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Polish Equity Research

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Lithuania

RECOMMENDATION

AVIA SG

HOLD (PREV. BUY) CURRENT PRICE: PLN 63.99 TARGET PRICE: PLN 71 (PREV. PLN 100)

 3Q’13 Results Preview. We expect Avia SG to post a

3Q’13 RESULTS PREVIEW 3Q’13E 39 3.0 2.0 1.3

Sales EBITDA EBIT Net profit

 Change in Valuation & Recommendation. Since our last recommendation (July 23), we have significantly decreased our DCF-based valuation to PLN 71, down from PLN 10mm, downgrading our rating by one notch to Hold. The comparative valuation points to PLN 86 per share vs. PLN 110in our previous report.

90 80 70 60 50 40

Oct-13

Aug-13

Sep-13

Jul-13

Jun-13

Apr-13

May-13

30

Mar-13

decreased our profit estimates for 2013 and for subsequent periods. We now expect 2013 net profit of EUR 6m. Our changes came on the back of weaker prospects of MRO segment.

q/q -4% 2% 5% 4%

WIG rebased Hold Under Review

Jan-13

 Change in Forecasts. With this report we have significantly

100

Oct-12

July’13. The airport used to be a base for Wizzair and Ryanair. However, Wizzair has already announced that it will carry on its operations from Okecie Airport. Ryanair has already moved to Modlin.

Nov-12

 Modlin Airport in Warsaw has been reopened as of

y/y -46% -57% -67% -74%

STOCK PERFORMANCE Price Buy Sell

110

Dec-12

weak set of results on the back of weaker than expected MRO performance. The segment is struggling with slowing sales growth dynamics accompanied by decreasing margins – we do not expect this trend to reverse. As for BGS, the segment is still suffering from the cost of entering the Polish market. Overall, we see sales of PLN 39m, EBITDA of EUR 3.0m and net profit of EUR 1.3m. Outcome: NEGATIVE.

PUBLICATION DATE

14 NOVEMBER 2013

Feb-13

Big disapointment

The chart measures performance against the WIG index. On 07/17/2013, the WIG index closed at 46,287.

LAST RECOMMENDATIONS Rec.

Date

Price

Price performance

on issue 12 month date target

absolute

relative (p.p) -24.9

Buy

7-23-2013

73.00

100.00

-12.3%

Buy

4-19-2013

62.15

100.00

17.5%

9.9

Buy

1-28-2013

68.00

85.00

-8.6%

-0.4

Buy

1-10-2013

58.40

85.00

16.4%

16.9

COMPANY DESCRIPTION Avia Solutions Group is a group of companies engaged in the aviation services market in the field of repair, ground handling, charter operations and crew training.

ANALYST Zbigniew Porczyk, CFA (+48) 22 534 16 10 zbigniew.porczyk@bzwbk.pl

Company Data EURm Sales EBITDA EBIT Net income P/E (x) EV/EBITDA (x)

2011 91 8.8 6.5 5.1 30.6 14.6

2012 156 13.9 10.6 6.9 13.1 7.8

2013E 164 12.8 8.7 6.1 14.7 8.5

Source: Company data, DM BZ WBK estimates

194

2014E 176 13.9 10.0 7.2 12.4 7.8

Reuters/Bloomberg codes Market capitalisation (PLNm) Number of shares (m) Free float (%) Avg. daily turnover 3M (PLNm) 1M Price performance 4.8%

ASG.WA / ASG PW 377 5.9 31.3% 0.1 3M YTD -11.1% 6.6%


Polish Equity Research Avia SG: 3Q’13 results preview EUR in millions, unless otherwise stated 3Q’10

