Polish Equity Quarterly: 1Q 2007 - PBG SA · Polish Equity Quarterly: 1Q 2007 January 2007 1 Executive summary 2 Investment case 3 Poland strategy 6 Company Updates Oil & Gas/Metals

Please note that the information at the back forms an integral part of this report.

Polish Equity Quarterly: 1Q 2007Ripe for the picking?

January 2007

Quarterly Report

Polish Equity Quarterly: 1Q 2007 January 2007

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Executive summary 2 Investment case 3 Poland strategy 6 Company Updates Oil & Gas/Metals & Mining PKN 27 Lotos 29 MOL 31 PGNiG 33 KGHM 35 Telecoms TPSA 37 Netia 39 Banks PKO BP 41 BZ WBK 43 BRE 45 Bank Millennium 47 Bank Handlowy 49 ING BSK 51 Kredyt Bank 53 Media Agora 55 TVN 57 IT Prokom 59 ComputerLand 51 ComArch 63 Emax 65 Industrials Pfleiderer Grajewo 67 Kety 69 Mondi (Frantschach Swiecie) 71 Pulawy 73 Inter Groclin Auto (IGA) 75 Elstar Oils 77 Construction Budimex 79 Polimex 81 PBG 83 Retail AmRest 85 CCC 87 LPP 89 Eurocash 91 Empik 93 CEDC 95 Services Impel 97 Orbis 99 Real estate GTC 101 Echo 103 Dom Development 105 Others Bioton 107 CEZ 109

Throughout this report we use share prices as of 5 January 2007. On 5 January 2007 the WIG20 index closed at 3,202.

Contents

Analysts Tomasz Bardzilowski, CFA Tel. +48 22 520 9979 [email protected] Anna Bossong, CFA Tel. +44 20 7309 7840 [email protected] Marcin Jablczynski Tel. +48 22 520 9962 [email protected] Dan Karpisek, CFA Tel. +420 22111 2570 [email protected] Tomasz Krukowski, CFA Tel. +48 22 520 9859 [email protected] Robert Réthy, CFA Tel. +36 1 374 7934 [email protected] Przemyslaw Sawala-Uryasz Tel. +48 22 520 9960 [email protected] Marcin Szortyka Tel. +48 22 520 9972 [email protected] Lukasz Wachelko Tel. +48 22 520 9965 [email protected] With research assistance from Marcin Gatarz and Iza Rokicka http://research.ca-ib.com 11 January 2007


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Poland’s remarkable domestic growth story should prove unaffected by any global downturn in 2007. We estimate Poland’s GDP growth accelerated to 5.7% in 2006E from 3.5% in 2005 and see no reason to expect any slowdown this year. Doubled EU inflows, booming construction, and strong private consumption may result in GDP growth close to even 6.0% in 2007.

Counting on a second consecutive GDP growth surprise, we remain constructive on Polish equities. Our Polish coverage is trading at 2007E P/E of 16.4x, against 15% earnings growth. We expect 10% weighted return from our covered stocks in 2007 and set a 12-month target for the WIG20 at 3,570.

Our main sector call remains an Overweight on the Banking sector. After a brief pause in 4Q 2006, we return to our Mining vs. Oils call, downgrading Oils to Underweight from Neutral, and upgrading Mining to Overweight from Neutral. Despite stunning performance in 2006, we Overweight the booming construction sector.

Our top picks include: PKO BP, TPSA, KGHM, and TVN. Among mid-caps, we have BUY ratings on: Budimex, Polimex, Kety, CCC and Groclin. Stocks we feel have the least upside potential include: Handlowy, Netia, Lotos, Grajewo, LPP and Dom Development.

