Bogdanka_prognozy_wyników

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9/2012/RP (41) April 18, 2012

Investment story & recommendation

We continue to be very positive with the equities o Bogdanka.

In 1Q12 the Company produced almost 2.2 million tonnes

o coal. Since subsequent quarters are unlikely to reveal weaker

numbers, we believe that the annual production output could

be visibly higher than the 8 million tonne guidance provided

by management. Moreover, i we turn to our quarterly orecasts

these also seem quite optimistic. We expect the 1Q12 consolidated

net income to amount to PLN 95 million. Such gure, i it proves

to be accurate, could imply that the market is underestimating

the Company’s earnings or 2012. The current net income

market consensus is possibly only some PLN 330 million,

while it should be remembered that the rst quarter is not

the seasonally strongest one during the year. We reiterate both our

LT undamental Buy recommendation and our ST market-relative

Overweight bias or the stock. Our 12M EFV is unchanged

at PLN 162.7 per share. In our opinion, the stock is not trading

at overly high multiples or the year 2012. Given the expected

robust earnings dynamics in 2013-2014 and the relatively sae

business environment o the Company, we nd its equities very

tempting.

Quarterly results corner; 1Q12E preview

The Company will publish its 1Q12 nancial results on May 9.

We expect strong results (EBIT and net income o PLN 120 million

and PLN 95 million, respectively), although not as brilliant

as in 4Q11. Please recall that in the ourth quarter the Company

booked PL 46.6 million gains on reserve reversals (tied to disputable

estate taxes) which boosted the results. Moreover, according

to the management the production unit costs in 4Q11 proved

to be uniquely benecial – even ater adjusting or the one-o

the Company’s quarterly EBITDA margin stood at as much as 42%.Ultimately, in 1Q12 we expect fat results on a recurring level, even

despite the 4-5% increases in coal prices present in the quarter

and slightly higher qoq expected sale volumes (some 2.05 million

tonnes o coal).

Financial orecast

We do not alter our nancial orecasts or the Company.

Valuation

We do not change our valuation or the Company. Our 12M EFV

or the equities dwells at PLN 162.7 per share.

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WIG

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90 Bogdanka

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o l u m e ( m )

Q u a r t e r l y

R e s u l t s P r e v i e w Analyst: Łukasz Prokopiuk, [email protected], +48 (22) 489 94 72

Source: ISI

Stock perormance

Bogdanka

Sector: Mining Market Cap.: US$ 1,318 mFundamental rating: Buy (→) Reuters code: LWBP.WAMarket relative: Overweight (→) Av. daily turnover: US$ 1.71 mPrice: PLN 123.6 Free float: 80%12M EFV: PLN 162.7 (→) 12M range: PLN 86.00-130.60

Key data

IFRS consolidated 2011A 2012E 2013E 2014E

Sales PLN m 1,301.3 1,934.4 2,295.0 2,539.5

EBITDA PLN m 450.6 756.9 962.4 1,109.4

EBIT PLN m 265.7 460.4 618.3 775.4

Net income PLN m 220.9 363.7 508.0 662.8

EPS PLN 6.50 10.69 14.93 19.49

EPS yoy chng % -4 65 40 30

FCFF PLN m -421.1 46.2 632.1 844.2

Net debt PLN m 238.2 169.0 -365.9 -1,124.2

P/E x 19.0 11.6 8.3 6.3

P/CE x 10.4 6.4 4.9 4.2

EV/EBITDA x 9.9 5.8 4.0 2.8

EV/EBIT x 16.7 9.5 6.2 4.0

Gross dividend yield % 1.1 1.6 4.0 4.0

DPS PLN 1.40 2.00 5.00 5.00

No. o shares (eop) m 34.0 34.0 34.0 34.0

Source: Company, DM IDMSA estimates

Guide to adjusted profts

No actors necessitating adjustments.

