operating profit

The results presented by the Company in the third quarter of the financial year 2022/23 (January - March 2023) turned out to be higher than our forecasts, especially due to better margins. At the same time, the Ambra Group once again managed to show a double-digit increase in revenues, which this time clearly exceeded the dynamics observed in the first half of the year (+22.0% y/ y).   The increase in sales was possible thanks to the earlier date of Easter (they fell on the second weekend in April - a week earlier than a year ago, which increased sales in March), regularly introduced increases in product prices and the low base from last year. Ambra positively surprised us, especially with an increase in the percentage gross margin on sales by 1.3 p.p. y/y, to 35.6% (we expected flat dynamics), and consequently also the level of operating profit (PLN 6.9 million vs. PLN 4.6 million) and net profit (PLN 2.6 million vs. PLN 1.7 million).     However, we believe that the following quarters may prove to be a greater challenge for the Group, especially when we take into account the high costs of purchasing raw materials, fuels and energy, or the deterioration of consumer sentiment caused by, among others, decline in real household income. Better-than-expected results in Q3 prompt us to raise our current forecasts. We believe that at the end of the current financial year, the Group's sales revenues will total PLN 882.3 million (13.8% y/y), EBIT will increase to PLN 95.4 million (10.9% y/y), and the net result will amount to PLN 55.8 million (7.7% y/y).       Assuming our estimated net profit in the financial year 2022/23, the Company is currently listed with a P/E ratio of 11.4. We are raising the valuation per share of Ambra from PLN 32.1 to PLN 33.6 compared to the last forecast, and we are reiterating our 'buy' recommendation. The change in the valuation of the Company was positively influenced in particular by a slight increase in our expectations as to its future results after a good third quarter, as well as a further increase in the level of ratios of companies from the comparative group.          

The results presented by the Company in the third quarter of the financial year 2022/23 (January - March 2023) turned out to be higher than our forecasts, especially due to better margins. At the same time, the Ambra Group once again managed to show a double-digit increase in revenues, which this time clearly exceeded the dynamics observed in the first half of the year (+22.0% y/ y).   The increase in sales was possible thanks to the earlier date of Easter (they fell on the second weekend in April - a week earlier than a year ago, which increased sales in March), regularly introduced increases in product prices and the low base from last year. Ambra positively surprised us, especially with an increase in the percentage gross margin on sales by 1.3 p.p. y/y, to 35.6% (we expected flat dynamics), and consequently also the level of operating profit (PLN 6.9 million vs. PLN 4.6 million) and net profit (PLN 2.6 million vs. PLN 1.7 million).     However, we believe that the following quarters may prove to be a greater challenge for the Group, especially when we take into account the high costs of purchasing raw materials, fuels and energy, or the deterioration of consumer sentiment caused by, among others, decline in real household income. Better-than-expected results in Q3 prompt us to raise our current forecasts. We believe that at the end of the current financial year, the Group's sales revenues will total PLN 882.3 million (13.8% y/y), EBIT will increase to PLN 95.4 million (10.9% y/y), and the net result will amount to PLN 55.8 million (7.7% y/y).       Assuming our estimated net profit in the financial year 2022/23, the Company is currently listed with a P/E ratio of 11.4. We are raising the valuation per share of Ambra from PLN 32.1 to PLN 33.6 compared to the last forecast, and we are reiterating our 'buy' recommendation. The change in the valuation of the Company was positively influenced in particular by a slight increase in our expectations as to its future results after a good third quarter, as well as a further increase in the level of ratios of companies from the comparative group.          

The results for the first quarter of 2023 are in line with preliminary estimates and we assess them as weak. Revenues amounted to PLN 6.7 million, of which revenues from games generated PLN 5.8 million (the remaining part of revenues was generated for own needs). This is a decrease of 14.9% y/y and 0.6% q/q.   These values confirm that the pandemic boom in game sales is coming to an end. At the level of results, Vivid Games also disappointed, with an operating profit of just PLN 64k (decrease by 5.2% y/y), while the net loss amounted to minus PLN 17k (a year earlier the net profit was PLN 50k). On the other hand, preliminary estimates for April are optimistic. Monthly revenue from games increased to PLN 2.14 million (an increase of 8.1% m/m), and the net result was positive and amounted to PLN 0.32 million. This means a significant improvement compared to March and the entire first quarter of 2023.   However, the April’s enthusiasm related to the improvement of profitability was quickly brought down in May, when the Company received information about the suspension of financing the project from the National Center for Research and Development for a total amount of PLN 6.4 million (of which PLN 3.9 million was subsidized). The reasons for the suspension are unknown, while the consequences are clearly negative. In addition to the lack of the cofinancing amount in the category of other operating income, the Company will not receive cash in the assumed time (or at all), which worsens its liquidity.   Finally, we lower our valuation to PLN 0.90 (from PLN 1.05) per 1 share at the end of 2023, which results from a lower valuation both using the DCF and comparative method.    