4Q’10

1Q’11

2Q’11

3Q’11

4Q’11

1Q’12

2Q’12

3Q’12

4Q’12

1Q’13

2Q’13

3Q’13E

y/y

q/q

28

24

22

34

47

39

31

58

71

42

36

40

39

-46%

-4% 2%

Sales

3.8

1.6

1.9

1.4

4.6

-0.5

2.9

4.3

6.9

1.5

2.7

2.9

3.0

-57%

13.8%

6.5%

9.0%

4.0%

9.7%

-1.2%

9.3%

7.4%

9.7%

3.6%

7.6%

7.3%

7.8%

-1.9

0.5

3.3

1.2

1.5

0.9

3.9

-1.2

2.0

3.4

6.0

0.8

1.8

1.9

2.0

-67%

5%

12.1%

5.3%

6.8%

2.6%

8.2%

-2.9%

6.6%

5.9%

8.5%

1.8%

4.9%

4.8%

5.2%

-3.3

0.4

Net profit 3.2 1.1 1.0 Net margin 11.7% 4.7% 4.4% Source: Company data, DM BZ WBK estimates

0.9

2.7

-0.8

1.7

2.2

4.9

1.5

1.5

1.2

1.3

-74%

4%

2.5%

5.6%

-2.0%

5.5%

3.9%

6.8%

3.6%

4.1%

3.1%

3.3%

-3.5

0.3

EBITDA EBITDA margin EBIT EBIT margin

Avia SG: Forecasts changes PLN in millions, unless otherwise stated 2013E New Previous Sales 164 168 EBITDA 12.8 18.2 EBIT 8.7 14.1 Net profit 6.1 10.5

New 176 13.9 10.0 7.2

Change -3% -30% -38% -42%

2014E Previous 182 18.8 14.9 11.2

New 185 15.5 11.6 8.6

Change -3% -26% -33% -36%

2015E Previous 191 19.6 15.7 12.0

Change -3% -21% -26% -29%

Source: Company data, DM BZ WBK estimates

Avia SG: Valuation changes In PLN per share, unless otherwise stated New 71.0 86.0

DCF valuation Comparable valuation (based on 2013-2015E)

Previous 100.0 110.0

Change -29% -22%

Source: Company data, DM BZ WBK estimates

Avia SG: Income statement forecast PLN in millions, unless otherwise stated

Avia SG: Balance sheet forecast PLN in millions, unless otherwise stated

2011

2012

2013E

2014E

2015E

2011

2012

2013E

2014E

2015E

Net sales

138

156

164

176

185

Current assets

46

65

73

80

86

COGS

118

129

143

153

159

Fixed assets

25

24

23

23

24

Gross profit

20.0

27.0

21.0

23.9

26.1

Total assets

70

89

96

103

110

SG&A

Current liabilities

31

46

48

50

52

7

14

14

14

14

12

8

8

8

8

8

8

8

8

8

28

34

40

45

50 2

14.9

13.0

12.3

12.9

13.5

Other operating income, net

4.0

10.6

8.7

10.0

11.6

EBITDA

7.4

13.9

12.8

13.9

15.5

Operating profit

4.0

10.6

8.7

10.0

11.6

-0.9

-0.9

-1.1

-0.9

-0.9

Profit before tax

3.1

9.7

7.7

9.0

10.7

share capital

2

2

2

2

Income tax

0.6

1.9

1.5

1.8

2.1

Minority Interest

0

0

0

0

0

Net profit

2.8

6.9

6.1

7.2

8.6

Total liabilities

70

89

96

103

110

4

2

-2

14.5%

17.3%

12.8%

13.5%

14.1%

EBITDA margin

5.4%

8.9%

7.8%

7.9%

8.4%

Operating margin

2.9%

6.8%

5.3%

5.6%

6.2%

Net profit margin 2.0% 4.4% Source: Company data, DM BZ WBK estimates

3.7%

4.1%

4.6%

Net financial income (costs)

Gross margin

bank debt Long-term liabilities bank debt Equity

Net debt 10 10 Source: Company data, DM BZ WBK estimates

Avia SG: Cash flow forecast PLN in millions, unless otherwise stated 2011

2012

2013E

2014E

2015E

CF from operations

-5

-7

9

10

11

CF from investment

-16

0

-4

-4

-4

26

5

0

-3

-4

6

2

4

CF from financing

Net change in cash 5 -2 Source: Company data, DM BZ WBK estimates

195


3q 13 results previews