the regulator will have one month for verification. Change in Forecasts. We keep our forecasts unchanged over the entire forecasting period. Change in Valuation & Recommendation. We apply no changes to our DCF and DDM valuations, leaving these unchanged, respectively, at PLN1.39 and PLN1.29 per share. We maintain our BUY recommendation. The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Buy % 6.9 Buy % 4.4 Buy % Buy % COMPANY DESCRIPTION Midas builds and operates LTE network in Poland, eyes 66% coverage of the country with the total of 4,700 base stations. Company Data ANALYST Pawel Puchalski, CFA (+48) [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes MDSP.WA / MDS PW Sales Market capitalization (PLNm) 888 EBITDA Number of shares (m) 1,479.7 EBIT Free float (%) 34.0% Net income Avg. daily turnover 3M (PLNm) 0.7 P/E (x) n.a. n.a. n.a. n.a. 1M 3M YTD Price performance EV/EBITDA (x) n.a. n.a. n.a % 15.4% -9.1% 103

104 Fig. 1. Midas: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Sales % 21.2% EBITDA n.a. n.a. EBITDA margin -134% -144% -81% -104% -89% -89% -49% -67% -50% -21% -74% -56% -29% EBIT n.a. n.a. EBIT margin -223% -199% -164% -231% -205% -219% -110% -124% -99% -58% -117% -98% -63% Net profit n.a. n.a. Net margin -255% -212% -157% -216% -191% -209% -102% -117% -109% -54% -123% -107% -71% Fig. 2. Midas: Forecasts changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales % % % EBITDA n.a n.a % EBIT n.a n.a n.a. Net profit n.a n.a n.a. Fig. 3. Midas: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation % DDM valuation % Fig. 4. Midas: Income statement forecast Net sales COGS, ex. depreciation Depreciation Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit EBITDA margin -206% -96% -82% -37% -1% EBITDA margin adjusted -91% -45% -41% -5% 24% Operating margin -207% -96% -82% -37% -1% Net profit margin adjusted -196% -94% -96% -53% -13% Fig. 5. Midas: Balance sheet forecast Current assets Fixed assets 1,189 1,285 1,371 1,465 1,382 Total assets 1,420 1,483 1,633 1,728 1,751 Current liabilities bank debt Long-term liabilities ,109 1,101 bank debt ,000 1,000 Equity share capital Minority Interest Total liabilities 1,420 1,483 1,633 1,728 1,751 Net debt ,046 1,065 Fig. 6. Midas: Cash flow forecast CF from operations CF from investment CF from financing, incl dividends paid Net change in cash

105 Poland MONNARI What doesn't kill you makes you stronger Retail NOVEMBER 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN9.5 TARGET PRICE: PLN13.5 Equity Story. Monnari offers investors another successful restructuring story. Some past bad decision-making pushed Monnari on the verge of bankruptcy in But thanks to aggressive restructuring and loyal clients, Monnari did not go the way of the dodo. Monnari is now a company that has shown PLN22mn in net cash (including PLN16mn loan) in 3Q14, has attractive office real estate for sale (worth c.pln25mn) and plans further development of the proven Monnari concept a concept that survived the worst. And we believe that this scenario will materialise in the coming years. We expect Monnari to increase its floor space at least by c5k sqm by 2016E, which accounts for 27% of its current floor space. This should yield in sales and an EBITDA at a 11% and 14% CAGR in Financials. We expect that Monnari will remain on the growth path in Our main assumptions are: 1) selling space growth by 2.2k/1.9k/0.9k sqm in E, respectively, 2) LfL at 5.0%, 3.0% and 3.0% in E, respectively, 3) the gross margin at 57.5% (+135bps), 56.5% (-95bps) and 57.1% (+52bps), 4) the SG&A/avg. sqm at PLN3,808 (+9.0% y/y), PLN3,757 (-1.3% y/y) and PLN3,873 (+3.1% y/y) and 5) starting of tax payments since We have also assumed that Monnari will sell real estate for PLN25mn, which will boost company costs by cpln2mn (additional rents and lack of rent incomes from external tenants). Valuation & recommendation. Monnari is currently trading at a PE of 12.1x (on adj. basis) and 11.9x in E, which seems cheap taking into account its growth potential, the high ROE (26%) and the clean balance sheet. We believe that PE at c.15-16x would be fairer. Assuming that we are correct with our FY forecasts, there is still plenty of upside to catch. On the other hand, such corporate actions like loans to external companies that are connected to Monnari s owners casts some shadow on the company and might hinder its price appreciation toward more attractive multiples. In our view, it would be better to finance private projects by dividend rather than loans from Monnari. Based on our DCF model, we arrived at a 12 month TP of PLN13.5 per share, which implies a 42% upside potential. We initiate coverage with a Buy rating. STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. COMPANY DESCRIPTION Monnari is a retail company selling women s fashion mainly under the brand Monnari. Main shareholders % of votes Mr. Miroslaw Misztal 26.1% Fair Ltd. 8.3% Mr. Jakub Banasiak 6.5% Union Investment 7.3% Free float 51.8% ANALYST Tomasz Sokolowski (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes MONP.WA /MON PW Sales Market capitalisation (PLNm) EBITDA Number of shares (m) 30.6 EBIT Free float (%) 47.8% Net income Avg. daily turnover 3M (PLNm) 0.4 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % +15.6% +46.9% 105

106 Fig. 1. Monnari: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Net sales EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditure Free cashflow WACC ( , %) 8.0% PV FCF Terminal growth (%) 2.5% Terminal Value (TV) 374 PV TV 173 Total EV 284 Net debt -77 Equity value 361 Number of shares (m) 31 Value per share (PLN, 1 Jan 2014) 12 Month 11 Current value per share (PLN) month target price (PLN) 13.5 Fig. 2. Monnari: Comparable valuation P/E EV/EBITDA PEG ROE DY Name 2014E 2015E 2016E 2014E 2015E 2016E 1Y 2Y 2014E 2015E 2016E 2014E 2015E 2016E LPP % 28.9% 30.6% 1.0% 1.2% 1.4% Monnari % 19.3% 14.9% 0.0% 0.0% 5.0% Bytom % 32.0% 27.5% 0.0% 4.9% 6.7% average % 26.8% 24.4% 0.3% 2.0% 4.4% CCC % 31.2% 1.2% 1.9% 2.5% 0.0% Wojas % 12.3% 11.4% 1.3% 1.9% 0.0% Gino Rossi % 14.2% 13.5% 0.0% 0.0% 0.0% average % 19.2% 8.7% 1.1% 1.5% 0.0% Total - average % 23.0% 16.5% 0.7% 1.7% 2.2% Source: BZ WBK Brokerage research, company data 106

107 Fig. 3. Monnari: 3Q14 results review 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13E 1Q14 2Q14 3Q14 y/y q/q Sales % -11.1% EBITDA % -32.5% EBITDA margin -1.9% 9.3% 1.1% 19.6% -0.1% 14.7% 6.9% 23.2% 11.6% 17.3% 13.1% EBIT % -36.1% EBIT margin -4.6% 7.0% -0.9% 18.1% -1.9% 12.4% 5.3% 22.0% 9.6% 15.2% 10.9% Net profit % -38.4% Net margin -5.1% 7.6% -2.4% 18.7% 3.6% 13.7% 2.8% 21.5% 17.4% 15.4% 10.7% Fig. 4. Monnari: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 167 n.a. n.a. 183 n.a. n.a. 197 n.a. n.a. EBITDA 26 n.a. n.a. 26 n.a. n.a. 28 n.a. n.a. EBIT 23 n.a. n.a. 23 n.a. n.a. 25 n.a. n.a. Net profit 27 n.a. n.a. 25 n.a. n.a. 21 n.a. n.a. Fig. 5. Monnari: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 13.5 n.a. n.a. Comparable valuation (based on E) 12.4 n.a. n.a. Fig. 6. Monnari: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 52.5% 56.1% 57.5% 56.5% 57.1% EBITDA margin 8.5% 17.4% 15.5% 14.5% 14.4% Operating margin 6.4% 15.5% 13.6% 12.6% 12.5% Net profit margin 6.2% 16.2% 16.1% 13.5% 10.9% Fig. 7. Monnari: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 8. Monnari: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

109 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland MW TRADE Healthy momentum FINANCIALS NOVEMBER 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN 18.7 TARGET PRICE: PLN 21.6 Equity Story. MW Trade is Poland s second-largest, non-bank provider of funding and financial services for the health care sector (hospitals as well as their suppliers). The company is also increasingly engaged with local governments and municipalities. Its close cooperation with the Getin Holding group (Idea Bank funding) offers the company more flexibility and opportunity to grow in the new business line of guarantees and fees. Following the 56% revenues CAGR in and 49% of earnings, E should bring 15% and 11% growth rates, respectively, despite our assumption of margin contraction. Based on our estimates, the company trades at a 8.9x 2015E P/E and a P/Book of 1.9x, while continues to generate a ROE of 23%. Our TP of PLN 21/ share implies a 16% upside potential. We are initiating our coverage with a BUY rating. Financials. The company s strong revenues and EPS growth should continue despite our conservative assumptions for its product portfolio growth (10% CAGR in E vs. 22% in ) and negative margin development (10.7% in 2016E vs. 13.3% in 2013). We expect a 15% revenue CAGR in E, following 56% in and an EPS CAGR 11% vs. a historical rate of 49%. We expect the dividend pay-out ratio to stay at 50% in 2014E-2016E, which implies a DY of 5.1%-6.1% in upcoming years. Triggers/Risks. The risks include frequent changes to regulations on hospital liabilities and the general structural challenges that the Polish health care system is facing. The funding risks are significant, though we believe they are properly addressed in our model since we use a COE of 14%. Lastly, MW Trade is in the Getin Holding group, which is both an opportunity and a threat. Idea Bank is now granting safe and flexible loans, but there is the threat that Idea Bank might acquire MW Trade s know-how and become its competitor. Valuation & recommendation. We have set a 12-month target price for MW Trade at PLN21.6/share using a blend of residual income (50%) and a warranted equity method (50%), which implies a 16% upside potential. The company currently trades at P/E 8.9x 2015E, P/BV of 1.9x, a headline EV/EBITDA of 39x and a dividend yield of 5.6% MWT WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) n.a. n.a. n.a. n.a. n.a. n.a. COMPANY DESCRIPTION MW Trade provides funding and financial services to health care sector, its suppliers as well as local governments and municipalities. The company is a second player on the Polish market of hospital liabilities. Main shareholders % of votes Getin Holding 51.3% Mr. Rafał Wasilewski 20.0% TFI Quercus 10.2% AVIVA OFE 5.2% Andrzej Bieniek Securities broker, Investment advisor (+48) [email protected] Dariusz Górski (+48) [email protected] ANALYSTS Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes MWT.WA / MWT PW Sales Market capitalisation (PLNm) 140 EBITDA Number of shares (m) 8.4 EBIT Free float (%) 28.7% Net income Avg. daily turnover 3M (PLNm) 0.05 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 0.7% -21.6% 109

110 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Polish Equity Research Fig. 1. MW Trade: Residual income valuation 2014E 2015E 2016E Net profit Equity (YE) ROE 23.7% 23.1% 22.7% COE 14.0% 14.0% 14.0% Excess return 9.7% 9.0% 8.7% Residual income PV of residual income ( E) 17.4 Growth (CAGR) ROE (avg.) Pay-out (avg.) Total value PV Transition period ( E) -0.9% 20.9% 60% Perpetuity 3.0% 19.7% 60% Total intrinsic value 84.9 # of shares (m) 8 Value per share 10.1 Last reported BVPS 7.6 Fair value (Jan'14) 17.7 Month 10 Fair value (current) month TP 22.5 Upside potential 25% Fig. 2. MW Trade: Comparable valuation 2016E ROE (%) 22.7 COE (%) 14.0 g (%) 3.0 Implied fair P/B (x) 1.8 YE16E BVPS 10.7 Fair value (YE16) 19.1 PV (Jan'14) 12.9 DPS14E 0.9 DPS15E 1.0 DPS16E 1.1 PV of E DPS 2.4 PV of equity + DPS (Jan'14) 15.3 Month 10 PV (current) month price target 19.5 Upside potential 8% Source: BZ WBK Brokerage research, company data Fig. 3. MW Trade: Valuation changes MWT/MAG price ratio STD +/ STD +/ Fig. 4. MW Trade: Valuation changes 1.00 MWT/MAG P/E ratio Average 0.95 STD +/-2 STD +/ Source: Bloomberg data, DM BZ WBK estimates Source: Bloomberg data, DM BZ WBK estimates 110

111 Fig. 5. MW Trade: 3Q14 results review 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q Revenues % 5% Funding cost -8.7% -8.4% -7.9% -8.1% -7.7% -7.9% -7.9% 0% 0% Gross profit % 1% Opex % -6% EBITDA % 2% EBIT % 2% Net profit % 2% Income yield 13.0% 14.9% 12.4% 12.7% 11.6% 12.4% 12.0% n.a. n.a. Funding cost -8.7% -8.4% -7.9% -8.1% -7.7% -7.9% -7.9% n.a. n.a. Gross profit margin 26.0% 33.1% 26.4% 25.3% 26.7% 29.6% 28.3% n.a. n.a. EBITDA margin 26.9% 33.7% 27.2% 26.1% 28.2% 30.0% 29.0% n.a. n.a. EBIT margin 26.2% 33.1% 26.5% 25.4% 27.5% 29.4% 28.5% n.a. n.a. Net profit margin 21.6% 27.0% 22.2% 20.3% 22.2% 23.6% 22.8% n.a. n.a. Fig. 6. MW Trade: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 68.6 n.a. 0% 79.7 n.a. 0% 93.3 n.a. 0% EBITDA 20.2 n.a. 0% 21.8 n.a. 0% 24.1 n.a. 0% EBIT 19.8 n.a. 0% 21.5 n.a. 0% 23.7 n.a. 0% Net profit 16.0 n.a. 0% 17.5 n.a. 0% 19.3 n.a. 0% Fig. 7. MW Trade: Valuation changes In PLN per share, unless otherwise stated New Previous Change Residual income 19.8 n.a. 0% Warranted Equity 17.1 n.a. 0% Blended average target price 21.6 n.a. 0% Fig. 8. MW Trade: Income statement forecast Net sales Portfolio funding cost Gross profit Opex EBITDA EBIT Other Pre-tax profit Income tax Net profit Gross margin 39.1% 41.6% 41.5% 38.3% 36.1% EBITDA margin 24.8% 28.6% 29.5% 27.4% 25.8% EBIT margin 24.2% 28.0% 28.9% 26.9% 25.4% Pre-tax margin 25.1% 28.3% 28.9% 27.2% 25.6% Effective tax rate -19.3% -19.1% -19.4% -19.4% -19.4% Net profit margin 20.2% 22.9% 23.3% 21.9% 20.7% Fig. 9. MW Trade: Balance Sheet forecast Current assets Cash and equivalents Financial assets L-t PP&E Financial assets Total assets Current liabilities Long-term liabilities Equity Total liabilities and equity Fig.10. MW Trade: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

112 This page has been left intentionally blank. Dom Maklerski BZ WBK S.A. with its registered office in Poznan, Pl. Wolności 15, Poznan, registered by the District Court in Poznan Nowe Miasto i Wilda, Division VIII Commercial of the National Court Register under the number KRS , Taxpayer Identification No , with share capital amounting to PLN fully paid up. DM BZ WBK S.A. is subject to the supervision of the Financial Supervision Commission. The disclaimers concerning the nature of the published document are found on the last page of the document and constitute its integral part.

113 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland NETIA Concerning customer trends TMT NOVEMBER 12, 2014 RECOMMENDATION HOLD (PREV. SELL) CURRENT PRICE: PLN5.56 TARGET PRICE: PLN5.71 (PREV. PLN4.95) 3Q14 Results Review. The results came in below our estimates and the market consensus: there was a 10% top line erosion, the reported EBITDA was down 23% y/y and there was a net loss, something not seen in a very long time. Most importantly, the total RGUs (down 62k to 2.36m) erosion accelerated to 7.7% y/y and 2.6% q/q; the reported long-unseen RGU erosion in its own network, the highest-ever volume erosion in the B2C segment, a sudden slowdown in the B2B segment. The management believes that the erosion in the own network RGUs is a one-off and that growth will emerge already in 4Q14. The management finds sales to the old Aster clients very promising ; due to (1) the intensified market competition and (2) Netia s focus on high-margin clients. The company will strive to maintain revenues and margin. Changes in shareholder structure. SISU Capital increased its stake to 10.18% from 8.7%. On the other hand, insider(s) sold 305k Netia shares in Sept. and Oct An insider bought 15k shares very recently. Strategy update. The company will focus on the B2B segment, trimming any operating or investing outlays in the B2C segment. It is also set to quit proactive acquisition of the B2C segment s clients and it will strive to optimise costs in both. The company will effectively divide its B2B and B2C segments into separate business lines. PLN145mn payment from Orange. Netia and Orange agreed to settle all their past lawsuits and Orange will pay Netia PLN145mn, with Netia giving up all its future claims. If the EU fine put on Orange settles below EUR120mn, Netia might receive up to EUR50mn in the future. Change in Forecasts. We adjust our forecasts for the PLN145mn (pre-tax) inflow from Orange, to be reported in 4Q14. Change in Valuation & Recommendation. The PLN145mn comes out of the blue and boosts Netia s valuations (DCF and comparative) by some 8-9% each. We expect Netia to become very inexpensive on the EV/EBITDA ratios following the PLN145mn 4Q14 payment. We changed our method of TP-setting from pure DCF to 50% DCF-50% comparable. The new TP at PLN5.71 offers little upside, so we change our recommendation to Hold from Sell. Company Data PUBLICATION DATE NOVEMBER 6, Q14 RESULTS REVIEW 3Q14E y/y q/q Sales % -2% EBITDA % -9% EBIT % -78% Net profit -4.4 n.a. n.a NET WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended TP The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Sell % -3.0 Sell % -0.8 Sell % 2.8 Sell % 9.5 COMPANY DESCRIPTION Netia is the largest alternative fixed line telecommunication service provider in Poland. ANALYST Pawel Puchalski, CFA (+48) [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes NET.WA / NET PW Sales 1,876 1,739 1,667 1,616 Market capitalisation (PLNm) 1,934 EBITDA Number of shares (m) EBIT Free float (%) 74.3% Net income Avg. daily turnover 3M (PLNm) 2.4 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % -0.5% 5.5% 113

114 Fig. 1. Netia: 3Q14 results review 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q BZWBK est. Sales % -2% EBITDA % -9% EBITDA margin 26.2% 23.0% 22.8% 25.1% 28.5% 10.4% 28.3% 28.6% 31.2% 25.6% 29.0% 28.4% 26.5% % 28.2% EBIT % -78% 9 12 EBIT margin 7.0% 3.8% 0.8% 2.4% 5.2% -13% 5.6% 5.5% 7.2% 1.4% 4.8% 3.4% 0.7% % 2.8% Net profit n.a. n.a. 3 5 Net margin 6.2% 3.3% -1.8% 3.9% 1.9% -21% 2.7% 1.8% 3.1% 2.3% 2.5% 2.0% -1.1% % 1.3% mkt cons Fig. 2. Netia: Forecasts changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 1,739 1,739 0% 1,667 1,667 0% 1,616 1,616 0% EBITDA % % % EBIT % % % Net profit % % % Fig. 3. Netia: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation % Comparable valuation (based on E) % Weighted valuation* 5.71 n.a. n.a.. * 50% DCF, 50% comparable valuation. Fig. 4. Netia: Income statement forecast Net sales, incl.: 2,121 1,876 1,739 1,667 1,616 Voice Revenues Data Revenues Other Revenues COGS, incl.: -2,142-1,783-1,532-1,602-1,537 Sales & mgm (ex. wages / restruct. / deprec. ) Depreciation One-offs (provisions & restructuring) EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit EBITDA margin 21.8% 28.4% 36.6% 27.3% 26.5% EBITDA margin, ex. one-offs 26.6% 28.6% 28.4% 27.3% 26.5% Operating margin -1.0% 4.9% 11.9% 3.9% 4.9% Net profit margin -4.1% 2.6% 9.1% 2.7% 3.2% Fig. 5. Netia: Balance sheet forecast Current assets Fixed assets 2,777 2,621 2,381 2,232 2,123 Total assets 3,232 2,937 2,925 2,812 2,708 Current liabilities bank debt Long-term liabilities bank debt Equity 2,296 2,205 2,219 2,119 2,025 share capital Minority Interest Total liabilities 3,232 2,937 2,925 2,812 2,708 Net debt Fig. 6. Netia: Cash flow forecast CF from operations CF from investment CF from financing, incl dividends paid Net change in cash