A good start to the year, challenging base in Q2 After a strong first quarter, we raise our price target by PLN 3 per share to PLN 38, but we reiterate a Hold rating. The excellent results of Fabrity, which reported over 30% growth in operating revenues and a similarly strong increase in operating profit, improve our perception of the company compared to other representatives of the software house segment listed on the Warsaw Stock Exchange, where the organic growth rate is slowing down and pressure on margins is visible.     We approach the second quarter with a bit more caution, taking into account last year's demanding base for Fabrity (Q2 was the most profitable quarter for the company in 2022) and less favorable exchange rates, with the strengthening of the PLN, which naturally affects the profitability of revenues from foreign markets in the short term.     We believe that it will be harder to improve the result in Q2, but we hope for a return to higher dynamics in the second half of the year. Fabrity's customers are in many cases less dependent on economic fluctuations. Apart from Frontex, many contracts are projects with a horizon of several years, which should offset the impact of the slowdown in the sector on the company's results. At the same time, it has become easier to recruit employees. Fabrity increased the team by nearly 30 people in the first quarter, compared to 220 at the end of 2022.   Dividend The proposed PLN 4.0 per-share payment is slightly higher than the PLN 3.2 mentioned by the Management Board at the previous conference as the lower limit of the range resulting from the dividend policy. The amount is close to the net cash the company had at the end of Q1'23 and together with the PLN 8.4 per share paid in the previous year, it probably ends the period of above-average distribution, at least until (if) the marketing business is sold.   PerfectBot will use the potential of GPT models Currently, the company is rebuilding the product to use the full potential of GPT models, and in the second quarter it plans to increase the number of US customers testing PerfectBot GPT (a dozen or so entities). Commencement of commercialization is planned for 3Q23.   Results forecast We present restated annual results for the years 2021-22 and in the forecast period with the marketing segment in discontinued operations, which means that practically only the Fabrity business affects revenues and operating results. We assume that it will be more difficult to attract new customers this year due to the weakness of the entire market and, consequently, we expect revenue growth to slow down from +26% y/y in 2023 to +16% in 2024, with a similar operating margin.   Dividend payment in Q4 will reduce financial income in subsequent quarters, which will result in a lower than EBIT increase in net profit in 2023. Below EBIT, we assume a positive contribution from the marketing segment of PLN 1.9m in 2023 and PLN 1.8m in 2024, minority interest profits in Fabrity (PLN 1.1 million and PLN 1.3 million, respectively) and a loss of approximately PLN 0.5 million annually attributed to the 50% stake in PerfectBot   Valuation Our target price is based on DCF (PLN 36.3) and total-of-the-parts (PLN 39.2) valuations. In the sum-of-the-parts valuation, we rely on the Polish peer group for Fabrity, the valuation from the last financing round less a 10% discount for PerfectBot, and target EV/EBITDA and EV/EBIT ratios for marketing.           Valuation Valuation Approach After moving the results of marketing to discontinued operations in our forecasts, we change the weights of individual valuation methods in the calculation of the target price. We no longer take into account the comparative valuation, where 50% weighting were foreign companies from the marketing sector.   Our target price is now based on the DCF valuation (PLN 36.3) and the total-of-the-parts valuation (PLN 39.2, including the Polish peer group for Fabrity, the valuation from the last financing round less a 10% discount for PerfectBot and EV/EBITDA and EV/EBIT ratios for marketing). In the sum-of-the-parts method, the Fabrity valuation range is set by comparison to a wider IT group (lower end) and only to two representatives of the software house sector (upper end).   DCF valuation DCF valuation assumptions: 1) Risk-free rate at 6.0% in the detailed forecast period (previously 6.5%), and 5.0% on TV (unchanged); 2) 7.5% market premium (according to our methodology for entities below sWIG80); 3) Beta unleveraged 1.0x, residual growth rate 3.0% (previously 2.5%, we are increasing after excluding the marketing segment)         Risk factors • Risk related to increased competition in the software house segment • General economic situation • Risk of losing customers • Risk of losing key employees • The risk of failure of the PerfectBot project • Risk related to customers' failure to meet payment deadlines • Currency risk (most of Fabrity revenues is denominated in foreign currencies)   The abovementioned risk factors were covered in detail in the initiation report.        

