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Valuation BRE Bank

VIEWS: 15 PAGES: 10

									                                                                                                                                                                                        Erbud
            BRE Bank Securities
                                                                                                                                                           BRE Bank Securities
2 March 2011                                                                 Update


                            Construction
                            Poland                                           Erbud                                                                                            Hold
                                                                             ERBA.WA, ERB PW                                                                                 (Reiterated)

Current price                                    PLN 47.9
Target price                                     PLN 48.7                    Erbud Posts Disappointing Fourth Quarter
Market cap                                       PLN 0.62bn
                                                                             Erbud made a very disappointing Q4 2010 showing with a weak
Free float                                       PLN 0.17bn
                                                                             consolidated gross margin which came in at 3.2% (we expected 7.2%),
Avg. daily trading volume                        PLN 0.78m                   and an EBIT and net losses. The segment of domestic general
                                                                             construction had a particularly dismal quarter, posting a gross margin
                                                                             of a mere 5.7%, well off our 7.1% estimate (after adjustment for a
Shareholder Structure
                                                                             PLN 7m provision for a construction of an “Angel City” residential
Wolff & Muller                                                  32.95%
                                                                             project in Krakow, our gross margin forecast was 10.1%). The
Juladal Investment Limited                                      21.91%       profitability of the domestic construction business is a key measure of
ING OFE                                                          6.24%       Erbud’s performance since it is built on long-term contracts which will
Dariusz Grzeszczak                                               5.95%       also be influencing 2011 profits. We are reducing the segment’s 2011
AVIVA OFE BZ WBK                                                 5.42%       EBIT margin estimate from 5.8% do 4.3% − a level which is still
                                                                             significantly higher than what is expected from Erbud’s peers this
Others                                                          27.53%       year, owed to a lucrative contract for construction of Poland/Ukraine
 Sector Outlook                                                              border-crossing facilities in Budomierz. Further, we made a downward
Our 2011 investment strategy includes an underweight                         revision in the expected profitability of Erbud’s international
rating for the construction sector. Building companies                       operations, while raising margin forecasts for the real-estate
face weaker profits from lower-margin contracts, fewer                       development business. We remain neutral on ERB.
road orders, and delays in major power-plant projects.
The upcoming boom in power-generation capacity                               PLN 300-400m contract opportunities
building is the only potential driver of future revenues.
The pressure impacting construction company
                                                                             Erbud expects to sign contracts totaling PLN 300-400m in the next few
valuations in 2011 will create some interesting                              months, 30-40% of which are probably scheduled for completion in 2011.
medium-term investment opportunities.                                        Added to the current 2011 order backlog of PLN 1.1 billion, these contracts
                                                                             will help the company deliver its earnings guidance for the year.
Company Profile
Erbud is a general contractor specializing in housing,                       Property valuations
retail, office and industrial building projects. It has also                 In early 2012, Erbud’s 50% subsidiary is scheduled to commence a
bought two local road construction companies, thereby                        commercial real-estate project in Poznań expected to generate fair value
diversifying its business into segments independent of                       adjustment gains of PLN 5.6m in 2012 and PLN 9.8m in 2013. Erbud’s
the economic climate.
                                                                             2012E price-to-earnings ratio is 11.9, but rises to 13.0 after adjustment for
                                                                             the valuation gains. This compares to the much lower P/E ratios attributed
Important Dates                                                              to commercial property developers like GTC (2012E P/E = 5.3) or PA Nova
29.04 - FY2010 report                                                        (which, if it used a similar accounting policy as GTC, would be trading on an
16.05 - Q1 2011 report                                                       estimated 2012 P/E ratio of just 2.8).
30.08 - H1 2011 report
                                                                             Erbud vs. other construction stocks
Erbud vs. WIG
                                                                             Similarly to Polimex Mostostal and Mostostal Warszawa, Erbud is a mid-
  63                                                                         cycle stock, meaning that the low-margin contracts it captured in 2009 and
PLN                 Erbud         WIG                                        2010 will stop influencing its earnings in H2 2010. Unlike most of its major
59.6                                                                         competitors, Erbud does not have the capacity to tap into the upcoming
                                                                             boom in power-plant construction.
56.2



52.8
                                                                           (PLN m)                                  2009             2010            2011F             2012F             2013F
                                                                           Revenue                                 954.6          1 108.1           1 340.6           1 362.6           1 402.4
49.4
                                                                           EBITDA                                   68.3             33.0              62.7              68.3              75.5
                                                                            EBITDA margin                           7.2%              3.0%             4.7%              5.0%              5.4%
  46                                                                       EBIT                                      60.5              24.9             54.5              60.0              67.1
 10-02-23             10-06-21            10-10-17            11-02-12
                                                                           Net profit                                41.7              15.2             46.8              51.7              57.9
                                                                           P/E                                       14.5              39.6             12.9              11.6              10.4
Maciej Stokłosa
                                                                           P/CE                                      12.2              25.8             10.9              10.0               9.1
(48 22) 697 47 41
maciej.stoklosa@dibre.com.pl                                               P/BV                                       2.6               2.4              2.1               1.8               1.6
                                                                           EV/EBITDA                                  6.8              14.8              8.1               7.2               6.4
www.dibre.com.pl
                                                                           DYield                                   0.2%              1.0%             0.5%              1.6%              1.7%