115 Poland NEUCA Under influence of the ACP takeover Equity story: We left our investment case unchanged. We believe that Neuca is an attractive company because: (1) it is a leader on the continuously growing pharma wholesale/retail market (c4-5%pa), (2) the recent takeover of ACP Pharma s wholesale business will provide easy and notable synergies, (3) further development of Synoptis Pharma s business, together with the potential gains from the emerging business of its own chain of private clinics. These are all arguments that stand behind our belief that Neuca will be continuously improving its results in the coming years. The company is currently trading with 4%/10% discount vs. Pelion and Farmacol on FY 14 PE. In regards to FY 15, Neuca is trading at an 12% and 27% discount vs. Pelion and Farmacol, respectively. In this light, Neuca is cheap as it has the highest fair PE level thanks to the highest ROE and growth, which we calculate at 12.5x vs. Farmacol (11.6x) and Pelion (9.0x). In this light, we remain buyers on the stock seizing the opportunity of the possible correction after disappointing 3Q14 resutls. Change in valuation & recommendation. DCF-based valuation stayed unchanged. A comparative valuation against Polish peers points to PLN250/share. Pharma / Health Care NOVEMBER 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN 231 TARGET PRICE: PLN 376 (MAINTAINED) STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Buy 10/21/ % 6.2 Buy 9/7/ % 1.4 Buy 4/28/ % Buy 1/30/ % Company Data COMPANY DESCRIPTION Neuca is the largest Polish pharmaceutical distributor, with rising exposure in drug production. ANALYST Tomasz Sokolowski (+48) [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes NEUP.WA / NEU PW Sales 5,795 6,537 7,402 7,786 Market capitalisation (PLNm) 1,052 EBITDA Number of shares (m) 4.6 EBIT Free float (%) 42.1% Net income Avg. daily turnover 3M (PLNm) 0.7 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 8.5% -18.4% 115

116 Fig. 1. Neuca: 3Q14 results review 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y (%) q/q (%) Sales 1,482 1,617 1,459 1,412 1,361 1,456 1,532 1,418 1,435 1,410 1,497 1,555 1, % 11.7% EBITDA % 1.2% EBITDA margin 1.4% 1.6% 2.4% 2.0% 2.0% 1.9% 2.8% 2.2% 2.0% 1.6% 2.3% 1.3% 1.2% EBIT % 10.6% EBIT margin 1.1% 1.3% 2.0% 1.6% 1.6% 1.5% 2.5% 1.8% 1.6% 1.2% 1.9% 0.9% 0.9% Net profit % 9.3% Net margin 0.7% 1.3% 1.4% 1.1% 1.2% 1.0% 2.1% 1.4% 1.4% 0.9% 2.4% 0.7% 0.7% Fig. 2. Neuca: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 6,537 6, % 7,402 7, % 7,786 7, % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. Neuca: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation n.a. Comparable valuation (based on E) % Fig. 4. Neuca: Income statement forecast Net sales 5,687 5,795 6,537 7,402 7,786 COGS 5,121 5,243 5,949 6,728 7,060 Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 10.0% 9.5% 9.0% 9.1% 9.3% EBITDA margin 2.1% 2.2% 1.8% 2.3% 2.3% Operating margin 1.7% 1.8% 1.4% 1.8% 1.8% Net profit margin 1.2% 1.5% 1.3% 1.5% 1.6% Fig. 5. Neuca: Balance Sheet forecast Current assets 1,461 1,504 2,041 2,217 2,393 Fixed assets Total assets 1,872 1,918 2,519 2,715 2,904 Current liabilities 1,437 1,429 1,764 1,869 1,960 bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities 1,872 1,918 2,519 2,715 2,904 Net debt Fig. 6. Neuca: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

117 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Polish Equity Research Poland OPEN FINANCE Purification FINANCIALS NOVEMBER 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN 5.7 TARGET PRICE: PLN 7.0 Equity Story & Financials. EPS growth to return from 2015 on. After the downward revision we are now expecting 2014E revenues to drop 18% y/y to PLN361mn and to start recovering from 2015 (up 4% y/y) on. In 2015E the recovery should be driven by an increase in volumes (loans up 4% y/y, investment products up 6% and real estate intermediation up 9%) should be a down year again with EPS forecast to drop 54%. Positive earnings momentum should return from 2015 on (EPS up 19% y/y) with E CAGR at 18%. Restructuring actions (the merger of HB/OF branches, outsourcing of advisers, a new CRM program), new products (low risk regular savings schemes, insurance products) combined with a supportive environment (an economic rebound, low market interest rates and a new government housing subsidy scheme be the drivers. Top line growth should be moderate initially (+ 4% y/y in 2015) as the expected continued margin contraction will, we expect, largely offset the forecast growth in product volumes. C/I should however fall markedly (down to 90% in 2015E), allowing the bottom line recovery. Dividend prospects. We expect OF to start paying dividends again in 2016E (DPS of PLN0.11 or DY of 2%). We expect some of the E retained earnings to be used to de-leverage and that OF will pay off half of its debt and roll over the balance, which matures in 2015 and 2016 Triggers/Risks. OF enjoys strong operating leverage with variable costs constituting c. 69% of all costs. On our estimates, a 1% change in revenues translates into cpln4mn swing in net profit, ceteris paribus. Furthermore, there is a share supply risk from GNB and Idea Bank, which hold 42% and 6.6% stakes respectively. We estimate that the minimum share price levels at which Idea Bank would recognise a capital gain on the transaction is PLN12.69/share, while for GNB the level is at PLN Both these thresholds are significantly above the current level and hence minimise the risk of an imminent supply. Valuation & recommendation. We leave our TP PLN7.00, but given the 23% upside potential we are re-iterating our Buy rating. Our TP is derived from an equal-weighted blend of three methodologies DCF, comparable multiples and residual income. We use a risk-free rate of 3.0% (3-month average 10-year bond yield), Beta of 1.2, risk premium of 5% and g of 1.0% OPF WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute TP relative (p.p) Buy % 0.2 Buy % Buy % -7.4 COMPANY DESCRIPTION Open Finance is the largest and most widely-recognized financial intermediary in Poland with a 33% market share in mortgage intermediation and 95% in investment products The group also includes Open TFI, a mutual fund, Open Life, a life insurance company and Open Broker. Main shareholders % of votes GNB 42.15% Idea Bank 6.60% Amplico pension fund 7.17% ING pension fund 5.50% Aviva pension fund 5.20% ANALYSTS Andrzej Bieniek Securities Broker, Investment Adviser ; [email protected] Dariusz Górski ; [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes OPF.WA / OPF PW Sales Market capitalisation (PLNm) 309 EBITDA Number of shares (m) 54.4 EBIT Free float (%) 45.7% Net income Avg. daily turnover 3M (PLNm) 0.06 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % -18.0% -66.6% 117

118 Fig. 1. Open Finance: 3Q14 results review 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q Revenues % -14% Opex (98) (91) (97) (79) (90) (95) (92) (96) (86) (89) (84) -8% -5% EBITDA % -4% EBIT % -13% Net profit % 6% EBIT margin 27% 25% 17% 5% 14% 18% 19% 14% 8% 8% 8% -55% 1% Net profit margin 23% 22% 17% 57% 12% 14% 14% 11% 6% 8% 9% -35% 22% Fig. 2. Open Finance: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales % % % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. Open Finance: Valuation changes In PLN per share, unless otherwise stated New Previous Change Comparable multiples % DCF % Residual Income % Blended average target price % Fig. 4. Open Finance: Income statement forecast Revenues Operating costs (365) (374) (329) (341) (341) Gross profit on sales Gross margin 19% 15% 9% 9% 9% EBIT EBIT margin 20% 16% 8% 9% 10% EBITDA EBITDA margin 26% 23% 17% 18% 20% Net financials Share of the associate's profit Gross profit Income tax Tax rate 5% -17% -16% -19% -19% Net profit Fig. 5. Open Finance: Balance Sheet forecast Fixed assets Current assets Long-term liabilities Equity Current liabilities Total assets Fig. 6. Open Finance: Cash flow forecast CF from operations CF from investment (87) (83) (51) (50) (37) CF from financing (12) (31) (40) Net change in cash

119 Poland OVOSTAR UNION UAH devaluation takes its toll Others November 12, 2014 RECOMMENDATION HOLD (MAINTAINED) CURRENT PRICE: PLN70.11 TARGET PRICE: PLN75 (MAINTAINED) 3Q14 Results Preview. Ovostar sold 195mn shell eggs in 3Q, +27% q/q and y/y, especially thanks to high export sales volume. The company sold 407t of dry egg products (-3% y/y, +12% q/q) and 1,558t of liquid egg products (-13% y/y, 6% q/q). We expect the selling price of eggs to seasonally increase to UAH0.84/egg (+15% y/y, +33% q/q), which, in USD terms, would imply a -28% y/y decline and a +22% q/q growth. We expect the price of dry egg products at UAH65/kg (+11% q/q, +48% y/y), which implies, in USD terms, an 8% y/y decline and a 3% q/q growth, and the price of liquid egg products at UAH18/kg (-1% q/q, +16% y/y), which implies a 22% y/y decline and a 3% q/q decrease. We do not expect any BA revaluation gains/losses. Overall, we expect much lower y/y BA revaluation adjusted results, but higher q/q. Outcome: NEUTRAL. UAH devaluation constitutes the key risk to OVO. The YTD USD/UAH appreciated 50%+ to UAH12.9. Devaluation generally reduces our EBITDA forecast, in the short term. Note thatcompany has EUR-denominated loans and, in case of further UAH devaluation, extra financial costs may appear. Change in forecasts. We maintain our financial forecast for Ovostar intact. Pressure on fodder costs. The CBOT prices of wheat and corn (main components of fodder) are under pressure. Price of wheat decreased by 21% YTD (-15% over 3Q14) and is 30% below 2013 average. The price of corn, is 24% down YTD (-24% over 3Q), and 45% below 2013 avg. Such developments are favourable for Ovostar, in general. Change in Valuation & Recommendation. We maintain our Target Price for OVO at PLN75. We maintain our Hold recommendation for the company. STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Hold % -1.5 Hold % -3.7 Hold % 3.0 Hold % Buy % COMPANY DESCRIPTION OVO is egg and egg products manufacturer in Ukraine. Main shareholders % of votes Prime One Capital 71.2% Generali pension fund 9.94% Metlife pension fund 5.8% ANALYST Adrian Kyrcz (+48) [email protected] Company Data USDm E 2015E 2016E Reuters/Bloomberg codes OVO.WA / OVO PW Sales Market capitalisation (PLNm) 421 EBITDA Number of shares (m) 6.0 EBIT Free float (%) 28.8% Net income Avg. daily turnover 3M (PLNm) 0.1 Adj EBITDA Adj EBIT Adj Net income Ad P/E (x) M 3M YTD Price performance Adj EV/EBITDA (x) % 3.1% -29.9% 119

120 Fig. 1. Ovostar: 3Q14 results preview USD in millions, unless otherwise stated 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%) Sales EBITDA EBITDA margin 38.7% 37.4% 53.7% 27.0% 22.6% 41.2% 33.1% 19.8% 39.5% 64.5% 47.1% 26.4% 23.7% 38.7% 37.4% EBIT EBIT margin 35.7% 35.9% 50.2% 21.2% 16.2% 36.5% 26.4% 11.1% 39.3% 60.1% 41.5% 20.5% 18.4% 35.7% 35.9% Net profit Net margin 21.2% 41.9% 49.4% 22.2% 16.6% 35.0% 25.6% 10.7% 38.4% 58.7% 39.5% 20.6% 18.4% 21.2% 41.9% Fig. 2. Ovostar: Forecasts changes USD in millions, unless otherwise stated 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales % % % EBITDA % % % EBIT % % % Adj EBITDA % % % Adj EBIT % % % Net profit % % % Fig. 3. Ovostar: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation % Comparable valuation % Fig. 4. Ovostar: Income statement forecast USD in millions, unless otherwise stated Net sales BA revaluation COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 48.2% 43.7% 30.3% 22.6% 23.1% EBITDA margin 45.2% 43.6% 33.9% 26.7% 27.4% Operating margin 39.4% 38.8% 25.8% 18.4% 19.5% Net profit margin 38.9% 37.8% 23.4% 15.1% 15.9% Fig. 5. Ovostar: Balance Sheet forecast USD in millions, unless otherwise stated Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity Total liabilities Net debt Fig. 6. Ovostar: Cash flow forecast USD in millions, unless otherwise stated CF from operations CF from investment CF from financing Net change in cash

121 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland PAGED The die is cast Equity Story. Paged is well-positioned to boost its sales in the coming years, which should translate into a strong financial performance. In our view, worth noting is the company's investment strategy based on solidifying its activity on solid fundamentals with a simultaneous diversification of markets, however, admittedly not always directly related to the core business. The plywood segment is the key growth driver thanks to the surging capacities from the already implemented and current investment programme (development of the MIRROR plywood production capabilities is currently being executed). All the investment works are scheduled to be completed in 1H2015 and should allow for an 10% production capacities increase in the end of 2015 vs. the currently observed volumes. It is crucial to keep in mind that at one go Paged will be able to base its plywood production in 25% (starting from 2017 according to the company s guidance) on coniferous wood (so far only broadleaved), which will mitigate the risk of output contraction in case of broadleaved wood shortage or a margins squeeze caused by excessive prices increase (stability of financial results should improve in the long term). The furniture segment is being restructured which should finally lead to an upswing in sales, though we expect that in 2014 the bottom lines of the P&L will be burdened with the cost of new managerial staff acquisition. However, we calculate that starting from 2015, sales will enter a steady upward trend with the EBITDA margin surging from 2.8% in 2013 to 5.5% in We assumed a stable contribution from the DTP subsidiary (provider of receivables management services, in which Paged controls a 47.5% stake) at the yearly EBITDA hovering around PLN25mn. Finally, according to our calculations, Europa Systems (purchased by Paged in August 2014) will push sales and, to some extent, the margins (c. 1p.p.) higher. However, we have a cautious view on the additional business that the company will be able to generate as we forecast PLN90mn in revenues in 2016 (PLN75mn in 2014). In the short term we expect both the entities to be affected by transaction-related costs (Paged c. PLN3mn). Financials. We forecast the NP margin to come in close to 9% in 2014 and to total 9.6% in Starting from 2017 (with the full effect visible from 2018 onward), the NP margin is expected to decrease to c. 8.8% due to an increase in the effective tax rate. Focusing on the nominal figures, our calculations indicate that Paged will report its 2014 sales only 1% higher than in the previous year (implication of low margin activity suppression in DTP) should bring about a significant improvement as we model a 30% sales change vs We expect the EBITDA to reach almost PLN160mn in 2016 (PLN120mn this year). Triggers / Risks. In our model we adopted a rather conservative approach to the output volumes and price trends. With regards to the plywood segment, our forecast assumes that the final capacities at 212cm will be achieved in 2018 (one year later than the company said in its guidelines). In the forecasted horizon, we get flat prices and stable margins at levels similar to those in 1H14. The furniture segment s and Europa Systems operational figures can prove to be higher than expected. Undoubtedly, major risks are related to the raw material prices (especially of broadleaved wood) and to the launch of the MIRROR plywood production. Valuation & recommendation. Based on our DCF model, we arrived at a 12M month TP of PLN67.00 per share, which implies a 62% upside potential. A comparable valuation points to PLN56.77 per share. Said that we, initiate our coverage of Paged with a Buy recommendation PGD Industrials November 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN41.28 WIG Relative TARGET PRICE: PLN67.00 STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) n.a. n.a. n.a. n.a. n.a. n.a. COMPANY DESCRIPTION Paged is the leading plywood producer in Poland. It also manufactures wooden furniture. Main shareholders % of votes CI Consulting S.K.A. 9.78% Fresita Limited Alfa S.K.A. 9.43% Ksati Investments S.K.A. 9.43% Polski Instytut Inwestycyjny S.K.A. 9.43% Yellema Holdings Limited S.K.A. 9.43% Generalna Dyrekcja Lasów Państwowych 8.33% Daniel Mzyk 8.23% Edmund Mzyk 7.09% CC14 FIZ 6.72% Yawal S.A. 5.92% Paged S.A. 5.1% ANALYST Michal Sopiel (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes PGDP.WA / PGD PW Sales Market capitalisation (PLNm) 627 EBITDA Number of shares (m) 15.2 EBIT Free float (%) 17.2% Net income Avg. daily turnover 3M (PLNm) 0.2 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % +12.2% +29.0% 121

122 Fig.1. Paged: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Net sales*** EBITDA*** EBIT*** Cash taxes on EBIT*** NOPAT Depreciation*** Change in operating WC Capital expenditure Net investment Free cashflow WACC 7.9% PV FCF Terminal Value (TV) 1,546 PV TV 721 Total EV 1,063 Net debt 271 Minorities 155 DTP* 197 Real estate** 62 Equity value 896 Number of shares (m) 15.2 Value per share (PLN, 1 Jan 2014) 59.0 Month 10 Current value per share (PLN)* month Target Price 67.0, *DTP market capitalisation as of Nov 5, 2014, **assumed fair value of real estate assets,*** DTP excluded Fig.2. Paged: Comparable valuation Company Price Currency P/E EV/EBITDA 2014E 2015E 2016E 2014E 2015E 2016E Paged PLN Polish Industrials Grupa Kety SA PLN Inter Cars SA PLN Budimex SA PLN Elektrobudowa SA PLN n.a. n.a. n.a. Pfleiderer Grajewo SA PLN Integer.pl SA PLN Fabryki Mebli Forte SA PLN Kopex SA PLN Pozbud T&R SA 4.99 PLN n.a. n.a. n.a. Famur SA 3.20 PLN Rovese SA 1.46 PLN n.a Median Foreign plywood sector representatives Norbord Inc CAD Ehlebracht AG 3.83 EUR Universal Forest Products Inc USD Greenply Industries Ltd INR Boise Cascade Co USD Canfor Corp CAD Duratex SA 8.22 BRL Steinhoff International Holdings Ltd ZAr Median Premium/discount vs. Polish peers median -33.0% -42.8% -43.1% -12.3% -17.7% -15.1% Premium/discount vs. foreign peers median -40.6% -42.2% -27.7% 5.1% -0.4% 6.8% Implied Paged price per share vs. Polish peers Implied Paged price per share vs. foreign peers Source: BZ WBK Brokerage research, Bloomberg 122

123 Fig. 3. Paged: 3Q14 results review 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q Sales % 13.0% EBITDA % 25.9% EBITDA margin 12.8% 11.5% 11.8% 10.9% 10.9% 6.9% 19.4% 15.5% 14.7% 11.1% 14.9% 17.3% 19.2% EBIT % 26.4% EBIT margin 9.7% 8.1% 8.9% 7.7% 7.8% 3.4% 16.9% 12.8% 12.3% 8.0% 11.9% 14.4% 16.1% Net profit % 45.0% Net margin 2.3% 4.7% 7.5% 2.2% 5.2% 3.8% 7.7% 8.4% 11.5% 5.9% 9.7% 8.6% 11.0% Fig. 4. Paged: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 703 n.a. n.a. 793 n.a. n.a. 855 n.a. n.a. EBITDA 120 n.a. n.a. 145 n.a. n.a. 158 n.a. n.a. EBIT 100 n.a. n.a. 118 n.a. n.a. 128 n.a. n.a. Net profit 62 n.a. n.a. 76 n.a. n.a. 85 n.a. n.a. Fig. 5. Paged: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation n.a. n.a. Comparable valuation (based on E) n.a. n.a. Fig. 6. Paged: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 23.6% 25.5% 29.4% 29.9% 30.1% EBITDA margin 13.5% 15.4% 17.1% 18.3% 18.5% Operating margin 10.4% 12.7% 14.2% 14.8% 15.0% Net profit margin 4.9% 8.5% 8.8% 9.6% 9.9% Fig. 7. Paged: Balance Sheet forecast Current assets Fixed assets Total assets , , ,100.9 Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities , , ,100.9 Net debt Fig. 8. Paged: Cash flow forecast CF from operations CF from investment CF from financing, incl dividends Net change in cash

