shareholder value

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.  

Ahead of second phase of Software Mind expansion We initiate coverage for Ailleron with a target price of PLN 26 and a BUY recommendation. Following the capital hike at the Software Mind segment, the group rapidly increased the scale of operations thanks to a series of acquisitions in 2021-22 and as a result of organic growth. Ailleron's revenues grew 162% between 2020 and 2022, and we expect them to triple in the current year relative to 2020. The integration process of the acquired entities is nearing completion. The current phase of the market downturn creates good conditions for the second phase of expansion of Software Mind, which remains an undersubscribed entity. Despite the strong growth rate, the company was able to maintain margins at a higher level than its industry competitors.   The segment's operating margin is clearly higher than its WSE-listed competitors. In 2021-22, Software Mind's EBIT margin was 16% compared to 13-14% at Spyrosoft and 11-13% at Fabrity. Despite the normalisation of demand resulting in a lengthening of the 'bench' and a decline in margins in the sector in early 2023, Software Mind extended its lead in terms of profitability and generated almost 14% EBIT margin in Q1'23, against less than 10% at Spyrosoft and Fabrity. Ailleron's margin was also higher than the global leaders in the software house sector.     We expect a marked improvement in performance in 2024 We assume that Software Mind will suffer from the slowdown seen in the industry, with the strengthening of the PLN weakening margins in H2 '23. We expect sales growth to fall to +3% in H2 '23 and margins to fall to 12.5%. In 2024-25, we forecast a return to double-digit revenue growth at Software Mind of 12% and 18% respectively. We also expect the margin to fall from 16% in 2022 to 13% this year and gradually rebound to 14.5% in 2025. In the FinTech segment, this year's operating result will still be affected by the loss on the Pekao contract (we forecast PLN -1m EBIT burdened by one-offs), but in 2024 we already expect PLN 7m operating profit. The FinTech segment will focus on further growth in the services area, leveraging the product solutions developed in the group. We do not expect large capital expenditure in the coming years, as significant investments have already been made in products, including the SaaS version of the LiveBank platform. We assume an increase in FCF yield from 2% in 2022 to 7% in 2024, with long-term capex to revenue in the Ailleron Group below 3%. Upside in acquisitions. Although our forecasts do not include specific acquisitions, we do not rule out completing at least one major transaction in the coming quarters. A series of acquisitions in 2021-22 gives credence to the strategy of building shareholder value through acquisitions. Companies with exposure to the US and Western Europe, particularly the DACH and Nordic countries, remain targets.   Valuation. We base our target price of PLN 26 on the DCF model. A comparative valuation to the foreign group returns a value per share of PLN 32.4, while a comparison to Spyrosoft based on the adj. net result for the last four quarters implies a share value of PLN 29.5. On our 2024-25 forecasts, the company is valued at P/E of 10.0x and 7.9x, and at a target price of PLN 26, the P/E is 14.1x and 11.2x, respectively. Assuming a return to double-digit earnings growth, these values are not excessive in our view. Global industry leaders have been valued at forward P/Es in the range of 20-30x in recent quarters .  

Fabrity Holding Mission completed The sale of the marketing business completes the Group's transformation process. In September, Fabrity Holding announced that it had signed an agreement to sell its marketing activities for PLN 22 million. The buyer is the strategic investor Kamikaze, part of the French group Altavia. Taking into account the success fee for key employees and management (PLN 4m), other transaction costs and income tax (PLN 2m), the company will receive approximately PLN 15m in cash.   Distribution of proceeds from the sale to shareholders. The Management Board has recommended initiating the process of distributing to shareholders the proceeds of the transaction in the amount of PLN 15 million. Based on the Company's capital structure, part of the distribution may be in the form of dividends, estimated at approximately PLN 8 million (PLN 3.25 per share), and the remainder may be in the form of e.g. share repurchases. The details of the payout, other than the dividend, will be decided at the EGM in January 2024. Our model assumes a dividend equivalent of PLN 6 per share next year and PLN 2 the following year.   Change in the position of Group CEO. Mr Paweł Wujec resigned as CEO, citing the fulfilment of the mission entrusted to him, i.e. the Group's transformation project and the creation of shareholder value. As of 1 November, Mr Tomasz Burczyński, former CEO of Fabrity Holding, will become CEO of Fabrity. The change means that the focus will be entirely on the development of the software business. The assumptions of the updated strategy will be finalised and presented in the coming months.