Table 1: CA IB recommended sector stance in 1Q 2007 and BUY-rated stocks

Sector Current Previous BUY-rated stocksBanks Overweight Overweight PKO BP, BZ WBK, MillenniumOil & Gas Underweight Neutral n.a.Telecoms Neutral Neutral TPSAReal Estate/Hotels Neutral Neutral n.a.Mining Overweight Neutral KGHMConstruction Overweight Neutral Budimex, PolimexIndustrials Neutral Neutral Kety, Groclin, ElstarMedia Neutral Underweight TVNIT Neutral Underweight ComArchRetail Neutral Neutral CCCOthers Underweight Neutral n.a.

Source: CA IB estimates

Executive summary


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We believe Poland’s remarkable domestic growth story should prove unaffected by any global downturn. We estimate Poland’s GDP growth accelerated to 5.7% in 2006E from 3.5% in 2005 and see no reason to expect any slowdown this year. Doubled EU inflows, booming construction, and strong private consumption may result in GDP growth close to even 6.0% in 2007.

Counting on a second consecutive growth surprise, we remain constructive on Polish equities, even following last year’s 42% rally. Our Polish coverage is trading at 2007E P/E of 16.4x. While this represents a re-rating from 15.7x 2006E P/E a year ago, earnings growth prospects also improved, as we forecast 15% weighted annual earnings growth compared with 8.5% a year ago. Based on our 12-month price targets, we expect 10% weighted return from our coverage in 2007 and set a 12-month target for the WIG20 at 3,570.

The 2006 rally in Poland was supported by massive mutual fund inflows, which amounted to PLN 26.5bn in 2006, an increase of 43% YoY. Mutual fund AUM jumped 61% to PLN 98.8bn with equity investments skyrocketing 139% to PLN 39.0bn, representing 39.5% of AUM at year-end. Pension fund transfers from ZUS grew 15% YoY to PLN 16.2bn, leading to 35.4% AUM growth to PLN 116.6bn. Domestic fund equity investments of PLN 78.9bn represented 18% of the market capitalisation of the WSE and 45% of the WSE’s estimated free float as of 29 December 2006.

We conservatively estimate mutual funds should receive approximately PLN 21.7bn in 2007, which represents an 18.2% drop YoY. Pension funds should receive PLN 17.8bn from ZUS, an increase of 10% YoY. The supply side should increase materially, with an assumed value of IPOs/SPOs of PLN 9bn, a 43% rise YoY. In all, the net balance of flows – which we estimate at PLN 2.5bn, provided mutual fund foreign equity allocations remain unchanged – appear to be much less supportive for the Polish equity market than in 2006.

Nevertheless, despite the seemingly less favourable flow of funds backdrop, we believe 2007 will not mark the end of the bull market for Polish equities. Earnings momentum may surprise on the upside again, especially in domestic cyclicals, where we expect 100% earnings growth from the construction sector, 40% growth in retail and media, as well as eventual earnings recovery in the IT sector.

As a play on domestic growth and the still favourable rates backdrop, we maintain our Overweight on the Banking sector but choose a more selective approach. Within banks, our top pick remains PKO BP (BUY, TP: PLN 53) for its combination of growing retail volumes, continued cost containment and further growth options which we believe offset risks related to management changes. The remaining BUY-rated banks: BZ WBK and Millennium. We like BZ WBK due to its superior ROE, its subsidiaries and recent underperformance, and Millennium as it is growing its retail business and utilising operating leverage. We still HOLD BRE for its remarkable expansion story, but wait for better pricing territory to initiate buying. We would finance our overweight by selling Kredyt Bank, Handlowy (both downgraded) and ING; the former due to a stretched valuation, and two latter ones for their stagnating businesses.

Investment case


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After a brief pause in 4Q 2006, we return to our Mining vs. Oils call, downgrading Oils to Underweight from Neutral, and upgrading Mining to Overweight from Neutral. We see no positive catalyst for the Oil & Gas sector while the company-specific risks point to a downside. The price of crude oil seems to be bottoming, yet the refining outlook remains bleak. We prefer PKN’s (HOLD, TP: PLN 51) petrochemical support against Lotos’ (HOLD, TP: PLN 46) refining leverage. We maintain HOLD rating on PGNiG. Although a 10% increase in natural gas tariffs (effective from 1 January) beat our expectation, unusually warm weather may undercut profitability in 1Q 2007.