125 Apr-14 Apr-14 May-14 May-14 Jun-14 Jun-14 Jul-14 Jul-14 Aug-14 Aug-14 Sep-14 Sep-14 Oct-14 Oct-14 Polish Equity Research Poland PRIME CAR MANAGMENT Stable dividend payer FINANCIALS NOVEMBER 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN 50.6 TARGET PRICE: PLN 59.7 Equity Story. Prime Car Management was focused in recent years on high-margin car fleet management (CFM) services and we expect it to stay on track and keep its margins on additional services and increased volumes. We expect that supportive environment (an economic rebound, low interest rates) with help to increase higher margin CFM services instead of pure leasing services. PCM plans to focus more on SME clients, while in corporate segment should their market share stay stable. We also expect the company to gain in the environment of lower interest rates thanks to the leverage ratio level (debt/equity 1.11). We are initiating our coverage of Prime Car Management with a BUY rating and a TP of PLN59.70, offering a 18% upside potential. Financials. We expect a net profit of PLN68mn in 2014E (exone-off PLN53mn). We also expect the net profit to fall to PLN55mn in 2015E (down 19% y/y) and improve to PLN58 in 2016, implying a ROE of 15%, 11% and 12% respectively. We assume that the margin on leasing will decrease in the following years and expect the margins on additional services (insurance, service, remarketing) to stay flat. This, with higher volumes, should increase the profits. We expect the current mix of fleet to shift towards a higher share of semi-fsl and FSL. Triggers/Risks. We assume that the company will pay PLN4.3 of DPS, which implies an 8.3% (7.2% at TP) of DY. This should be between 6.7-7% ( % at TP) next year. However, the company has been actively participating in the consolidation process of the Polish CFM market and is looking for further acquisitions. Although we did not factor in any future acquisitions into our model, we think that the company s good balance sheet structure and track record (the company completed two acquisitions in 2013) provide a good basis for further deals. Valuation & recommendation. We have set a 12-month TP of PLN59.7/share using a blend of the residual income model, warranted equity valuation and DDM, which imply a 18% upside potential. The company currently trades at P/E 9x 2014, P/BV of 1.3 and DY of 8.4%. Company Data STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended PCM WIG Relative The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) n.a. n.a. n.a. n.a. n.a. n.a. COMPANY DESCRIPTION Prime Car Management Group is one of the leaders in the car fleet management market in Poland by number of vehicles. The group operates under the Masterlease brand and had almost 8k clients with vehicles leased and under management. Main shareholders % of votes Fleet Holdings 60.00% OFE ING 8.00% ANALYSTS Andrzej Bieniek Securities broker, Investment advisor (+48) [email protected] Dariusz Górski (+48) [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes PCM.WA / PCM PW Revenues Market capitalisation (PLNm) 605 Costs Number of shares (m) 11.9 Pre-tax profit Free float (%) 40.0% Net profit Avg. daily turnover 3M (PLNm) 0.42 P/Ex M 3M YTD Price performance P/BV % 21.0% 15.4% 125

126 Fig. 1.PCM: Residual Income model 2014E 2015E 2016E Net profit Equity (YE) ROE 14.5% 11.4% 11.6% COE 9.3% 9.3% 9.3% Excess return 5.3% 2.1% 2.4% Residual income PV of residual income ( E) 41 Growth (CAGR) ROE (avg.) Pay-out (avg.) Total value PV Transition period ( E) 3.5% 11.8% 75% Perpetuity 2.0% 11.8% 79% Total intrinsic value 182 # of shares (m) 12 Value per share 15.3 Last reported BVPS 40.2 Fair value (Jan'14) 55.4 Month 10.0 Fair value (current) month target price 65.2 Upside potential 28% Fig. 2. PCM: DDM valuation 2014E 2015E 2016E DPS* Discount factor NPV of E (PLN/share) 6.3 Transition period ( E): - div. pay-out ratio (min, max) 72% 75% - CAGR 3.4% - NPV (PLN/share) 16.4 Terminal value (NPV per share) 28.0 Total NPV per share month target price 55.3 Upside potential 8% Source: BZ WBK Brokerage research, company data Fig. 3. PCM: Warranted Equity Valuation 2016E ROE (%) 11.6 COE (%) 9.3 g (%) 2.0 Implied fair P/B (x) 1.3 YE16E BVPS 42.6 Fair value (YE16E) 57 PV of fair value 43 DPS14E 0.0 DPS15E 4.3 DPS16E 3.5 PV of E DPS 6.3 PV of equity + DPS (Jan'14) 50 Month 10 PV (current) month price target 58 Upside potential 15% Source: BZ WBK Brokerage research, company data 126

127 Fig. 4. PCM: 3Q14 results review 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q Revenues % -15% o/w operating leasing % -6% o/w fees % -6% o/w interest income % -1% o/w sale-lease items % -4% Costs % -6% o/w service % -5% o/w depreciation % 2% o/w G&A % -10% o/w sale-lease items % -11% Gross profit % -54% Net profit % -60% Fig. 5. PCM: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Revenues 589 n.a. 0% 600 n.a. 0% 641 n.a. 0% Costs -500 n.a. 0% -530 n.a. 0% -569 n.a. 0% Gross profit 89 n.a. 0% 70 n.a. 0% 72 n.a. 0% Net profit 68 n.a. 0% 55 n.a. 0% 58 n.a. 0% Fig. 6. PCM: Valuation changes In PLN per share, unless otherwise stated New Previous Change Residual income 64.0 n.a. 0% WEV 60.6 n.a. 0% DDM 55.6 n.a. 0% Blended average target price 59.7 n.a. 0% Fig. 7. PCM: Income statement forecast Revenues o/w operating leasing o/w fees o/w interest income o/w sale-lease items Costs (496) (498) (500) (530) (569) o/w service (184) (166) (169) (173) (177) o/w depreciation (112) (123) (123) (144) (161) o/w G&A (32) (35) (36) (37) (38) o/w sale-lease items (115) (135) (139) (144) (152) Gross profit o/w service o/w insurance o/w sale-lease items Tax rate -23% -26% -23% -21% -19% Net profit Fig. 8. PCM: Balance Sheet forecast Cash and acash equivalents Finance lease receivables Inventories Leased vehicles Total assets 1,090 1,082 1,171 1,261 1,349 Bonds, loans and borrowings Other liabilities Equity C/I 92% 89% 85% 88% 89% Service margin 0.136% 0.218% 0.250% 0.250% 0.250% Insurance margin 0.024% 0.052% 0.055% 0.055% 0.056% Remarketing margin 0.58% 1.55% 1.65% 1.40% 1.40% Fig. 9. PCM: Cash flow forecast CF from operations CF from investment (4) (1) (1) (1) (1) CF from financing (92) (48) (66) (94) (96) Net change in cash

129 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland PEKAES Something to prove Industrials November 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN9.04 TARGET PRICE: PLN10.57 Equity Story. Pekaes operates on a challenging market with a strong exposure to the current economic activity (a highly cyclical business that could be described as the litmus paper of the economy). The long-term strategic plans are scheduled for and are aimed at expansion in full warehouse logistics (domestic and abroad) together with sector and market diversification both through acquisitions and organic growth. The logistics services provider is taking measures to deliver more value to its shareholders thanks to implementation of higher margin services and cross-line activities intended to extract synergies. The full truck road transport (delivering the lowest margin) represents c. 40% of the sales (figure used to amount to 80%), while the more profitable groupage transport is attributable for another 40%. Chemikals and Spedcont, the fully consolidated subsidiaries purchased at the end of 2013 that operate in the intermodal segment, bring in on average of 10% of the P&L top line. Sticking more to market figures, the recent statistics describing the transport and logistics sector indicate a stable financial and operational standing of the companies in 3Q14. Taking into account the less favorable industrial output data for the Polish economy in y/y terms (the seasonally adjusted gauge dropped c. 2pp in comparison to 2Q14) and pressure on prices of services (accompanied by limited possibilities of price cuts by the suppliers), the market remains tough. Statistics indicate an approx. 5.6% uptick in sales in transport and warehouses services in 1H2014. Financials. Looking forward, the company expects to grow above the historical long term TSL market average of 3%-4%. We assume that the pace of the sales increase on a y/y basis will be close to 4% in the long-term horizon (4.5% in the medium term, till 2019). In our opinion, the company s sales will amount to PLN717mn in 2014 (a 30.7% y/y surge) due to the consolidation of Chemikals and Spedcont. The NP is forecasted to come in at PLN15.7mn (2.2% margin). We estimate the EBITDA margin to near 5% in the current year and hover in a range of 4.5% to 5% in the long term, which is still well beneath the MB s goal at the sector average of 6.5%. From 2015 onward, the effective tax rate is expected to increase due to the full settlement of the losses from the previous years. Triggers / Risks. We assume that Pekaes will continue to build its position in the groupage shipment and the intermodal transport segment, reducing its exposure to the full-truck load services. According to the management s guidance, the company is considering an acquisition that would allow it to double its parent entities sales with the engagement of own cash and external debt. Adverse trends in the economy pose a significant downside risk for the TSL company. Nevertheless, markets (planned expansion in southern Europe) and services should translate into lower business cyclicality in the long run. Valuation & recommendation. We used a mixed approach to get our valuation, which is a combination of DCF (50% weight) at PLN12.8 per share and comparative valuation (50% weight) at PLN8.34 (assigned equal weights for Polish peers multiples of PLN8.67 and those for foreign peers of PLN8.01). Implementation of the described formula provides a 12M TP of PLN10.57, which offers an upside potential of 16.4%. We, therefore, initiate our coverage of Pekaes with a Buy recommendation PEK WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) n.a. n.a. n.a. n.a. n.a. n.a. COMPANY DESCRIPTION Pekaes is one of Poland s leading firms in full-warehouse logistics and multi-channel freight forwarder. Main shareholders % of votes KH Logistyka Sp. z o.o % ING OFE 12.60% PEK Holdings 6.30% ANALYST Michal Sopiel (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes PEKA.WA / PEK PW Sales Market capitalisation (PLNm) EBITDA Number of shares (m) 30.5 EBIT Free float (%) 37.0% Net income Avg. daily turnover 3M (PLNm) 0.1 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % +7.1% -9.9% 129

130 Fig. 1. Pekaes: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Net sales ,009 EBITDA EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditure Net investment Free cashflow WACC 7.9% PV FCF Terminal Value (TV) 373 PV TV 174 Total EV 268 Net debt -22 Real estate* 57 Equity value 347 Number of shares (m) 30.5 Value per share (PLN, 1 Jan 2014) 11.4 Month 10 Current value per share (PLN) month Target Price 12.8, *assumed fair value of real estate assets Fig. 2. Pekaes: Comparable valuation Company Price Currency P/E EV/EBITDA 2014E 2015E 2016E 2014E 2015E 2016E Pekaes 9.00 PLN Polish Industrials Grupa Kety SA PLN Inter Cars SA PLN Budimex SA PLN Elektrobudowa SA PLN n.a. n.a. n.a. Paged SA PLN n.a. n.a. n.a. Integer.pl SA PLN Fabryki Mebli Forte SA PLN Kopex SA PLN Pozbud T&R SA 4.99 PLN n.a. n.a. n.a. Famur SA 3.20 PLN PKP Cargo SA PLN Median Foreign logistics sector representatives ACM Shipping PLC n.a. GBp n.a. n.a. n.a. n.a. n.a. n.a. Agility Public Warehousing Co KSC KWd Asciano Ltd 6.29 AUD ALL - America Latina Logistica SA 6.46 BRL Bollore SA EUR Delticom AG EUR Egyptian Transport and Commercial Services Co SAE EGP Eurokai GmbH & Co KGaA EUR Hamburger Hafen und Logistik AG EUR LDLC.com EUR Mueller - die Lila Logistik AG 4.40 EUR n.a. n.a. n.a. n.a. Reysas Tasimacilik ve Lojistik Ticaret AS 0.81 TRY n.a. n.a. n.a. n.a. Super Group Ltd/South Africa ZAr Stobart Group Ltd GBp TAL International Group Inc USD Median Premium/discount vs. Polish peers median 13.8% 57.8% 73.5% -26.3% -20.2% -7.4% Premium/discount vs. foreign peers median 15.4% 43.9% 78.5% -13.1% -10.0% 4.8% Implied Pekaes price per share vs. Polish peers Implied Pekaes price per share vs. foreign peers Source: BZ WBK Brokerage research, Bloomberg. 130

131 Fig. 3. Pekaes: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%) Sales % -0.2% EBITDA % -3.1% EBITDA margin 0.5% -3.1% 0.2% -2.2% 2.4% 8.9% 0.5% 3.0% 4.6% 4.2% 4.8% 5.1% 5.0% EBIT % 5.4% EBIT margin 0.5% -5.2% -1.8% -4.1% 0.6% 6.8% -1.0% 1.9% 3.4% 2.5% 2.4% 2.2% 2.3% Net profit % -0.5% Net margin 2.4% -4.6% -1.9% -3.2% 1.6% 7.9% 0.3% 2.9% 3.8% 2.1% 2.3% 2.0% 2.0% Fig. 4. Pekaes: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 717 n.a. n.a. 750 n.a. n.a. 784 n.a. n.a. EBITDA 35 n.a. n.a. 36 n.a. n.a. 36 n.a. n.a. EBIT 16 n.a. n.a. 17 n.a. n.a. 18 n.a. n.a. Net profit 16 n.a. n.a. 15 n.a. n.a. 14 n.a. n.a. Fig. 5. Pekaes: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation n.a. n.a. Comparable valuation (based on E) 8.34 n.a. n.a. Weighted TP n.a. n.a. Fig. 6. Pekaes: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 6.2% 7.3% 7.5% 7.6% 7.7% EBITDA margin 1.9% 3.2% 4.9% 4.8% 4.6% Operating margin 0.0% 1.9% 2.3% 2.3% 2.3% Net profit margin 0.7% 2.4% 2.2% 2.0% 1.8% Fig. 7. Pekaes: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 8. Pekaes: Cash flow forecast CF from operations CF from investment CF from financing, incl dividends Net change in cash

133 Poland PELION Under pressure from falling margin 3Q14 Results Preview. We expect Pelion to report another weak quarter y/y in 3Q14 on all the P&L levels. The results will be hit by lower margins on Rx-drugs as well as by the lack of any visible cost-cutting or growth in sales. We expect the top line to grow 5.0% y/y on the back of pharma growth, which we estimate at 4-5% y/y. We also assume that the gross margin will probably fall 47bps to 10.4% y/y. Despite some costs savings, putting SG&A at PLN175mn, or 9.3% of sales in 3Q14, and compared with PLN170mn (9.6% of sales) in 3Q13, it is not enough to push the EBITDA higher y/y. All in all, we expect the EBITDA to fall 11% y/y (the EBITDA margin by 27bp to 1.4%) in 3Q14. Assuming PLN4mn in net financials, we expect a net profit of PLN10mn (-10% y/y) in 3Q14. Outcome: NEGATIVE. We see no reason to change our recommendation on Pelion. In line with the scenario that we had outlined following the positive surprise in 1H13, 2H13 brought massive disappointment to investors because the effects of the massive cost cutting in its retail business and the impact of the loyalty programmes on sales growth evaporated. Moreover, (1) another margin cut on the refunded drugs; (2) slow market growth in 2014; and (3) the continuous advertising ban in retail all add to this bleak picture. We, therefore, expect Pelion to report notably weaker results y/y with the EBITDA and the net profit falling 17% and 31% y/y in This means that Pelion is trading on a PE for 2014E of 13.4x and EV/EBITDA of 10.8x, which implies a 7% discount to Farmacol and a 17% premium over Neuca. In our view, Pelion should be traded at a discount to both. Change in valuation & recommendation. We maintained our 12 month TP at PLN79/share. A comparative valuation against Polish peers points to PLN62/share. Pharma / Health Care NOVEMBER 12, 2014 RECOMMENDATION HOLD (MAINTAINED) CURRENT PRICE: PLN75 TARGET PRICE: PLN79 (MAINTAINED) PUBLICATION DATE NOVEMBER 14, Q14 RESULTS PREVIEW 3Q14E y/y (%) q/q (%) Sales 1, % 0.9% EBITDA % 35.3% EBIT % 52.3% Net profit % 393.7% STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Hold 10/21/ % 2.9 Hold 9/7/ % 3.0 Hold 4/28/ % Hold 1/30/ % COMPANY DESCRIPTION Pelion is one of the largest Polish pharmaceutical distributors controlling a ca. 20% market share and with exposure in the retail segment. Company Data ANALYST Tomasz Sokolowski (+48) [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes PELIO.WA / PEL PW Sales 7,302 7,589 7,889 8,219 Market capitalisation (PLNm) 793 EBITDA Number of shares (m) 11.2 EBIT Free float (%) 68.1% Net income Avg. daily turnover 3M (PLNm) 0.6 P/E (x), adj M 3M YTD Price performance EV/EBITDA (x), adj % 3.0% -27.1% 133

134 Fig. 1. Pelion: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%) Sales 1,628 1,697 1,663 1,659 1,610 1,754 1,922 1,770 1,780 1,831 1,947 1,852 1, % 0.9% EBITDA % 35.3% EBITDA margin 2.2% 1.8% 1.7% 1.8% 1.8% 3.0% 3.3% 2.4% 1.7% 1.5% 2.4% 1.1% 1.4% EBIT % 52.3% EBIT margin 1.7% 1.3% 1.1% 1.2% 1.2% 2.4% 2.8% 1.9% 1.2% 1.0% 1.9% 0.6% 0.9% Net profit % 393.7% Net margin 0.9% 2.6% 0.3% 0.3% 0.4% 2.2% 1.9% 1.2% 0.7% 1.8% 1.3% 0.1% 0.5% Fig. 2. Pelion: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 7,589 7, % 7,889 7, % 8,219 8, % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. Pelion: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation n.a. Comparable valuation (based on E) % Fig. 4. Pelion: Income statement forecast Net sales 6,686 7,302 7,589 7,889 8,219 COGS 5,858 6,466 6,738 7,008 7,305 Gross profit SG&A Other operating income, net EBITDA EBITDA, adj Operating profit Net financial income (costs) Profit before tax Income tax Net profit Net profit, adj Gross margin 12.4% 11.5% 11.2% 11.2% 11.1% EBITDA margin 2.1% 2.3% 1.8% 2.0% 2.0% Operating margin 1.5% 1.8% 1.3% 1.4% 1.5% Net profit margin 0.9% 1.4% 0.9% 1.0% 1.0% Fig. 5. Pelion: Balance Sheet forecast Current assets 1,562 1,741 1,929 2,054 2,178 Fixed assets Total assets 2,477 2,733 2,897 3,026 3,161 Current liabilities 1,623 1,745 1,775 1,839 1,910 bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities 2,477 2,733 2,897 3,026 3,161 Net debt* , *with reverse factoring Fig. 6. Pelion: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

135 Poland PHN Strong 3Q results on tax gain Construction & Real Estate November 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN25.25 TARGET PRICE: PLN29.1 (MAINTAINED) 3Q14 Results Preview. We expect PHN to post strong results in 3Q14. The company had announced an intra-group transfer of properties worth PLN243mn to SPV. Such a transaction should result in the release of a tax provision (tax gain), as in the past. And though the transaction was concluded already in 4Q, we think that the company may decide to recognise the gain already in 3Q. The core business should perform much better than in 2Q14 thanks to 1) higher q/q notary sale volumes (residential business line), 2) higher q/q rental profits on q/q margin growth. The continuing restructuring should also lead to slightly lower q/q (PLN0.6mn) administrative costs. We expect, however, some PLN4mn in one-off restructuring costs. Overall, we project PHN s EBIT to grow to PLN5.6mn from PLN0.6mn in 2Q but to fall vs. 3Q13 by >30%, especially with respect to the gradual NOI contraction (pressure on rent levels, rising vacancy rates etc.). At the bottom line level, we expect as much as PLN45.5mn (c. PLN10mn in 2Q14 and 79mn in 3Q13), helped by the PLN40mn tax gain. Outcome: POSITIVE. Change in forecasts. We maintain our financial forecast intact. Change in Valuation & Recommendation. We maintain our TP for PHN at PLN29.1. With a fundamental upside, we maintain our recommendation at Buy. Material tax gains in 3Q14E and 4Q14E might offer a positive surprise, boosting the FY14 net profit close to PLN90mn. Assuming there is a 100% dividend pay-out (likely scenario), the dividend yield would exceed 7%, which is solid level, the way we see it (PHN s peers do not pay dividends given their high leverage, whereas PHN is net cash). The company is trading 0.63x to its 2Q14 NAV, which offers a huge discount to the WSE peers, such as Echo or GTC (approx. 0.8x). That said, we think that the current share valuation is justified only when a flat NAV is assumed in the coming 6 years (assuming 8.2% WACC). We find this to be an unlikely scenario in light of the recently announced strategy to target NAV growth of 75% by 2023 (development of pipeline projects and acquisition of yielding properties). With respect to the ST risk factors, the introduction of approx. 0.2mn employee shares into trading by year-end may produce an additional supply of shares. Furthermore, the Treasury failed to sell its 73% stake in PHN to a strategic investor. We think that a sale of the stake in a public placement could be a possible scenario. STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Buy % -1.6 Hold % -1.0 Hold % Hold % 8.3 PHN is a real estate developer. Main shareholders COMPANY DESCRIPTION % of votes Trasury 70.5% Aviva pension fund 9.2% ING pension fund 5.1% ANALYST Adrian Kyrcz (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes PHN.WA / PHN PW Sales Market capitalisation (PLNm) EBITDA Number of shares (m) 46.4 EBIT Free float (%) 29.8% Net income Avg. daily turnover 3M (PLNm) 0.4 P/E (x) M 3M YTD Price performance P/BV (x) % 12.3% -5.9% 135

