Polish Equity Research

167

Lithuania Others

AVIA SG RECOMMENDATION

BUY (MAINTAINED)

Seasonally strong results CURRENT PRICE: PLN 36.6

TARGET PRICE: PLN 64 (PREV. 58)

We expect Avia to show a strong set of results on the back of seasonality. Small Planet Airlines should be profitable this quarter, with record high revenues of EUR 30m. In the MRO segment, we expect the strong sales dynamics to be maintained (+90% y/y), however, the slower season in this segment should result in lower profits q/q. BGS should perform relatively well, however, we expect some extra costs connected to the loss of WizzAir to be incurred this quarter. Finally, no surprises in the BAA segment are expected. All in all, we see EUR 64m of sales, an EBITDA of EUR 4.6m, an EBIT of 3.4m and a net profit of EUR 2.6m. Outcome: POSITIVE.

Modlin Airport in Warsaw is now open (July 2012) and low-cost carriers have opened or moved their operations

FL Technics Ulyanovsk (Russia) signed an agreement with the Government of Ulyanovsk district on the construction of the new aircraft maintenance, repair and overhaul centre at the Port Special Economic Zone in Ulyanovsk.

Baltic Ground Services IT completed the certification process required to start rendering ground handling services at the Lamezia Terme Airport, Italy.

Change in Forecasts. We have not implemented any changes to our forecasts since our last recommendation (July 10).

Change in Valuation & Recommendation. Since our last recommendation (July 10), we have increased our DC-based valuation to PLN 64, maintaining our Buy rating. The comparative valuation points to PLN 65 per share vs. PLN 64 in our previous report.

PUBLICATION DATE 14 NOVEMBER 2012

y/y q/q Sales 64 34% 10% EBITDA 4.6 0% 7% EBIT 3.7 -6% 8% Net profit 2.6 -4% 15%

STOCK PERFORMANCE

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100 PriceWIG rebasedBuyHold

The chart measures performance against the WIG index.

On 10/05/2012, the WIG index closed at 44,525.

LAST RECOMMENDATIONS Rec. Date Price Price performance

on issue date

12 month target

absolute relative (p.p)

Buy 7-10-2012 27.50 58.00 33.1% 22.8 Buy 4-26-2012 36.02 58.00 -23.7% -25.1 Buy 1-13-2012 26.00 59.00 38.5% 33.9

COMPANY DESCRIPTION

Avia Solutions Group is a group of companies engaged in the aviation services market in the field of repair, ground handling, charter operations and crew training.

ANALYST Zbigniew Porczyk, CFA

(+48) 22 534 16 10 zbigniew.porczyk@bzwbk.pl

Company Data EURm 2011 2012E 2013E 2014E Reuters/Bloomberg codes ASGG.WA / ASG PW Sales 138 150 160 171 Market capitalisation (PLNm) 216 EBITDA 7.4 12.2 14.6 14.8 Number of shares (m) 5.9 EBIT 4.0 9.2 10.8 11.2 Free float (%) 28.4% Net income 2.8 6.9 8.4 8.7 Avg. daily turnover 3M (PLNm) 0.0 P/E (x) 17.5 7.4 6.1 5.9 Price performance 1M 3M YTD EV/EBITDA (x) 8.3 5.0 4.2 4.1 9.6% 31.6% 29.1% Source: Company data, DM BZ WBK estimates

Polish Equity Research

168

EUR in millions, unless otherwise stated y/y q/q Sales 52 15 16 23 28 24 22 34 47 39 41 58 64 34% 10%

EBITDA 3.2 0.5 1.2 2.1 3.8 1.6 1.9 1.4 4.6 -0.5 2.4 4.3 4.6 0% 7% EBITDA margin 6.1% 3.3% 7.6% 9.2% 13.8% 6.5% 9.0% 4.0% 9.7% -1.2% 5.9% 7.4% 7.2% -2.4 -0.2

EBIT 2.2 0.1 0.8 1.8 3.3 1.2 1.5 0.9 3.9 -1.2 1.6 3.4 3.7 -6% 8% EBIT margin 4.2% 0.9% 5.2% 7.7% 12.1% 5.3% 6.8% 2.6% 8.2% -2.9% 3.9% 5.9% 5.8% -2.4 -0.1

Net profit 1.5 -0.2 0.5 0.6 3.2 1.1 1.0 0.9 2.7 -0.8 1.1 2.2 2.6 -4% 15% Net margin 2.9% -1.1% 3.2% 2.4% 11.7% 4.7% 4.4% 2.5% 5.6% -2.0% 2.8% 3.9% 4.0% -1.6 0.2

Source: Company data, DM BZ WBK estimates Avia SG: Forecasts changes PLN in millions, unless otherwise stated 2012E 2013E 2014E New Previous Change New Previous Change New Previous Change Sales 150 150 0% 160 160 0% 171 171 0% EBITDA 12.2 12.2 0% 14.6 14.6 0% 14.8 14.8 0% EBIT 9.2 9.2 0% 10.8 10.8 0% 11.2 11.2 0% Net profit 6.9 6.9 0% 8.4 8.4 0% 8.7 8.7 0% Source: Company data, DM BZ WBK estimates Avia SG: Valuation changes In PLN per share, unless otherwise stated New Previous Change DCF valuation 64.0 58.0 10% Comparable valuation (based on 2012-2014E) 65.2 64.3 1% Source: Company data, DM BZ WBK estimates Avia SG: Income statement forecast PLN in millions, unless otherwise stated

2010 2011 2012E 2013E 2014E Net sales 88 138 150 160 171 COGS 73 118 128 136 145 Gross profit 14.9 20.0 22.2 24.5 25.5 SG&A 8.3 14.9 13.0 13.7 14.3 Other operating income, net 6.9 4.0 9.2 10.8 11.2 EBITDA 8.7 7.4 12.2 14.6 14.8 Operating profit 6.9 4.0 9.2 10.8 11.2 Net financial income (costs) -0.9 -0.9 -1.0 -0.9 -0.8 Profit before tax 6.0 3.1 8.2 9.9 10.4 Income tax 0.8 0.6 1.3 1.6 1.7 Net profit 5.2 2.8 6.9 8.4 8.7 Gross margin 16.9% 14.5% 14.8% 15.3% 14.9% EBITDA margin 9.8% 5.4% 8.2% 9.1% 8.7% Operating margin 7.8% 2.9% 6.2% 6.8% 6.5% Net profit margin 5.9% 2.0% 4.6% 5.2% 5.1% Source: Company data, DM BZ WBK estimates

Avia SG: Balance sheet forecast PLN in millions, unless otherwise stated

2010 2011 2012E 2013E 2014E Current assets 22 46 53 60 66 Fixed assets 11 25 26 26 26 Total assets 33 70 79 86 92 Current liabilities 19 31 33 34 36 bank debt 7 7 7 7 7 Long-term liabilities 6 12 12 12 12 bank debt 3 8 8 8 8 Equity 7 28 35 40 44 share capital 1 2 2 2 2 Minority Interest 0 0 0 0 0 Total liabilities 33 70 79 86 92 Net debt 6 10 6 2 -1 Source: Company data, DM BZ WBK estimates Avia SG: Cash flow forecast PLN in millions, unless otherwise stated

2010 2011 2012E 2013E 2014E CF from operations -2 -5 9 11 11 CF from investment 0 -16 -5 -4 -4 CF from financing 9 26 0 -3 -4 Net change in cash 7 5 4 4 3 Source: Company data, DM BZ WBK estimates