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
2 March 2011
connection with issuing a recommendation (should such a conflict exist) is located on the final page of this report.
                                                                                                                               Erbud
               BRE Bank Securities


Q4 2010 Results
                        Erbud reported weak Q4 2010 gross margins of 3.2% on a consolidated basis (we expected
                        7.2%) and 3.9% on a standalone basis. On in-line general expenses, such a narrow margin led
                        to sales losses both on consolidated (we expected an PLN 8m profit) and standalone levels.
                        Moreover, Erbud reported an EBIT loss and a net loss for the quarter. The losses can be partly
                        explained with a provision set aside for the “Angel City” residential contract (about PLN 7m
                        charged against other operating expenses) and a subsidiary earnings warning issued on
                        February 19th. Erbud’s road construction and steel-frames segments were the cause of a
                        PLN 7.8m gap between the reported net profit and our estimate. Other factors that contributed
                        to the weaker-than-forecasted bottom line included weak results generated by the segment of
                        domestic general construction (which posted a margin of 5.7% vs. our 7.1% forecast; after
                        adjustment for the Angel City contract provision, the gross margin figures to 10.1%). One
                        positive aspect of Erbud's fourth-quarter performance were strong operating cash flows totaling
                        PLN 62.7m.

                        Reported vs. forecasted Q4 2010 results
                         (PLN m)                               Q4 2010         Q4 2010F      Difference    Q4 2009          Change
                         Revenue                                   270.3           305.0         -11.4%        287.0          -5.8%
                         Gross profit                                 8.6           22.0         -61.0%         28.8         -70.2%
                         %                                          3.2%           7.2%                -      10.0%                -
                         EBIT                                       -15.2            7.5               -        12.7               -
                         %                                         -5.6%           2.5%                -       4.4%                -
                         Pre-tax profit                             -14.9            7.7               -        12.1               -
                         Net profit                                 -12.8            6.1               -         7.2               -
                         %                                         -4.7%           2.0%                -       2.5%                -
                        Source: Erbud, F – forecasts by BRE Bank Securities

                        General expenses of PLN 14.4m came in line with our PLN 14.0m estimate, and there was a
                        sales loss of PLN 5.8m (we expected an PLN 8m profit). Other operating expenses of
                        PLN 9.3m included a PLN 7m provision for the Angel City housing contract. Other net financial
                        income amounted to PLN 0.3m (we expected PLN 0.1m).

                        Consolidated and standalone Q4 2010 earnings
                                                                          Consolidated           Standalone
                         (PLN m)                                                                                          Difference
                                                                               figures               figures
                         Revenue                                                 270.3                 215.7                    54.6
                         Gross profit                                               8.6                   8.5                    0.1
                         %                                                        3.2%                  3.9%                       -
                         EBIT                                                     -15.2                  -8.8                   -6.4
                         %                                                       -5.6%                 -4.1%                       -
                         Pre-tax profit                                           -14.9                  -7.9                   -7.0
                         Net profit                                               -12.8                  -6.8                   -6.0
                         %                                                       -4.7%                 -3.1%                       -
                        Source: Erbud, BRE Bank Securities

                        Q4 2010 results by business segment
                                                                          Reported          Reported                      Expected
                         Business Segment                                                                       Margin
                                                                          Revenue         Gross Profit                    Revenue
                         Domestic General Construction                       211.2               12.1             5.7%       231.0
                         International Operations                             25.5                 2.3            9.0%        30.0
                         Road Construction                                    -1.6                -4.7          297.9%        25.0
                         Real Estate Development                              20.1                 0.4            2.0%        13.0
                         Power Plant Construction                             11.9                 0.3            2.9%         3.0
                         Steel Frames                                          3.2                -1.9          -58.1%         3.0
                         Eliminations                                                                                 -        0.0
                         Total                                                270.3                8.6            3.2%       305.0
                        Source: Erbud, BRE Bank Securities




2 March 2011                                                                                                                       2
                                                                                                 Erbud
               BRE Bank Securities


Forecast of Segment Earnings
  2009-2015 revenue forecast by business segment (PLN m)
   Business Segment                  2009      2010     2011F     2012F     2013F     2014F     2015F
   Domestic General Construction     615.8    846.5      892.3    963.7    1 031.1   1 087.9   1 143.9
   International Construction        164.9    101.5       94.5     69.0       71.4      73.9      76.5
   Road Construction                  74.8     81.4      240.0    211.2      174.2     179.5     184.9
   Housing Sales                      99.1     45.0       75.0     77.3       79.6      82.0      84.4
   Power Plant Construction                    15.5       24.4     34.2       36.9      41.4      45.5
   Steel Frames                                 9.3        3.5
   Space Rentals                                           1.1       4.6       4.7       4.9       5.0
   Total                             954.6   1 108.1   1 340.6   1 362.6   1 402.4   1 473.5   1 542.6
  Source: BRE Bank Securities