136 Fig. 1. PHN: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%) Sales n.a % 3.6% EBITDA n.a % n.m. EBITDA margin n.a. n.a. n.a. n.a. n.a. n.a. 20.7% -77.6% 23.7% 18.7% 7.5% 2.6% 15.0% EBIT n.a % n.m EBIT margin n.a. 19.5% -79.0% 22.7% 17.7% 6.5% 1.6% 14.0% 158.6% 130.9% 122.3% 142.3% 102.4% Net profit n.a % n.m. - Net margin n.a % -94.3% -79.1% % -85.4% 13.4% -55.7% 207.9% 91.0% 6.3% 26.4% n.m Fig. 2. PHN: Forecasts changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales % % % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. PHN: Valuation changes In PLN per share, unless otherwise stated New Previous Change SOTP valuation % Comparable valuation (based on P/BV) % Fig. 4. PHN: Income statement forecast E 2015E 2016E Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Fig. 5. PHN: Balance Sheet forecast E 2015E 2016E Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity Total liabilities Net debt Gross margin 55.0% 43.5% 43.7% 55.5% EBITDA margin -3.8% 10.3% 24.5% 33.4% Operating margin -5.3% 9.1% 23.3% 31.9% Net profit margin 76.5% 55.9% 16.5% 23.2% Fig. 6. PHN: Cash flow forecast E 2015E 2016E CF from operations CF from investment CF from financing Net change in cash

137 Poland POZBUD Another good quarter Our investment story remains intact. Pozbud still benefits from a recovery in the domestic market, while its good quality products and competitive prices are helping it increase its sales in Western Europe markets. In our view, it should last for another year. Additionally, in next year Pozbud will finalize investments into additional capacities and is likely to sign production contract with foreign partner. In our view, it will be a notable upside for Pozbud, which we has not included in our model so far. 3Q14 results preview. 3Q14 was another positive quarter for Pozbud. We expect top line to stay flat y/y at PLN68mn in 3Q14. Please note the strong comparison base from previous year for Pozbud. We estimate the gross margin should fall y/y in 3Q14 to 10.4% vs. 12.8% last year. We expect SG&A at PLN2.1mn (3.1% in sales vs. 3.2% last year). We expect EBITDA of PLN6.2mn (9.1% margin compared to 9.9% last year). We expect Pozbud to report a net profit of PLN3.8mn vs. PLN4.8mn last year. Outcome: NEUTRAL. We materially cut our forecasts due to elimination of Baumal s takeover impact. On the other hand, we excluded from our calculations notable dilution of Pozbud s capital, which totally eliminated negative impact of forecast decrease on our valuation. 12-m Target Price increase to PLN7.7 from PLN7.2 mainly comes from lower RfR and time-passage. Change in valuation & recommendation. Our DCF-based 12- month target price points to PLN7.70/share. The comparative valuation points to PLN4.0/share. Construction & Real Estate NOVEMBER 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN 4.5 TARGET PRICE: PLN 7.7 (MAINTAINED) PUBLICATION DATE NOVEMBER 14, Q14 RESULTS PREVIEW 3Q14E y/y (%) q/q (%) Sales % 62.3% EBITDA % 34.5% EBIT % 35.1% Net profit % 27.7% STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Buy 10/22/ % 8.4 Buy 4/28/ % Buy 1/30/ % -5.5 Buy 10/23/ % 25.6 COMPANY DESCRIPTION Pozbud T&R is a producer of high-quality wooden windows and doors that has recently expanded into solid wooden floor production. ANALYST Tomasz Sokolowski (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes POZP.WA / POZ PW Sales Market capitalisation (PLNm) 133 EBITDA Number of shares (m) 26.8 EBIT Free float (%) 70.1% Net income Avg. daily turnover 3M (PLNm) 0.1 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 11.2% 0.2% 137

138 Fig. 1. Pozbud: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%) Sales % 62.3% EBITDA % 34.5% EBITDA margin 18.9% 7.1% 13.8% 14.0% 10.3% 18.8% 13.4% 12.7% 11.1% 11.1% 14.5% 10.9% 9.1% EBIT % 35.1% EBIT margin 15.4% 5.0% 9.9% 11.4% 7.4% 15.5% 9.7% 9.9% 9.7% 8.9% 11.5% 9.0% 7.5% Net profit % 27.7% Net margin 10.7% 5.5% 7.7% 9.2% 7.7% 8.9% 9.8% 8.6% 7.1% 5.8% 8.7% 7.1% 5.6% Fig. 2. Pozbud: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales % % % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. Pozbud: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation n.a. Comparable valuation (based on E) % Fig. 4. Pozbud: Income statement forecast E 2014E 2015E 2016E Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 15.3% 15.0% 13.0% 14.1% 15.8% EBITDA margin 13.6% 12.0% 10.3% 11.2% 12.2% Operating margin 10.5% 9.8% 8.6% 9.5% 10.1% Net profit margin 8.3% 7.7% 7.0% 7.5% 7.6% Fig. 5. Pozbud: Balance Sheet forecast E 2014E 2015E 2016E Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 6. Pozbud: Cash flow forecast E 2014E 2015E 2016E CF from operations CF from investment CF from financing Net change in cash

139 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland PRESCO No story to buy FINANCIALS NOVEMBER 12, 2014 RECOMMENDATION SELL (INITIATION) CURRENT PRICE: PLN 3.8 TARGET PRICE: PLN 3.1 Equity Story. PRESCO is one of the leading entities operating on the market of purchase and sale of mass-scale consumer receivables in Poland. It conducts the process of receivables recovery for its own account, using amicable methods and, if necessary, at court. The basic market on which the company builds its position and development plans is Poland. In 2013, P.R.E.S.C.O. launched a pilot project aimed at expansion abroad by way making the first investment in a receivables portfolio in Russia. PRESCO had a quite weak 1H14 with PLN1.8mn in net profit (vs. PLN9.1mn in 2013) and it didn`t buy any major debt portfolio in the period. What is more, its CFO resigned. All this doesn t exactly help the company. Based on our estimates, the company trades at 28.5x 2014 P/E and an EV/EBITDA of 13.9x. It generates a ROE of 2%. Our TP of PLN3.1/ share implies a 19% downside potential. We are initiating our coverage with a SELL rating. Financials. We expect the company s revenues to rise by 3% to PLN53mn in 2015 and to PLN57mn in 2016E. Due to changes in the business model (50/50 settlement and court cases), we expect its cost-to- income to fall in the following years to 70%. We do not expect the Russian portfolio to add any extras to revenues in Purchases of debt portfolios should stabilise at around PLN40mn per year. We expect the company to hit bottom in 2014E, when its net profit should amount to PLN2.6mn. It should, however, rise to PLN7.7mn in 2016E. Triggers/Risks. We believe that the golden age for the company has already passed. We do not see any triggers that could help either. Since court collectability is lower each year, the company tries to shift the business model towards settlement. But it won t work, in our opinion, not I the near future anyway. We also believe it Russian portfolio to be quite risky, even though its losses aren t as big. Valuation & recommendation. We have set a 12-month target price for PRESCO at PLN3.1/share using a blend of residual income (50%) and a DCF method (50%), which implies a 19% downside potential. The company currently trades at P/E 11x 2015E, an EV/EBITDA of 11.1x and a dividend yield of 0.1%. We used a RFR of 3%, risk premium 5%, Beta levered Company Data PRE WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) n.a. n.a. n.a. n.a. n.a. n.a. COMPANY DESCRIPTION PRESCO group is one of the entities operating on the market of purchase and sale of mass-scale consumer receivables in Poland. The Company was established in 1998 and it specialises in the purchasing of portfolios receivables, which have been recognised to be difficult to recover by the primary owners. Main shareholders % of votes Andrzejewski Investments Limited 40.7% Piwonski Investments Limited 40.6% TFI Legg Maison 5.3% Andrzej Bieniek Securities broker, Investment advisor (+48) [email protected] Dariusz Górski (+48) [email protected] ANALYSTS PLNm E 2015E 2016E Reuters/Bloomberg codes PRE.WA / PRE PW Sales Market capitalisation (PLNm) 76 EBITDA Number of shares (m) 19.7 EBIT Free float (%) 18.7% Net income Avg. daily turnover 3M (PLNm) P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 8.4% -39.6% 139

140 Fig. 1.PRESCO: Residual Income valuation 2014E 2015E 2016E Net profit Equity (YE) ROE 2.3% 5.7% 6.1% COE 10.7% 10.7% 10.7% Excess return -8.4% -5.0% -4.6% Residual income PV of residual income ( E) Growth (CAGR) ROE (avg.) Pay-out (avg.) Total value PV Transition period ( E) 1.6% 7.2% 30% Perpetuity 3.0% 7.4% 30% Total intrinsic value # of shares (m) 20 Value per share -3.3 Last reported BVPS 5.9 Fair value (Jan'14) 2.5 Month 10 Fair value (current) month TP 3.1 Upside potential -19% Fig. 2. PRESCO: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E TV Revenues y/y -22% 3% 8% 7% 6% 5% 4% 3% 2% 1% 1% EBIT y/y -42% 42% 8% 4% -3% 0% -1% -2% -3% -4% -4% EBIT margin 19% 25% 26% 25% 23% 22% 21% 20% 19% 18% 18% Taxes on EBIT NOPAT Depreciation Portfolio amortisation Portfolio purchase Capex WC change Free cash flow Discount WACC ( E) 9% PV FCF ( E) 50 Terminal growth 1.0% PV Terminal value 55 Total EV 104 Net debt (cash) (YE13) 54 Equity value 51 Number of shares (mn) 19.7 Equity value per share-current (PLN) 2.6 Target price (12-month) 2.8 Upside/downside -26% Source: BZ WBK Brokerage research, company data 140

141 Fig. 3. PRESCO: 3Q14 results preview 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Revenues % -21% o/w revaluation of debt portfolios % -2% COGS % -11% EBITDA % -38% EBIT % -41% Net profit % -91% Purchases of debt portfolio % -862% EBIT margin 42% 17% 33% 42% 10% 11% 44% 38% 14% 25% 19% Net profit margin 36% 7% 22% 27% -4% 4% 32% 24% 1% 13% 1% Fig. 4. PRESCO: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 51.4 n.a. 0% 53.1 n.a. 0% 57.1 n.a. 0% EBITDA 10.4 n.a. 0% 14.3 n.a. 0% 15.4 n.a. 0% EBIT 9.6 n.a. 0% 13.5 n.a. 0% 14.6 n.a. 0% Net profit 2.6 n.a. 0% 6.8 n.a. 0% 7.7 n.a. 0% Fig. 5. PRESCO: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 2.80 n.a. 0% Residual Income valuation 2.77 n.a. 0% Blended average target price 3.10 n.a. 0% Fig.6. PRESCO: Income statement forecast Net sales CoGS Gross profit Management costs other operating income, net EBITDA EBIT Financial expenses/income Pre-tax profit Income tax Net profit Margins Gross margin 39.2% 29.9% 21.8% 30.0% 30.0% EBITDA margin 35.4% 26.5% 20.2% 27.0% 27.0% EBIT margin 34.3% 25.2% 18.6% 25.5% 25.6% Pre-tax margin 24.0% 13.8% 5.1% 12.7% 13.5% Effective tax rate -0.2% 0.0% 0.0% 0.0% 0.0% Net profit margin 24.0% 13.8% 5.1% 12.7% 13.5% Fig.7. PRESCO: Balance Sheet forecast Current assets L-t assets Total assets Current liabilities o/w debt L-t liabilities o/w debt Equity Fig.8. PRESCO: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

143 Poland RONSON Simply too expensive Equity Story. Ronson offers exposure to the quickly developing Polish residential construction market. We expect a favourable 2015E outlook for the company, incl. probable growth in sales volumes and strong profits on rising notary sales. In the short term, however, we expect net losses in 4Q14/1Q14 on low notary sales, accompanied by a negative operating cash flow boosting leverage. Also, having followed the stock s outperformance in the last 3M period (compared to its closest peers), we believe the company became quite expensive. It is trading in line with its NAV and above the estimated fair P/NAV ratio, which we estimate at 0.96x, taking into account the 2015E ROE and 0.73x based on our 2016E ROE estimates. We also cannot exclude some share supply overhang, which theoretically could put some pressure on the share price. Note for example that U.Dori, Ronson s major shareholder, recognised a deep net loss and negative equity in 1H14 and, hypothetically, we think it could decide to divest to deleverage. Financials. Following the disappointing 2014E results (net loss), we expect a strong profit momentum in We expect the handing-overs to rise to 950 units next year (from 500 in 2014E) from the accumulation of completed dwellings (with respect to the construction schedule) and strong pre-sales in 2014E (c. 700). We forecast the sales volume at c units annually beyond 2015 (above the 2014E level) and the handing-overs at the same level. Triggers/Risks. We see a possible risk in the form of share supply from U.Dori, which faces a strained balance sheet. The growing sales volumes could be a major trigger, drawing support from 1) a low WIBOR3M (past reverse-correlation between interest rates and apartment sales volumes), 2) a recovery of mortgage originations on some GDP growth acceleration next year (past correlation between the GDP rate and mortgage originations), and 3) a likely further increase in price limits under the MdM scheme. We think that these factors should more than offset the negative implication from the maximum LTV fall to 90% from 2015 on from the current 95%. Another trigger could be dividend payment next year (from retained profits) Valuation & recommendation. Based on our DCF model, we arrived at 12 month TP at PLN1.53 per share, and we issue Sell recommendation for Ronson. Construction & Real Estate November 12, 2014 RECOMMENDATION SELL (INITIATION) CURRENT PRICE: PLN1.70 TARGET PRICE: PLN1.53 STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) COMPANY DESCRIPTION Ronson is a residential developer focusing on Warsaw and Poznan markets. Main shareholders % of votes U.Dori Group 39.8% ITR Dori 39.8% ING pension fund 7.3% Metlife pension fund 4.97% ANALYST Adrian Kyrcz (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes RONO.WA / RON PW Sales Market capitalisation (PLNm) 463 EBITDA Number of shares (m) EBIT Free float (%) 20.4% Net profit Avg. daily turnover 3M (PLNm) 0.2 P/E (x) 24.3 n.m M 3M YTD Price performance EV/EBITDA (x) 29.7 n.m % 18.9% -9.1% 143

144 Fig. 1. Ronson: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Net sales EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditure Free cash flow Sum of FCFFs PVs Risk free rate 3.0% WACC 8.0% Residual growth of FCFFs 1.0% Residual value Present value of the residual value Ronson s EV Cash and equivalents (2014 bop) 52.2 Interest-bearing debt (2014 bop) Dividends 0.0 Equity value No. of shares (m) Equity value of Ronson per share (PLN) 1.31 Month 11 Current equity value of Ronson per share (PLN) M Target Price (PLN) 1.53 Fig. 2. Ronson: Comparable valuation to housing developers Name 2Q14 Dom Development 1.33 Robyg 1.37 Polnord 0.17 JWC 0.44 Inpro 0.90 Vantage 0.55 Median: 0.79 NAV of Ronson as of 2Q14 (PLNmn) 465 Implied equity value of Ronson (PLNmn) 369 Implied equity value of Ronson per share (PLN) 1.36 Source: Bloomberg, BZ WBK research P/NAV 144

145 Fig. 3. Ronson: 3Q14 results review 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q Sales % -37.3% EBITDA % % EBITDA margin -4.8% 12.5% -37.5% 6.6% -6.9% 23.5% 16.7% 9.2% 7.4% 0.3% 8.7% 3.2% -16.1% EBIT % % EBIT margin -6.2% 12.4% -40.2% 6.0% -7.5% 23.4% 16.4% 8.8% 7.2% 0.0% 8.5% 2.9% -16.6% Net profit % n.m. Net margin 1.7% 16.7% -14.9% 8.6% -5.2% 24.9% 16.8% 7.1% 8.1% 1.1% 6.3% 0.1% -16.6% Fig. 4. Ronson: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 160 n.a n.a 371 n.a n.a 315 n.a n.a EBITDA 0 n.a n.a 51 n.a n.a 43 n.a n.a EBIT 0 n.a n.a 50 n.a n.a 43 n.a n.a Net profit -4 n.a n.a 38 n.a n.a 33 n.a n.a Fig. 5. Ronson: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation Comparable valuation (based on E) Fig. 6. Ronson: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 25.4% 20.6% 15.8% 20.3% 21.6% EBITDA margin 13.6% 9.4% 0.2% 13.8% 13.8% Operating margin 13.2% 9.1% -0.2% 13.6% 13.6% Net profit margin 15.9% 9.2% -2.7% 10.3% 10.5% Fig. 7. Ronson: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity Total liabilities Net debt Fig. 8. Ronson: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

147 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland SYNEKTIK New cyclotron weigh on results Health Care NOVEMBER 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN23.53 TARGET PRICE: PLN32.5 (MAINTAINED) 3Q14 Results Preview. We expect Synektik to report mediocre results, lower y/y across all lines, but visibly higher than in 1-2Q14. Such dynamics is also an effect of high base from 3Q13. In radiopharmacy segment earnings were depressed by opex and depreciation costs of Warsaw cyclotron, which is still in registration process. Old business should perform quite well mostly due to settlement of contract for MRI scanner shipment to Oncology Hospital in Gliwice. We expect distribution and IT segment to report PLN16.5mn sales, -5% y/y. Overall, we see company to report sales of PLN22.4mn, with an EBITDA of PLN3.4mn and a net profit of PLN1.6mn. Outcome: NEUTRAL. Deal with Iason GmbH. Synektik purchased rights to four radiopharmaceuticals - EFDEGE, IASOflu, IASOdopa and IASOcholine - for EUR2.77mn in Poland, Lithuania, Latvia, Estonia, Ukraine and Belarus. It also bought the right to produce and sell those radiopharmaceuticals in then Czech Republic and Slovakia. According to our calculations, Synektik paid 4-5x this year s license fee, which we have estimated is at 12% of sales, and gained access to several new markets. We expect 2-3k doses to be sold on the new markets. Change in Forecasts. We apply no changes to our model. Change in Valuation & Recommendation. We keep our 12-month Target Price for Synektik at PLN32.5 and maintain our Buy rating for the stock. The comparative valuation points to PLN27.6 per share. STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended SNT WIG Relative TP The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Buy % 2.9 Buy % 3.2 Buy % Buy % 9.5 MAIN SHAREHOLDERS % of votes Melhus Company Limited 25.0% Templeton Asset Management 10.8% ING pension fund 10.0% PZU mutual fund 8.7% Altus mutual fund 7.5% Trigon mutual fund 5.4% Norges Bank 5.2% Noble mutual fund 5.1% COMPANY DESCRIPTION Synektik is a healthcare company focused on radiology segment. Company Data ANALYST Lukasz Kosiarski (+48) [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes SNTP.WA / SNT PW Sales Market capitalisation (PLNm) 201 EBITDA Number of shares (m) 8.5 EBIT Free float (%) 75.0% Net income Avg. daily turnover 3M (PLNm) 0.3 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 12.7% 14.8% 147