In our central global scenario, we assume that on a 3-6 month perspective, copper will recover to December 2006 levels of US$ 6,600. However, we note that KGHM (BUY, TP: PLN 103) looks undervalued even on the US$ 5,600/t copper forecast we are using for our earnings estimates (in line with the copper futures curve), trading at 2007 core business P/E of 4.7x and offering 10% dividend yield.

We BUY TPSA due to the high dividend yield prospects and attractive valuation. TPSA underperformed MSCI European Diversified Telecoms by 18.8 percentage points in 2006. TPSA’s 2007E EV/EBITDA multiple of 5.2x represents 5.0% and 13.7% discounts to MTel and Telefonica O2 multiples, unjustified in our view as we believe our forecast reflects Polish regulatory risks. The announcement of the dividend policy (due 1Q 2007) could be a catalyst. We forecast a 10% yield assuming the previous gearing guidance is maintained.

We are upgrading TVN to BUY from Hold and Media to Neutral from Underweight. We would turn our attention to expected strong 4Q 2006 results, robust 2007 outlook with an expected 15-20% increase in TVN’s ad prices and new entrants on the market posing no significant threat in 2007, in our view. We see no catalysts for Agora.

We are upgrading the IT sector to Neutral (previously Underweight) due to the improved visibility of public administration projects subsidised by EU funds with an estimated price tag of ca. PLN 2bn. However, our only BUY in the sector is ComArch (TP: PLN 225), trading at a slight discount to EU software players with no premium for its superior earnings growth track record (2004-2006E CAGR 122%) and continued success in the export arena. Prokom Group (HOLD, TP: PLN 146) appears to be the best means of gaining exposure to public sector demand while diversifying the business risk by benefiting from the dynamic CEE expansion of its subsidiary Asseco Poland. This said, Prokom’s 4Q 2006 results are likely to bring little inspiration. ComputerLand (upgraded to HOLD, TP: PLN 114), potentially emerging as a turnaround candidate, should see its earnings up ca. 50% YoY in 4Q 2006 after a year-long reorganisation.

We Overweight the Construction sector, even despite its stunning rally in 2006. Construction output increased by 18% YoY in January-November 2006 and the positive outlook is underpinned by the increasing flow of EU funds (EUR 20bn planned for 2007-2013), acceleration of fixed investments among corporates and seemingly insatiable demand for residential properties in large cities. Our top pick is Budimex, where we believe the market continues to undervalue the company’s housing business while the flow of EU funds suggests a recovery in road construction margins. We are also buyers of Polimex. We like the company for its persistently implemented M&A expansion strategy and the discount to its peers in comparative valuation.


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The real estate/hotel sector was the top performer in 2006. After a 32% rally we are downgrading Echo to a HOLD, mainly due to the share price performance. We are upgrading Orbis’ (HOLD) target price to PLN 67 as hotel industry operating trends look favourable with RevPar set to grow in Poland by ca. 11% p.a. in the next three years. Reported earnings to be boosted by asset disposal. We are also upgrading GTC to HOLD from Sell, raising our target price to PLN 43. GTC surprised us on the upside in terms of new sites acquisitions, having purchased plots representing ca. 105,000m2 of leaseable/sellable area in just 4Q 2006.

Our other BUY-rated mid-caps include: Kety, CCC, Groclin and Elstar Oils. We see Kety (TP: PLN 205) as a still attractively valued (2007E P/E of 15.2x) play on Poland’s strong macro environment. We have upgraded Groclin to BUY from Hold (TP: PLN 60). The stock fell 30% in the most recent 3 months but we believe the plunge to be played out. We forecast 100% EPS growth in 2007, which yields a 2007E P/E ratio of 10.1x. Despite weak 4Q 2006E results caused by warm weather, our top pick within the retail sector is CCC, which we see as still a reasonably priced growth story, trading at 2007E P/E of 18.4x, PEG of 0.6, and offering a 3% dividend yield. We are upgrading biofuel producer Elstar Oils to BUY from Hold.