  2009-2015 gross profit forecast by business segment (PLN m)
   Business Segment                  2009      2010     2011F     2012F     2013F     2014F     2015F
   Domestic General Construction     73.2      85.1       72.2      64.1      71.1      75.1      78.9
   International Construction        24.2        3.9       8.2       7.8       8.1       8.4       8.7
   Road Construction                  9.3       -3.4      12.0      13.5      11.2      11.5      11.8
   Housing Sales                     11.4        4.0      16.5      17.0      16.7      17.0      17.5
   Power Plant Construction                      1.0       1.1       1.9       2.0       2.3       2.5
   Steel Frames                                 -3.4      -1.6
   Space Rentals                                           1.1      4.6       4.7       4.9        5.0
   Total                             118.1     87.3      110.3    109.0     114.1     119.3      124.6
  Source: BRE Bank Securities


  2009-2015 SG&A forecast by business segment (PLN m)
   Business Segment                  2009      2010     2011F     2012F     2013F     2014F     2015F
   Domestic General Construction     29.2      32.7       33.7      36.4      38.9      41.1      43.2
   International Construction         7.2       8.1        7.8       5.7       5.9       6.1       6.3
   Road Construction                  5.7       6.1        6.7       5.9       4.9       5.0       5.1
   Housing Sales                      8.0       3.3        3.5       3.7       3.8       3.9       4.0
   Power Plant Construction                     0.5        0.6       0.6       0.6       0.7       0.8
   Steel Frames                                 2.1        1.5       0.0
   Space Rentals                                           0.1       0.3      0.6       0.6       0.6
   Total                              50.1     52.9       53.8      52.5     54.7      57.4      60.1
 Source: BRE Bank Securities


  2009-2015 EBIT forecast by business segment (PLN m)
   Business Segment                  2009      2010    2011F     2012F     2013F     2014F      2015F
   Domestic General Construction      44.0     52.4      38.5      27.7      32.2      34.0       35.7
   International Construction         17.0     -4.2       0.4       2.1       2.3       2.4        2.4
   Road Construction                   3.6     -9.5       5.3       7.6       6.3       6.5        6.7
   Housing Sales                       3.4      0.7      13.0      13.3      12.9      13.1       13.5
   Power Plant Construction            0.0      0.6       1.4       1.4       1.6       1.7        1.8
   Steel Frames                        0.0     -5.6      -3.1       0.0       0.0       0.0        0.0
   Space Rentals                       0.0      0.0       1.1       4.3       4.1       4.2        4.4
   Other net operating expenses        7.6      9.5       2.0       2.0       2.1       2.2        2.3
   Property valuations                          0.0       0.0       5.6       9.8       1.9        1.8
   Total                              60.5     24.9      54.5      60.0      67.1      61.6       64.1
 Source: BRE Bank Securities




2 March 2011                                                                                             3
                                                                                                               Erbud
               BRE Bank Securities


Valuation
                        Using DCF analysis and relative valuation, we set the price target for ERB stock at PLN 48.7
                        per share. The target is only 0.5% higher than the current price, prompting a hold rating.

                        Valuation Summary
                                                                                 Value per share             Weight
                            DCF Valuation                                                    44.0              75%
                            Relative Valuation                                               47.6              25%
                            Average                                                          44.9
                            9M cost of equity                                               8.4%
                            Value per share                                                  48.7
                        Source: BRE Bank Securities


               Relative Valuation
                        Compared to a peer group of large publicly-traded construction firms, Erbud is trading at a
                        1.8% premium to the average of comparable P/E and (more noticeably) EV/EBIDTA multiples
                        forecasted for 2011 through 2013.

                        Earnings for 2012 will be positively impacted by an expected revaluation of a commercial
                        property under construction (PLN 5.6m), a factor that does not contribute to the peers’
                        forecasted earnings

                        Relative Valuation
                                                      2011F    2012F     2013F      2011F     2012F     2013F
                                                         P/E      P/E       P/E EV/EBITDA EV/EBITDA EV/EBITDA
                            Budimex                     12.9     13.2      16.0        8.8       9.6      11.4
                            Elektrobudowa               13.3     11.9      10.4        8.3       7.2       6.1
                            Mostostal
                                                       16.2     12.0       9.5           7.0          5.4          4.4
                            Warszawa
                            PBG                        12.6     12.2      11.1           9.0          8.4          7.5
                            Polimex Mostostal          13.5     10.5       7.9           7.5          6.5          5.3
                            Rafako                     14.6     13.4      10.3           8.2          7.5          5.4
                            Trakcja Polska             11.2      9.5      10.4           7.2          6.2          6.2
                            Unibep                     15.2      8.0       9.7          11.0          5.9          6.4
                            ZUE                        10.6     10.2       9.9           5.1          4.2          3.6
                            Median                     13.3     11.9      10.3           8.2          6.5          6.1
                            Erbud                      12.9     11.6      10.4           8.1          7.2          6.4
                            Premium (discount)        -3.2%    -2.1%      0.5%        -0.7%         11.5%     4.6%
                            Multiple weight           20.0%    20.0%     10.0%        20.0%         20.0%    10.0%
                        Source: BRE Bank Securities


