Increasing EBITDA Margin and Strong Financial Condition: A Look at Mercor's Performance

Thanks to an increasingly lower share of costs of sales and SG&A costs in sales, in the financial year 2022/23 the EBITDA margin increased to 13.9%, and the EBIT margin reached a doubledigit value. In 2023/24 and 2024/25, we assume a decline of EBITDA margin to 11.9% and 10.5%, respectively, and we expect a slight improvement thereafter. In our opinion, Mercor is able to achieve a long-term EBITDA margin of 13.1%.

We assume that the Company will continue paying dividends. The dividend of PLN 1.51 per share will be paid on September 20, 2023, and at the current share price gives a dividend yield of 6.0%. In our forecast, we assume a dividend payout ratio of 50% of previous year’s consolidated net profit.

We assume that in the next two years the level of capital expenditures will be similar to those in 2021/22 and 2022/23, i.e. approximately PLN 12-14mn annually. After that, we assume a gradual increase of CAPEX to its target level of 4.0% of sales revenue.

At the end of 2022/23, the net debt to EBITDA ratio was 0.77x. Taking into account our assumptions, we forecast a gradual decline in net debt despite a fairly high level of dividend payout. We assume that at the end of 2026/27 net debt will be negative (net cash). In our opinion, the Company is in a very good financial condition, which enables it to increase the dividend payout ratio, increase its investment program or carry out acquisitions.

GPW’s Analytical Coverage Support Programme 3.0

The Warsaw Stock Exchange's (GPW's) Analytical Coverage Support Programme 3.0 supports investment firms in drafting analytical reports which are financed by GPW. The objective of the Programme is to improve the availability of research covering less liquid companies, facilitating investors' informed investment decisions based on a reliable independent source of issuer information. Eligible to participate in the Programme are companies listed on the GPW Main Market (other than WIG20 participants) and on NewConnect. The Programme covers up to 50 issuers.