poland share price performance - bankier.pl · page 2 of 24 summary financial information valuation...

NOT FOR DISTRIBUTION TO ANY US PERSON OR TO ANY PERSON OR ADDRESS IN THE UNITED STATES OF AMERICA

(v1.0.8.0)

COVERAGE INITIATION

Poland | Technology | Small & Mid Cap | 29-April-2015

Comarch

Equipped to keep on growing

We initiate coverage on Comarch with a BUY rating and FV of PLN

167.2, implying 32% upside. Comarch is a software house with 80% of

revenues generated from proprietary software & services. A continuous

push to sell its products abroad means that currently 60% of sales are

generated in Poland while its biggest presence abroad is in the TMT

and Trade & Services segments. In 2014, Comarch scored record high

results with revenues breaking the PLN 1bn level, EBITDA/adj EBITDA

of PLN 153m/163m and net income of PLN 73m while the CAGR 2010-

14 for revenues and EBITDA was 8%/21%. 2015 should see top-line

growth pull back to +4% as a result of the public segment (EU budget

transition) and EBITDA to PLN 149m due to labour cost increases (new

hires). However, we still believe Comarch should be treated as a

growth company as 2016 should bring a revival in the domestic IT

market while the growing international backlog should fuel foreign

expansion. We believe Comarch´s main attractiveness is a wide

portfolio of own products (like, eg. ERP, loyalty, billing systems and

eHealth), continuously growing backlog (high single digit),

international expansion in attractive markets (LatAm). We expect

Comarch to pay a DPS in 2015 of PLN 1.5, DY 1.2%.

Wide portfolio of own products supports global expansion: Comarch has a

diversified product portfolio, reporting revenues in nine segments (TMT is

currently the biggest followed by public and finance & banking). However, thanks

to a good portfolio of products in trade & services like loyalty systems, which are

sold internationally, this segment currently has the highest growth rate and in 2015

should become the third biggest contributor, outpacing F&B. Due to the EU

budget transition and delay in announcement of tenders / contracts, we expect

the public segment sales to fa11 by 11% in 2015. On the other hand, we expect the

trade & services segment to keep on growing at 16% YoY driven by margin

accretive products and services (eg. loyalty systems).

Growing backlog and revenues needs labour support: Over 2013-14, Comarch’s

revenues grew by 17% while its headcount remained unchanged at ca. 4.2k. As

the backlog is constantly growing (verbal guidance at high single-digit for

2015), Comarch says it plans to adjust its headcount by hiring 200-400

employees in 2015. Given the average salary in 2014 at PLN 10k/month, this

could result in PLN 24-48m higher annualized headcount costs. Comarch

expects the growing revenue base and improving revenue mix to offset the

expected higher labour costs in 2015.

Unwarranted valuation discount: Comarch trades on 2015E/16E EV/EBITDA of

6.0x/5.5x and P/E of 14.0x/13.3x, which are at 39%/40% and 26%/19%

discounts to international peers and 17%/25% discount to Polish peers on

EV/EBITDA. In our view, given its business profile and growth prospects, we

believe the valuation discounts are too wide and unwarranted.

1Q15 preview: We expect revenues to grow by 7% YoY to PLN 224m driven by

the Trade&Services, SME and Medical segments. The changing revenue mix

with more revenues from high margin services and cloud solutions should

have a positive impact on the gross margin and we forecast it to rise to 22% vs

20.6% in 1Q14. We expect SG&A costs to grow in line with revs. As a result, we

forecast EBITDA of PLN 24.5m (+16% YoY), EBIT of PLN 10.1m (+30% YoY)

and net income of PLN 8.4m (+55% YoY).

BUY 32% upside

Fair Value PLN 167.20

Bloomberg ticker CMR PW

Share Price PLN 126.30

Market Capitalisation PLN 1,026.26m

Free Float 57%

PLN m Y/E 31-Dec 2013A 2014A 2015E 2016E

Revenues 939.0 1037.7 1079.0 1131.1

EBITDA 98.9 153.3 149.2 154.6

EBIT 34.4 99.5 91.6 96.6

Net income 25.1 73.1 73.2 76.9

Net debt (37.9) (87.1) (136.5) (191.0)

Y/E 31-Dec 2013A 2014A 2015E 2016E

P/E 29.1 14.0 14.0 13.3

EV/EBITDA 7.1 6.2 6.0 5.5

net debt/EBITDA (0.4) (0.6) (0.9) (1.2)

ROE 4.0% 10.5% 9.7% 9.4%

ROA 2.2% 6.0% 5.7% 5.6%

DY 1.7% 1.2% 1.2% 1.2%

All share price data as at close on 28-Apr-2015

Source: BESI Research, Company Data, Bloomberg

80

100

120

140

160

May 2014

Jun 2014

Jul 2014

Aug 2014

Sep 2014

Oct 2014

Nov 2014

Dec 2014

Jan 2015

Feb 2015

Mar 2015

Apr 2015

CMR PW vs WIG Index

Share Price Performance

Analysts Konrad Ksiezopolski +48 22 347 4074 [email protected] Banco Espírito Santo de Investimento, S.A. – Warsaw Branch Poland 59 Zlota Street, 00-120 Warsaw

of 24

Summary Financial Information

Valuation Metrics (Year end Dec) 2011 2012 2013 2014 2015E 2016E 2017E

Rating BUY Reported P/E (x) 11.7 13.9 29.1 14.0 14.0 13.3 12.6

Fair Value (PLN): 167.2 EV / Sales (x) 0.5 0.6 0.7 0.9 0.8 0.7 0.7

EV / EBITDA (x) 4.4 6.6 7.1 6.2 6.0 5.5 5.0

126.3 EV / EBIT (x) 9.2 18.0 20.4 9.6 9.9 8.8 7.8

32% FCF Yield (%) -1.9% -2.2% 6.1% 6.6% 8.2% 9.6% 9.8%

Dividend yield (%) 0.2% 2.1% 1.7% 1.2% 1.2% 1.2% 1.2%

#REF!

CMR PW Key Ratios 2011 2012 2013 2014 2015E 2016E 2017E

COMH.WA

EBITDA margin 10.3% 9.5% 10.5% 14.8% 13.8% 13.7% 13.6%

EBIT margin 4.9% 3.5% 3.7% 9.6% 8.5% 8.5% 8.6%

Capex / Revenue (x) 11.3% 10.9% 5.8% 8.2% 6.0% 5.0% 5.0%

8.1 Capex / Depreciation (x) 2.1 1.8 0.8 1.6 1.1 1.0 1.0

1,026 Net Debt / EBITDA (x) -0.9 -0.1 -0.4 -0.6 -0.9 -1.2 -1.6

(87) ROA 3.5% 3.5% 2.2% 6.0% 5.7% 5.6% 5.6%

13 ROE 6.0% 6.5% 4.0% 10.5% 9.7% 9.4% 9.2%

952

P&L Summary (PLN m, unless stated) 2011 2012 2013 2014 2015E 2016E 2017E

Revenue 786 884 939 1,038 1,079 1,131 1,173

% change 3.2% 12.5% 6.2% 10.5% 4.0% 4.8% 3.7%

1Q15 results 15-May-15 EBITDA 81 84 99 153 149 155 159

2Q15 results 28-Aug-15 % change 13% 4% 18% 55% -3% 4% 3%

% margin 10.3% 9.5% 10.5% 14.8% 13.8% 13.7% 13.6%

Depreciation & Amortisation (42) (53) (64) (54) (58) (58) (58)

EBIT 39 31 34 99 92 97 101

Konrad Księżopolski % margin 4.9% 3.5% 3.7% 9.6% 8.5% 8.5% 8.6%

+48 22 347 40 74 % change 27.7% -20.7% 12.0% 188.8% -8.0% 5.5% 5.0%

Net Financials 1 9 2 (5) 3 3 4

Other Pre-tax Income 0 0 0 0 0 0 0

Pre-Tax Profit 40 40 37 94 95 100 106

Income Tax Expense (7) (2) (13) (19) (21) (22) (23)

Discontinued Operations 0 0 0 0 0 0 0

Minority Interests (3) (3) (2) 1 1 1 1

Net Income 36 41 25 73 73 77 81

% margin 4.6% 4.6% 2.7% 7.0% 6.8% 6.8% 6.9%

% change -17% 12% -38% 191% 0% 5% 6%

Reported EPS (PLN) 4.5 5.0 3.1 9.0 9.0 9.5 10.0

Recurrent EPS (PLN) 4.5 5.0 3.1 9.0 9.0 9.5 10.0

DPS (PLN) 0.1 1.5 1.5 1.5 1.5 1.5 1.5

Payout Ratio 2% 33% 30% 53% 17% 17% 16%

Shares in Issue (Less Treasury) (m) 8.1 8.1 8.1 8.1 8.1 8.1 8.1

Cash Flow Summary (PLN m) 2011 2012 2013 2014 2015E 2016E 2017E

Net income 33 37 23 74 73 77 81

D&A 42 53 64 54 58 58 58

Change in Working Capital (6) (11) 25 41 (4) (12) (10)