               DCF Valuation
                        DCF Model Assumptions
                        - Growth rate after FY2017 = 3%.
                        - Risk-free rate is 6.2% (10Y T-bond yield).
                        - Receivables and payables turnover cycles will be equal by the end of 2011.
                        - Inventories in the real-estate segment equivalent to 4 years of production.
                        - Until 2014, Budlex builds on land marked to market in mid-2007, among others. Projects
                          developed on these land lots will generate lower margins.
                        - Erbud’s EBIT margins on general contracting will be comparable to sector averages.
                        - Erbud will commence a commercial real estate project in Poznań in 2012.




2 March 2011                                                                                                             4
                                                                                                                                   Erbud
                  BRE Bank Securities


DCF Model
(PLN m)                      2011F 2012F        2013F 2014F         2015F      2016F      2017F      2018F      2019F     2020F     2020+
Revenue                     1 340.6 1 362.6    1 402.4 1 473.5     1 542.6    1 610.8    1 677.7    1 742.7    1 805.4   1 865.2
  change                    21.0%     1.6%       2.9%     5.1%        4.7%      4.4%       4.1%       3.9%       3.6%      3.3%
EBITDA                        62.7      68.3      75.5     70.1        72.7      75.4      78.0       80.6       83.2      85.6
  EBITDA margin               4.7%    5.0%       5.4%     4.8%        4.7%      4.7%       4.7%       4.6%       4.6%      4.6%
Depreciation                    8.2      8.3       8.4       8.5        8.6       8.7        8.8        8.9        9.0       9.0
EBIT                          54.5      60.0      67.1     61.6        64.1      66.7      69.2       71.7       74.2      76.6
  EBIT margin                 4.1%    4.4%       4.8%     4.2%        4.2%      4.1%       4.1%       4.1%       4.1%      4.1%
Tax on EBIT                   10.4      11.4      12.7     11.7        12.2      12.7      13.1       13.6       14.1      14.6
Property valuations                     -5.6      -9.8     -1.9        -1.8      -1.9       -2.0       -2.0       -2.1      -2.1
NOPLAT                        44.2      43.0      44.6     48.0        50.1      52.1      54.1       56.1       58.0      59.9


CAPEX                          -8.6    -27.9     -28.0     -8.9        -9.0      -9.1       -9.3       -9.4       -9.5      -9.0
Working capital               -61.3     -2.9      -4.5     -5.5        -5.5      -5.5       -5.5       -5.5       -5.5      -5.5
Capital investment              0.0      0.0       0.0       0.0        0.0       0.0        0.0        0.0        0.0       0.0


FCF                           -17.5     20.6      20.4     42.1        44.1      46.1      48.1       50.1       52.1      54.4      56.1
  WACC                      11.2%     11.2%     11.2%    11.2%        11.2%    11.2%      11.2%      11.2%      11.2%     10.6%
  discount factor           91.5%     82.3%     74.0%    66.6%        59.9%    53.8%      48.4%      43.5%      39.2%     35.4%
PV FCF                        -16.0     16.9      15.1     28.0        26.4      24.8      23.3       21.8       20.4      19.3


WACC                        11.2%     11.2%     11.2%    11.2%        11.2%    11.2%      11.2%      11.2%      11.2%     10.6%
Cost of debt                  7.4%    7.4%       7.4%     7.4%        7.4%      7.4%       7.4%       7.4%       7.4%      6.8%
Risk-free rate                6.2%    6.2%       6.2%     6.2%        6.2%      6.2%       6.2%       6.2%       6.2%      5.6%
Credit risk premium           1.2%    1.2%       1.2%     1.2%        1.2%      1.2%       1.2%       1.2%       1.2%      1.2%
Effective tax rate          19.0%     19.0%     19.0%    19.0%        19.0%    19.0%      19.0%      19.0%      19.0%     19.0%
Net debt / EV                  0%        0%        0%        0%         0%        0%        0%         0%         0%        0%


Cost of equity              11.2%     11.2%     11.2%    11.2%        11.2%    11.2%      11.2%      11.2%      11.2%     10.6%
Risk premium                  5.0%    5.0%       5.0%     5.0%        5.0%      5.0%       5.0%       5.0%       5.0%      5.0%
Beta                            1.0      1.0       1.0       1.0        1.0       1.0        1.0        1.0        1.0       1.0