148 Fig. 1. Synektik: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Sales % 19.4% EBITDA % 71.9% EBITDA margin 5.3% 8.4% -18.8% 0.7% 2.9% 13.4% 11.2% 16.3% 17.2% 21.8% 11.2% 10.6% 15.2% EBIT % 219.7% EBIT margin 2.7% 6.5% -29.3% -7.3% -1.6% 10.9% 5.0% 8.9% 13.9% 19.4% 2.9% 2.8% 7.6% Net profit % 264.2% Net margin 1.8% 5.0% -28.0% -9.4% -3.9% 9.8% 2.4% 5.8% 11.8% 14.7% 2.9% 2.3% 7.1% Fig. 2. Synektik: Forecasts changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales % % % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. Synektik: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation % Comparable valuation (based on E) % Fig. 4. Synektik: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 30.9% 41.8% 34.8% 41.1% 43.3% EBITDA margin 4.6% 18.4% 14.5% 18.8% 20.4% Operating margin -0.2% 13.4% 7.9% 14.4% 16.1% Net profit margin -1.5% 9.9% 6.8% 11.9% 13.3% Fig. 5. Synektik: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 6. Synektik: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

149 Poland TESGAS Nothing new Equity Story: Our investment view on Tesgas has not changed. Similar to Atrem s case, the long-awaited margin rebound in the construction niches where Tesgas operates is not materialising and it is unlikely to emerge any time soon. In our view, we will have to wait a little longer to see better times arrive in terms of the generated margins on contracts. On the other hand, we do not change our view on Tesgas. For us, it is operating in an attractive natural gas niche of the construction market, which also offers exposure to the new round of EU funds flow, and it is wellbalanced with an estimated FY 14 net cash of PLN20mn (c. 50% of the market capitalisation). In this light, we believe Tesgas, like Atrem, is well-prepared for a rebound in margins, which, in our view, will finally materialise sometime ahead. Change in valuation & recommendation. Our DCF-based valuation remains nearly unchanged at PLN7.40/share. The comparative valuation points to PLN4.30/share. Construction & Real Estate NOVEMBER 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN 4.5 TARGET PRICE: PLN 7.4 (MAINTAINED) PUBLICATION DATE NOVEMBER 14, 2014 STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Buy 10/22/ % 6.4 Buy 4/28/ % Buy 3/31/ % 0.4 Buy 1/30/ % 1.3 COMPANY DESCRIPTION Tesgas is an engineering company specializing in the construction of a great variety of natural gas facilities as well as providing maintenance services for the largest natural gas network operators, namely PGNiG and Gaz System. ANALYST Tomasz Sokolowski (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes TSGP.WA / TSG PW Sales Market capitalisation (PLNm) 51 EBITDA Number of shares (m) 11.4 EBIT Free float (%) 17.9% Net income Avg. daily turnover 3M (PLNm) 0.1 P/E (x) 14.7 n.a M 3M YTD Price performance EV/EBITDA (x) % 2.1% 29.9% 149

150 Fig. 1. Tesgas: 3Q14 results review 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y (%) q/q (%) Sales % 34.3% EBITDA % % EBITDA margin 6.7% 18.5% 15.0% % 7.4% 14.6% 3.2% 2.7% 5.6% 9.5% 1.7% -1.4% 3.8% EBIT % % EBIT margin 4.3% 16.9% 11.6% % 4.5% 11.8% -2.8% -3.4% 2.4% 8.1% -2.4% -5.5% 0.7% Net profit % % Net margin 6.0% 12.3% 8.9% % 5.0% 11.9% -0.9% -1.7% 0.8% 18.6% -0.6% -4.0% 1.3% Fig. 2. Tesgas: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales % % % EBITDA % % % EBIT % % % Net profit n.a % % Fig. 3. Tesgas: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation n.a. Comparable valuation (based on E) % Fig. 4. Tesgas: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 18.3% 17.5% 16.0% 15.0% 16.3% EBITDA margin -14.3% 6.1% 5.3% 5.4% 7.2% Operating margin -16.9% 2.1% 2.6% 3.0% 4.9% Net profit margin -15.9% 5.7% 0.0% 3.9% 5.6% Fig. 5. Tesgas: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 6. Tesgas: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

151 Poland TRAKCJA Relatively cheap Construction & Real Estate November 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN1.15 TARGET PRICE: PLN1.22 (MAINTAINED) Equity story. We maintain our positive view on Trakcja and see an upside risk to our 2014E financial forecast following the strong and slightly better-than-expected 3Q14 results (net profit +63% y/y, positive operating CF, leverage q/q reduction). Even keeping our original FY forecasts intact, the company is relatively cheap, trading at a 2014E P/E of 11.3x, which offers 20% and 27% discounts to its Polish and Western peers, respectively. The healthy gross margin at 9.5% in 9M14 also suggests a significant upside risk to our FY15 forecast (6% expected by us), we maintain, however, our profit projection to stay on the safe side. We are also optimistic on the LT outlook for Trakcja since investments in the sector should accelerate in the coming years underpinned by EU funds (see the note below for details). Having said that, we believe in Trakcja s backlog development in 2015, although some delay cannot be excluded given the poor track record of PKP PLK when it comes to smooth contracts distribution). We also like the company s plans for entering new foreign markets, such as in Scandinavia and the Belarus, which would constitute an upside to our projections. Change in forecasts. We maintain our financial forecast for Trakcja intact. Results outlook. We estimate that our FY2014/15 sales forecast is secured by the backlog in 100%/80%, which is high. We maintain our view that the company s sales should rebound after 2015 thanks to EU funds flow. According to initial estimates, PKP PLK may get up to PLN45bn from the EU for railway tracks construction/renovation in the period (cash transfers over ). All in all, spending might reach a total of approx. PLN60bn, assuming PKP PLK s contribution is at 25%. If PKP uses 75% of the available funds, annual investments could reach PLN6.4bn. We estimate that this would be 35% more than the average for the E period. Triggers & Risks. Potential triggers: 1) strong 4Q14 results, 2) further leverage reduction, 3) signing of new large railway contracts co-financed by EU finds, 4) dividend payment, 5) expansion into new foreign markets (Scandinavia, Belarus). Risks: 1) growth in construction material prices at times of an accumulation of construction projects in the railway sector, 2) foreign contractors putting pressure on margins in the sector, 3) PKP PLK s inefficiency in utilising EU funds and distributing contracts to contractors. Change in Valuation & Recommendation. We maintain our TP for Trakcja at PLN1.22. We also maintain our Buy recommendation. Company Data STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Buy % 3.1 Hold % 5.9 Sell % Sell % -2.3 Sell % 23.7 COMPANY DESCRIPTION Trakcja is a contractor with focus on building railways and roads. The insignificant part of the Company s business constitutes residential development activity. Main shareholders % of votes Comsa 28.8% ING pension fund 12.9% ANALYST Adrian Kyrcz (+48) [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes TRKP.WA / TRK PW Sales Market capitalisation (PLNm) 473 EBITDA Number of shares (m) EBIT Free float (%) 60.6% Net income Avg. daily turnover 3M (PLNm) 2.0 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 13.9% -10.9% 151

152 Fig. 1. Trakcja: 3Q14 results review 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y (%) q/q (%) Sales % 35.0% EBITDA % 35.9% EBITDA margin 4.4% 12.4% -0.1% 13.3% 3.2% -3.6% -7.6% 8.9% 6.2% 2.7% 1.6% 8.4% 8.4% EBIT % 45.0% EBIT margin 3.1% 9.1% -3.1% 11.3% 1.5% -5.5% -11.4% 7.5% 5.2% 1.7% -0.8% 6.6% 7.1% Net profit % 68.0% Net margin 0.1% 11.3% -3.9% 7.4% -0.3% -9.4% -14.2% 5.4% 4.0% 2.7% -2.1% 4.2% 5.2% Fig. 2. Trakcja: Forecasts changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales % % % EBITDA % % % EBIT % % % Net profit % % % Fig. 3. Trakcja: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation % Comparable valuation % Fig. 4. Trakcja: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Fig. 5. Trakcja: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity Total liabilities Net debt Gross margin 3.1% 6.5% 6.8% 6.0% 6.5% EBITDA margin 4.1% 4.4% 5.0% 4.2% 4.7% Operating margin 2.1% 3.0% 3.7% 2.9% 3.4% Net profit margin -0.9% 2.2% 2.4% 1.7% 2.1% Fig. 6. Trakcja: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

153 Poland UNIBEP Capitalizing on housing boom Equity Story. Unibep has become the first choice contractor for many top residential developers, thanks to its high-quality service in home-building. We think that the housing boom in Poland should further support the company s backlog development and performance of the construction division, as well as homes sale volumes of its Unidevelopment subsidiary. We also believe the company already learnt its lesson from its presence in the Norwegian market and the modular home construction there, as well as road construction in Poland (poor margins so far). This is why we think the profitability of both these business lines should finally reach targeted levels. Valuation-wise, Unibep is relatively cheap. The P/E multiple for 2015 at 11.1x is not demanding and offers a double-digit discount for the peers median. Financials. The 4Q14 outlook is promising. The company is scheduled to complete two residential projects (Lycke and Czarnieckiego), which should boost its q/q notary sales. We also expect y/y growth in sales and profits from residential business in 2015E. Residential construction is a high margin business line and these projects should strongly and positively help Unibep s quarterly figures, in our view. In 2015E, we forecast a double-digit profit growth on some margin rebound and a marginal sales increase. In details, we forecast flat sales from the construction business, with risk on the upside, and a slight (6%) increase in sales from the modular home construction, with respect to the company s further expansion into Norway and Germany. We also expect a flat sales from road projects. Beyond 2015, we forecast flat sales from the aforementioned business lines and gross margin stabilisation. Triggers/Risks. The company s high reliance on the construction business in Eastern markets (>20% of backlog) is the major risk factor. Any worsening of the investment climate in Russia may harm business development there. On the other hand, the expected profit growth in 2015E might be a trigger for the share market price. Also conclusion of the disposal of non-core property (of BV of c. PLN22mn) could be another share price trigger. Valuation & recommendation. Based on our DCF model, we arrived at 12 month TP at PLN9.2 per share. We issue Buy recommendation. Construction & Real Estate November 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN 7.96 TARGET PRICE: PLN 9.2 STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) COMPANY DESCRIPTION Unibep is a general contractor and residential projects developer. Company is focusiing on general construction works and roads construction. Main shareholders % of votes Ms. Zofia Mikoluszko 26.2% Ms. Zofia Iwona Stajkowska 17.1% Ms. Beata Maria Skowronska 16.9% Aviva pension fund 9.8% Aviva mutual fund 5.0% ANALYST Adrian Kyrcz (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes UERB.WA / ERB PW Sales Market capitalisation (PLNm) EBITDA Number of shares (m) 35.1 EBIT Free float (%) 38.9% Net income Avg. daily turnover 3M (PLNm) 0.1 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 10.6% -0.5% 153

154 Fig. 1. Unibep: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Net sales EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditure Free cash flow Sum of FCFFs PVs 93.6 Risk free rate 3.0% WACC 8.0% Residual growth of FCFFs 1.0% Residual value Present value of the residual value Unibep s EV Cash and equivalents (2014 bop) 90.5 Interest-bearing debt (2014 bop) 67.4 Dividends 4.2 Equity value No. of shares (m) 35.1 Equity value of Unibep per share (PLN) 7.1 Month 11 Current equity value of Unibep per share (PLN) M equity value per share (PLN) 8.2 Real estate per share (PLN)* M TP inc. Real Estate (PLN) 9.2, *please see table below for details Fig. 2. Unibep: Real estate value calculation Property name Property BV Discount applied Estimated value Estimated value per share (PLN) Prymasa Tysiaclecia Land 22 20% Przytycka Land 31 50% Fig. 3. Unibep: Comparable valuation P/E EV/EBITDA Name 2014E 2015E 2016E 2014E 2015E 2016E Acciona Astaldi Bilfinger Berger Eiffage Ferrovial Skanska Strabag Vinci Hochtief Median - Western peers Atrem Tesgas Erbud Trakcja Budimex Elektrobudowa Median - Polish peers Average implied share price of Unibep in PLN (Polish peers) Average implied share price of Unibep in PLN (Western peers) Average implied share price of Unibep (PLN) 7.8 Source: Bloomberg, BZ WBK research, company data 154

155 Fig. 4. Unibep: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Sales % 17.9% EBITDA % -3.1% EBITDA margin 4.3% 5.1% 4.6% 2.1% 4.1% 1.9% 3.0% 3.8% 3.7% 4.3% 2.2% 3.9% 3.2% EBIT % -3.7% EBIT margin 3.7% 5.1% 3.7% 1.5% 3.6% 1.2% 2.2% 3.2% 3.1% 3.6% 1.4% 3.3% 2.7% Net profit % 1.1% Net margin 1.4% 3.7% 1.7% 2.9% 1.7% 1.7% 1.3% 1.7% 1.8% 1.1% 1.5% 1.8% 1.5% Source: Company data. DM BZ WBK estimates Fig. 5. Unibep: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 1178 n.a. n.a n.a. n.a n.a. n.a. EBITDA 34 n.a. n.a. 39 n.a. n.a. 36 n.a. n.a. EBIT 28 n.a. n.a. 33 n.a. n.a. 30 n.a. n.a. Net profit 21 n.a. n.a. 25 n.a. n.a. 23 n.a. n.a. Fig. 6. Unibep: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation Comparable valuation (based on E) Fig. 7. Unibep: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 5.9% 6.3% 5.0% 5.4% 5.3% EBITDA margin 3.1% 3.7% 2.9% 3.2% 3.1% Operating margin 2.4% 3.1% 2.4% 2.7% 2.5% Net profit margin 2.0% 1.8% 1.8% 2.0% 1.9% Fig. 8. Unibep: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity Total liabilities Net debt Fig. 9. Unibep: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

157 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland VOTUM History likes to repeat itself? FINANCIALS NOVEMBER 12, 2014 RECOMMENDATION BUY (INITIATION) CURRENT PRICE: PLN 7.5 TARGET PRICE: PLN 9.9 Equity Story. Votum provides a broad range of services related to assistance in obtaining compensation from insurance companies. Assistance in claiming compensation for personal injuries of road accident victims, bodily injuries and death of a close relative represents the vast of majority of its business. The company also has its own clinic, where its clients and those injured can get rehab (the clinic should be around its breakeven point in 2014). Votum derives its revenues from two main segments: cases settled directly with insurers that typically agree to pay more (c. 2x) than they would pay the claimants otherwise and the more complex or larger cases that are typically settled by Votum s law firm in court proceedings, allowing Votum to earn a higher fee. Based on our estimates, the company trades at 10x 2015E P/E and an EV/BITDA of 5.8x. Our DCF and peer group-derived TP of PLN9.9/share implies a 32% upside potential. We are initiating our coverage with a BUY rating. Financials. We expect strong growth in the years ahead. We expect a more modest growth rate ahead resulting in a CAGR of 15% in revenues. This, coupled with stable margins, should translate into a 24% CAGR of net profit in the period. Strong cash generation should allow Votum to pay substantial dividends (pay-out ratio of PLN6mn and 50% above the PLN6mn of net profit) and, unless it embarks on major acquisitions or broader geographical expansion, its dividend yield could be as high as 8% in 2016E vs. 6% in Its ROE could be above 41% by Triggers/Risks. In 2Q14, Votum s casework was worth PLN970mn (PLN394mn in courts and PLN577 pre-courts), up from PLN358mn in YE12. The number of cases rose to 24 from 14 in The average length of a court case is about two years and one year for the pre-court cases. We expect cases from to start closing in and the company is set to show a significant rise in revenues and earnings. The story should be similar to EuCO s in Valuation & recommendation. We have set a 12-month TP of PLN 9.9/share using a blend of DCF and comparable company multiples. The implied 32% upside may seem steep, but at our TP Votum multiples (13.5x 2015 earnings and 8.3 EV/EBITDA) it would only be marginally above the current median for the peers. We think our TP is justified by Votum s superb ROE and net profit margin (11%) VOT WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) n.a. n.a. n.a. n.a. n.a. n.a. COMPANY DESCRIPTION Votum specialises in servicing personal injury claims typically on behalf of victims of motor accidents. It is one of the leading player in Poland. It s in house legal practice pursues more complex cases in courts.. Main shareholders % of votes DSA Financial Group 47.3% Mr. Adam Gilowski 22.3% Quercus TFI 7.1% Mr. Andrzej Dadełło 5.8% Andrzej Bieniek Securities broker, Investment advisor (+48) [email protected] Dariusz Górski (+48) [email protected] ANALYSTS Company Data PLNmn E 2015E 2016E Reuters/Bloomberg codes VOT.WA / VOT PW Sales Market capitalisation (PLNm) 90 EBITDA Number of shares (m) 12 EBIT Free float (%) 17.5% Net income Avg. daily turnover 3M (PLNths) 11 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 14.5%

158 Fig. 1.Votum: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Net sales y/y 15% 12% 10% 9% 7% 6% 4% 3% 1% EBIT EBIT margin 12.1% 14.4% 14.4% 13.9% 13.4% 12.9% 12.4% 11.9% 11.4% 10.9% Taxes on EBIT NOPAT Depreciation Capex WC change Free cash flow WACC ( E) 9.1% PV FCF ( E) 64 Terminal growth 1.0% PV Terminal value 58 Total EV 121 Net debt (cash) (YE13) 11 Equity value 110 Number of shares (mn) 12.0 Equity value per share-current (PLN) 9.2 Target price (12-month) 10.0 Upside/downside 33% Fig. 2. Votum: Comparable valuation Market Cap Current P/E EV/EBITDA Company Price Currency (EURm) fiscal year 2014E 2015E 2016E 2014E 2015E 2016E Domestic peers Kruk S.A PLN /14 Y EuCO PLN 34 12/14 Y Open Finance SA 5.78 PLN 74 12/14 Y Magellan SA PLN /14 Y GPW PLN /14 Y Median International peers Median Median Votum Premium/(discount), % 15% -8% -7% -27% -36% -36% Votum - implied share price (PLN) Weights 17% 17% 17% 17% 17% 17% Votum - implied fair value (PLN) 8.6 Source: BZ WBK Brokerage research, company data 158

159 Fig. 3. Votum: 3Q14 results review 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 y/y q/q Revenues % -5% Gross profit % -5% Opex % -5% EBITDA % -16% EBIT % -2% Net profit % 10% Gross profit margin 13.8% 16.7% 7.2% 11.1% 7.0% 14.2% 5.4% 13.3% 11.4% 15.4% 15.5% n.a n.a EBITDA margin 22.8% 11.6% 9.7% 11.8% 10.6% 13.7% 8.0% 15.3% 13.3% 15.8% 14.1% n.a n.a EBIT margin 13.4% 16.4% 7.3% 9.4% 8.3% 11.6% 5.2% 13.1% 10.7% 13.6% 14.1% n.a n.a Net profit margin 10.5% 10.2% 6.0% 13.5% 9.0% 9.5% 4.1% 11.8% 8.1% 9.5% 11.0% n.a n.a Fig. 4. Votum: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 69 n.a. 0% 79 n.a. 0% 88 n.a. 0% EBITDA 10 n.a. 0% 13 n.a. 0% 14 n.a. 0% EBIT 8 n.a. 0% 11 n.a. 0% 13 n.a. 0% Net profit 6 n.a. 0% 9 n.a. 0% 10 n.a. 0% Fig. 5. Votum: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 9.2 n.a. 0% Comparable valuation (based on E) 8.6 n.a. 0% Blended average target price 9.9 n.a. 0% Fig. 6. Votum: Income statement forecast Net Sales Gross profit Opex EBITDA EBIT Pre-tax profit Income tax Net profit Gross margin 12.3% 10.3% 13.0% 15.0% 15.0% EBITDA margin 14.0% 12.2% 14.0% 16.1% 16.0% EBIT margin 11.7% 9.9% 12.1% 14.4% 14.4% Pre-tax margin 13.1% 10.8% 11.4% 14.1% 14.2% Effective tax rate 22.3% 18.2% 22.7% 22.7% 22.7% Net profit margin 10.1% 8.8% 8.8% 10.9% 11.0% Fig. 7. Votum: Balance Sheet forecast Current assets Cash and equivalents L-t PP&E Total assets Current liabilities Bank debt/bonds Long-term liabilities Bank debt/bonds Equity Total liabilities and equity Net debt Fig. 8. Votum: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