Other Operating Cash Flow (10) (13) (8) (12) 0 0 0

Operating Cash Flow 59 67 104 157 126 123 129

Capital Expenditure (89) (97) (55) (85) (65) (57) (59)

Free Cash Flow (31) (29) 50 72 62 67 71

Acquisitions & Disposals 8 (0) (0) (6) 0 0 0

Dividend Paid to Shareholders (1) (12) (12) (13) (12) (12) (12)

Equity Raised / Bought Back 0 0 0 0 0 0 0

Other Financing Cash Flow 14 13 (2) (0) 0 0 0

Net Cash Flow (10) (47) 27 65 49 55 59

Balance Sheet Summary (PLN m) 2011 2012 2013 2014 2015E 2016E 2017E

Cash & Equivalents 193 143 169 232 282 336 395

Tangible Fixed Assets 328 358 361 387 465 463 464

Goodwill & Intangibles 37 44 44 44 44 44 44

Other Assets 464 602 568 552 501 523 540

Total Assets 1,022 1,147 1,142 1,216 1,292 1,367 1,443

Interest Bearing Debt 117 131 131 145 145 145 145

Trade liabilities 155 249 227 176 191 201 208

Other Liabilities 141 141 146 189 189 189 189

Total Liabilities 413 522 505 510 525 535 542

Shareholders' Equity 600 622 626 693 754 819 888

Minority Interests 9 3 11 13 13 13 13

Total Equity 1,022 1,147 1,142 1,216 1,292 1,367 1,443

Net Debt (76) (12) (38) (87) (137) (191) (250)

Source: Company data, Reuters, Bloomberg, BESI Research for estimates

Revenues and EBITDA margin (2010-2016E)

Shareholders

Enterprise Value (PLN m)

Forthcoming Catalysts

BESI Equity Research Analyst

[email protected]

Revenues Breakdown (2014)

Reuters

Shares in Issue (Less Treasury)(m)

Market Cap (PLN m)

2014 Net Debt (PLN m)

Adjustments for Associates & Minorities (PLN m)

Comarch

Share Price (28/04/2015, PLN):

Upside / Downside potential

Previous Fair Value (PLN):

% change to fair value

Bloomberg

Janusz Filipiak

41%

Elzbieta Filipiak

28%

MetLife OFE5%

ING OFE4%

Legg Mason TFI

3%Others19%

Share in votes

TMT25%

Finance&Banking

13%

Trade & serv ices

12%

Industry & Utilities

9%

Public16%

SME - Poland10%

Others2%

SME - DACH10%

Medical3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

200

400

600

800

1000

1200

1400

2011 2012 2013 2014E 2015E 2016E 2017E

Revenues (PLN m) EBITDA margin

Janusz Filipiak

33%

Elzbieta Filipiak

10%MetLife OFE

9%

ING OFE7%

Legg Mason TFI

6%

Others35%

Share in equity

of 24

Comarch - 1Q15 preview – results due on 15th

May

Key highlights:

- We expect revenues to grow by 7% YoY driven by Trade&Services,

SME Poland, SME-DACH and Medical segments which in our view

could report a double-digit pace.

- The Public segment should still perform relatively well in 1Q despite the

expected slowdown related to the EU budget transition. The impact on

revenues from this should be visible in 2H15 but already visible in the

backlog, which is a leading revenue indicator. Comarch no longer

publishes its backlog, but the CFO has given verbal soft guidance to

analysts of mid-single digit backlog growth in 2015; the Polish part should

see a decline (impact from fewer public contracts) while the foreign

backlog should continue to grow at a double-digit pace.

- Changing revenue mix with more revenues from high margin services

and cloud solutions should have a positive impact on the gross

margin which we forecast to be 22% vs 20.6% in 1Q14. We expect

SG&A costs to grow in line with the revenue pace reaching PLN

39.3m (vs PLN 36.8min 1Q14) with an unchanged SG&A ratio at 17.5%.

- Weakened EUR vs PLN should negatively impact the EBIT line (value

of foreign contracts) to the tune of ca. PLN 4m but this should be

partially offset by a positive FX revaluation of EUR debt.

OUTCOME: POSITIVE. Overall, we expect Comarch to post a positive set of

results with a continued positive trend in the gross margin (supported in the

past few quarters by an improving revenue mix towards high margin services).

Given the record high results reported in 2014, we also would expect Comarch

to pay at least the same dividend as in 2014 with a DPS PLN 1.5, implying a DY

of 1.2%.

Figure 1 Comarch – quarterly results

Source: BESI Research for estimates, Company Data

Figure 2 Comarch – quarterly revenues by sectors


(PLN m) 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15E % YoY

Revenues 188.1 203.6 233.5 314.0 208.7 221.0 244.8 363.3 224.4 7%

Gross income 37.6 44.4 36.1 87.8 43.0 53.7 80.6 127.9 49.4 15%

gross margin 20.0% 21.8% 15.5% 28.0% 20.6% 24.3% 32.9% 35.2% 22.0%

EBITDA 17.9 16.8 13.9 45.3 21.0 26.3 46.3 59.7 24.5 16%

EBITDA margin 9.5% 8.3% 6.0% 14.4% 10.1% 11.9% 18.9% 16.4% 10.9%

D&A -16.5 -15.3 -16.8 -15.9 -13.3 -13.2 -13.3 -14.1 -14.4 9%

EBIT 1.4 1.5 -2.8 29.3 7.8 13.1 33.0 45.6 10.1 30%

EBIT margin 0.8% 0.7% -1.2% 9.3% 3.7% 5.9% 13.5% 12.6% 4.5% 21%

Net income 1.4 1.0 0.2 22.9 5.4 7.9 21.4 38.3 8.4 55%

Net profit margin 0.7% 0.5% 0.1% 7.3% 2.6% 3.6% 8.8% 10.5% 3.8%

Comarch 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15E YoY

TMT 46.3 51.7 45.9 74.3 54.3 56.1 50.4 99.4 57.0 5%

Finance&Banking 26.6 36.8 32.1 46.2 27.5 34.2 33.1 44.2 28.0 2%

Trade & services 22.3 24.9 19.2 35.9 24.7 28.7 31.7 35.1 29.7 20%

Industry & Utilities 26.5 18.9 20.7 27.8 17.8 22.8 22.2 31.2 17.8 0%

Public 21 29 60 48 26 23 54 70 26 0%

SME - Poland 17.1 13.9 17.7 35.6 21.6 20.8 21.3 35.8 24.9 15%

Others 2.7 3.2 4.0 5.3 5.7 4.8 4.3 4.7 5.8 3%

SME - DACH 24.6 22.6 26.3 27.4 23.0 26.6 25.0 27.8 25.3 10%

Medical 1.5 2.2 7.8 13.4 8.6 4.1 2.9 15.5 10.3 20%

of 24

Financial forecasts

We are in line with Bloomberg consensus on revenue forecasts but we are

visibly above (by 7%/14%/8%) on the EBITDA line in 2015-17E. In our view, this

could because the much better than expected results in 2014 came from the

improved revenue mix which in our view can be maintained in 2015 and

onwards. As a result, this has had positive impacts on our EBITDA and

bottom-line forecasts. We would not be surprised to see some street

upgrades.

BESI vs Bloomberg consensus

Figure 3 BESI vs BBG

Source: BESI Research for estimates, Bloomberg for consensus

Valuation

We value Comarch using two methods: DCF and peer multiples. Our final fair

value is an average of these two methods (each with a 50% weighting).

DCF

We use a DCF with a 10Y forecast period; we use net debt 2014 and FCF in

2015E-2023E. We use a RFR of 2.5% and beta of 1.0x.