FCF growth after the
                              3.0%
forecast horizon                               Sensitivity Analysis
Terminal value               737.5                                            FCF growth in perpetuity
Present value of terminal
                             261.1
value (PV TV)                                                                    2.0%       2.5%       3.0%      3.5%      4.0%
Present value of FCF in
                             180.0                                                44.5       45.8       47.3     49.0      51.0
the forecast horizon                           WACC -1.0pp
Enterprise value             441.1             WACC -0.5pp                        44.2       45.5       47.0     48.7      50.7
Net debt                     -115.0            WACC                               44.0       45.3       46.8     48.4      50.4
Minority interests              2.4            WACC +0.5pp                        43.7       45.0       46.5     48.2      50.1
Equity value                 553.8             WACC +1.0pp                        43.5       44.8       46.2     47.9      49.8
Number of shares              12.6
Value per share (PLN)         44.0
9M cost of equity             8.4%
Equity value                  46.8
EV/EBITDA (’11) for the
                                8.7
target price
P/E (‘11) for the target
                              12.6
price
TV to EV                      59%




 2 March 2011                                                                                                                         5
                                                                                                      Erbud
               BRE Bank Securities


   Income Statement
   (PLN m)                                 2007      2008     2009       2010    2011F     2012F     2013F
   Revenue                                663.1   1 046.1    954.6    1 108.1   1 340.6   1 362.6   1 402.4
     change                              55.6%     57.8%     -8.8%     16.1%     21.0%      1.6%      2.9%


   COGS                                  606.7     943.7      836.5   1 020.8   1 230.2   1 253.6   1 288.3
   Gross profit                           56.4     102.5      118.1      87.3     110.3     109.0     114.1
    gross margin                         8.5%      9.8%      12.4%      7.9%      8.2%      8.0%      8.1%

   Selling expenses                        -0.4      -1.3      -1.4      -2.2      -2.3      -2.3      -2.3
   General and administrative expenses    -22.2     -36.4     -48.6     -50.6     -51.5     -50.3     -52.4
   Property valuations                                                                        5.6       9.8
   Other net operating income/expenses     -1.0      -3.9      -7.6      -9.5      -2.0      -2.0      -2.1


   EBIT                                    32.8      60.8      60.5      24.9      54.5      60.0      67.1
    change                               29.3%     85.4%     -0.5%    -58.8%    118.9%     10.0%     11.8%
    EBIT margin                           4.9%      5.8%      6.3%      2.2%      4.1%      4.4%      4.8%


   Financial activity                       6.5     -46.5      -4.2      -1.8       3.6       4.2       4.8
   Extraordinary gains/losses               0.0       0.0       0.0       0.0       0.0       0.0       0.0
   Minority interests                       0.0       0.0       0.0       0.0       0.0       0.0       0.0


   Pre-tax profit                         39.2      14.3      56.3      23.2      58.1      64.2      71.8
   Tax                                     7.4       3.8      13.7       8.1      11.0      12.2      13.7
   Other                                   0.0       1.2       0.9      -0.2       0.3       0.3       0.3


   Net income                              31.8       9.3      41.7      15.2      46.8      51.7      57.9
    change                               57.6%    -70.8%    348.7%    -63.5%    207.8%     10.5%     12.0%
    margin                                4.8%      0.9%      4.4%      1.4%      3.5%      3.8%      4.1%


   D&A expenses                             1.8       6.3       7.8       8.1       8.2       8.3       8.4
   EBITDA                                  34.6      67.1      68.3      33.0      62.7      68.3      75.5
    change                               30.1%     93.8%      1.8%    -51.7%     90.0%      8.9%     10.5%
    EBITDA margin                         5.2%      6.4%      7.2%      3.0%      4.7%      5.0%      5.4%


   Shares at year-end (millions)          12.6      12.6      12.6      12.6      12.6      12.6      12.6
   EPS                                     2.5       0.7       3.3       1.2       3.7       4.1       4.6
   CEPS                                    2.7       1.2       3.9       1.9       4.4       4.8       5.3


   ROAE                                  27.3%      4.7%     19.1%      6.3%     17.3%     16.5%     16.2%
   ROAA                                   9.9%      1.6%      6.6%      2.4%      7.1%      7.5%      7.8%




2 March 2011                                                                                              6
                                                                                                        Erbud
               BRE Bank Securities


   Balance Sheet
   (PLN m)                                  2007      2008      2009      2010    2011F     2012F     2013F
   ASSETS                                  491.2     647.9     608.2     646.3     667.3     715.7     772.1
   Fixed assets                             46.0      99.7      93.0     107.0     107.4     132.5     161.9
     Intangible assets                       0.4       0.3       0.3       0.4       0.4       0.4       0.4
     Goodwill                                1.5      19.7      20.1      20.1      20.1      20.1      20.1
     Property, plant and equipment          16.7      37.2      35.9      33.6      34.0      34.4      34.8
     Investment properties                  12.0      11.8       8.4       5.9       5.9      30.6      59.6
     Long-term investment                    1.5       1.5       6.6      24.7      24.7      24.7      24.7
     Other                                  14.0      29.2      21.6      22.3      22.3      22.3      22.3