What are our sell ideas? Currently, the stocks that we believe have the least upside potential include: Handlowy, Netia, Lotos, Grajewo, LPP and Dom Development.


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Contents

CA IB global scenarios for 2007

Performance check

Valuation

Economy

Flow of funds

CA IB recommended portfolio

CA IB stock recommendations

Sector reviews

Polish equities under CA IB 2007 global scenarios

Overweight: Mining, Oils, EUR exportersNeutral: Domestic cyclicals, real estateUnderweight: Banks, Telecoms, chemicals

Neutral/positive for Polish equities in EME context as Banks underperformance (higher yields and rates) offset by strong Mining and Oils. Strong inflows to EME equities favours large caps. Commodity-importers and defensives underperform. Volatility picking up.

Very positive scenario in total for EME equities given most of the region comprises commodity stocks. Differentiated impact between countries.Winners: Russia (positive impact of commodity price hikes on EPS estimates). Losers: Turkey and CE3 to certain degree (renewed danger of inflation and interest rates rise).

G3 growth closer to, or through, 3%. FOMC cuts priced out/market prices end-2007 ECB/BoJ at 4.50%/1.50%. Commodity price uptrend re-established. Major FX crosses rangey.

Alternative scenario 2:Wow: StrongG3 growth and inflation picks up

10% probability

Overweight: Domestic cyclicals (domestic growth outperforms), Telecoms (TPSA’s dividend yield support), IT (sector-specific factors), importers (retail) Neutral: Banks (yield steepening, volume growth slows down)Underweight: Oils, Mining, exporters

Neutral/negative for Polish equities (less affected by global factors) in EME context although absolute performance the lowest of the three scenarios. Outflows from EME markets favour mid-and small-caps’ relative performance.

Negative/neutral for EME equities.Apart from the immediate impact of lower commodity prices on valuations, lower global growth would definitely affect EME fundamentals.Winners: Turkey (growth affected to the least extent in EME region). Czech Republic (defensive).Losers: Russia (negative impact of commodity price hikes on EPS estimates). Hungary (unable to sort out fiscal problem).

G3 growth closer to 1.5%.FOMC cuts to 4.50% in 1H, ECB stops at 3.50%, BoJ at 0.25%. G3 curves flatten. Oil down to US$ 50 per bbl. US$ likely to weaken in initial phases.

Alternative scenario 1:Hard landing/EMU growth stalls

20% probability

Overweight: Banks (volume growth and higher NIMs offset slightly higher discount rate), domestic cyclicals (boominginvestments), Mining (commodities recover, US$ weakens).Neutral: EUR exporters Underweight: Oils (lack of catalyst, company-specific risks as Russia’s stance toughens)

Positive/neutral for Polish equities.Domestic growth story not affected by soft landing. Strong domestic demand and growth backdrop offsets slightly higher rates and bond yields, on balance positive for Banks. Foreign inflows should support WIG20 stocks. Mining to outperform Oils.

Positive for EME equities.Relatively higher growth and weak US$ should increase attractiveness of the EME region. Our MSCI EME Index expected return is 13.2%.Winners: Russia (firm commodity prices in the long term), Turkey and Hungary (able to stabilise macro situations).Losers: Exporters (slowdown in global growth and weakening US$).

G3 GDP growth all in a 2.0-2.5% range. ECB/BoJ gradually hiking further to 4.0%/0.75% and FOMC cutting to 4.75% by mid-year. UST rangey in 1H, with narrowing of UST/EGB spread. EUR/US$ gradually tracks higher in 1H. Commodities recover toDecember 2006 levels.