Figure 4 DCF


Figure 5 Comarch – sensitivity analysis


(PLN m) BESI BBG % diff BESI BBG % diff BESI BBG % diff

Revenues 1,079 1,074 0% 1,131 1,108 2% 1,173 1,190 -1%

EBITDA 149 139 7% 155 136 14% 159 147 8%

EBIT 92 99 -8% 97 102 -5% 101 114 -11%

Net income 73 75 -2% 77 69 11% 81 87 -6%

2015E 2016E 2017E

(PLN m) 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E >2023

EBIT 91.6 96.6 101.4 106.3 111.4 116.8 122.5 128.6 135.0

Tax rate 22% 22% 22% 22% 22% 22% 22% 22% 22%

NOPAT 71.4 75.4 79.1 82.9 86.9 91.1 95.6 100.3 105.3

D&A 57.7 58.0 58.0 57.8 57.2 56.5 56.1 56.0 56.2

CAPEX -64.7 -56.6 -58.7 -54.7 -50.4 -52.3 -54.2 -56.3 -58.4

Change of Working Capital -4.4 -11.7 -10.1 -10.0 -10.6 -11.1 -11.6 -12.2 -12.9

FCF 59.9 65.2 68.3 75.9 83.1 84.3 85.8 87.8 90.2 90.2

FCF change -32% 9% 5% 11% 9% 1% 2% 2% 3% 1%

WACC Calculation

debt/equity 11.3% 10.6% 10.1% 9.5% 9.0% 8.5% 8.1% 7.6% 7.2% 7.2%

risk free rate 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5%

credit premium 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

market premium 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%

beta 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0

cost of debt 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 4.5%

cost of equity 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5% 7.5%

WACC 7.1% 7.1% 7.1% 7.1% 7.1% 7.2% 7.2% 7.2% 7.2% 7.3%

PV (FCF) 503

PV (RV) 792

net debt, end 2014 -87

Fair Value 1,382

# of shares (m) 8.13

Fair Value/share 170.1

DCF valuation

Sensitivity table

WACC WACC

### 5.8% 6.3% 6.8% 7.3% 7.8% 8.3% 8.8% 5.8% 6.3% 6.8% 7.3% 7.8% 8.3% 8.8%

-1% 161.1 155.0 149.7 145.1 141.0 137.3 134.0 -1% -5% -9% -12% -15% -17% -19% -21%

0% 177.4 169.1 162.0 155.9 150.5 145.8 141.6 0% 4% -1% -5% -8% -11% -14% -17%

TGR 1% 200.6 188.5 178.5 170.1 162.9 156.7 151.3 TGR 1% 18% 11% 5% 0% -4% -8% -11%

2% 236.0 217.0 201.9 189.7 179.5 171.0 163.8 2% 39% 28% 19% 12% 6% 1% -4%

3% 296.9 262.8 237.6 218.4 203.1 190.8 180.6 3% 75% 55% 40% 28% 19% 12% 6%

of 24

Peer valuation

Figure 6 Peer valuation – priced as on 28/04/2015

Source: Bloomberg consensus estimates for not rated stocks and Sygnity and Asseco Poland, BESI Research for Comarch estimates. ASSECO POLAND (BUY, FV PLN 60), SYGNITY (BUY, FV PLN 24).

2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E 2015E 2016E 2017E

Microsoft msft us 49.0 10.3 9.7 8.9 18.9 17.5 15.8 34.1% 35.3% 34.6% 2.5% 2.5% 2.9%

Oracle orcl us 43.7 8.8 8.9 9.1 14.8 14.4 13.7 53.5% 51.1% 48.5% 1.2% 1.3% 1.3%

SAP sap gr 69.9 13.1 12.4 11.8 19.2 18.0 17.0 34.5% 34.5% 34.6% 1.6% 1.8% 1.9%

Accenture acn us 93.4 11.6 10.9 10.2 19.6 18.3 16.9 16.5% 16.6% 16.6% 2.2% 2.4% 2.5%

IBM ibm us 171.4 8.6 8.6 7.9 10.9 11.0 10.2 27.6% 28.0% 29.5% 2.7% 2.9% 2.8%

Atos ato fp 71.1 5.6 5.2 4.7 13.0 11.8 11.1 11.0% 11.2% 12.1% 1.1% 1.3% 1.5%

Cap Gemini cap fp 81.8 9.5 8.4 8.0 18.9 16.5 15.1 11.3% 11.7% 12.1% 1.7% 1.8% 1.8%

Indra Sistemas idr sm 11.3 9.4 8.9 8.4 15.6 14.0 12.6 8.9% 9.1% 9.4% 2.6% 2.8% 3.0%

Tieto tie1v fh 21.2 7.8 6.9 6.8 15.4 13.5 12.9 13.2% 14.5% 14.6% 5.6% 6.1% 6.5%

Gemalto gto na 82.4 12.0 10.5 9.3 20.1 17.5 15.5 18.4% 19.4% 20.1% 0.6% 0.6% 0.7%

Softw are AG sow gr 26.5 9.7 9.3 8.9 16.1 15.3 14.3 28.0% 28.5% 29.5% 1.9% 2.0% 2.2%

Dassault Systemes dsy fp 69.3 18.3 16.4 14.9 32.8 29.2 25.5 32.5% 33.5% 33.8% 0.7% 0.8% 0.9%

Sage sge ln 486.8 13.3 12.6 11.9 19.6 18.4 17.2 30.0% 30.2% 30.5% 0.0% 0.0% 0.0%

HP hpq us 33.0 4.9 5.0 5.5 8.9 8.6 8.7 12.8% 12.7% 11.7% 2.0% 2.1% 2.2%

Wincor Nixdorf w in gr 35.2 10.0 7.3 6.0 36.2 15.8 11.4 6.6% 7.5% 8.3% 2.1% 3.4% 5.0%

Sopra Group sop fp 75.6 6.8 5.7 4.9 14.4 10.7 8.5 7.3% 8.4% 9.5% 2.2% 2.5% 2.9%

Temenos temn sw 33.9 16.0 13.3 12.0 22.3 19.5 17.1 35.1% 37.7% 38.2% 1.4% 1.5% 1.7%

Sw isslog Holding sop fp 1.3 8.5 7.9 6.8 21.0 19.1 16.3 5.0% 5.2% 5.6% 1.5% 1.9%

Cognizant Tech Solutions ctsh us 59.6 13.6 11.8 10.3 20.6 17.7 15.2 20.5% 20.6% 20.5% 0.0% 0.0% 0.0%

Fiserv intu us 79.1 12.6 11.8 11.0 20.6 19.0 17.8 33.4% 33.8% 34.2% 0.0% 0.0% 0.0%

International Median 9.8 9.1 8.9 18.9 16.5 15.1 20.5% 20.6% 20.3% 1.7% 1.9% 2.1%

International Average 10.5 9.6 8.9 18.1 15.5 13.9 22.3% 22.7% 22.7% 9.8% 11.3% 13.1%

Sygnity (BBG) sgn pw 12.6 3.3 3.1 2.9 8.1 7.1 6.3 8.4% 8.7% 8.9% 0.0% 0.0% 0.0%

Comarch (BBG) cmr pw 126.3 6.8 7.0 6.5 13.8 14.9 11.8 12.1% 12.3% 12.4% 1.2% 1.7% 1.8%

Asseco Poland (BBG) acp pw 61.9 7.8 7.6 7.4 14.8 14.2 13.6 14.5% 14.3% 14.2% 4.7% 4.9% 5.2%

Comp cmp pw 69.7 8.1 8.6 8.0 12.9 13.6 11.8 11.7% 11.3% 1.6% 2.2% 2.3%

Asseco South Eastern Europe ase pw 9.7 6.3 5.9 5.6 13.0 12.4 11.8 14.1% 14.4% 15.2% 3.8% 4.0% 4.8%

Asseco Business Solutions abs pw 15.7 9.4 9.1 8.6 15.3 13.3 15.0 31.8% 31.9% 31.7% 5.6% 5.7% 6.1%

Domestic Median 7.3 7.3 6.9 13.4 13.4 11.8 13.1% 13.3% 14.2% 2.7% 3.1% 3.5%

Domestic Average 6.9 6.9 6.5 13.0 12.6 11.7 15.4% 15.5% 16.5% 2.8% 3.1% 3.4%

MEDIAN 9.4 8.8 8.2 15.6 14.9 13.7 16.5% 16.6% 16.6% 1.7% 2.0% 2.2%

AVERAGE 9.7 9.0 8.3 16.9 14.9 13.5 20.8% 21.1% 21.4% 8.2% 9.5% 10.9%

Comarch (BESI) 6.0 5.5 5.0 14.0 13.3 12.6 14.8% 13.8% 13.7% 1.2% 1.2% 1.2%

Comarch vs international peers -39% -40% -44% -26% -19% -17% -28% -33% -33% -28% -37% -43%

Comarch vs domestic peers -17% -25% -29% 5% -1% 6% 13% 4% -3% -56% -61% -66%

Fair Value/share (PLN)