   Current assets                          445.2     548.3     515.3     539.4     559.9     583.1     610.2
    Inventories                            118.6     144.6      99.5      95.0     111.8     115.0     118.3
    Receivables                            101.0     217.3     187.2     168.6     220.4     224.0     230.5
    Construction contracts, prepayments     42.5      70.5      52.9     119.4     127.7     129.5     132.8
    Cash and cash equivalents              128.4     115.6     172.5     153.7      97.4     112.0     125.9
    Other                                   54.8       0.3       3.1       2.7       2.7       2.7       2.7


   (PLN m)                                  2007      2008      2009      2010    2011F     2012F     2013F
   EQUITY AND LIABILITIES                  491.2     647.9     608.3     646.3     667.3     715.7     772.1
   Equity                                  192.5     201.4     235.5     248.6     292.3     334.7     382.3

   Minority interests                       17.5      19.8       2.9       3.0       3.2       3.5       3.8

   Long-term liabilities                    44.5      90.2      40.9      48.9      43.1      43.1      43.1
    Loans                                   20.9      61.6       4.3       5.8       0.0       0.0       0.0
    Provisions and other                    23.7      28.6      36.6      43.1      43.1      43.1      43.1

   Short-term liabilities                  236.7     336.5     328.9     345.9     328.6     334.4     342.9
    Loans                                   19.9      22.4      29.7      32.9       0.0       0.0       0.0
    Trade creditors                        119.0     155.7     192.4     188.0     202.2     206.1     211.8
    Construction contracts, prepayments     92.9     109.7      83.9     113.2     114.5     116.5     119.3
    Provisions and other                     4.9      48.7      22.9      11.8      11.8      11.8      11.8


   Debt                                      40.8      84.0      34.0      38.7       0.0       0.0       0.0
   Net debt                                 -87.6     -31.6    -138.5    -115.0     -97.4    -112.0    -125.9
   (Net debt / Equity)                    -45.5%    -15.7%    -58.8%    -46.3%    -33.3%    -33.5%    -32.9%
   (Net debt / EBITDA)                       -2.5      -0.5      -2.0      -3.5      -1.6      -1.6      -1.7

   BVPS                                     15.3      16.0      18.7      19.8      23.3      26.6      30.4




2 March 2011                                                                                                7
                                                                                                          Erbud
               BRE Bank Securities


   Cash Flows
   (PLN m)                                        2007      2008      2009     2010    2011F    2012F    2013F
   Operating cash flows                           36.2      -52.5    153.3     24.2      -9.6     47.7     47.5
     Net income                                   31.8        9.3     41.7     15.2      46.8     51.7     57.9
     D&A expenses                                  1.8        6.3      7.8      8.1       8.2      8.3      8.4
     Working capital                              13.5      -97.8    106.0     40.4     -61.3     -2.9     -4.5
     Property valuations                                                                          -5.6     -9.8
     Other                                        -11.0      29.7      -2.1    -39.5     -3.3     -3.9     -4.5

   Cash flows from investing activities           -74.8       6.1     -29.2    -28.4     -8.6    -27.9    -28.0
    CAPEX                                          -2.9      35.8      -3.2     -4.1     -8.6    -27.9    -28.0
    Capital investment                            -77.1     -40.0       0.0      0.0      0.0      0.0      0.0
    Other                                           5.3      10.4     -26.1    -24.3      0.0      0.0      0.0

   Cash flows from financing activities           137.9      34.0     -67.1    -14.6    -38.1     -5.2     -5.6
    Stock issue                                   120.7       0.0       0.0      0.6      0.0      0.0      0.0
    Debt                                           18.9     160.8      86.2     62.0    -38.7      0.0      0.0
    Dividend (buy-back)                             0.0       0.0      -1.5     -6.3     -3.0     -9.4    -10.3
    Other                                          -1.7    -126.8    -151.8    -71.0      3.6      4.2      4.8

   Change in cash                                  99.2     -12.4     57.0    -18.8     -56.3    14.6     13.9
   Cash at period-end                             128.4     115.6    172.5    153.7      97.4   112.0    125.9


   DPS (PLN)                                        0.0        0.0     0.1       0.5      0.2      0.7      0.8
   FCF                                            -38.2      -92.3   157.8      73.3    -17.5     20.6     20.4
   (CAPEX / Sales)                                0.4%      -3.4%    0.3%      0.4%     0.6%     2.0%     2.0%