Upcoming events1. Release o the 1Q12: May 9, 2012

2. Release o the 2Q12 and 1-2Q12 results: August 29, 2012

3. Release o the 3Q12: November 7, 2012

Catalysts

1. Acceleration o investment schedule

2. Gradual decrease in unit production costs

3. Increasing correlation o Polish coal prices woth

global coal benchmarks

4. Continous decrease in Polish coal production

5. Potential target or takeover

Risk actors

1. Slump in global coal prices

2. Increasing prices of CO2

3. Slump in electric energy demand

Please note that the gures have been removed rom this publication intentionally.



BASIC DEFINITIONS

A/R tur nover (in days) = 365/(sales/average A/R))

Inventory turnover (in days) = 365/(COGS/average inventory))

A/P tur nover (in days) = 365/(COGS/average A/P))

Current ratio = ((current assets – ST deerred assets)/current liabilities)

Quick ratio = ((current assets – ST deerred assets – inventory)/current liabilities)

Interest coverage = (pre-tax prot beore extraordinary items + interest payable/interest payable)

Gross margin = gross prot on sales/sales

EBITDA margin = EBITDA/salesEBIT margin = EBIT/sales

Pre-tax margin = pre-tax prot/sales

Net margin = net prot/sales

ROE = net prot/average equity

ROA = (net income + interest payable)/average assets

EV = market capitalization + interest bearing debt – cash and equivalents

EPS = net prot/ no. o shares outstanding

CE = net prot + depreciation

Dividend yield (gross) = pre-tax DPS/stock market price

Cash sales = accrual sales corrected or the change in A/R

Cash operating expenses = accrual operating expenses corrected or the changes in inventories and A/P,

depreciation, cash taxes and changes in the deerred taxes

DM IDM S.A. generally values the covered non bank companies via two methods: comparative method and

DCF method (discounted cash ows). The advantage o the ormer is the act that it incorporates the current

market assessment o the value o the company’s peers. The weakness o the comparative method is the risk

that the valuation benchmark may be mispriced. The advantage o the DCF method is its independence rom

the current market valuation o the comparable companies. The weakness o this method is its high sensitivity to

undertaken assumptions, especially those related to the residual value calculation. Please note that we also resort

to other valuation techniques (e.g. NAV-, DDM- or SOTP-based), should it prove appropriate in a given case.

Banks

Net Interest Margin (NIM) = net interest income/average assets

NIM Adjusted = (net interest income adjusted or SWAPs)/average assets

Non interest income = ees&commissions + result on nancial operations (trading gains) + FX gains

Interest Spread = (interest income/average interest earning assets)/ (interest cost/average interest bearing liabilities)

Cost/Income = (general costs + depreciation + other operating costs)/ (prot on banking activity + other

operating income)

ROE = net prot/average equity

ROA = net income/average assetsNon perorming loans (NPL) = loans in ‘substandard’, ‘doubtul’ and ‘lost’ categories

NPL coverrage ratio = loan loss provisions/NPL

Net provision charge = provisions created – provisions released

DM IDM S.A. generally values the covered banks via two methods: comparative method and undamental target

air P/E and target air P/BV multiples method. The advantage o the ormer is the act that it incorporates

the current market assessment o the value o the company’s peers. The weakness o the comparative

method is the risk that the valuation benchmark may be mispriced. The advantage o the undamental target

air P/E and target air P/BV multiples method is its independence o the current market valuation o the comparable

companies. The weakness o this method is its high sensitivity to undertaken assumptions, especially those

related to the residual value calculation.

Assumptions used in valuation can change, inuencing thereby the level o the valuation. Among the most

important assumptions are: GDP growth, orecasted level o ination, changes in interest rates and currency

prices, employment level and change in wages, demand on the analysed company products, raw material prices,

competition, standing o the main customers and suppliers, legislation changes, etc.

Changes in the environment o the analysed company are monitored by analysts involved in the preparation

o the recommendation, estimated, incorporated in valuation and published in the recommendation whenever

needed.