Dividend Yield

164.3

Company TickerShare

price

EV/EBITDA P/E EBITDA margin

of 24

Financials

Income statement

Figure 7 Comarch – P&L

Source: Company data, BESI Research for estimates

Revenue mix

Figure 8 Comarch – revenue mix


Comarch - P&L (PLN m) 2011 2012 2013 2014 2015E 2016E 2017E

Revenues 786 884 939 1,038 1,079 1,131 1,173

YoY 3% 13% 6% 11% 4% 5% 4%

Gross income 192 195 210 305 284 294 306

Gross margin 24.4% 22.1% 22.4% 29.4% 26.3% 26.0% 26.1%

Sales costs -83 -85 -99 -110 -113 -118 -123

as % of revenues 10.5% 9.7% 10.5% 10.6% 10.5% 10.5% 10.5%

G&A costs -75 -73 -72 -77 -80 -79 -82

as % of revenues 9.5% 8.3% 7.7% 7.4% 7.4% 7.0% 7.0%

SG&A ratio 20.0% 18.0% 18.2% 18.0% 17.9% 17.5% 17.4%

EBITDA 81 84 99 153 149 155 159

% YoY change 13% 4% 18% 55% -3% 4% 3%

% EBITDA margin 10.3% 9.5% 10.5% 14.8% 13.8% 13.7% 13.6%

D&A -42 -53 -64 -54 -58 -58 -58

EBIT 39 31 34 99 92 97 101

% YoY change 28% -21% 12% 189% -8% 6% 5%

% EBIT margin 4.9% 3.5% 3.7% 9.6% 8.5% 8.5% 8.6%

Financial income/(expense), net 1 9 2 -5 3 3 4

Income tax -7 -2 -13 -19 -21 -22 -23

Minority interest in earnings -3 -3 -2 1 1 1 1

Net income 36 41 25 73 73 77 81

% YoY change -17% 12% -38% 191% 0% 5% 6%

% net margin 4.6% 4.6% 2.7% 7.0% 6.8% 6.8% 6.9%

EPS (PLN) 4.5 5.0 3.1 9.0 9.0 9.5 10.0

% YoY change -17% 12% -38% 189% 0% 5% 6%

Comarch - revenue split 2011 2012 2013 2014 2015E 2016E 2017E

TMT 212 199 218 260 284 309 321

YoY 28% -6% 10% 19% 9% 9% 4%

Finance&Banking 136 230 142 139 140 141 142

YoY 0% 69% -38% -2% 0% 1% 1%

Trade & services 76 74 102 120 140 145 151

YoY -19% -4% 39% 17% 16% 4% 4%

Industry & Utilities 63 70 94 94 94 94 94

YoY -13% 11% 34% 0% 0% 0% 0%

Public 91 102 158 172 152 152 155

YoY 36% 12% 55% 9% -11% 0% 2%

SME - Poland 72 74 84 99 106 113 120

YoY 7% 3% 14% 18% 6% 6% 6%

Others 16 14 15 20 20 21 21

YoY 34% -9% 5% 29% 3% 3% 3%

SME - DACH 119 125 101 102 107 112 117

YoY -19% 4% -19% 1% 5% 5% 5%

Medical 0 8 25 31 37 45 51

YoY 211% 25% 20% 20% 15%

of 24

Balance sheet

Figure 9 Comarch – Balance sheet


Cash Flow

Figure 10 Comarch – Cash flow


Comarch - Balance sheet (PLN m) 2011 2012 2013 2014 2015E 2016E 2017E

Total fixed assets 476 529 516 551 558 556 557

PP & E, and intangibles 328 358 361 387 465 463 464

Intangibles and goodw ill 37 44 44 44 44 44 44

Other f ixed assets 111 127 111 119 49 49 49

Total current assets 546 618 626 665 734 810 886

Inventory 44 62 54 53 57 60 62

Trade and other receivables 307 410 395 373 388 407 422

Other current assets 2 2 8 7 7 7 7

Cash and equivalents 193 143 169 232 282 336 395

Total assets 1,022 1,147 1,142 1,216 1,292 1,367 1,443

Total stockholders equity 600 622 626 693 754 819 888

Including minority interest 9 3 11 13 13 13 13

Long-term liabilities 137 136 152 161 38 38 38

Long-term debt 89 95 111 123 0 0 0

Other long-term liabilities 48 42 41 38 38 38 38

Short-Term Liabilities 276 385 353 349 487 497 505

Accounts payable 155 249 227 176 191 201 208

Short-term debt 28 37 21 22 145 145 145

Other short-term liabilities 93 99 105 151 151 151 151

Total equity & liabilities 1,022 1,147 1,142 1,216 1,292 1,367 1,443

BVPS (PLN) 74.6 77.2 77.8 85.3 92.8 100.8 109.3

Comarch - Cash Flow (PLN m) 2011 2012 2013 2014 2015E 2016E 2017E

Net income 33 37 23 74 73 77 81

D&A 42 53 64 54 58 58 58

Change in Net Working Capital -6 -11 25 41 -4 -12 -10

Other -10 -13 -8 -12 0 0 0

Cash Flow from Operations 59 67 104 157 126 123 129

Capex -89 -97 -55 -85 -65 -57 -59

Other 7 -19 -9 7 0 0 0

Cash Flow from Investing Activities -82 -116 -63 -79 -65 -57 -59

Change in Debt 18 20 3 4 0 0 0

Issue of shares 0 0 0 0 0 0 0

Dividends paid -1 -12 -12 -13 -12 -12 -12

Other -4 -7 -5 -4 0 0 0

Cash Flow from Financing Activities 13 1 -14 -14 -12 -12 -12

Beginning cash 200 193 142 168 232 282 336

Increase/(decrease) in cash -10 -47 27 65 49 55 59

Ending cash 193 142 168 232 282 336 395

DPS (PLN) 0.1 1.5 1.5 1.5 1.5 1.5 1.5

of 24

Company description

Genesis

Comarch was set up in 1993 in Krakow and floated on the WSE in 1999. The

founder, current CEO and the biggest shareholder is Janusz Filipiak, having a

32.82% equity stake (and 41.26% stake in votes) followed by his wife Elzbieta

Filipiak with a 10.4% equity stake (and 27.96% in votes). The rest is divided

between private and institutional investors where MetLife OFE has the biggest

equity stake of 9.05%.

Figure 11 Comarch – share in equity, April 2015 Figure 12 Comarch – share in votes, April 2015

Source: BESI Research, Company Data Source: BESI Research, Company Data

Organizational structure and sales network

Comarch’s group structure consists of 40 subsidiaries located in 20 countries

and 45 cities in 4 continents where Comarch has 100% control. The only

subsidiary with a less than 100% stake is MKS Cracovia SSA football club

where Comarch controls 66.11% of the equity.

Figure 13 Comarch – international presence

Source: BESI Research, Company Data

Revenue structure

Comarch has a diversified product portfolio, reporting revenues in nine

segments. TMT is currently the biggest followed by public and

finance&banking. However, thanks to a good portfolio of products within trade

Janusz Filipiak32.9%

Elzbieta Filipiak10.4%MetLife

OFE9.1%

ING OFE6.7%

Legg Mason TFI6.4%

Others34.6%

Janusz Filipiak41.3%

Elzbieta Filipiak28.0%

MetLife OFE4.9%

ING OFE3.6%

Legg Mason TFI3.5%

Others18.8%

of 24

& services like loyalty systems (customer loyalty points systems) which are

sold internationally, this segment currently enjoys the highest growth rate and

should in 2015 become the third biggest contributor, outpacing F&B. Due to

the transition of the EU budget and delay in announcement of

tenders/contracts, we expect the public segment’s revenues to fall by 11% YoY

in 2015. Conversely, we expect the trade & services segment to keep growing

at 16% YoY driven by margin accretive products and services (eg. loyalty

systems). We also expect the TMT segment to grow, but at 9% vs 19.4% in

2014, as consolidation of the telco market in Germany will result in the

cancellation of duplicate IT systems (ePlus and Telefonica). The good macro

situation in Poland (latest Ministry of Finance forecasts, from 20 April, see

GDP in Poland growing by 3.4% in 2015, 3.8% in 2016 with employment at 8.2%

in 2015) should further support the small and mid-size enterprises segment

where Comarch sells its ERP solutions. As a result, we expect the SME –

Poland segment to keep on growing at +6.5% in 2015. We also expect double

digit growth of +20% YoY in the Medical segment where Comarch sees

increasing demand for IT healthcare solutions. We expect the SME - DACH

segment to speed up its growth to 4.6% in 2015 (vs +1.4% in 2014) driven by

increased demand for solutions for building internet stores. Despite seeing

increased investments by utility companies, we expect the industry & utilities

segment’s sales to remain flat also in 2015 as Comarch does not have its own

products and is selling third-party software. Due to the lack of big contracts in

finance & banking, where ca. 80% of segmental revenues Comarch generates

in Poland, we expect the segment’s sales to rise by just 1% in 2015.

Figure 14 Comarch – revenue mix, % Figure 15 Comarch – revenue mix, PLN m

Source: BESI Research for estimates, Company Data Source: BESI Research for estimates, Company Data

Revenue generating units

Apart from reporting by segments, Comarch also reports by revenue

generating units divided into the Polish market, DACH market, other markets,

Investments, Sport and Medicine.

Figure 16 Comarch – Polish market (PLN m) Figure 17 Comarch – DACH market (PLN m)


Segments defined as Polish, DACH, other markets and Medicine are core

Comarch activity based on products and services that the company is

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015E 2016E

Medical SME - DACH OthersSME - Poland Public Industry & UtilitiesTrade & services Finance&Banking TMT

0

200

400

600

800

1,000

1,200

1,400

2010 2011 2012 2013 2014 2015E 2016E

Medical SME - DACH OthersSME - Poland Public Industry & UtilitiesTrade & services Finance&Banking TMT

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

0

50 000

100 000

150 000

200 000

250 000

300 000

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Net income Revenues net margin

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

-20 000

-10 000

0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

80 000

90 000

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14Net income Revenues net margin

of 24

developing and selling. Medicine is the newest segment with still substantial

R&D costs being incurred. However, Comarch says it believes that in the future

it could be one of the fastest growing ones while building out the current

product portfolio will put Comarch in a better competitive position. We are

also of the view that the Medicine sector, especially in Poland, is

underinvested and that IT solutions would either reduce costs, streamline

some processes or help doctors in their daily work. Comarch is one of the very

few, if not the only IT company in Poland, that is building a product portfolio

in the e-Health area combining IT competencies and building e-Health devices.