161 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland VOXEL Play for M&A Health Care NOVEMBER 12, 2014 RECOMMENDATION HOLD (INITIATION) CURRENT PRICE: PLN11.25 TARGET PRICE: PLN12.50 Equity Story. Voxel s core business is operating imaging diagnostic clinics; five PET-CT clinics with own cyclotron, Gamma Knife and over a dozen CT/MRI clinics. Due to the limited contracts with the Public Healthcare Fund NFZ, all the PET/CT clinics are working way below their potential. The new oncology law, due to come into force in 2015, should boost the company s volumes. Therefore, we see Voxel and Synektik as best investments in light of the upcoming new regulations. We also think Voxel could be a potential acquisition target, valued at a large discount compared with the recent transactions (Lux-Med, EMC and Enel-Med clinics sold at double-digit EV/EVITDA). The restructuring of Alteris, a distributor of diagnostic devices, should also allow for some savings in Financials. We expect Voxel to perform 6.0k PET-CT procedures in 2015E in four clinics and 7.7k procedures in 2016E in five locations, assuming another contract for PET-CT and Gamma Knife in Katowice in 2016E. The company may also decide to relocate the device to another city. We expect Voxel s average revenue from the PET-CT procedures to drop to PLN3.3k in 2015E and 3.0k from 2017E (to the end of the forecast period) from PLN4.1k in 2014E. We expect no large new investments. At the same time, better utilisation of the devices should increase the company s EBITDA margin to above 18% from current 16%. In 2016E, its EBITDA should exceed PLN20mn. We believe that the net debt may slightly rise due to further loans to Exira. The company trades at a 2014E and 2015E EV/EBITDA of 10.0x and 9.2x, which is demanding but fair valued. The stock offers some upside in case of a M&A story and a positive scenario in PET-CT and Gamma Knife contracting. Triggers/Risks. Concentrating on a single customer NFZ is the largest threat to Voxel and other clinic operators. NFZ is a very tough negotiations partner and contracting decisions are not always reasonable. Voxel learnt this the hard way when it had nearly completed a PLN40mn investment programme and all the new clinics lacked contracts and generated losses for 12 months. Voxel is fully consolidating its three new PET-CT clinics in Brzozow, Bialystok and Katowice. JV with Enterprise Investors Exira (operator of Gamma Knife) is not consolidated, but it can count on loans from Voxel until it secures its NFZ contract. It looks like Brzozow and Bialystok will have contracts for The when and which big contracts Voxel will have is the key driver of the company s results in upcoming years. Valuation & recommendation. Based on our DCF model, we arrived at a 12-month TP of PLN12.5 per share. The TP implies a 14% upside potential, which caused us to initiate our coverage of the stock with a Hold recommendation. The comparative valuation points to PLN12.1 per share. Company Data WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended VOX The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. COMPANY DESCRIPTION Operator of medical diagnostic clinics and distributor of radiology devices. MAIN SHAREHOLDERS % of votes Voxel International 60.5% PZU mutual fund 11.4% Allianz pension fund 5.4% ANALYST Lukasz Kosiarski (+48) [email protected] PLNmn E 2015E 2016E Reuters/Bloomberg codes VOXP.WA / VOX PW Sales Market capitalisation (PLNm) EBITDA Number of shares (m) 10.5 EBIT Free float (%) 27.4% Net income Avg. daily turnover 3M (PLNm) 0.0 P/E (x) 38.3 n.a M 3M YTD Price performance EV/EBITDA (x) % -1.3% -31.0% 161

162 Fig. 1. Voxel: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Net sales EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditure Free cashflow WACC ( ) 7.7% PV FCF Terminal growth 1.0% Terminal Value (TV) PV TV 85.7 Total EV Net debt 49.2 Equity value Number of shares (m) Value per share (PLN, 1 Jan 2014/15) Month 11 Current value per share (PLN) Year-end target price (PLN) Fig. 2. Voxel: Comparable valuation Market Cap P/E EV/EBITDA Company Price Currency (EURmn) 2014E 2015E 2016E 2014E 2015E 2016E Voxel PLN Peers Synektik PLN Medicalgorithmics PLN Eckert & Ziegler EUR Ion Beam Applications EUR Centrum Medyczne Enel-Med PLN Sonic Healthcare AUD 6, Source Bioscience GBp Oral Hammaslaakarit 6.48 EUR n.a. n.a. n.a. Clinica Baviera 7.50 EUR Athens Medical Center 0.80 EUR n.a. n.a n.a. Digirad 4.02 USD n.a. n.a. n.a. CHC Healthcare TWD n.a n.a. n.a. Median Implied share price vs. peers (PLN) Implied price (PLN) 12.1 Source: BZ WBK Brokerage research, company data 162

163 Fig. 3. Voxel: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Sales % 4.1% EBITDA % 37.4% EBITDA margin 10.4% 13.0% 19.8% 10.2% 15.7% 27.9% 26.2% 13.6% 10.9% 16.7% 26.5% 12.6% 16.7% EBIT % 13x EBIT margin 0.7% 6.9% 9.7% 0.5% 4.0% 21.9% 13.1% 3.5% 3.1% 6.6% 11.1% 0.4% 4.9% Net profit n.a. n.a. Net margin -5.2% -1.1% 3.0% -3.2% -2.6% 17.1% 7.5% 2.0% 1.3% 2.5% 6.2% -3.7% -0.8% Fig. 4. Voxel: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales n.a. n.a n.a. n.a n.a. n.a. EBITDA 16.5 n.a. n.a n.a. n.a n.a. n.a. EBIT 3.5 n.a. n.a. 6.0 n.a. n.a. 8.8 n.a. n.a. Net profit -0.5 n.a. n.a. 1.2 n.a. n.a. 3.5 n.a. n.a. Fig. 5. Voxel: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 12.5 n.a. n.a. Comparable valuation (based on E) 12.1 n.a. n.a. Fig. 6. Voxel: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 24.8% 25.4% 24.6% 25.9% 26.3% EBITDA margin 19.9% 15.9% 16.4% 17.5% 18.1% Operating margin 11.2% 5.9% 3.5% 5.5% 7.3% Net profit margin 5.7% 2.9% -0.5% 1.1% 2.9% Fig. 7. Voxel: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 8. Voxel: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

165 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland WIELTON Risky business Industrials NOVEMBER 12, 2014 RECOMMENDATION HOLD (INITIATION) CURRENT PRICE: PLN5.6 TARGET PRICE: PLN6.0 Equity Story. Wielton, similarly to Amica and other successful Polish exporters on the Russian market, has grown rapidly in the last few years ( volumes CAGR at 46%, 187% on the Russian market). But now that the fountain of growth is drying out fast, it is time to change direction. So far growth on other markets (Southern Europe, Baltic Sea Countries) and the rise in the market share on the domestic market on the back of the broadening of the product mix have been enough to cover this revenue whole. But what is the next step? Wielton will try to conquer Western markets using its fresh acquisition the French Fruehauf SAS. Firstly, however, this deal need to be finalised and talks with the French labour unions are extending a tad long (we assumed a 75% probability of success in our model). Secondly, Fruehauf itself has some problems that need to be addressed. The company has obsolete assets that will force Wielton to incur additional CAPEX, an already high market share in France (no space for growth) and no export sales that will need to be built (and the company was unsuccessful here in the past). We believe that the acquisition might actually work out because moving part of the production (chassis) to Poland should yield cost synergies, helping Fruehauf to become more competitive on other markets. But we believe that Wielton is a risky pick (hence the high WACC) due to the cyclicality of the semitrailer business itself, exposure to the Eastern markets and the probability that the acquisition will burden its balance sheet (net/ebitda 14 at 2.9x, if Fruehauf acquisition is finalised). Financials. We believe that further falls on the Eastern markets will be offset by growth on other markets but the pace of growth will not be impressive volumes CAGR at a meagre 2.2%. The company will also manage to keep its gross profit margin at about 16%. As far as Fruehauf is concerned, due to the operational leverage and cost synergies, its margins should converge to those of Wielton. Triggers/Risks. We listed the key risks in the equity story section. The completion of the Fruehauf acquisition could add another PLN0.25 to our current valuation. Valuation & recommendation. Our DCF model values Wielton s current business at PLN5.3 per share. The Fruehauf acquisition (at 75% probability) is adding PLN0.6 to the current valuation. All in all, we set the TP at PLN6.0 with a Hold recommendation. Company Data WLT WIG Relative STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. COMPANY DESCRIPTION Wielton is Poland biggest s semi-trailers and trailers producer and one of the 10 leading producers in Europe. Main shareholders % of votes MP-FUND FIZAN 37.9% Jakub Prozner 13.2% Lukasz Tylkowski 10.6% Pawel Szataniak 6.7% Mariusz Szataniak 6.7% Aviva mutual fund 6.3% ANALYST Tomasz Kucinski [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes WLTP.WA / WLT PW Sales Market capitalisation (PLNmn) EBITDA Number of shares (mn) 60.4 EBIT Free float (%) 37.9% Net income Avg. daily turnover 3M (PLNm) 0.2 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % -9.6% -21.2% 165

166 Fig. 1. Wielton: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Revenues EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditures Net investment Free cash flow WACC 9.8% PV FCF Terminal growth 2.0% Terminal value (TV) PV TV Total EV Net debt 28.6 Equity value Number of shares (mn) 60.4 Value per share (PLN, 31 Dec 2014) 4.8 Month 11.0 Curent value per share (PLN) 4.7 Fruehauf acquisition (75% probability) M target price 6.0 Fig. 2. Wielton: Comparable valuation Price Currency P/E EV/EBITDA 2014E 2015E 2016E 2014E 2015E 2016E Wielton SA Inter Cars SA SAF-Holland SA n.a. n.a. n.a. Wabash National Corp MAN SE , Volvo AB , Median Premium/discount vs. median -2.9% -15.4% 11.9% -27.6% -22.1% -17.6% Source: BZ WBK Brokerage research, company data 166

167 Fig. 3. Wielton: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y q/q Sales % -2.9% EBITDA % 7.2% EBITDA margin 8.9% 5.9% 6.1% 9.0% 6.9% 6.5% 6.1% 9.5% 10.3% 7.7% 7.1% 7.1% 7.8% EBIT % 10.3% EBIT margin 6.7% 3.9% 4.1% 7.0% 4.7% 3.7% 2.9% 7.1% 8.0% 5.3% 4.6% 4.8% 5.4% Net profit % -19.6% Net margin 2.4% 4.6% 4.5% 4.5% 3.6% 2.3% 1.9% 4.9% 6.5% 3.6% 1.9% 5.5% 4.5% Fig. 4. Wielton: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales n.a. n.a n.a. n.a n.a. n.a. EBITDA 40.6 n.a. n.a n.a. n.a n.a. n.a. EBIT 25.9 n.a. n.a n.a. n.a n.a. n.a. Net profit 21.2 n.a. n.a n.a. n.a n.a. n.a. Fig. 5. Wielton: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 6.0 n.a. n.a. Comparable valuation (based on E) 6.3 n.a. n.a. Fig. 6. Wielton: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 15.3% 16.2% 15.9% 16.0% 16.0% EBITDA margin 7.1% 8.6% 6.8% 7.4% 7.4% Operating margin 4.9% 6.1% 4.4% 5.0% 5.0% Net profit margin 3.8% 4.4% 3.6% 4.6% 4.4% Fig. 7. Wielton: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 36. Wielton: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

169 Poland WOJAS Retail NOVEMBER 12, 2014 RECOMMENDATION HOLD (INITIATION) NON-CORE INVESTMENTS TRIMMS UPSIDE Equity Story. On first sight, Wojas looks just like another successful Polish retail company that has been continuously improving its sales and profits since the post-crisis bottom in Ever since then, the company has improved its sales to PLN214mn (vs. PLN85mn in 2008) and its net profit to PLN9.5mn (vs. 1mn in 2008) in 2014E. On the other hand, we believe that there are some elements that effectively trim the upside. We do not share the opinion that the debt financed (PLN10m) non-core investment in the leisure & entertainment industry, like the recently announced purchase of a 33% stake in Termy Chocholowskie (no matter how profitable) create value for the shoe retailer. We believe that it would be better for Wojas s business multiple valuation to remain a clean shoe retailer. Moreover, the JPY denominated debt (cpln18mn) also creates a significant and unnecessary currency risk,, something that could be easily avoided. Financials. We expect Wojas to stay on its growth path in the coming years. We assume that the company will add 1,345 (+7.7%)/1,121 (+6.0%) and 561 sqm in E, respectively. We also expect the LfL at 5.6%, 2.0% and 2.0% in E, respectively. Based on these assumptions, we expect Wojas to report sales at PLN214mn (+14%y/y), PLN226mn (+5.3%y/y) and PLN235mn (+4.2%y/y) in E. We expect the gross margin to grow to 44.6% (+138bps), 43.6% (-97bps) and 44.1% (+ 47bps) in E. In regards to SG&A, we expect the SG&A/avg. sqm at PLN4,580 (+5.4% y/y), PLN4,387 (-4.2% y/y) and PLN4,464 (+1.8% y/y). Overall, we expect Wojas to earn an EBITDA of PLN21.0mn, PLN20.9mn and PLN21.3mn, while its net profit should come in at PLN9.5mn, PLN9.3mn and PLN9.7mn in E, respectively. Valuation & recommendation. Wojas is currently trading with a PE of 10.5x and 10.9x in E. Taking into account its growth, ROE (14%) and leverage, we believe that a PE at c.12x would be fairer. In this light, Wojas current multiple valuation leaves some upside, which, however, might be trimmed by some corporate governance issues. Based on our DCF model, we arrived at a 12 month TP of PLN8.4 per share, which implies a 8% upside potential. We initiate coverage with a Hold rating. Company Data CURRENT PRICE: PLN8.0 TARGET PRICE: PLN8.4 STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. COMPANY DESCRIPTION Wojas is a retail company selling shoes under the brand Wojas and Relaks. Main shareholders % of votes Mr. Wieslaw Wojas 83.9% Free Float 16.1% ANALYST Tomasz Sokolowski (+48) [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes WOJ.WA / WOJ. P Sales Market capitalisation (PLNm) EBITDA Number of shares (m) 12.7 EBIT Free float (%) 16.1% Net income Avg. daily turnover 3M (PLNm) 0.0 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % -9.3% 26.4% 169

170 Fig. 1. Wojas: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Revenues EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditure Free cashflow WACC ( , %) 7.9% PV FCF Terminal growth (%) 2.5% Terminal Value (TV) PV TV 71.0 Total EV Net debt 33.0 Equity value 91.2 Number of shares (m) 12.7 Value per share (PLN, 1 Jan 2014) 7.2 Month 11 Current value per share (PLN) month target price (PLN) 8.4 Fig. 2. Wojas: Comparable valuation P/E EV/EBITDA PEG ROE DY Name 2014E 2015E 2016E 2014E 2015E 2016E 1Y 2Y 2014E 2015E 2016E 2014E 2015E 2016E LPP % 28.9% 30.6% 1.0% 1.2% 1.4% Monnari % 19.3% 14.9% 0.0% 0.0% 5.0% Bytom % 32.0% 27.5% 0.0% 4.9% 6.7% average % 26.8% 24.4% 0.3% 2.0% 4.4% CCC % 31.2% 1.2% 1.9% 2.5% 0.0% Wojas % 12.3% 11.4% 1.3% 1.9% 0.0% Gino Rossi % 14.2% 13.5% 0.0% 0.0% 0.0% average % 19.2% 8.7% 1.1% 1.5% 0.0% Total - average % 23.0% 16.5% 0.7% 1.7% 2.2% Source: BZ WBK Brokerage research, company data 170

171 Fig. 3. Wojas: 3Q14 results review 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13E 1Q14 2Q14 3Q14 y/y q/q Sales % -8.5% EBITDA % -39.4% EBITDA margin 9.0% 7.5% 6.8% 12.2% 4.5% 6.6% 6.5% 14.4% 7.1% 9.4% 6.2% EBIT % -59.4% EBIT margin 4.6% 3.6% 3.4% 9.4% 0.2% 3.1% 3.1% 11.7% 3.5% 6.4% 2.8% Net profit % -44.6% Net margin 2.4% -0.8% 1.4% 2.5% 0.3% 3.7% 3.0% 11.2% 0.7% 4.6% 2.8% Fig. 4. Wojas: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 215 n.a. n.a. 226 n.a. n.a. 236 n.a. n.a. EBITDA 21 n.a. n.a. 21 n.a. n.a. 22 n.a. n.a. EBIT 14 n.a. n.a. 14 n.a. n.a. 14 n.a. n.a. Net profit 10 n.a. n.a. 10 n.a. n.a. 10 n.a. n.a. Fig. 5. Wojas: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 8.4 n.a. n.a. Comparable valuation (based on E) 13.9 n.a. n.a. Fig. 6. Wojas: Income statement forecast Net sales COGS Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 43.8% 43.2% 43.4% 43.6% 44.1% EBITDA margin 9.2% 8.7% 9.6% 9.4% 9.2% Operating margin 5.7% 5.3% 6.5% 6.2% 6.0% Net profit margin 1.7% 5.3% 4.7% 4.2% 4.2% Fig. 7. Wojas: Balance Sheet forecast Current assets Fixed assets Total assets Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities Net debt Fig. 8. Wojas: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

173 Poland WORK SERVICE Cash recent gains Pharma / Health Care NOVEMBER 12, 2014 RECOMMENDATION HOLD (PREV. RESTRICTED) CURRENT PRICE: PLN19.0 TARGET PRICE: PLN19.5 (PREV. RESTRICTED) Equity story. Following the completion of four takeovers in 2013/14, Work Service is not resting on its laurels. We expect the company to maintain a fast growth path, this time aiming at the Romanian temporary staffing market. As well as M&A, Work Service should not slow down its organic growth in the coming years, benefiting from its competitive advantages, positive structural market changes and supportive forecasts pointing to GPD growth. Based on these factors, we see Work Service to show notable growth in sales and net profit, which we expect to increase at 39% and 47%, on average, over E. Change in valuation & recommendation. We have updated our DCF model by 5mn new share issue as well as higher intrest costs paid by company. Our DCF model implies 12 month TP at PLN19.5/share. Following a recent price surge Work Service is trading with PE of 24.1x and 17.5x, respectively which implies double digit premiums on FY14-16 numbers, which are not justified, in our view. In this light, we are reinitiating coverage of Work Service with a Hold recommendation and a 12-month Target Price of PLN19.5/share. STOCK PERFORMANCE The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) U/R 10/28/2014 n.a. n.a. n.a. n.a. Buy 6/8/ n.a. n.a. COMPANY DESCRIPTION Work Service is the largest HR services company in Poland, with rising regional exposition in CEE and Germany. ANALYST Tomasz Sokolowski (+48) [email protected] Company Data PLNm E 2015E 2016E Reuters/Bloomberg codes WSE.WA / WSE PW Sales 918 1,677 2,172 2,482 Market capitalisation (PLNm) 1,140.8 EBITDA Number of shares (m) 60.0 EBIT Free float (%) 25.7% Net income Avg. daily turnover 3M (PLNm) 0.8 P/E (x), adj M 3M YTD Price performance EV/EBITDA (x), adj % 33.3% 52.0% 173

174 Fig. 1. Work Service: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E y/y (%) q/q (%) Sales % 26.9% EBITDA % 30.6% EBITDA margin 5.2% 6.8% 5.0% 5.2% 4.8% 8.1% 5.4% 4.3% 5.2% 7.6% 5.2% 4.7% 4.8% EBIT % 36.1% EBIT margin 5.2% 6.3% 4.5% 4.6% 4.8% 7.5% 4.8% 3.9% 4.7% 7.1% 4.7% 4.1% 4.4% Net profit % 247.6% Net margin 3.4% 6.0% 2.3% 1.9% 1.1% 5.9% 3.0% 1.1% 1.9% 5.1% 3.3% 0.8% 2.2% Fig. 2. Work Service: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 1,677 n.a. n.a. 2,172 n.a. n.a. 2,482 n.a. n.a. EBITDA 93 n.a. n.a. 118 n.a. n.a. 136 n.a. n.a. EBIT 87 n.a. n.a. 110 n.a. n.a. 127 n.a. n.a. Net profit 52 n.a. n.a. 71 n.a. n.a. 83 n.a. n.a. Fig. 3. Work Service: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 19.5 n.a. n.a. Comparable valuation (based on E) 14.1 n.a. n.a. Fig. 4. Work Service: Income statement forecast Net sales ,677 2,172 2,482 COGS ,476 1,913 2,185 Gross profit SG&A Other operating income, net (0) EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 10.4% 12.3% 12.0% 11.9% 12.0% EBITDA margin 6.0% 5.7% 5.6% 5.4% 5.5% Operating margin 5.4% 5.2% 5.2% 5.1% 5.1% Net profit margin 2.8% 2.9% 3.1% 3.3% 3.3% Fig. 5. Work Service: Balance Sheet forecast Current assets Fixed assets Total assets ,119 Current liabilities bank debt Long-term liabilities bank debt Equity share capital Minority Interest Total liabilities ,119 Net debt* , Fig. 6. Work Service: Cash flow forecast CF from operations CF from investment CF from financing Net change in cash