   Market multiples
                                                  2007       2008     2009     2010    2011F    2012F    2013F
   P/E                                            18.9       64.9     14.5     39.6      12.9     11.6     10.4
   P/CE                                           17.9       38.6     12.2     25.8      10.9     10.0      9.1
   P/BV                                            3.1        3.0      2.6      2.4       2.1      1.8      1.6
   P/S                                             0.9        0.6      0.6      0.5       0.4      0.4      0.4

   FCF/EV                                         -7.2%    -15.6%    33.8%    15.0%    -3.4%     4.2%     4.3%
   EV/EBITDA                                        15.4       8.8      6.8     14.8      8.1      7.2      6.4
   EV/EBIT                                          16.2       9.7      7.7     19.7      9.3      8.2      7.2
   EV/S                                              0.8       0.6      0.5      0.4      0.4      0.4      0.3

   DYield                                         0.0%      0.0%      0.2%     1.0%     0.5%     1.6%     1.7%


   Price (PLN)                                     47.9
   Shares at year-end (millions)                   12.6      12.6     12.6     12.6     12.6     12.6     12.6
   MC (PLN m)                                     602.2     602.2    602.2    602.2    602.2    602.2    602.2
   Equity attributable to minority shareholders
                                                   17.5      19.8       2.9      3.0      3.2      3.5      3.8
   (PLN m)
   EV (PLN m)                                     532.0     590.4    466.5    490.1    508.0    493.7    480.0




2 March 2011                                                                                                  8
                                                                                                                          Erbud
               BRE Bank Securities


                                                 Michał Marczak tel. (+48 22) 697 47 38
                                                 Managing Director
                                                 Head of Research
                                                 michal.marczak@dibre.com.pl
                                                 Strategy, Telco, Mining, Metals



     Research Department:                                                Sales and Trading:

                                                                         Piotr Dudziński tel. (+48 22) 697 48 22
     Kamil Kliszcz tel. (+48 22) 697 47 06                               Director
     kamil.kliszcz@dibre.com.pl                                          piotr.dudzinski@dibre.com.pl
     Fuels, Chemicals, Energy
                                                                         Marzena Łempicka-Wilim tel. (+48 22) 697 48 95
     Piotr Grzybowski tel. (+48 22) 697 47 17                            Deputy Director
     piotr.grzybowski@dibre.com.pl                                       marzena.lempicka@dibre.com.pl
     IT, Media
                                                                         Traders:
     Maciej Stokłosa tel. (+48 22) 697 47 41
     maciej.stoklosa@dibre.com.pl                                        Emil Onyszczuk tel. (+48 22) 697 49 63
     Construction, Real-Estate Developers                                emil.onyszczuk@dibre.com.pl

     Jakub Szkopek tel. (+48 22) 697 47 40                               Grzegorz Stępien tel. (+48 22) 697 48 62
     jakub.szkopek@dibre.com.pl                                          grzegorz.stepien@dibre.com.pl
     Manufacturers
                                                                         Michał Jakubowski tel. (+48 22) 697 47 44
     Iza Rokicka tel. (+48 22) 697 47 37                                 michal.jakubowski@dibre.com.pl
     iza.rokicka@dibre.com.pl
     Banks                                                               Tomasz Jakubiec tel. (+48 22) 697 47 31
                                                                         tomasz.jakubiec@dibre.com.pl
     Gabriela Borowska tel. (+48 22) 697 47 36
     gabriela.borowska@dibre.com.pl
     Retail                                                              Grzegorz Strublewski tel. (+48 22) 697 48 76
                                                                         grzegorz.strublewski@dibre.com.pl

                                                                         Michał Stępkowski tel. (+48 22) 697 48 25
                                                                         michal.stepkowski@dibre.com.pl

                                                                         Foreign Markets Unit:

                                                                         Adam Prokop tel. (+48 22) 697 48 46
                                                                         Foreign Markets Manager
                                                                         adam.prokop@dibre.com.pl

                                                                         Michał RoŜmiej tel. (+48 22) 697 48 64
                                                                         michal.rozmiej@dibre.com.pl

                                                                         Jakub Słotkowicz tel. (+48 22) 697 48 64
                                                                         jakub.slotkowicz@dibre.com.pl

                                                                         Jacek Wrześniewski tel. (+48 22) 697 49 85
                                                                         jacek.wrzesniewski@dibre.com.pl

                                                                         "Private Broker"

                                                                         Jarosław Banasiak tel. (+48 22) 697 48 70
                                                                         Director, Active Sales
                                                                         jaroslaw.banasiak@dibre.com.pl

                                                                         Jacek Szczepański tel. (+48 22) 697 48 26
                                                                         Director of Sales
                                                                         jacek.szczepanski@dibre.com.pl



                                                                         Dom Inwestycyjny
                                                                         BRE Banku S.A.
                                                                         ul. Wspólna 47/49
                                                                         00-950 Warszawa
                                                                         www.dibre.com.pl




2 March 2011                                                                                                                 9
                                                                                                                                   Erbud
               BRE Bank Securities