Figure 18 Comarch – other markets (PLN m) Figure 19 Comarch – Investments (PLN m)


The e-medicine sector in Poland is still in the initial stages of development.

Although Comarch has a product portfolio, demand is still low so results are

still negative. However, we expect revenues to grow and we believe that

within ca. 2-3 years the sector could break even.

Figure 20 Comarch – sport segment (PLN m) Figure 21 Comarch – Medicine (PLN m)


The sport segment involves the Cracovia Sports club where the main

disciplines are football (the oldest football club in Poland) and ice hockey. The

main idea behind the investment in Cracovia is to promote Comarch’s brand

as part of a marketing strategy. Apart from that, we also believe an important

driver is the Comarch founder, CEO and biggest shareholder’s support of a

local football club and local community. Revenues are generated from

advertising and other services including the sale of tickets or sport events

organized by the club.

Seasonality

The IT business is defined by its seasonality with most revenues and margins

generated in 4Q (calendar) while the weakest quarter is usually 1Q (calendar).

In 2014, 20% of revenues have generated in 1Q14, 21% in 2Q14, 24% in 3Q14

and 35% in 4Q14.

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

-10 000

0

10 000

20 000

30 000

40 000

50 000

60 000

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Net income Revenues net margin

-4 000

-3 000

-2 000

-1 000

0

1 000

2 000

3 000

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Net income Revenues

-6 000

-4 000

-2 000

0

2 000

4 000

6 000

8 000

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Net income Revenues

-8 000

-6 000

-4 000

-2 000

0

2 000

4 000

6 000

1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14

Net income Revenues

of 24

Figure 22 Comarch – revenue seasonality, PLN Figure 23 Comarch – revenue seasonality, %


Even stronger seasonality can be seen at the EBITDA level, over 2007-2014 on

average 46% of yearly EBITDA has been generated in Q4 while in 1Q ca. 12%.

Many contracts are finished in 4Q which often results in generating above

average margins as some of the provisions set aside for contracts are usually

returned to the EBITDA line.

Figure 24 Comarch – EBITDA seasonality, PLN m Figure 25 Comarch – EBITDA seasonality, %


Backlog

Comarch has stopped providing information on its backlog as it believes that

it is not helpful competitively. Currently Comarch only provides verbal backlog

guidance. After meeting with management, guidance for the 2015 backlog is

for mid-single to high-single digit growth YoY, with a flat to slightly negative

rate forecast in Poland (mostly due to a transition period in the public

segment) with a double-digit rate among the international backlog.

Employment & Labour costs

Staffing has always been an important element for Comarch. Firstly, as a

software company its competitive advantage is built on intangibles and staff

know-how. Secondly, headcount costs are a very important element of total

opex. In 2013, they represented ca. 53% of total opex and in 2014 we estimate

ca. 55%.

0

200

400

600

800

1000

1200

2007 2008 2009 2010 2011 2012 2013 2014 2015E

4Q

3Q

2Q

1Q

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009 2010 2011 2012 2013 2014 2015E

4Q

3Q

2Q

1Q

-20

0

20

40

60

80

100

120

140

160

180

2007 2008 2009 2010 2011 2012 2013 2014 2015E

4Q

3Q

2Q

1Q

-20%

0%

20%

40%

60%

80%

100%

2007 2008 2009 2010 2011 2012 2013 2014 2015E

4Q

3Q

2Q

1Q

of 24

Figure 26 Comarch - headcount Figure 27 Comarch – headcount costs as % of opex and revs

Source: Comarch Source: BESI Research, Comarch

Comarch’s hiring can be described in going in cycles. When Comarch sees

good prospects for its backlog, it starts to speed up hiring and perhaps even a

higher than necessary headcount.

Figure 28 Annual revenues per employee, PLN m Figure 29 Annual EBITDA per employee, PLN m

Source: BESI Research, Comarch, Asseco Business Solutions, Asseco Poland Source: BESI Research, Comarch, Asseco Business Solutions, Asseco Poland

When looking at the employee effectiveness ratio, Comarch performs in line

with Asseco Poland (parent company) with ca. PLN 0.2m of revenue

generated per employee. Asseco Business Solutions stands out from the

crowd with a ratio almost twice as high. In our view, this could result from

ABS’ narrower product portfolio and ABS’ specialization in only one area –

ERP which as a result needs less headcount. When looking at EBITDA per

employee, Comarch performs the worst. However, one has to remember that

this is partially the result of the abovementioned argument and also from the

fact that Comarch is carrying out R&D in areas such as e-Health which in the

future could be very attractive but demand for these products and services is

not substantial yet incurs R&D costs. Hence the segment is still ‘below water’,

but in our view is one of the very few with a bright future.

0

500

1000

1500

2000

2500

3000

3500

4000

4500

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

2006 2007 2008 2009 2010 2011 2012 2013 2014

as % of opex as % of revenues

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

2007 2008 2009 2010 2011 2012 2013 2014

Comarch Asseco Business Solutions Asseco Poland (parent)

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.18

2007 2008 2009 2010 2011 2012 2013 2014


of 24

Figure 30 Average monthly salary, PLN Figure 31 Comarch –headcount split

Source: BESI Research, Comarch, Asseco Business Solutions, Asseco Poland Source: BESI Research, Company Data

Comarch is based in Krakow where it has its offices and where it hires most of

its headcount. This is beneficial as Krakow salaries are lower than Warsaw.

However, more and more companies are locating their subsidiaries in Krakow

and competition in the labour market is increasing which affects salaries. Also,

thanks to Comarch’s international expansion it needs to hire employees

abroad and so the average salary also grows. Asseco Business Solutions is,

apart from being one of the most effective and efficient IT companies in

Poland (based on EBITDA margin), also based in Lublin where the labour force

is much cheaper than in Warsaw and Krakow as well. Salary costs have always

been and should remain a focus for Comarch but as long as the backlog is

growing and Comarch expands its operation it should not be a crucial point of

concern, we believe.

Over 2013-14, Comarch’s revenues grew by 17% while its headcount remained

unchanged at ca. 4.2k. As the backlog is constantly growing (verbal guidance

at mid to high single-digit for 2015), Comarch says it plans to adjust its

headcount by hiring 200-400 new employees in 2015. Given the average

salary at Comarch in 2014 at PLN 10k/month, this could result in PLN 24-48m

higher annualized headcount costs. We think that similar to previous years,

Comarch will initially hire more employees than it needs so that Management

can retain only the most productive and promising people. Apart from labour

costs rising from headcount increases, we also expect some salary pressures

among existing employees with rises of 3-5% in 2015E or PLN 15-25m on

annualized numbers. Comarch says it expects the growing revenue base and

improving revenue mix to offset the expected higher labour costs in 2015.

Comarch – profitability vs competition

Comarch has slightly lower profitability than its Polish IT peers. We think it

come from the following elements: Firstly, Comarch’s group structure with

start-up projects (eg. eHealth) and Cracovia sports club where the former by

definition are not measured by current but rather future margins and revenues

while the latter are more unpredictable and not related to Comarch’s

competencies or core activity. In the case of a start-up like eHealth we think it

looks like it will start to pay off and demand for those software and services

should increase in the future, making this segment profitable. The scale of

potential investments and needs in eHealth sector is huge, making this

product category look promising in our view. In the case of Cracovia, it is hard

to expect major changes in the trends and results should remain subject to

fluctuations based on the sport results of the club. Secondly, Comarch has a

broad product portfolio and operations located in 40 subsidiaries and 20

countries which have extra costs that put pressure on margins, especially

when the scale of the business is not big enough. Thirdly, Comarch lacks big

and long-term contracts on above average margins like eg. ZUS in Asseco

Poland.

0

2,000

4,000

6,000

8,000

10,000

12,000

2007 2008 2009 2010 2011 2012 2013 2014


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011 2012 2013

backoffice Sales & marketing Production & consultants

of 24

Figure 32 EBITDA margin – Polish IT Figure 33 SG&A ratio – Polish IT


Fourthly, acquisition of SoftM (Comarch SuB) in 2008 was not very successful

and weighed on Comarch’s results until 2013. The business has now been

restructured and turned positive and is seeing increasing demand for

Comarch’s products. As a result, although historically Comarch generated

lower margins than its peers, we think there are arguments to believe that the

gap should gradually narrow. However, we do not expect Comarch to reach

Asseco Business Solution or Asseco Poland (parent) profitability levels due to

the slightly different business profile and product mix.