175 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland ZA PULAWY Company hits its low in 3Q 3Q14 Results Preview. As usual, the company s earnings in 3Q should be affected by maintenance stoppages and an off-seasonal drop in demand and fertiliser prices. Nitrogen fertilizer prices hit their inter-year low in 3Q14, keeping a lid on the company s earnings growth. Some nitrogen fertiliser prices were even lower on a y/y basis. We Also expect the company s financial performance to be affected by the relatively tight spread between caprolactam and benzene. All in all, we expect Pulawy to show 2% higher revenues y/y at PLN856mn; EBITDA at PLN67mn (+23% y/y) and EBIT at PLN31mn (+67% y/y). The bottom line is estimated at PLN28m (+58% y/y). Outcome: NEGATIVE. Chemicals NOVEMBER 12, 2014 RECOMMENDATION BUY (MAINTAINED) CURRENT PRICE: PLN145.6 TARGET PRICE: PLN170.4 (MAINTAINED) PUBLICATION DATE NOVEMBER 12, Q14 RESULTS PREVIEW 3Q14E y/y q/q Sales 856 2% 3% EBITDA 67 23% 76% EBIT 31 67% 156% Net profit 28 58% 162% STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended TP Fertiliser & chemical products price trends. 3Q14 brought about a seasonal decrease in the benchmark fertiliser prices q/q. The Ammonium Nitrate price dropped 1% y/y and 7% q/q. Prices of urea were 8% higher y/y and q/q, while of UAN -1% y/y and -2% q/q. Ammonium sulphate prices went up 10% y/y and 16% q/q. Prices of melamine lost 6% y/y and 2% q/q, while average caprolactam prices remained flat y/y. The Polish gas tariff was 1.5% higher y/y, while benzene recorded a 10% y/y hike (up 5% q/q) ZAP WIG Relative Outlook for future / our view on the stock. We believe Pulawy is the first company that should benefit from a recovery in the fertiliser markets. Although we have a negative view of the company s earnings, we keep our positive view on the stock. We prefer Azoty Pulawy vs. Azoty Police, given its much bigger potential for profitability improvement, cash generation capabilities and lower valuation multiples. Change in Forecasts. We made no changes to our forecasts for 2014E and beyond. We leave our financial forecasts unchanged. Change in Valuation & Recommendation. The applied changes in our modelling and forecasting led to our DCF-based Target Price of PLN170.4 per share (17% upside potential). We keep our BUY recommendation. Company Data The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Buy 10/27/ % 3.1 Buy 7/9/ % -8.8 Buy 4/28/ % 8.2 COMPANY DESCRIPTION ZA Pulawy is one of the largest nitrogen fertilizer manufacturer in Poland, with exposure to fast developing melamine and caprolactam segments. ANALYST Tomasz Kasowicz (+48) [email protected] PLNm 12/ E* 2015E 2016E Reuters/Bloomberg codes PULW.WA / ZAP PW Sales 3,886 5,451 3,928 4,024 Market capitalisation (PLNm) 2,783 EBITDA Number of shares (m) 19.1 EBIT Free float (%) 4.0% Net income Avg. daily turnover 3M (PLNm) 0.0 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 4.1% -16.3% Source: Company data, Bloomberg, BZ WBK Brokerage, *Leap year consisting of six quarters 3Q13-4Q14 175

176 Fig. 1. Azoty Pulawy: 3Q14 results preview 3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 2Q'13 3Q'13 4Q13 1Q14 2Q14 3Q14E y/y chg. q/q chg. Sales ,115 1, % -6% EBITDA % 50% EBITDA margin 17.1% 20.7% 29.0% 10.7% 7.6% 12.4% 15.2% 6.5% 6.2% 15.1% 13.4% 8.4% EBIT % 87% EBIT margin 13.7% 17.6% 26.2% 8.3% 4.2% 9.4% 11.9% 2.2% 2.3% 11.3% 9.1% 4.5% Net profit % 96% Net margin 12.1% 13.7% 21.9% 11.8% 3.9% 9.0% 11.3% 2.1% 2.1% 10.0% 8.3% 3.9% Source: Company data, BZ WBK Brokerage Fig. 2. Azoty Pulawy: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 3,688 3,688 0% 3,928 3,928 0% 3,953 3,953 0% EBITDA % % % EBIT % % % Net profit % % % Source: Company data, BZ WBK Brokerage Fig. 3. Azoty Pulawy: Valuation changes In PLN per share, unless otherwise stated New Previous Change Weight DCF valuation % 100% Comparable valuation (based on E) % 0% Source: Company data, BZ WBK Brokerage Fig. 4. Azoty Pulawy: Income statement forecast 11/12 12/ E* 2015E 2016E Net sales 3,948 3,886 5,451 3,928 4,024 COGS -2,914-3,011-4,476-3,190-3,208 Gross profit 1, SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit after minorities Gross margin 26.2% 22.5% 17.9% 18.8% 20.3% EBITDA margin 19.7% 14.3% 9.0% 11.6% 13.3% Operating margin 16.8% 11.0% 6.4% 8.3% 10.0% Net profit margin 15.2% 10.0% 5.6% 7.0% 8.4% Source: Company data, BZ WBK Brokerage, *leap-year 3Q13-4Q14; FY14 results: Revenues PLN3.69bn; EBITDA PLN455mn; EBIT PLN307mn; Net profit PLN271mn Fig. 5. Azoty Pulawy: Balance sheet forecast 11/12 12/ E 2015E 2016E Current assets 1,461 1,431 1,642 1,448 1,548 Fixed assets 1,756 1,982 2,142 2,301 2,424 Total assets 3,218 3,412 3,784 3,749 3,972 Current liabilities bank debt Long-term liabilities bank debt Equity 2,445 2,656 2,767 2,965 3,180 share capital Minority Interest Total liabilities 3,218 3,412 3,784 3,749 3,972 Net debt Source: Company data, BZ WBK Brokerage Fig. 6. Azoty Pulawy: Cash flow forecast 11/12 12/ E 2015E 2016E CF from operations CF from investment CF from financing, incl Net change in cash Source: Company data, BZ WBK Brokerage 176

177 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland ZCH POLICE Y/y rebound in earnings 3Q14 Results Preview. We expect Police to report a multicomponent fertiliser volumes at 241kt (+20%y/y), with the fertilizer segment s revenues 23% higher y/y. Compared with 3Q13, we expect the company s fertiliser business profitability to be supported by (1) larger supplies of cheaper phosphate rock from Senegal and (2) cheaper gas costs from other-than-pgnig suppliers. The titanium dioxide (TiO2) segment s volumes are assumed at 10.0k tonnes (+2% y/y), while prices (in EUR) at around -2% y/y (but +1% q/q). We expect Azoty Police to report the headline EBITDA at PLN47.8mn (+97% y/y), the EBIT at PLN30.5mn (vs. PLN5.5mn in 3Q13), while the bottom line at PLN22.0mn (vs. PLN6.8mn in 3Q13). Outlook: POSITIVE. Chemicals NOVEMBER 12, RECOMMENDATION SELL (MAINTAINED) CURRENT PRICE: PLN21.5 TARGET PRICE: PLN11.60 (MAINTAINED) PUBLICATION DATE NOVEMBER 12, Q14 RESULTS PREVIEW 2Q14E y/y q/q Sales % -1% EBITDA % -7% EBIT % -4% Net profit % -16% STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended Fertilisers price trends in 3Q14: The multi-component fertiliser benchmark prices varied in the last quarter. The DAP prices rose 9% q/q and 11% y/y. The benchmark NPK(16,16,16) went up 3% q/q, but dropped 3% y/y. The urea benchmark prices were 8% higher both q/q and y/y, while those of ammonia rose 13% y/y (flat q/q). Potassium chloride climbed 2% q/q (-20% y/y), while phosphate rock remained flat q/q (-4% y/y) PCE WIG Relative TP Outlook for 2014 and beyond. Given the expected strong harvest season and lower grains quotations, we see no reasons for the multicomponent fertiliser prices to go significantly up in coming years. Change in Forecasts. We made no changes to our forecasts for 2014E and beyond. We leave our financial forecasts unchanged. Change in Valuation & Recommendation. We leave our DCFbased Target Price unchanged at PLN11.6 per share (46% downside potential). We keep our SELL recommendation. The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) Sell 10/27/ % -6.8 Sell 7/9/ % -6.8 Sell 4/28/ % 18.2 COMPANY DESCRIPTION ZCh Police is the largest domestic NPK fertilizer manufacturer in Poland, with exposure to titanium dioxide and nitrogen fertilizers segments. Company Data ANALYST Tomasz Kasowicz (+48) [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes PICE.WA / PCE PW Sales 2,464 2,448 2,599 2,745 Market capitalisation (PLNm) 1,610 EBITDA Number of shares (m) 75.0 EBIT Free float (%) 20.2% Net income Avg. daily turnover 3M (PLNm) 0.1 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 1.0% -10.9% Source: Company data, Bloomberg, BZ WBK Brokerage 177

178 Fig. 1. Azoty Police: 3Q14 results preview 3Q'11 4Q'11 1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q14 2Q14 3Q14E y/y chg. q/q chg. Sales % -1% EBITDA % -7% EBITDA margin 12.0% 11.4% 11.4% 6.3% 6.6% 3.6% 8.5% 7.2% 4.7% 0.7% 8.0% 8.4% 7.9% EBIT % -4% EBIT margin 8.8% 9.0% 8.5% 4.1% 3.9% -0.3% 5.5% 4.4% 1.1% -4.1% 3.2% 5.1% 5.0% Net profit % -16% Net margin 7.8% 17.0% 6.0% 3.4% 3.8% 0.1% 4.4% 3.2% 1.3% -2.2% 2.6% 4.3% 3.6% Source: Company data, BZ WBK Brokerage Fig. 2. Azoty Police: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 2,448 2,448 0% 2,599 2,599 0% 2,745 2,745 0% EBITDA % % % EBIT % % % Net profit % % % Source: Company data, BZ WBK Brokerage Fig. 3. Azoty Police: Valuation changes In PLN per share, unless otherwise stated New Previous Change Weight DCF valuation % 100% Comparable valuation (based on E) % 0% Source: Company data, BZ WBK Brokerage Fig. 4. Azoty Police: Income statement forecast Net sales 2,981 2,464 2,448 2,599 2,745 COGS -2,707-2,226-2,140-2,236-2,317 Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit after minorities Gross margin 9.2% 9.7% 12.6% 14.0% 15.6% EBITDA margin 7.1% 5.8% 7.1% 8.9% 10.9% Operating margin 4.3% 2.3% 3.6% 5.3% 7.4% Net profit margin 3.5% 2.1% 2.7% 3.9% 5.5% Source: Company data, BZ WBK Brokerage Fig. 5. Azoty Police: Balance sheet forecast Current assets Fixed assets 918 1,275 1,295 1,390 1,459 Total assets 1,571 1,988 1,986 2,118 2,220 Current liabilities bank debt Long-term liabilities bank debt Equity ,013 1,080 1,181 share capital Minority Interest Total liabilities 1,571 1,988 1,986 2,118 2,220 Net debt Source: Company data, BZ WBK Brokerage Fig. 6. Azoty Police: Cash flow forecast CF from operations CF from investment CF from financing, incl Net change in cash Source: Company data, BZ WBK Brokerage 178

179 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Polish Equity Research Poland ZE PAK Prime Polish play on electricity price UTILITY November 12, 2014 RECOMMENDATION HOLD (INITIATION) CURRENT PRICE: PLN29.84 TARGET PRICE: PLN31.90 Equity Story. ZE PAK operates 2.5GW of lignite-fuelled old generation units, of which 600MW is to be switched off in 2018 and 1.3GW in The company is vertically integrated via its own lignite mines the company requires no external fuel except for its 50MW biomass unit. The company is a key play on the growing Polish electricity price through its relatively high generation fleet and low-cost units. The company is also delivering decent gains on cost optimisation and further upside there seems reasonable. CO2 pricing, in light of today s respective low volume of the free certificates held, is the key risk for the stock. PAK s investment outlays will exceed its OpCF until 2017E (construction of gas-fired units) but a potential investment into another unit may delay this moment further. Financials. 3Q14 is certain to come in below expectations on the back of the recently announced provision. Still, if the current prices of electricity futures and CO2 certificates remain unchanged, ZE PAK is poised to deliver a very strong EBITDA / bottom line expansion until 2017E we see its operating profit doubling in E. Lignite extraction should continue delivering +PLN200mn EBITDA p.a., while generation should provide the strongest electricity price-driven upside, up from PLN296mn in 2014E to PLN674mn in 17E. Still, the switch-off scheduled for 2018 should trim PAK s results substantially (see next page for EBIT at DCF). Triggers / Risks. Growth in the electricity price beyond the current market prices is the key upside for the company. Further cost optimisation could also add value to ZE PAK. On the side of risks, the company s NetFCF may be delayed with the decision on the gas-fired unit investment. Moreover, ZE PAK is a dirty producer and has a relatively small amount of free CO2 certificates any strong growth in their price would leave the stock exposed. Finally, uncertainty over rights to future lignite extraction remains intact. Valuation & recommendation. Based on our DCF model, we arrived at a 12M TP of PLN20.8 per share, depressed with the high value of the company s provisions. On the other hand, the short-term inexpensiveness at the P/E and EV/EBITDA ratios implies a per share price of PLN41.9. With such a discrepancy in outcomes, we applied two valuation outcomes with a 50% weight each, yielding a 12M TP of PLN31.9. We initiate the stock with a Hold recommendation. Company Data ZEP STOCK PERFORMANCE Buy Hold Sell Under Review / Suspended WIG Relative The chart measures performance against the WIG index. On 11/05/2014, the WIG index closed at 53,591. LAST RECOMMENDATIONS Rec. Date Price Price performance on issue date 12 month target absolute relative (p.p) n.a. n.a. n.a. n.a. n.a. n.a. COMPANY DESCRIPTION ZE PAK is the largest non-treasury controlled electricity producer in Poland. Its assets consist of 2.5GW of mostly lignite-fired units, vertically integrated with adjacent lignite mines. ZE PAK produces over 10TWh of electricity per annum, a 7% of total Polish production. Main shareholders % of votes Zygmunt Solorz-Żak 51.55% ING Pension Fund 9.97% ANALYST Pawel Puchalski, CFA (+48) [email protected] PLNm E 2015E 2016E Reuters/Bloomberg codes ZEEP.WA / ZEP PW Sales 2,764 2,416 2,558 2,701 Market capitalisation (PLNm) 1,516.6 EBITDA Number of shares (m) 50.8 EBIT Free float (%) 48.4% Net income Avg. daily turnover 3M (PLNm) 2.0 P/E (x) M 3M YTD Price performance EV/EBITDA (x) % 6.6% 19.3% 179

180 Fig. 1. ZE PAK: DCF valuation 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E Net sales 2,416 2,558 2,701 2,826 2,371 2,368 2,366 2,379 2,391 2,404 EBIT Cash taxes on EBIT NOPAT Depreciation Change in operating WC Capital expenditure Free cashflow PV FCF PV TV Total Regulated businesses Distribution Heat Renewables Sub-total Non-regulated businesses Systemic generation , Coal extraction ,176 Sales & others Sub-total 439 1,737 2,176 Net Debt, provisions, other 1,261* Total DCF Valuation [PLNmn, Jan2014] 916 Number of shares [mn] 50.8 SOPT / DCF valuation per share [PLN, Jan2014] 18.0 SOTP / DCF valuation per share - current [PLN, Nov2014] month Target Price [PLN] * includes PLN599mn of provisions.. Fig. 2. ZE PAK: Comparable valuation Price Currency P/E EV/EBITDA 2014E 2015E 2016E 2014E 2015E 2016E ZE PAK PLN CEZ CZK Public Power Corp 6.68 EUR Drax Group GBp Enel 3.97 EUR RWE EUR SSE GBp E.ON EUR Median Source: BZ WBK Brokerage research, Bloomberg. 180

181 Fig. 3. ZE PAK: 3Q14 results preview 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14E* y/y q/q Sales % -0.2% EBITDA % -0.6% EBITDA margin 15.8% 16.4% 19.0% 14.5% 16.1% 31.3% 18.0% 25.3% 20.8% 20.7% EBIT % 3.1% EBIT margin 15.8% 16.4% 17.7% 13.1% 14.7% 18.6% 6.1% 12.1% 7.3% 7.5% Net profit % 4.8% Net margin 9.3% 14.3% 12.3% 7.1% 7.3% 14.9% 2.5% 7.9% 5.1% 5.3% * based on market consensus, not adjusted for PLN76mn write-down in 3Q14. Fig. 4. ZE PAK: Forecast changes 2014E 2015E 2016E New Previous Change New Previous Change New Previous Change Sales 2,416 n.a. n.a. 2,558 n.a. n.a. 2,701 n.a. n.a. EBITDA 497 n.a. n.a. 662 n.a. n.a. 786 n.a. n.a. EBIT 144 n.a. n.a. 311 n.a. n.a. 438 n.a. n.a. Net profit 74 n.a. n.a. 197 n.a. n.a. 286 n.a. n.a. Fig. 5. ZE PAK: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 20.8 n.a. n.a. Comparable valuation (based on E) 42.9 n.a. n.a. Weighted valuation* 31.9 n.a. n.a.. Based on 50% DCF valuation and 50% comparative valuation. Fig. 6. ZE PAK: Income statement forecast Net sales 2,723 2,764 2,416 2,558 2,701 COGS 1,960 2,047 1,919 1,896 1,915 Gross profit SG&A Other operating income, net EBITDA Operating profit Net financial income (costs) Profit before tax Income tax Net profit Gross margin 28.0% 25.9% 20.6% 25.9% 29.1% EBITDA margin 28.0% 25.9% 20.6% 25.9% 29.1% Operating margin 17.8% 13.0% 6.0% 12.2% 16.2% Net profit margin 14.9% 7.8% 3.1% 7.7% 10.6% Fig. 7. ZE PAK: Balance Sheet forecast Current assets 900 1, Fixed assets 5,360 5,339 5,605 6,131 6,660 Total assets 6,259 6,471 6,305 6,849 7,436 Current liabilities 925 1, ,023 1,057 bank debt Long-term liabilities 1,792 1,616 1,495 1,842 2,142 bank debt ,200 Equity 3,542 3,783 3,822 3,985 4,237 share capital Minority Interest Total liabilities 6,259 6,471 6,305 6,849 7,436 Net debt ,003 1,305 1,521 Fig. 8. ZE PAK: Cash flow forecast CF from operations CF from investment CF from financing, incl dividends Net change in cash

183 Dom Maklerski BZ WBK Jana Pawla II Avenue Warszawa fax. (+48) Equity Research Department Pawel Puchalski, CFA, Head tel. (+48) Telecommunications, Metals & Mining, Power Dariusz Gorski, Deputy Head tel. (+48) Strategy, Banks Tomasz Kasowicz tel. (+48) Oil&Gas, Chemicals Tomasz Sokolowski tel. (+48) Pharma, Retail Adrian Kyrcz tel. (+48) Construction, Real Estate Lukasz Kosiarski tel. (+48) Media, IT, IT distribution, Video Games, Health Care Andrzej Bieniek, Securities Broker, Investment Adviser tel. (+48) Financials Tomasz Kucinski tel. (+48) Industrials Michal Sopiel tel. (+48) Wood, Quantitative Analysis Sales & Trading Department Piotr Zagan, Head tel. (+48) Wojciech Wosko tel. (+48) Kamil Cislo tel. (+48) Grzegorz Kolodziejczyk, Securities Broker tel. (+48) Blazej Leskow, Securities Broker tel. (+48) Marcin Kuciapski, Securities Broker tel. (+48) Marek Wardzynski, Securities Broker tel. (+48) Alex Kaminski tel. (+48) Robert Chudala tel. (+48)