Central scenario:Soft(ish) US landing + decoupling

70% probability

Sectors and stocksPoland Top-downEME EquitiesGlobal MacroScenario

Poland domestic growth story unaffected by global

slowdown


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Performance check (1): Neutral stance on Poland against MSCI EME

MSCI Poland relative to MSCI EME

Source: Bloomberg, CA IB estimates Note:* P/E for CA IB coverage Source: Bloomberg, CA IB estimates

The WIG rallied 41.6% in 2006 with MSCI Poland gaining 35.3%. Since we upgraded Poland to Neutral, the MSCI Poland has risen 17.6%, in line with MSCI EME. CA IB recommends a Neutral stance on Poland in the EME portfolio, although we favour Poland over the Czech Republic (Underweight) in CE3 on valuation grounds. Improving macro should help Hungary in 2H 2007. In our central soft-landing scenario for 2007, Turkey should recover from the May 2006 crash as the global background remains relatively benign. Stay invested in Russia despite great performance in 2006 on strong domestic growth and recovering commodity prices.

CA IB recommended country stance and 2006 performance of local indices

85

90

95

100

105

110

Dec-05

Jan-0

6

Feb-06

Mar-06

Apr-06

May-06

Jun-0

6Ju

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Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

Neutral

Underweight

Modest OW Country

Local main index

performance

MSCI index US$

performance CA IB 2006 (YoY, %) 2006 (YoY, %) 2006E 2007E recommendation

Poland* 41.6 35.3 18.8 16.4 NeutralRussia 70.7 53.7 13.2 12.0 NeutralHungary 19.5 31.1 10.8 10.9 NeutralCzech Republic 7.9 29.6 18.2 15.2 UnderweightTurkey (1.7) (9.2) 11.3 9.7 OverweightEmerging Europe 33.6 n.a. n.a. n.a.

P/E (X)

Performance check (2): Rallying domestic sectors and asset plays

Source: Bloomberg

The 2006 rally was driven by domestic cyclicals – construction, industrials, retail - responding to surging investment growth and strengthening private consumption. Asset plays and high-beta biotech repeated their stunning performance while telecoms underperformed for a second consecutive year. Our Mining vs. Oils call delivered substantial returns for the second year in a row. In 4Q, falling bond yields supported banks (our only Overweight in Poland) and real estate plays, while key underperformers media, IT, and telecoms finally recovered. Crashing copper prices resulted in an11.6% plunge for KGHM. Oils underperformed for the fourth quarter in a row. Flight to quality affected high-beta plays.

FY 2006 sector performance (%)

Source: Bloomberg

183

140123

73 69 56 56 54 42 4023

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Domestic cyclicals drove 2006 market performance

Despite rally, Poland performed in line with

MSCI EME. We recommend a Neutral

stance in EME portfolio


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Performance check (3): Banks lift the WIG20. Laggards rebound in 4Q

Source: Bloomberg

Among WIG20 stocks, our best call in 2006 was BRE, selected as a top pick in the banking sector for 2006. PKO BP, recommended as the top pick in Poland in October, was the best performing large-cap in 4Q. The pair-trade KGHM versus PKN delivered a stunning 106% return in 2006 despite a negative 29% return in 4Q after we closed the trade in October. 4Q marked a rebound of underperformers – TPSA, Agora, PGNiG, Netia - and the fall of earlier stars –Bioton and KGHM.

FY 2006: WIG20 performance (%) 4Q 2006: WIG20 performance (%)

Source: Bloomberg

39

34

29

23 23 21

18 17 17 16 15 14 13 12 10 8 6 5

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Performance check (4): 30% of our covered mid-caps doubled in 2006

The MIDWIG index delivered a stunning performance, rocketing 69% in 2006, outperforming the WIG20 by 40.1 percentage points, although performance of both indices converged in 4Q 2006. Almost one-third of our covered mid-cap stocks returned 100% or more. Growth stocks from construction (PBG), retail (Vistula, AmRest), real estate (Echo), software (ComArch), and retail banking (Getin) were top performers in our mid-cap universe. Only 10 mid-cap stocks from our coverage underperformed the WIG index in 2006 with InterGroclin and LPP being the main laggards.Our IPOed companies topped 4Q 2006 performers: Dom Development, Asseco Slovakia and AB surged 76%, 64% and 43% in 4Q 2006, respectively.