Figure 34 ROE – Polish IT Figure 35 ROA – Polish IT


Balance sheet

Comarch is a little different to IT companies when looking at the balance sheet

structure as property, plant & equipement assets (PP&E) account for a much

higher % than at its peers and represent ca. 55% of equity and ca. 32% of total

assets versus eg. 14% and 7% for Asseco Poland. The main reasons are that

Comarch was and is spending part of its capex on development of property

assets where its offices, data centers and e-Health business are located.

Comarch’s headquarters and many offices are in the Special Economic Zone in

Krakow and by developing those assets they are creating new jobs for the

city. As a result Comarch is able to deduct part of those costs and reduce its

tax burden. Comarch says it believes there is also an advantage of having its

own assets in the data center segment as the company can control the data

center, which is much safer for the client and for Comarch (in the data center

business there are huge fines for system failures), as a result making its offer

more competitive. Another advantage of having a higher stake of fixed-assets

is a safer balance sheet structure, allowing it to take on more debt (if needed).

However, the disadvantage is probably that it is not the most efficient way to

use cash, especially in the IT business as possessing own fixed-assets is not

needed as much as IT know-how.

0%

5%

10%

15%

20%

25%

30%

35%

40%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Comarch Asseco Poland (consolidated)

Asseco Poland (parent) Asseco Business Solutions

0%

5%

10%

15%

20%

25%

30%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014



0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Comarch Asseco Poland (consolidated) Asseco Poland (parent) Asseco Business Solutions

0%

5%

10%

15%

20%

25%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Comarch Asseco Poland (consolidated) Asseco Poland (parent) Asseco Business Solutions

of 24

Figure 36 PP&E as % of equity Figure 37 PP&E as % of total assets


Multiples

On Bloomberg consensus, Comarch is currently trading on 2015E EV/EBITDA

of 6.8x vs 7.8x for Asseco Poland and 9.4x for Asseco Business Solutions. On

2015E P/E Comarch is trading at 13.8x vs 14.8x for Asseco Poland and 15.3x for

Asseco Business Solutions. We present charts below with a 10-year history

including the last bull market, not because we want to show what levels could

be achieved because we don´t think it will. Rather, we want to highlight the

multiples versus financial results which were almost three times lower at the

EBITDA level and around two times lower at the net income level (adjusting

for a one-off gain on the sale of Interia.pl stake).

Figure 38 Polish IT – EV/EBITDA & Comarch’s EBITDA Figure 39 Polish IT – P/E & Comarch’s net income


We also would like to point out that we believe current Bloomberg multiples

for Comarch are biased upwards due to low and most probably too low

estimates for 2015 for EBITDA of PLN 139m versus PLN 149m guided by BESI.

In our view, the street has still not updated its forecasts after a very good 2014

and we would expect upward financial results revisions, bringing Comarch’s

multiples down and making it look more attractive.

Figure 40 Polish IT versus WIG index – relative performance

Source: BESI Research, Bloomberg

0%

10%

20%

30%

40%

50%

60%

70%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014



0%

5%

10%

15%

20%

25%

30%

35%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014



0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

0

5

10

15

20

25

30

35

EBITDA (PLN m) - RHS Comarch

Asseco Poland Asseco Business Solutions

0

50

100

150

200

250

0

5

10

15

20

25

30

35

40

Net income (PLN m) - RHS Comarch

Asseco Poland Asseco Business Solutions

WIG Index

-100%

-50%

0%

50%

100%

150%

200%

Jan

-10

Ma

r-10

Ma

y-1

0

Jul-1

0

Se

p-1

0

Nov-

10

Jan

-11

Ma

r-11

Ma

y-1

1

Jul-1

1

Se

p-1

1

Nov-

11

Jan

-12

Ma

r-12

Ma

y-12

Jul-1

2

Se

p-1

2

Nov-

12

Jan

-13

Mar-

13

Ma

y-1

3

Jul-1

3

Se

p-1

3

Nov-

13

Jan

-14

Ma

r-14

Ma

y-1

4

Jul-1

4

Se

p-1

4

Nov-

14

Jan

-15

Ma

r-15

Comarch Asseco Poland Asseco Business Solutions WIG Index

of 24

Products

Comarch’s portfolio combines many products that are classified based on

sectors:

Small and mid-sized enterprises:

- ERP 2.0 systems – software for management of small and mid-sized

companies. Comarch ERP Altum – business platform dedicated to

Polish and international companies from the trade & service segment.

Comarch ERP XL – integrated ERP system for mid-sized and big

companies from production, trade and service segments. Comarch

ERP Optima – integrated ERP program designed for small and mid-

sized accounting firms also available as a SaaS (Software as a

Service) model. Comarch ERP iFaktury24 – innovative program for

invoicing for small companies.

- Mobile applications – service for key processes within a company

organization from mobile devices. In this product portfolio are:

Comarch ERP Mobile Kierownik Sprzedazy, Comarch ERP Mobile

Sprzedaz, Comarch ERP iFaktury24, Comarch WMS Magazynier,

Comarch ERP e-Pracownik, iBard24.

- Comarch WMS – warehouse services for ‘so-called’ high warehousing

with built-in management algorithms.

- E-Commerce – services for sales through the internet based on

wszystko.pl e-store, Comarch ERP e-sklep and Comarch ERP Pulpit

Kontrahenta products.

- Backup & Sync – automated data backup and synchronization of files

in cloud based on iBard24, Comarch Data Center, Comarch EDI.

Comarch has its own data centers based on TIER III and TIER IV

architecture in SaaS (Software as a Service), PaaS (Platform as a

Service), IaaS (Infrastructure as a Service) models.

Figure 41 Comarch – location of data centres


- Business Intelligence – advanced business analytics, controlling,

analysis of social media.

of 24

- All Service – marketing with “All Service” application based on Comarch

beacon which is a small transmitter which, just like a lighthouse,

continually signals its presence. That signal, received by a dedicated

mobile application, allows for establishing close contact with a phone

user by using Bluetooth Smart technology. The Comarch beacon is a hi-

tech solution for modern business. It allows for making individual contact

with a mobile application user when he/she appears close to beacon

transmitters. Unlike GPS, this technology can also be used inside

buildings, allowing not only direct communication with a user in real time,

but also navigation and geolocation. This helps a business understand its

customers’ behavior, which enables it to adjust its offer according to a

user’s preferences. This, in turn, allows it to connect the customer

effectively with its brand and increase their engagement, which

contributes to increasing the ROI. Comarch’s beacon works with many

Comarch applications, supporting the modern business for the Internet of

Things era.

- Accounting services.

Figure 42 Comarch – development of own products

Source: Comarch

Comarch products for Big enterprises:

- Electronic Data Interchange – Comarch EDI and Comarch EDI e-

Market products that enable effective and secure data interchange in

the supply chain with a central product register and management of

data with logistics partners.

- Enterprise Content Management – management of documents and

workflow processes. Enables the streamlining and automatization of

accounts payable docs, change HR data from paper to e-version,

create central registry of workflow.

- Sales Force Applications – support of sale processes and

management of different channels of client services.

- Loyalty Management & Marketing Solutions – systems for

management of loyalty programs and management of marketing

campaigns; analysis of marketing data.

- Information & Communication Technologies – management of IT,

Data Center infrastructure.

- Enterprise Engagement – management of employee incentivisation.

of 24

- ERP Systems & BI – software for management and advanced business

analytics.

Public administration is represented by products in three categories: public

administration, utility and education:

- Public administration – Comarch Egeria, Comarch Workflow, Comarch

Portal, Comarch BI, Comarch e-Investor, Comarch e-Turysta, Comarck

PKI

- Utility – Comarch Egeria, Comarch Egeria dla Przedsiebiorstw

Cieplowniczych, Comarch Egeria dla Przedsiebiorstw Wodno-

Kanalizacyjnych, Comarch Workflow, Comarch Portal, Comarch PKI,

Comarch BI

- Education – Comarch Egeria, Comarch Education, Comarch

Workflow, Comarch Portal, Comarch BI, Comarch PKI

Healthcare – Comarch is undertaking research and development in the e-

Health area. The current offer is a result of integration of IT and medical

solutions. Comarch aims to combine the competencies of medical offices

together with telecommunications and tele-medicine. The current product

offer consists of software for hospitals and community health centers,

software for doctors, software for radiology, Comarch EDM, e-Care platform,

medical equipment and Business Intelligence.

Figure 43 Comarch – Global references / clients by regions


Comarch’s product portfolio in the Finance segment

- Core Banking – is a core banking systems dedicated to both

community and commercial banks but also to start-up projects. The

system can service credits, deposits, settlement accounts.

- CRM & Loyalty – is a set of tools to support processes related to

building and maintaining customer care. The product is dedicated

aimed at banks and other financial institutions. Among product names

are: Comarch Loyalty for Banking, Comarch Virtual Marketplace,

Comarch Campaign Management, Comarch Customer Relationship

Management.

of 24

- Loan Origination Platform – is a product for complex service of credit

processes used both for individual and institutional clients. Comarch

Loan and Origination modules are used by ING Bank, BGZ bank, BOS

Bank, Alior Bank and Bank Pekao.