  List of abbreviations and ratios contained in the report:
  EV – net debt + market value
  EBIT – Earnings Before Interest and Taxes
  EBITDA – EBIT + Depreciation and Amortisation
  P/CE – price to earnings with amortisation
  MC/S – market capitalisation to sales
  EBIT/EV – operating profit to economic value
  P/E – (Price/Earnings) – price divided by annual net profit per share
  ROE – (Return on Equity) – annual net profit divided by average equity
  P/BV – (Price/Book Value) – price divided by book value per share
  Net debt – credits + debt papers + interest bearing loans – cash and cash equivalents
  EBITDA margin – EBITDA/Sales

  Recommendations of BRE Bank Securities
  A recommendation is valid for a period of 6-9 months, unless a subsequent recommendation is issued within this period.
  Expected
  returns from individual recommendations are as follows:
  BUY – we expect that the rate of return from an investment will be at least 15%
  ACCUMULATE – we expect that the rate of return from an investment will range from 5% to 15%
  HOLD – we expect that the rate of return from an investment will range from –5% to +5%
  REDUCE – we expect that the rate of return from an investment will range from -5% to -15%
  SELL – we expect that an investment will bear a loss greater than 15%
  Recommendations are updated at least once every nine months.
  This document has been created and published by BRE Bank Securities S.A. The present report expresses the knowledge as
  well as opinions of the authors on day the report was prepared. The opinions and estimates contained herein constitute our best
  judgement at this date and time, and are subject to change without notice. The present report was prepared with due care and
  attention, observing principles of methodological correctness and objectivity, on the basis of sources available to the public,
  which BRE Bank Securities S.A. considers reliable, including information published by issuers, shares of which are subject to
  recommendations. However, BRE Bank Securities S.A., in no case, guarantees the accuracy and completeness of the report, in
  particular should sources on the basis of which the report was prepared prove to be inaccurate, incomplete or not fully
  consistent with the facts. BRE Bank Securities S.A. bears no responsibility for investment decisions taken on the basis of the
  present report or for any damages incurred as a result of investment decisions taken on the basis of the present report.

  This document does not constitute an offer or invitation to subscribe for or purchase any financial instruments and neither this
  document nor anything contained herein shall form the basis of any contract or commitment whatsoever. It is being furnished to
  you solely for your information and may not be reproduced or redistributed to any other person. This document nor any copy
  hereof is not to be distributed directly or indirectly in the United States, Australia, Canada or Japan.

  Recommendations are based on essential data from the entire history of a company being the subject of a recommendation,
  with particular emphasis on the period since the previous recommendation. Investing in shares is connected with a number of
  risks including, but not limited to, the macroeconomic situation of the country, changes in legal regulations as well as changes
  on commodity markets. Full elimination of these risks is virtually impossible.
  It is possible that BRE Bank Securities S.A. renders, will render or in the past has rendered services for companies and other
  entities mentioned in the present report.
  The present report was not transferred to the issuer prior to its publication.
  BRE Bank Securities S.A. serves as an animator in relation to the shares of the Issuer. BRE Bank Securities S.A. receives
  remuneration from the issuer for services rendered. BRE Bank Securities S.A. acts as market animator for Erbud.

  BRE Bank Securities S.A., its shareholders and employees may hold long or short positions in the issuer's shares or other
  financial instruments related to the issuer's shares. BRE Bank Securities S.A., its affiliates and/or clients may conduct or may
  have conducted transactions for their own account or for account of another with respect to the financial instruments mentioned
  in this report or related investments before the recipient has received this report.
  Copying or publishing the present report, in full or in part, or disseminating in any way information contained in the present
  report requires the prior written agreement of BRE Bank Securities S.A.

  Recommendations are addressed to all Clients of BRE Bank Securities S.A. This report is not for distribution to third parties.
  The activity of BRE Bank Securities S.A. is subject to the supervision of the Polish Financial Supervision Commission.
  Individuals who did not participate in the preparation of this recommendation, but had or could have had access to the
  recommendation prior to its publication, are employees of BRE Bank Securities S.A. authorised to access the premises in which
  recommendations are prepared, other than the analysts mentioned as the authors of the present recommendation.

  Strong and weak points of valuation methods used in recommendations:
  DCF – acknowledged as the most methodologically correct method of valuation; it is based in discounting financial flows
  generated by a company; its weak point is the significant susceptibility to a change of forecast assumptions in the model.
  Comparative – based on a comparison of valuation multipliers of companies from a given sector; simple in construction, reflects
  the current state of the market; weak points include substantial variability (fluctuations together with market indices) as well as
  difficulty in the selection of the group of comparable companies.

  Previous ratings issued for Erbud
  Rating                         Accumulate             Hold           Hold
  Date issued                    2010-07-05      2010-11-05     2011-01-19
  Price on rating day                  50.00           53.80          54.55
  WIG on rating day                39805.41        47066.40       48371.02




2 March 2011                                                                                                                            10

								
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