We initiate coverage of Sunex with a HOLD recommendation and a Fair Value of PLN 12.00, which implies 8.1% downside. The company is a Polish producer of heat pumps, solar collectors and many other types of products sold in the renewables sphere. Sunex predominantly designs and manufactures most of the products in its portfolio itself. It sells either under own brand or O&M brands, primarily in Germany, Austria and Poland.

Its heat pumps are eligible for state subsidies in those countries. It also owns an on-line shop, where various products of primarily global brands are on offer. The e-commerce channel allows the company to not only place their own product but also provides an insight into the current demand of customers for various products.

Sunex is heavily dependent on macroeconomic and construction growth in Germany, Austria and Poland, as well as the subsidies scheme for improving energy efficiency on the particular markets. Last year’s record-high results were driven by i) the boom sparked by the war in Ukraine and ii) the desire to abandon fossil fuels in heating systems rapidly and lower the dependence on gas prices. The current year is a period of growth through M&A on the Austrian market, although the next three to four quarters are likely to be tainted by the economic slowdown that is already visible in Europe.

Overall, we expect the firm to post EBITDA of PLN 38.2m (-31.1% y/y) in 2023E, PLN 33.5m (-12.5% y/y) in 2024E and PLN 39.9m (+19.2% y/y) in 2025E, with the upward trajectory stemming from rising macroeconomic growth, higher spending for heat pumps across the region, lower sales under O&M and rising sales under own brands. The quarters ahead: Sunex has already reported its 3Q23 sales, namely PLN 81.7m (down 3% y/y and down 7.3% q/q at the consolidated level). We expect gross profit at PLN 17.9m (down 20% y/y and 24.3% q/q) in 3Q23.

The company’s operating leverage is relatively high, hence we expect EBITDA at PLN 7.7m (down 57.5% y/y) and the bottom line at PLN 4.6m (down 64.7% y/y and 52.9% q/q) in 3Q23. The level of G&A costs rose by PLN 5m in 2Q23, which we believe was triggered primarily by the full consolidation of Krobath Heizung, the Austrian subsidiary acquired in 1Q23. We expect sales to deteriorate a further 24% q/q to PLN 62m in 4Q23. This would lead to EBITDA at a mere PLN 3.5m (down 54.4% q/q) in 4Q23