- Insurance Front-End – is a platform to serve insurance agents,

employees, call center or cooperating institutions like agents and

insurance brokers. Among product names are: Comarch Mobile

Insurance Advisor, Comarch Mobile Claims Adjuster, COmarch

Insurance Customer Relationship Management, Comarch Insurance

Agent Portal.

- NonLife Insurance – product dedicated to insurance companies

offering non-life products to employees and with direct contact with

a client and backoffice departments like finance, accounting, actuary,

reassuring. The system is sued by Uniqua, TU Europa, Concordia

Polska TUW.

- Asset Management – is a multi-module platform for mutual and

pension funds, asset management companies and insurance

companies. The product supports asset management processes,

valuation, accounting, risk management and portfolio efficiency and

regulatory reporting. Comarch Fund Valuation and Comarch Portfolio

Management modules are used in Allianz TFI, Union Investment TFI,

Aviva Investors. Comarch Performance, Attribution & Risk is used in

Allianz TFI and Norwegian Skagen Funds.

- Exchange Trading – is a system for servicing business processes in

brokerage houses for execution and settlement of orders according

to the newest reporting standards. It supports operating risk. It allows

access to brokerage accounts via mobiles. The product is used by

Raiffeisen Brokerage House, ING Securities, BZWBK Brokerage House,

Alior Bank Brokerage House, BOS Brokerage House

- Internet Banking –

- Factoring – product dedicated for banks and financial institutions

offering factoring products for a complex service of business

processes. The product is used by DnB Nord, Getin Bank, BGZ Bank,

Alior Bank, Coface.

- Comarch Smart Finance – is a retail banking platform for consolidated

internet and mobile banking plus private finance management and

communication channels. Comarch Smart Finance offers also advisory

services. The application supports the client loyalty process with the

bank. The product is used by UniCredit Group.

- Life Insurance – is a product for servicing individual and group life

insurance products in insurance companies. It services all business

processes. The product was implemented at TUnZ Europa, WTUZiR

Concordia Capital, Delta Lloyd Life (Belgium).

- Commission & Incentive – it manages sales network, settlement of

bonuses, registry of traineeships and reporting. The product is for

insurance companies, banks, and other enterprises whose activity is

related to sales network management and complex commission and

incentive programs. The product is used by BZ WBK, BNP Paribas,

Lin4, Skandia Zycie, Aegon Services.

- Wealth Management – its multi module platform dedicated to private

banking and wealth management supporting customer care

processes in direct and indirect channels. The product is used by

Skangen Funds, Allianz TFI, Union Investment TFI, Aviva Investors.

- Custody – the complex service of banking operations and securities.

Implemented at mBank, PKOBP, Bank BPH.

of 24

Figure 44 Comarch – Global references / clients by sectors


Comarch’s products and services for Telecommunications are: Customer

Experience Management, Convergent Charging & Billing (billing system that

enables charging clients for additional services in real time), Corporate Self

Care (used for B2B segment for online purchases, data management,

reporting and outlay management), Field Service Management (management

of work, schedule for employees working outside offices), Managed Services,

M2M Platform (supports the sale of machine-to-machine processes within

automotive, FMCG, electronics, white goods, banking and media sectors),

Next Generation Service Assurance (monitoring of complex network services),

Next Generation Service Fulfillment, NFV/SDN, Product Catalog (simplifying

IT architecture and speeding up the process of bringing products onto the

market for sale, management of product life cycle), Self Care (allowing clients

help desk and private account access 24/7).

Comarch Technologies

Comarch Technologies is the youngest product division and was set up in July

2014. It aims to speed up development of products and services through

equipment devices for the safety and privacy of data. Comarch Technologies

is made up of two entities: CyberSecurity and IoT (Internet of Things).

Comarch Technologies’ commercial offer is formed of: (1) consulting in the

CyberSecurity area; (2) development of secured systems including secured

equipment; (3) development and production of devices in designed patterns

and short production series.

Figure 45 Internet of Things – evolution of car key Figure 46 Comarch Technologies – product portfolio


Such a wide product portfolio comes from Comarch’s ongoing investment in

R&D which grows every year and accounts for more than 10% of revenues

generated.

of 24

Figure 47 Comarch – R&D costs Figure 48 Polish IT – capex/revenues


Comarch also has one of the highest capex/revenue ratios among Polish IT

companies. It is partially a result of R&D but also due to the fact that Comarch

has a strategy of investing in property, office space and data centers rather

than renting them (we describe this in more details in the balance sheet

section).

Growth areas for the future

Comarch has defined a general strategy of developing its own products

worldwide.

Comarch has set defined growth areas within different locations:

- Europe – (1) increase headcount in DACH, France, Benelux and Great

Britain; (2) open new branches in Madrid and Milan; (3) reshape the

Vienna branch which will be responsible for sales in Austria and

Central European countries; (4) opportunistic approach to develop

business in Russia and Ukraine. So far, Comarch does not want to

cancel its development in this region, (5) focus to be able to sell the

full scope of Comarch products in Europe (CRM, loyalty systems,

ECM, SFA, BI, Data Centres, Telco, F&B, IoT).

- Middle East – after winning the first contracts (in Dubai, Emirates,

Malaysia, Philippines) Comarch plans to develop centers for business

development in Dubai which will be responsible for selling products in

the Arabian Peninsula and the Far East. Comarch plans to sell

products from telco and F&B.

- Latin America – Comarch has been present for 10 years in LatAm and

plans to invest in business development in Brasil which it feels is a

market full of possibilities.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

0

20

40

60

80

100

120

2010 2011 2012 2013 2014

R&D as % of revenues

0%

2%

4%

6%

8%

10%

12%

14%

16%

2007 2008 2009 2010 2011 2012 2013 2014

Comarch Asseco Poland (parent)

Asseco Poland (consolidated) Asseco Poland (consolidated)

of 24

Valuation Methodology

We value Comarch using two methods: DCF and peer multiples. Our final fair

value is an average of these two methods (each with a 50% weighting). Using

DCF we arrive at PLN 170.1/sh while our peer valuation yields PLN 164.3/sh.

Our final fair value is PLN 167.2/sh, implying 32% potential upside.

Risks to Fair Value

Downside risks:

Salary pressure and lack of qualified workforce.

Unfavorable court decision on ARiMR fine - in 2014 the Agriculture

Agency (ARiMR) calculated a PLN 32.5m fine on delays on the OFSA

contract while the total value of the 36month contract is PLN 29m

gross. Comarch does not agree with the fine and has made only a

PLN2.3m provision for it.

Slowdown in IT market and unsuccessful global expansion.

Value destructive acquisitions.

Weak EUR having a negative impact on top-line and profitability.

Unsuccessful or missed start-up projects.

Upside risks:

Stronger than expected backlog growth and successful global

expansion.

Increasing share of margin accretive services.

Higher than expected demand for Comarch Healthcare products.

Reversal of provision on Russian contract – in 2014 Comarch made a

provision of PLN 13.6m on one Russian contract. The contract is fully

provisioned. We do not rule out the possibility that negotiations with

the client will be successful.

Please visit our website at www.EspiritoSantoIB.co.uk for up to date recommendation charts.

Comarch CMR PW

Report date Recommendation Fair value Share price (PLN)

Recommendation history is not available

Source: Bloomberg, BESI Research

55

65

75

85

95

105

115

125

135

Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15

Buy Trading Buy Neutral Trading Sell Sell Restricted Dropped Coverage

http://www.espiritosantoib.co.uk/

of 24

IMPORTANT DISCLOSURES

140415

This report was prepared by BESI Research, a global brand name for the equity research teams of Banco Espírito Santo de Investimento, S.A., with headquarters in Lisbon, Portugal, of its Branches in Spain and Poland and of its affiliates BES Securities do Brasil, S.A – Corretora de Câmbio e Valores Mobiliários, in Brazil, Execution Noble Limited, in the United Kingdom, and Espirito Santo Securities India Private Limited, in India, all authorized to engage in securities activities according to each domestic legislation. All of these entities are included within the perimeter of the financial group controlled by Novo Banco, S.A., a Portuguese bank authorised and regulated by Banco de Portugal (Portuguese Banking Regulator) and Comissão do Mercado de Valores Mobiliários (the Portuguese Securities Market Authority), which was incorporated on the 3rd of August 2014 in the context of the resolution action taken on the former financial institution Banco Espírito Santo, S.A..

Analyst Certification

Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about those securities or issuers; the issuers were not previously informed about the content of the recommendation included in this research report and the assumptions were not validated by the issuers; (2) no part of his or her compensation is directly or indirectly related to: (a) the specific recommendations or views expressed by that research analyst in the research report; and/or (b) any services provided or to be provided by Banco Espírito Santo de Investimento, S.A. and/or by any of its affiliates to the issuer of the securities under recommendation. Moreover, each of the analysts hereby certifies that he or she has no economic or financial interest whatsoever in the companies subject to his or her opinion and does not own or trade any securities issued by the latter.