Mostostal Zabrze operates in specialist construction, assembly and industrial production, and in all these areas, despite concerns about the economic situation, it still generates good results. Quarterly results Once again, Mostostal Zabrze recorded very good results. Revenues in 1Q23 increased by 51% y/y, EBITDA by 47%, and net profit by 94%.   In terms of revenue, all three basic operating segments recorded high growth, while at the level of operating profit, the Industrial Implementation and Design segment and the Machine Construction segment recorded high y/y dynamics, while the result of the General and Engineering segment, the construction segment, was lower than in the previous four quarters. In the latter case, the company cited a large part of the contract for POSCO as the reason, in which there were minor delays, which translated into a decision to take a more cautious approach in showing the current profitability of the contract. Lower backlog, as forecast At the end of April, the Group's order backlog amounted to PLN 841.9 million, which means a decrease by 29.1% y/y and at the same time is responsible for 72% of revenues from 2022.       This situation is in line with the announcements for 2021 and included in our forecasts from previous reports. Since the restructuring that took place a few years ago, the company has declared to avoid very high value individual contracts, which expose it to greater risk. Despite this, she undertook two large orders, which we wrote about earlier. One of these contracts is nearing completion and the other is half way through. After their completion, the company will continue to focus on smaller, but more profitable contracts.   New perspectives The cooperation between Mostostal Zabrze and ArcelorMittal Poland looks very prospective. Mostostal has been its partner in repair works for years, an example of which is the currently conducted general overhaul of the Blast Furnace, where it performs the largest scope of works. A company from the Mostostal Zabrze group also carries out conceptual and design work in the process of decarbonisation of steel production. Implementation of such projects is rather a question of "when, not if", and their value will be counted in billions of PLN.     The presence of the company in these projects from the very beginning, with its experience working for ArcelorMittal, gives a good chance to participate in these large contracts also in the future. Valuation and recommendation The favorable judgment in the Wood case and the increase in market valuations translated into an increase in the value of the company calculated by us.   The value of shares in the DCF model with the payment for the Śląski Stadium is PLN 3.80, without the payment PLN 5.60, while the valuation based on a comparison with other companies is PLN 5.80. This gives an average of PLN 5.30, which means that the buy recommendation for Mostostal Zabrze shares is upheld.    

Analysts at Freedom Finance Europe have highlighted several companies that investors should look out for in the second half of this year. One of them is Amazon (AMZN), which continues to grow revenues in key segments. "The company has too many positive catalysts to ignore, and the recent weakness provides an opportunity to enter into an attractive asset", says the speaker. In addition, despite the challenging macroeconomic environment, AMZN's revenues in the latest quarter exceeded the forecast range to $127.4 billion and operating profit was $4.8 billion. These results are due to growth in e-commerce. North American region, for example, saw double-digit sales increases and a return to profitability, while the international segment also saw strong growth. On top of that, company's cloud business revenues, Amazon Web Services were up 16% year-on-year.  "Management forecasts sales growth of 10%, to $133 billion in the next quarter, with operating profit expected to remain stable, at between $2 billion and $5.5 billion. These results and forecasts look quite compelling. The company has also built an unrivalled logistics network for parcel delivery, sometimes with same-day delivery", said the speaker. These factors take Amazon’s potential to a maximum target price of $220.  Next up is the well-known coffee chain Starbucks (SBUX). As the speaker explained, the company is considered an attractive and long-term investment due to its commitment to shareholder value, revenue growth and higher earnings per stock. SBUX had a solid quarter. In Q2 2023, Starbucks had revenue of $8.7 billion, up 14% year-on-year. EPS increased by 36% compared to the same period in 2022. Even more impressively, Starbucks quarterly sales and EPS were 38% and 49% higher than the same period in 2019 (before the pandemic). The company also has a rewards programme that rewards customers for repeat purchases. For example, there are currently 30.8 million active loyalty programme members in the US. That's an increase of 15% over last year.   "Coffee is an integral part of society and it is hard to imagine a scenario where Starbucks ever disappears. The company has almost 37,000 shops and the goal is to have 55,000 outlets worldwide by 2030", the speaker added. The fundamental potential for an average target price is at $114. Another company that may be worth taking a closer look at is Booking Holdings (BKNG), which operates in the online travel industry. In particular, it offers services through its Booking.com, KAYAK, Priceline, Agoda, Rentalcars.com and OpenTable brands. Data from the Economist Intelligence Unit shows that the segment is expected to grow by 30% in 2023 as the number of Chinese tourists abroad may increase. "In previous years, the 'zero COVID' policy has held back tourism from China, which has recently been a major source of growth. As the situation changes this year, Booking Holdings could benefit from this. In addition, the number of trips remains below 2019 levels, which leaves room for growth and continues a solid recovery", explained the speaker. BKNG's revenue increased by $4 billion in the last quarter, and it continues to benefit from a network advantage that has allowed it to maintain its agency model rather than move to a vendor model where the online travel agency would be responsible for paying the fees. Fundamental potential for an average target price of $2800.  