KEY TO INVESTMENT RANKINGS

This is a guide to expected price perormance in absolute terms over the next 12 months:

Buy – undamental ly underval ued (upside to 12M EFV in excess o the cost o equi ty) + catalyst s which should clo se the valuation ga p identied;

Hold – either (i) airly priced, or (ii) undamentally undervalued/overvalued but lacks catalysts which could close the valuation gap;

Sell – undamentall y overvalued (12M EFV < current shar e price + 1-year cost o e quity) + catal ysts which should cl ose the valuatio n gap identie d.

This is a guide to expected relative price perormance:

Overweight – expected to pe rorm be tter than the be nchmark (WIG) over t he next quarte r in relati ve terms

Neutral – expected to pe rorm in line w ith the benchma rk (WIG) over the next q uarter in re lative term s

Underweight – expected to perorm worse than the benchmark (WIG) over the next quarter in relative terms

The recommendation tracker presents the perormance o DM IDMSA’s recommendations. A recommendation expires on the day it is altered or on the day 12 months ater its issuance, whichever comes rst.

Relative perormance compares the rate o return on a given recommended stock in the period o the recommendation’s validity (i.e. rom the date o issuance to the date o alteration or – in case o maintained

recommendations – rom the date o issuance to the current date) in a relation to the rate o return on the benchmark in this time period. The WIG index constitutes the benchmark. For recommendations that expire

by an alteration or are maintained, the ending values used to calculate their absolute and relative perormance are: the stock closing price on the day the recommendation expires/ is maintained and the closing value

o the benchmark on that date. For recommendations that expire via a passage o time, the ending values used to calculate their absolute and relative perormance are: the average o the stock closing prices or the day therecommendation elapses and our directly preceding sessions and the average o the benchmark’s closing values or the day the recommendation expires and our directly preceding sessions.

Distribution of IDM’s current recommendations

Buy Hold Sell Suspended Under revision

Numbers 27 40 9 0 0

Percentage 36% 53% 12% 0% 0%

Distribution of IDM’s current market relative recommended weightings

Overweight Neutral Underweight Suspended Under revision

Numbers 28 31 17 0 0

Percentage 37% 41% 22% 0% 0%

Distribution of IDM’s current market relative recommended weightings for the companies that werewithin the last 12M IDM customers in investment banking

Overweight Neutral Underweight Suspended Under revision

Numbers 2 2 2 0 0

Percentage 33% 33% 33% 0% 0%

Distribution of IDM’s current recommendations for companies that were within the last 12M IDM customers in investment banking

Buy Hold Sell Suspended Under revision

Numbers 1 4 1 0 0

Percentage 17% 67% 17% 0% 0%



LT fundamental recommendation tracker

Recommendation Issue date Reiteration date Expiry date PerormanceRelative

perormance

Price at issue/

reiteration (PLN)

12M EFV

(PLN)

Bogdanka

Buy - 21.11.2011 - Not later than

21.11.2012

18% 11% 104.50 162.70 -

- → - 11.12.2011 - - - 109.10 162.70 →

-→

- 01.01.2012 - - - 103.90 162.70→

- → - 25.01.2012 - - - 120.40 162.70 →

- → - 29.02.2012 - - - 129.00 162.70 →

- → - 20.03.2012 - - - 129.70 162.70 →

- → - 15.04.2012 - - - 126.50 162.70 →

- → - 18.04.2012 - - - 123.60 162.70 →

Market-relative recommendation tracker

Relative recommendation Issue date Reiteration date Expiry datePrice at issue/

reiteration (PLN)

Relative

perormance

Bogdanka

Neutral - 21.11.2011 - 01.01.2012 104.50 1%

- → - 11.12.2011 - 109.10 -

Overweight ↑ 01.01.2012 - Not later than

01.01.2013

103.90 10%

- → - 25.01.2012 - 120.40 -

- → - 29.02.2012 - 129.00 -

- → - 20.03.2012 - 129.70 -

- → - 15.04.2012 - 126.50 -- → - 18.04.2012 - 123.60 -



Copyright © 2012 by DM IDMSA

Dom Maklerski IDMSA

Mały Rynek 7

31-041 Kraków

www.idmsa.pl

Inormation: (+48) 0 801 900 201

This report is or inormation purposes only. Neither the inormation nor the opinions expressed in the report constitute a solicitation or an ofer to buy or sell any securities