Ratings Distribution

BESI Research hereby provides the distribution of the equity research ratings in relation to the total issuers covered and to the investment banking clients as of end of March 2015.

Explanation of Rating System Ratings Distribution

12-MONTH RATING DEFINITION

BUY Analyst expects at least 10% upside potential to fair value, which should be realized in the next 12 months

NEUTRAL Analyst expects upside/downside potential of between +10% and -10% to fair value, which should be realized in the next 12 months

SELL Analyst expects at least 10% downside potential to fair value, which should be realized in the next 12 months

As at end March 2015 Total BESI Research

Total Investment Banking Clients (IBC)

Recommendation Count % of Total Count % of IBC % of Total

12 Month Rating:

Buy 186 46.7% 22 75.9% 5.5%

Neutral 139 34.9% 5 17.2% 1.3%

Sell 71 17.8% 0 0.0% 0.0%

Restricted 1 0.3% 1 3.4% 0.3%

Under Review 1 0.3% 1 3.4% 0.3%

TRADING RATING DEFINITION

TRADING BUY Analyst expects a positive short-term movement in the share price (max duration 3 months from the time Trading Buy is announced) and may move out of line with the fair value estimate during that period

TRADING SELL Analyst expects a negative short-term movement in the share price (max duration 3 months from time Trading Sell is announced) and may move out of line with the fair value estimate during that period

Trading Rating:

Trading Buy 0 0.0% 0 0.0% 0.0%

Trading Sell 0 0.0% 0 0.0% 0.0%

Total recommendations 398 100% 29 100% 7.3%

For further information on Rating System please see “Definitions and distribution of ratings” on: http://www.espiritosantoib-research.com.

Share Prices

Share prices are as at the close of business on the day preceding publication, unless otherwise specified.

Coverage Policy

BESI Research reserves the right to choose the securities it expresses opinions on. The main criteria to choose such securities are: 1) markets in which they trade 2) market capitalisation 3) liquidity, 4) sector suitability. BESI Research has no specific policy regarding the frequency in which opinions and investment recommendations are released.

Representation to Investors

BESI Research has issued this report for information purposes only. This material constitutes "investment research" for the purposes of the Markets in Financial Instruments Directive and as such contains an objective or independent explanation of the matters contained in the material.

Any recommendations contained in this document must not be relied upon as investment advice based on the recipient's personal circumstances. This report is not, and should not be construed as an offer or a solicitation to buy or sell any securities or related financial instruments. The investment discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. The material in this research report is general information intended for recipients who understand the risks associated with investment. It does not take account of whether an investment, course of action, or associated risks are suitable for the recipient. This research report does not purport to be comprehensive or to contain all the information on which a prospective investor may need in order to make an investment decision and the recipient of this report must make its own independent assessment and decisions regarding any securities or financial instruments mentioned herein. In the event that further clarification is required on the words or phrases used in this material, the recipient is strongly recommended to seek independent legal or financial advice. Where an investment is denominated in a currency other than the investor’s currency, changes in rates of exchange may have an adverse effect on the value, price of, or income derived from the investment. Past performance is not necessarily a guide to future performance. Income from investments may fluctuate. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. Any recommendation and opinion contained in this report may become outdated as a consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein. The securities mentioned in this publication may not be eligible for sale in some states or countries.

All the information contained herein is based upon information available to the public and has been obtained from sources believed to be reliable. However, BESI Research does not guarantee the accuracy or completeness of the information contained in this report. The opinions expressed herein are BESI Research present opinions only, and are subject to change without prior notice. BESI Research is not under any obligation to update or keep current the information and the opinions expressed herein nor to provide the recipient with access to any additional information.

BESI Research has not entered into any agreement with the issuer relating to production of this report. BESI Research does not accept any form of liability for losses or damages which may arise from the use of this report or its contents.

This communication has been issued and approved by Execution Noble Limited in the United Kingdom where it is being directed at persons who have professional experience in matters relating to investments. It is not intended for retail customer use.

Ownership and Material Conflicts of Interest

Banco Espírito Santo de Investimento, S.A. and/or its Affiliates (including all entities within BESI Research) and/or their directors, officers and employees, may have, or have had, interests or qualified holdings on issuers mentioned in this report. Banco Espírito Santo de Investimento, S.A. and/or its Affiliates may have, or have had, business relationships with the companies mentioned in this report. However, the research analysts may not purchase or sell securities or have any interest whatsoever in companies subject to their opinion.

Banco Espírito Santo de Investimento, S.A. and/or its Affiliates have a qualified shareholding (1% or more) in Oi. Bradesco has a direct qualified shareholding (20%) in BES Investimento do Brasil, S.A., the parent company of BES Securities do Brasil S.A. CCVM.

Pursuant to Polish Ministry of Finance regulations, we inform that neither does Banco Espírito Santo de Investimento, S.A. nor its Affiliates have any qualified shareholding in the Polish Securities Issuers mentioned in this report in excess of 5% of its total share capital.

Banco Espírito Santo de Investimento, S.A and/or its subsidiaries are liquidity providers or market makers for Altri and Bradesco.

Banco Espírito Santo de Investimento, S.A. and/or its subsidiaries participate or have participated in the last 12 months as a syndicate member in share offerings of 4imprint, Alumetal, EDP, Liberbank, Mota-Engil Africa, NAHL Group, Oi, PGE, Prime Car Management, REN, Skarbiec Holding, SKS Microfinance and Sonae Indústria.

Banco Espírito Santo de Investimento, S.A. and/or its subsidiaries participate or have participated in the last 12 months as a syndicate member in the bond issues of the following companies: Bematech, Kredyt Inkaso, Mota-Engil and Sonae.

Banco Espírito Santo de Investimento, S.A. and/or its subsidiaries provided in the last 12 months investment banking services to the following companies: 4imprint, ACS, Alumetal, Bematech, Brazil Hospitality Group, Burford Capital, Casino Guichard, EDP, EDP Renovaveis, Galp Energia, Inditex, Kcom Group, Kredyt Inkaso, Kruk, Liberbank, Mota-Engil, Mota-Engil Africa, NAHL Group, NOS, Oi, Prime Car Management, REN, Semapa, Skarbiec Holding, SKS Microfinance, Sonae, Sonae Indústria, Sonaecom, Sports Direct and SVG Capital.

http://www.espiritosantoib-research.com/

of 24

Affiliates of Banco Espírito Santo de Investimento, S.A. are partners to Mota-Engil in the infrastructure business in Portugal and other countries. Mota-Engil jointly with ES Concessões, S.G.P.S., S.A. (held by an Affiliate of Banco Espírito Santo de Investimento, S.A.) has created a joint holding company – Ascendi – for all stakes in transportation infrastructure concessions in Portugal and abroad. Banco Espírito Santo de Investimento, S.A. provided, or continues to provide, investment banking services to Ascendi.

Banco Espírito Santo de Investimento, S.A. and/or its subsidiaries do and seek to provide investment banking or other services to the companies referred to in this research report. As a result, investors should be aware that a conflict of interest may exist.

Market Making UK

Execution Noble Limited is a Market Maker in companies covered and may sell to or buy from customers as principal in certain financial instruments listed or admitted to listing on the London Stock Exchange. For information on Companies to which Execution Noble Limited is a Market Maker please see “Execution Noble Limited UK Market Making” on http://www.espiritosantoib-research.com.

Confidentiality

This report cannot be reproduced, in whole or in part, in any form or by any means, without BESI Research’s specific written authorization. This report is confidential and is intended solely for the designated addressee. Therefore any disclosure, replication, distribution or any action taken in reliance on it, is prohibited and unlawful. Receipt and/or review of this research report constitutes your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this report (including any investment recommendations, estimates or price targets without first obtaining express permission from an authorized officer of Banco Espírito Santo de Investimento, S.A.

Regulatory Authorities

Portugal: Banco Espírito Santo de Investimento, S.A. is regulated by the Comissão do Mercado de Valores Mobiliários (the Portuguese Securities Market Authority); Spain: the branch in Madrid is regulated by the Comisión Nacional del Mercado de Valores (the Spanish Securities Market Authority); Poland: the branch in Warsaw is regulated by the Komisja Nadzoru Finansowego (the Polish Financial Supervision Authority); Brazil: BES Securities do Brasil, S.A. - Corretora de Câmbio e Valores Mobiliários is regulated by the Comissão de Valores Mobiliários (the Brazilian Securities Market Authority); United Kingdom: Execution Noble Limited is authorised and regulated by the Financial Conduct Authority; India: Espirito Santo Securities India Private Limited is regulated by the Securities and Exchange Board of India.

NOT FOR DISTRIBUTION TO ANY US PERSON OR TO ANY PERSON OR ADDRESS IN THE UNITED STATES OF AMERICA

http://www.espiritosantoib-research.com/

poland share price performance - bankier.pl · page 2 of 24 summary financial information valuation...

Documents