Consolidated revenues in 2Q23 amounted to PLN 49 million (+2% y/y), and were similar to the same period last year. Lower insulin sales by PLN 10 million (mainly in foreign markets) were offset by higher sales of goods and materials (including oral diabetes drugs) and a higher invoiced amount resulting from the settlement of the analog project with Yifan. Gross profit on sales was PLN 18.8 million (-18% y/y), and the margin was lower y/y due to a different product mix.   Selling expenses increased by 8% y/y, and general and administrative expenses were stable y/y. In addition, other operating income had a positive impact on the operating result, including, among others, a gain on the disposal of real estate in the amount of about PLN 2 million. EBITDA in 2Q23 amounted to PLN 15.6 million and was similar y/y, while EBITDA adjusted for the balance of other operating income and expenses amounted to PLN 12.4 million (-17% y/y). Net profit in 2Q23 amounted to PLN 1.4 million and was similar y/y. Cash flow from operations in 1H23 amounted to +PLN 11 million (vs. +PLN 25.2 in 1H22) - the decrease is mainly due to higher commitment of funds to working capital. Net CAPEX in 1H23 amounted to about PLN 16 million and was similar y/y. Net debt at the end of H1 amounted to PLN 76 million (vs. PLN 71 million at the end of 1Q23). We rate the results neutral.   Revenues Revenues in 2Q23 amounted to PLN 49 million (+2% y/y). Insulin sales fell 27% y/y, mainly due to a decline in export sales. The decline in insulin was offset by higher revenues from sales of goods (mainly Avamina, Avamina SR and Sitagliptin - new implementation) and higher sales of services, i.e. settlement of the analog project. For the whole of H1 2023, the decrease in insulin sales was 35%, while increases in the materials area were +54%. Overall, sales in the period declined by 15% y/y     Operating profit and costs Gross profit on sales in 2Q23 was PLN 18.8 million (-18% y/y), and the margin dropped from 48% to 38% due to a different product mix. Selling, general and administrative expenses are under control and totaled PLN 16.5 million (vs. PLN 15.8 million in 2Q22, +4% y/y). EBITDA in 2Q23 was PLN 15.6 million (+2% y/y), and EBITDA adjusted for the balance of other operating activities was PLN 12.4 million (-17% y/y), net income was PLN 1.4 million (flat y/y). The operating result was positively impacted by a gain on the disposal of real estate in the amount of approximately PLN 2 million reported in other operating income. Last valuation: 5.34 PLN/share as of 20.04.2023. Price on the day of issue 3.54 PLN.  

3Q23E preview Miraculum is due to publish its 3Q23E results on 10 November 2023. Opinion: We expect Miraculum to deliver slight y/y improvement of operating profit in 3Q23E, despite y/y deterioration of revenues. Revenues. Miraculum has already reported its preliminary monthly data with revenues of PLN 3.2m in July (-6% y/y), PLN 3.6m in August (+7% y/y) and PLN 3.9m in September (-9% y/y). We note that negative y/y growth rate in 3Q23E was also related to high base of 3Q22 (contracts to Saudi Arabia). Summing up, we expect revenues of PLN 10.8m (-4% y/y). Gross profit. We expect the company to delivery another y/y improvement of gross margin by 4.5pp y/y to 39.7% (supported by sales of high-margin Chopin products), resulting in gross profit of PLN 4.3m (+9% y/y). EBIT. We expect SG&A costs at comparable q/q level of PLN 2.7m (+5% y/y). Given lower y/y growth rate in operating costs than gross profit, we expect slight improvement of operating profit by 2% y/y to PLN 320k. Net profit. We forecast net income of PLN 20k.  

Ailleron Above-average margins, prospects for double-digit earnings growth Valuation and recommendation Despite the dividend cut by PLN 1, we raise our target price from PLN 26 to PLN 28 and reiterate our BUY recommendation. A comparative valuation based on a group of global software houses yields PLN 36.3 per share. A comparison with Spyrosoft based on adjusted net profit for the last four quarters implies a valuation of PLN 36.0, but we note a rather temporary bottom in SPR's profitability and believe a certain premium, albeit not a large one, is justified. Q3'23 Forecasts We expect revenues of PLN 16m in FinTech and PLN 99m in Software Mind, where Q2 saw slightly higher revenues in the telecom sector, but we do not expect this effect in the current period, and furthermore, exchange rates have been the most unfavourable for the company's revenues in many quarters (average USD/PLN down 12% y/y and average EUR/PLN down 5% y/y). We forecast an operating profit of PLN 15m, the best quarter so far this year and comparable to the excellent Q3'22. Part of the FX exposure is still hedged. We expect a slight decline in net profit due to the absence of Pekao contract revenues, with some drag from team costs. This effect is expected to fade by the last quarter of 2023, with virtually no impact on the P&L from next year onwards. Traditionally, we expect the strongest results in the Ailleron group in Q4.