reerred herein. The opinions expressed in the report reect independent, current judgement o DM IDM S.A. Securities. This report was prepared with due diligence and

scrutiny. The inormation used in the report is based on all public sources such as press and branch publications, company’s nancial statements, current and periodic

reports, as well as meetings and telephone conversations with company’s representatives prior to the date o report's release. We believe the above mentioned sources

o inormation to be reliable, however we do not guarantee their accuracy and completeness. All estimates and opinions included in the report represent our judgment as

o the date o the issue. The legal entity supervising DM IDM S.A. is Financial Supervision Commission in Warsaw (KNF in Polish abbreviation).

IDM does not take any responsibility or decisions taken on the basis o this report and opinions stated in it. Investors bear all responsibility or investment decisions taken

on the basis o the contents o this report. The report is intended exclusively or private use o investors – customers o IDM. No part or excerpt o the report may be

redistributed, reproduced or conveyed in any manner or orm written or oral without the prior written consent o IDM. This report is released to customers the moment

it is issued and the whole report is made available to the public one month ater the issuance.

The analyst(s) responsible or covering the securities in this report receives compensation based upon the overall protability o IDM which includes prots derived rom

investment banking activities, although the analyst compensation is not directly related thereto.

IDM releases analytical reports via mail or electronic mail to selected clients (proessional clients).

Apart rom mentioned above, there are no ties o any kind between DM IDM S.A., the analyst/analysts involved in the preparation o the report and his/her relatives and the company/

companies analyzed in this publication, especially in the orm o: i) ofering o nancial instruments in the primary market or/and Initial Public Ofer within 12 months preceding

the issue o this report, ii) purchasing and selling o nancial instruments or own account due to tasks connected with organization o the regulated market, iii) purchasing

and selling o nancial instruments due to underwriting agreements and iv) the role o a market maker or securities analysed by IDM. The analysed company/companies

does/do not possess DM IDM S.A. shares.

IDM has not signed with the company/companies any contracts or recommendation writing. Investors should assume that DM IDM S.A. is seeking or will seek business

relationships with the company/companies described in this report. The report was not shown to the analyzed company/companies beore the distribution o the report

to clients.

Institutional sales

Tomasz Dudź

tel.: +48 (22) 489 94 14

[email protected]

Marcin Kozerski

tel.: +48 (22) 489 94 12

[email protected]

Bartłomiej Chorzępa

tel.: +48 (22) 489 94 11

[email protected]

Piotr Kopeć

tel.: +48 (22) 489 94 13

[email protected]

Marcin Fereniec

tel.: +48 (22) 489 94 23

[email protected]

Zbigniew Rę bisz

tel.: +48 (22) 489 94 [email protected]

Research

Sobiesław Pająk , CFA

(Equity strategy, Media & Entertainment,

IT – software & services)

tel.: +48 (22) 489 94 70

[email protected]

Sylwia Jaśkiewicz , CFA

(Construction materials,

Consumer staples & discretionary, Utilities)

tel.: +48 (22) 489 94 78

[email protected]

Maciej Wewiórski

(Commodities, Residential construction, Real estate)

tel.: +48 (22) 489 94 62

[email protected]

Michał Sobolewski , CFA

(Financials)

tel.: +48 (22) 489 94 77

[email protected]

Jakub Viscardi

(Telco, Consumer staples & disc retionary,

IT – hardware distribution)

tel.: +48 (22) 489 94 69

j.viscardi@i dmsa.pl

Łukasz Prokopiuk

(Chemicals, Oil & gas)

tel.: +48 (22) 489 94 72

[email protected]

Andrzej Be rnatowic z

(Construction, Video games)

tel.: +48 (22) 489 94 74

[email protected]

Michał Czerwiński

(Associate)

tel.: +48 (22) 489 94 64

[email protected]

Bernard Gaworczyk

(Associate)

tel.: +48 (22) 489 94 75

[email protected]

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