184 LIMITATION OF LIABILITY This material was produced by Dom Maklerski BZ WBK which is a separate organizational unit of Bank Zachodni WBK S.A conducting brokerage activity (DM BZ WBK). DM BZ WBK is subject to the regulations of the Act on Trading in Financial Instruments dated July 29th 2005 (Journal of Laws of 2014, item 94 - consolidated text, further amended), Act on Public Offering, Conditions Governing the Introduction of Financial Instruments to Organised Trading, and Public Companies dated July 29th 2005 (Journal of Laws of 2013 item consolidated text, further amended), Act on Capital Market Supervision dated July 29th 2005 (Journal of Laws of 2005, No.183 item 1537 further amended). It is addressed to qualified investors and professional clients as defined under the above indicated regulations and to Clients of DM BZ WBK entitled to gain recommendations based on the brokerage services agreements. 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Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to investor's individual circumstances, or otherwise constitutes a personal recommendation to particular investor. Whenever the document refers to "the Issuer" shall mean the company / companies which is / are the subject of the recommendations referred to in this document. In the case where recommendation refers to several companies, the name "Issuer" will apply to all of them. Affiliates of DM BZ WBK may, from time to time, to the extent permitted by law, participate or invest in financing transactions with Issuer, perform services for or solicit business from such Issuer and/or have a position or effect transactions in the financial instruments issued by the Issuer ("financial instruments"). DM BZ WBK may, to the extent permitted by applicable Polish law, UK law and other applicable law or regulation, effect transactions in the Financial instruments before this material is published to recipients. This document is valid at the time of its preparation and may change. DM BZ WBK may have issued, and may in the future issue, other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views and analytical methods of the analysts who prepared them and DM BZ WBK is under no obligation to ensure that such other reports are brought to the attention of any recipient of this report. DM BZ WBK informs that success in past recommendations is not a guarantee of success in future ones. Points of view expressed in the reports reflect Analyst personal opinion on the analysed company and its securities. With the exception of remuneration from the DM BZ WBK,Analysts do not receive any other form of compensation for recommendations made. The sources of the data include WSE, PAP, Reuters, Bloomberg, EPFR, GUS /Central Statistical Office/, NBP /National Bank of Poland/, DM BZ WBK, Akcje.net, financial periodicals and business and finance websites. Information and opinions contained herein have been compiled or gathered, with due care and diligence, by DM BZ WBK from sources believed to be reliable, however DM BZ WBK cannot ensure their accuracy or completeness. Investor shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the Financial instruments forming the subject matter of this document. The information and opinions contained herein are subject to change without any notice. Dom Maklerski BZ WBK is not responsible for any losses incurred by Investors which were result of investment decisions based on recommendations issued by DM BZ WBK, if they were prepared with due care and diligence. This document does not constitute an offer or invitation to subscribe for or purchase or carry out transactions in any financial instruments and shall not be considered as an offer to sell or to buy any securities. This document is furnished and presented to you solely for your information and shall not be reproduced or redistributed to any other person. This document nor any copy hereof shall not be distributed directly or indirectly in the United States, Canada, Australia or Japan or to any citizen or resident of the United States, Canada, Australia or Japan where its distribution may be restricted by law. Its distribution may be restricted by law in other countries. Persons who distribute this document shall make themselves aware of and adhere to any such restrictions. This document may be distributed in the United States and in the United Kingdom to persons which have professional knowledge about investing in accordance with relevant regulations. Opinions in this document must not be relied upon as having been authorised or approved by issuer the opinions expressed herein are solely those of DM BZ WBK. DM BZ WBK informs that investing assets in financial instruments implies the risk of losing part or all the invested assets. DM BZ WBK indicates that the price of the financial instruments is influenced by lots of different factors, which are or cannot be dependent from issuer and its business results. These are factors such as changing economical, law, political or tax condition. More information on financial instruments and risk connected with them can be found on section disclaimers and risk. The decision to purchase any of the financial instruments should be made only on the basis of the prospectus, offering circular or other documents and materials which are published on general release on the basis of polish law. Overweight/Underweight/Neutral - means that, according to the authors of this document, the stock price may perform better/worse/neutrally than the WIG20 index in a given month. When particular stocks are marked with Overweight/Underweight/Neutral - such information should not be construed as investment recommendation concerning a given financial instrument. The recommendation system of BZ WBK Brokerage S.A. is based on determination of target prices and their relations to current prices of financial instruments; in addition, when recommendations are addressed to a wide range of recipients, two methods of valuation are required. Overweight/Underweight/Neutral information contained herein does not meet any of the aforementioned requirements. Furthermore, depending on the situation, it can be grounds for taking different (including opposing) investment action in the case of particular investors. Mid-caps - if a stock is included into a mid-cap portfolio it means that, according to the authors of this document, a particular stock price may outperform the WIG20 index during one month. Stocks are added to or deleted from the list on the basis of the requirement to rotate the stocks included in the list. Any change in weight of stocks already included in the portfolio should not be construed as investment recommendation. Such changes are aimed exclusively at making the total weight of all stocks equal 100%. DM BZ WBK confirms that the adjustment for dividend paid, adjustment for preemptive rights, share split or merger, or any other purely technical adjustments to the share price will result in corresponding changes in the stocks' target prices - such situations must be considered within purely technical context and should not be considered as changes to recommendations in the meaning of the law. Explanations of special terminology used in the recommendation: EBIT - earnings before interest and tax EBITDA - earnings before interest, taxes, depreciation, and amortization P/E - price-earnings ratio EV - enterprise value (market capitalisation plus net debt) PEG - P/E to growth ratio EPS - earnings per share CPI - consumer price index WACC - weighted average cost of capital CAGR - cumulative average annual growth P/CE - price to cash earnings (net profit plus depreciation and amortisation) ratio NOPAT - net operational profit after taxation FCF - free cash flows BV - book value ROE - return on equity P/BV - price-book value Recommendation definitions: Buy - indicates a stock's total return to exceed more than 15% over the next twelve months. Hold - indicates a stock's total return to be in range of 0%-15% over the next twelve months. Sell - indicates a stock's total return to be less than 0% over the next twelve months. In the opinion of DM BZ WBK., this document has been prepared with all due diligence and excludes any conflict of interests which could influence its content. DM BZ WBK is not obliged to take any actions which could cause financial instruments that are the subject of the valuation contained in this document to be valued by the market in accordance with the valuation contained in this document. Brokerage activity conducted by DM BZ WBK, which is a separate organizational unit of Bank Zachodni WBK S.A., is subject to the supervision of the Financial Supervision Commission. The date on the first page of this report is the date of preparation and publication of the document. ANY PERSON WHO ACCEPTS THIS DOCUMENT AGREES TO BE BOUND BY THE FOREGOING DISCLAIMER AND LIMITATIONS. 184

185 Dom Maklerski BZ WBK is a separate organizational unit of Bank Zachodni WBK S.A. with its registered office in Wrocław, ul. Rynek 9/11, Wrocław, registered by the District Court in Wrocław - Fabryczna, VI Commercial Division of the National Court Register under the number Share capital - PLN fully paid up. Taxpayer Identification Number (NIP) DISCLOSURES This report contains recommendations referring to company/companies: AB S.A., ABC Data S.A., Action S.A., Alumetal S.A., Ambra S.A., Amica Wronki S.A., Apator S.A., Arctic Paper S.A., ASBISc Enterprises PLC, Asseco Business Solutions S.A., Asseco Poland S.A., Asseco South Eastern Europe S.A., Atrem S.A., Automotive Components Europe S.A., Bank BPH S.A., Bank Ochrony Środowiska S.A., Benefit Systems S.A., Budimex S.A., CCC S.A., CD Projekt S.A., CEZ A.S., CI Games S.A., Ciech S.A., Colian S.A., Comarch S.A., Cyfrowy Polsat S.A., Dom Development S.A., Echo Investment S.A., Elemental Holding S.A., Emperia Holding S.A., Enea S.A., Energa S.A., Erbud S.A., Eurocash S.A., Europejskie Centrum Odszkodowań S.A., Fabryka Mebli Forte S.A., Farmacol S.A., Giełda Papierów Wartościowych w Warszawie S.A., Gino Rossi S.A., Grupa Azoty S.A., Grupa Azoty Zakłady Azotowe Puławy S.A., Hawe S.A., Integer.pl S.A., International Personal Finance plc, Jastrzębska Spółka Węglowa S.A., Kęty S.A., KGHM "Polska Miedź" S.A., Kruk S.A., Lotos S.A., LPP S.A., Lubelski Węgiel "Bogdanka" S.A., M.W. Trade S.A., Magellan S.A., mbank S.A., Medicalgorithmics S.A., Midas S.A., Monnari Trade S.A., Netia S.A., Neuca S.A., Open Finance S.A., Orange Polska S.A., Ovostar Union N.V., P.R.E.S.C.O. Group S.A., Paged S.A., Pekaes S.A., Pelion S.A., Pfleiderer Grajewo S.A., PGNiG S.A., PKN Orlen S.A., Polska Grupa Energetyczna S.A., Polski Holding Nieruchomości S.A., Pozbud T&R S.A., Prime Car Management S.A., PZ Cormay S.A., Robyg S.A., Ronson Europe NV, Synektik S.A., Synthos S.A., Tauron Polska Energia S.A., Tesgas S.A., Trakcja S.A., TVN S.A., Unibep S.A., Vantage Development S.A., Votum S.A., Voxel S.A., Wielton S.A., Wojas S.A., Work Service S.A., Zakłady Chemiczne Police S.A., Zakłady Odzieżowe Bytom S.A., Zespół Elektrowni "Pątnów-Adamów-Konin" S.A. ("Issuer"). DM BZ WBK emphasizes that this document is going to be updated at least once a year. This document has not been disclosed to Issuer. In preparing this document DM BZ WBK applied at least two of the following valuation methods: discounted cash flows (DCF), comparative, mid-cycle, dividend discount model (DDM), residual income, warranted equity method (WEV), SOTP valuation, liquidation value. The discounted cash flows (DCF) valuation method is based on expected future discounted cash flows. One advantage of the DCF valuation method is that it takes into account all cash streams reaching Issuer and the cost of money over time. Some disadvantages of the DCF valuation method are that a large number of parameters and assumptions need to be estimated; and the valuation is sensitive to changes in those parameters. The comparative valuation method is based on the economic rule of "one price". Some advantages of the comparative valuation method are that the analyst need only estimate a small number of parameters; the valuation is based on current market conditions; the relatively large accessibility of indicators for companies being compared; and that there is an extensive knowledge of the comparative method among investors. Some disadvantages of valuation by the comparative method are the considerable sensitivity of the results of the valuation on the choice of companies to the comparative group; the method can lead to a simplification of the picture of the company which in turn can lead to omitting certain important factors (e.g. growth dynamics, extra-operational assets, corporate governance, the repeatability of results, differences in applied accounting standards); and the uncertainty of the effectiveness of a market valuation of companies being compared. The mid-cycle valuation is based on long-term averages for the two-year forward consensus P/E and EV/EBITDA multiples for the members of the peer group. The methodology is aimed calculating a fair, through the cycle value of cyclical stocks. Among its shortfalls is that at peaks and/or troughs of the cycle, the implied fair value may deviate substantially from the market's value of an analysed stock as well as the methods' reliance on the quality of external data (we use Bloomberg consensus here). Simplicity and average throughcycle value allowing to capture over as well as under-valuation of a given stock are the main advantages of this methodology. The dividend discount model (DDM) valuation is based on the net present value of the future dividends that are expected to be paid out by the company. Some advantages of the DDM valuation method are that it takes into account real cash flows to equity-owners and that the methodology is used in respect to companies with long dividend payout history. Main disadvantage of the DDM valuation method is that dividend payouts are based on a large number of parameters and assumptions, including dividend payout ratio. Residual income method is conceptually close to the discounted cash flows method (DCF) for non-financial stocks, the difference being that it is based on expected residual income (returns over COE) rather than expected future cash flows. One advantage of this valuation method is that it captures the excess of profit potentially available to shareholders and the cost of money over time. Main disadvantage of the valuation method is that a large number of parameters and assumptions need to be estimated; and the valuation is sensitive to changes in those parameters. The warranted equity method (WEV) is based on the formula P/BV = (two year forward ROE less sustainable growth rate)/(cost of equity less sustainable growth rate) which allows estimating a fair value (FV) of a given stock in two years time. Subsequently the FV is discounted back to today. The main advantage of the WEV method is that it is a transparent one and based on relatively short term forecasts, hence substantially reducing the margin of forecasting error. The main disadvantage in our view is that the model is based on the principle that stock price should converge towards its fair value implied by company's ROE and COE. SOTP valuation - different assets of a company are being valued according to different valuation methods, and the sum of these valuations represents the final valuation of the company. SOTP valuation advantages / disadvantages are identical to advantages and disadvantages of the specific valuation methods used. Liquidation value method - liquidation value is the estimated amount of money that an asset or company could be quickly sold for, such as if it were to go out of business. Then, the estimated assets value is adjusted for liabilities and liquidation expenses. One advantage of this valuation method is its simplicity. This method does not account for intangible assets as goodwill, which is the main disadvantage. Over the last three months Dom Maklerski BZ WBK issued 27 Buy recommendations, 9 Hold recommendations and 8 Sell recommendations. % of Companies Rating Covered with This Rating Provided with Investment Banking in Past 12M Buy 58,06 5,56 Hold 20,97 7,69 Sell 12,90 25,00 Under Review 8,06 20,00 Definition of each rating was provided in the above section Limitation of liability. The Stock performance charts in this report include line graphs of the securities' daily closing prices for one year period. Information relating to a longer period (max 3 years) is available upon request. The Issuer may hold shares of BZ WBK S.A. Members of the Issuer's authorities or their relatives may be members of the management board or supervisory board of BZ WBK S.A. Among those, who prepared this document, as well as among those who didn't prepare it but had or might have had the access to it, there are such individuals who hold shares or financial instruments whose value is connected with the value of the financial instruments issued by: Giełda Papierów Wartościowych w Warszawie S.A., Grupa Azoty Zakłady Azotowe Puławy S.A., KGHM "Polska Miedź" S.A., Lotos S.A., PGNiG S.A., PKN Orlen S.A., PKO Bank Polski S.A., PZ Cormay S.A., Synthos S.A., Tauron Polska Energia S.A., Trakcja S.A., Zakłady Chemiczne Police S.A. BZ WBK Group, its affiliates, representatives or employees may occasionally undertake transactions or may be interested in acquiring securities of issuers directly or indirectly related to those being analysed. During the last 12 months DM BZ WBK has been a party to agreements relating to the offering of financial instruments issued by Action S.A., Work Service S.A. During the last 12 months DM BZ WBK was a member of syndicate for financial instruments issued by Elemental Holding S.A., Energa S.A., Prime Car Management S.A. DM BZ WBK S.A. acts as market maker, on principles specified in the Regulations of the Warsaw Stock Exchange, for the shares of ABC Data S.A., Amica Wronki S.A., Asseco Poland S.A., Cyfrowy Polsat S.A., Enea S.A., Energa S.A., Eurocash S.A., Europejskie Centrum Odszkodowań S.A., Grupa Azoty S.A., Hawe S.A., Jastrzębska Spółka Węglowa S.A., Kęty S.A., KGHM "Polska Miedź" S.A., Lotos S.A., LPP S.A., Lubelski Węgiel "Bogdanka" S.A., Netia S.A., Orange Polska S.A., Pelion S.A., PGNiG S.A., PKN Orlen S.A., Polska Grupa Energetyczna S.A., Polski Holding Nieruchomości S.A., Synthos S.A., Tauron Polska Energia S.A., Tesgas S.A., TVN S.A. DM BZ WBK S.A. acts as issuer's market maker, on principles specified in the Regulations of the Warsaw Stock Exchange, for the shares of ABC Data S.A., Action S.A., Amica Wronki S.A., Benefit Systems S.A., CCC S.A., Dom Development S.A., Enea S.A., Erbud S.A., Europejskie Centrum Odszkodowań S.A., Fabryka Mebli Forte S.A., Hawe S.A., International Personal Finance plc, KGHM "Polska Miedź" S.A., Monnari Trade S.A., P.R.E.S.C.O. Group S.A., Pelion S.A., Polski Holding Nieruchomości S.A., Pozbud T&R S.A., Robyg S.A., Tesgas S.A., Work Service S.A. DM BZ WBK is not a part to the agreement with the Issuer related to issuing recommendations. During the last 12 months DM BZ WBK S.A. has received remuneration for providing services for the Issuer. These services covered acting as issuer's market maker for ABC Data S.A., Action S.A., Amica Wronki S.A., CCC S.A., Dom Development S.A., Enea S.A., Erbud S.A., Europejskie Centrum Odszkodowań S.A., Fabryka Mebli Forte S.A., Hawe S.A., International Personal Finance plc, KGHM "Polska Miedź" S.A., Monnari Trade S.A., P.R.E.S.C.O. Group S.A., Polski Holding Nieruchomości S.A., Pozbud T&R S.A., Robyg S.A., Tesgas S.A., Work Service S.A., managing the deposit of financial instuments issued by ABC Data S.A., Action S.A., Atrem S.A., Elemental Holding S.A., Kęty S.A., Magellan S.A., Ovostar Union N.V., Polska Grupa Energetyczna S.A., Polski Holding Nieruchomości S.A., Tesgas S.A., providing services of Lead Manager for Amica Wronki S.A., Apator S.A., Europejskie Centrum Odszkodowań S.A., KGHM "Polska Miedź" S.A., Synthos S.A., acting as issuing agent for ABC Data S.A., Gino Rossi S.A., managing the managerial scheme for ABC Data S.A., Kęty S.A., Kruk S.A., carrying out the over-the-market transaction for Paged S.A., conducting the tender offer for TVN S.A. 185

186 During the last 12 months BZ WBK S.A. has received remuneration for providing services of investment banking from Action S.A., Budimex S.A., KGHM "Polska Miedź" S.A., Polska Grupa Energetyczna S.A., TVN S.A., Work Service S.A. BZ WBK S.A. may be indirectly connected with the Issuer and does not rule out that in the period of preparing this document any Affiliate of BZ WBK S.A. might purchase shares of the Issuer or any financial instruments being the subject of this document which may cause reaching at least 5% of the share capital. BZ WBK Group has hold, in the period of preparing this document, shares of the following issuers: AB S.A., ABC Data S.A., Action S.A., Alumetal S.A., Ambra S.A., Asseco Business Solutions S.A., Asseco Poland S.A., Asseco South Eastern Europe S.A., Automotive Components Europe S.A., Budimex S.A., CCC S.A., CD Projekt S.A., Dom Development S.A., Echo Investment S.A., Erbud S.A., Fabryka Mebli Forte S.A., Farmacol S.A., Kęty S.A., Kruk S.A., Lubelski Węgiel "Bogdanka" S.A., Magellan S.A., Medicalgorithmics S.A., Netia S.A., Open Finance S.A., Ovostar Union N.V., Pelion S.A., Pfleiderer Grajewo S.A., PKN Orlen S.A., Synektik S.A., Tesgas S.A., Unibep S.A., in the amount reaching at least 5% of the share capital. BZ WBK Group may have hold, in the period of preparing this document, shares of the Issuer, in the amount reaching at least 1% of the share capital. Subject to the above, the Issuer are not bound by any contractual relationship with BZ WBK, which might influence the objectivity of the recommendations contained in this document. BZ WBK S.A. has hold, in the period of issuing this document, financial instruments issued by Action S.A., Amica Wronki S.A., Benefit Systems S.A., CI Games S.A., Kęty S.A., Lubelski Węgiel "Bogdanka" S.A., Netia S.A., Polski Holding Nieruchomości S.A., Work Service S.A. (except on the basis of being market maker and issuer's market maker). However, it cannot be ruled out that, in the period of the next twelve months or the period in which this document is in force, BZ WBK S.A. will submit an offer to provide services for the Issuer or will purchase or dispose of financial instruments issued by the Issuer or whose value depends on the value of financial instruments issued by the Issuer. Except for broker agreements with clients under which DM BZ WBK sells and buys the shares of the Issuer at the order of its clients, DM BZ WBK is not party to any agreement which would depend on the valuation of the financial instruments discussed in this document. Remuneration received by the persons who prepare this document may be dependent, in an indirect way, from financial results gained from investment banking transactions, related to financial instruments issued by the Issuer, made by DM BZ WBK or its Affiliates. 186