PLN 39.7 PLN 53 - KRUK S.A. 2012-05-17آ  Iza.Rokicka@dibre.com.pl Maket cap Target price PLN 53.0...

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Transcript of PLN 39.7 PLN 53 - KRUK S.A. 2012-05-17آ  Iza.Rokicka@dibre.com.pl Maket cap Target price PLN 53.0...

  • BRE Bank Securities

    Kruk BRE Bank Securities

    BRE Bank Securities does not rule out offering brokerage services to an issuer of securities being the subject of a recommendation. Information concerning a conflict of interest arising in connection with issuing a recommendation (should such a conflict exist) is located on the final page of this report.

    BRE Bank Securities

    Research Report 22 June 2011

    Kruk Financial industry

    Poland

    Avg. daily traing volume (3M)

    Free float

    Current price PLN 39.7

    PLN 369m

    PLN 5.62m

    Lucrative Debts

    Kruk is not merely the leader of the rapidly expanding debt recovery market in Poland and Romania, but also a creator of new products and

    procedural solutions for the entire industry. It focuses on retail receivables of banks and operates through two complementary

    segments. The experience and competences it has acquired during its long spell in the market for debt collection services for third parties are now being successfully employed in investment activities, i.e. in the purchase of debt for own account. Calculated based on our net profit estimates of PLN 62m (+71%) in 2011 and PLN 74m in 2012 (+19%), Kruk is trading at attractive price-to-earnings ratios of 10.6x and 9.2x, respectively, showing respective 20% and 18% discounts to peer averages. We are initiating coverage of Kruk with a buy rating and a price target of PLN 53.0 per share.

    Kruk is the leader of fast-growing markets in Poland and Romania Kruk is the leader of the debt recovery markets in Poland and Romania, with 2010 estimated respective market shares of 23% and 31%. In 2010, the value of the Polish market reached PLN 16.6bn, after average annual growth of 23% over the past three years. The Romanian market expanded at 55% per year in 2008-2010, reaching PLN 6.6bn.

    We expect rapid growth in the market for purchased debt Taking into account average purchase prices, we forecast that the debt buying market will expand quickly in 2010-2012, on average at 59% per year in Poland and at 51% in Romania. Because debt tends to be sold two years after default, on average, this expected growth reflects the growth in non-performing loans in 2009-2010.

    32% earnings growth between 2010 and 2013 After three years of growth averaging 49% per year, with net income rising from PLN 16.5m in 2008 to PLN 36.1m in 2010, Kruk's profits will decelerate to a still-impressive annual rate of 32%. Our net income forecasts are PLN 61.8m in 2011 (+71% y/y), PLN 73.7m in 2012 (+19%), and PLN 82.7m in 2013 (+12% y/y).

    34% upside potential Based on two valuation methods, relative valuation with a 40% weight and a residual income valuation with a 60% weight, we set our nine-month price target on Kruk at PLN 53.0 per share.

    Shareholders

    Iza Rokicka

    (48 22) 697 47 37

    Iza.Rokicka@dibre.com.pl

    www.dibre.com.pl

    BRE Bank Securities

    Maket cap

    Target price PLN 53.0

    PLN 671m

    Polish Enterprise Fund IV, LP 24.8% Piotr Krupa 15.7% Employees 4.4% Others 55.0%

    Sector outlook

    In 2010, the value of the debt recovery market reached PLN 16.6bn in Poland and PLN 6.6bn in Romania. In both markets, outsourced debt collection services accounted for 69% of the total, and purchased debt for the remaining 31%. We believe that the debt buying market has entered a period of rapid growth in both Poland and Romania, as is usually the case after a period of rapid growth in collection services.

    Kruk is the leader of the debt recovery market in Poland and Romania, with estimated 2010 market shares of 23% and 31%, respectively. Its focus are retail receivables. Both in Poland and in Romania the Company operates two complementary segments, outsourced debt collection services on the one hand and debt purchasing on the other.

    Company profile

    * Dividends from the profits for the given year, paid out the following year

    (PLN m) 2009 2010 2011F 2012F 2013F

    Revenues 128.6 164.3 264.3 344.3 426.3

    Indirect margin 57.0 74.7 127.5 163.0 192.0

    Operating profit 31.7 42.6 82.6 108.6 127.3

    Net profit 23.4 36.1 61.8 73.7 82.7

    ROE (%) 26.5 31.1 33.5 26.9 23.4

    EPS (PLN) 1.48 2.34 3.75 4.34 4.80

    BVPS (PLN) 6.34 8.62 14.05 18.20 22.76

    DPS (PLN)* 0.00 0.00 0.00 0.00 2.15

    P/E (x) 26.7 16.9 10.6 9.2 8.3

    P/BV (x) 6.26 4.60 2.83 2.18 1.74

    Dividend yield (%) 0.0 0.0 0.0 0.0 5.4

    Buy KRU.WA; KRU PW

    Kruk vs. WIG

    (New)

    Important dates

    30.08.11 - H1 2011 report 14.11.11 - Q3 2011 report

    39

    39.8

    40.6

    41.4

    42.2

    43

    2011-05-10 2011-05-22 2011-06-03 2011-06-15

    PLN

    Kruk WIG

  • Kruk

    22 June 2011

    2

    BRE Bank Securities

    BRE Bank Securities

    Contents Investment Overview……………………………………………………………………… 3

    Valuation……………………………………………………………………………………. 5 Relative valuation………………….………………………………………………………………....... 5 Income-based valuation…….……………………………………………………………………....... 6 Valuation summary………………………………….…………………………………………………. 7

    Business Profile………………… ………………………………………………….......... 8 Group structure and overview of individual companies............................................................ 8 History…………………………………………………………………………………………………. 9 Shareholder structure………………………………………………................................................ 9 Management stock option plan………………………………………………………………........... 9

    Business……… …………………………………………………………………………… 11 Business model…………………………………………………………………………………….... 11 Demand-driving factors in debt collection…………………………………………………………. 11 Philosophy of the debt collection process…………………………………………………………. 12 Models of debt recovery………………………………………………………………………………13 Debt collection methods and tools…………………………………………………………………. 16

    Growth Strategy… ……………………………………………………………………….. 18 Further growth in Polish and Romanian debt recovery ………………………………………….. 18 Expansion into Hungary and Czech Republic…………………………………………………….. 18 New products………………………………………………………………………………………... 18

    Debt Recovery Market… ……………………………………………………………...... 20 Poland…………………………………………………………………………………………………..20 Market size and structure……………………………………………………………………….. 20 Debt collection services………………………………..………………………………………… 21 Purchased debt market at nominal value…………...…………………………………………. 23 Purchased debt market at fair value……………….…………………………………………… 25 Competition………………………………………………………………………………………... 26 Romania……………………………………………………………………………………………….. 27 Market size and structure……………………………………………………………………….. 27 Debt collection services………………..………………………………………………………… 27 Purchased debt market at nominal value………………………………………………………. 28 Purchased debt market at fair value…………………………………………………………… 28 Competition……………..…………………………………………………………... 29 2011 First-Quarter Earnings………… …………………………………………… …. 30

    Financial Forecasts…………….…… …………………………………………............. 32 Indirect profits from debt collection services……………………………………………………… 32 Indirect profits from purchased debt……..…………………………………………………………. 34 New products..……………………………………………………………………………………...... 40 SG&A, D&A expenses ………………………………………………………………………………. 41 Operating profits..……………………………………………………………………………………. 41 Financing …..……………………………………………………………………………………