FY 2006: Mid-caps performance (%) 4Q 2006: Mid-caps performance (%)

Note: *Performance based on IPO price Source: BloombergNote: *Performance based on IPO price Source: Bloomberg

247

198

137

127

120

114

101

101

98 95 93 76 69 66 64 64 63 57 57 49 44 42 42 37 31 16 12 11 9 8 2(3

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MIDWIG outperformed the WIG20 by 40 percentage points in 2006 although

the relative performance converged in 4Q 2006

Our best stock calls in 2006: BRE, PKO BP, and

Mining vs. Oils.


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Valuation (1): Higher price for higher growth?

The stocks from CA IB’s coverage universe are trading at 16.4x 2007E P/E against 15% expected EPS growth. This compares to 15.7x 2006E P/E and 8.5% expected EPS growth a year ago.Based on 2007E P/E, Poland is now trading at a large 51.4% premium to Hungary and 5.6% premium to the Czech Republic. The premium to Hungary seems to be justified by higher expected EPS growth. Polish stocks are trading at a substantial 34.9% premium to the DJ Eur 50 and a small 9.2% premium to the S&P 500.The 2006E bond to earnings yield ratio jumped 25% to 0.90x compared to January 2006. A fall in 2006E WIG20 P/E to 13.9x or decrease in yields to 4.2% would make equities as attractive relative to bonds as they were at the beginning of 2006.

Poland: Relative valuation summary

Source: Bloomberg, IBES, CA IB estimates

Note: P/E for CA IB coverage (ex. Bioton and Budimex)

WIG20: Bond to 2006E earnings yield ratio

Source: Bloomberg, CA IB estimates

0.720.78

0.87 0.89 0.90

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

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January 2006 April 2006 July 2006 October 2006 January 2007

CloseCountry Index 5 January 2006E 2007E

2007 (%) yield (%)Poland* WIG 49,560.3 18.8 16.4 15.0 5.19 0.98Hungary BUX 24,116.9 10.7 10.8 (1.2) 6.80 0.73Czech Republic PX 1,599.9 18.5 15.5 19.5 3.71 0.69Europe DJ Eur 50 3,722.6 12.9 12.1 6.3 3.98 0.51US S&P 500 1,409.7 16.2 15.0 8.4 4.65 0.75

P/E (x) 2007E EPS growth 10Y T-bond

Bond to 2006E

earnings yield ratio

Valuation (2): Growth sectors reasonably priced on PEG?

The 12-month forward P/E expansion was most visible in the construction sector where it reached 14.3%; however, this sector appears to offer superior growth with 2007E PEG of 0.7x.In addition, retail stocks and banks also saw significant P/E expansion as they moved ahead by 8.1% and 8.0%, respectively.Conversely, KGHM, TPSA and media all saw their 12-month forward P/E falling by 23.5%, 21.2% and 18.5%, respectively.

12-month forward P/E multiples


NOTE: Sectors based on CA IB coverage as of January 2006

2007E PEG (x)


NOTE: PEG calculated with 2006-2009E EPS CAGR and 2007E P/E

1.7

0.9 0.8 0.8 0.80.7

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Banks IT Media Industrials Retail Construction

35.2

22.1

22.7

18.9

18.6

15.8

14.7

14.5

11.6

5.2

30.8

27.1

21.6

17.5

17.2

15.5

13.9 18

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11.3

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0

5

10

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25

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35

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Indus

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Oil&Gas

KGHM

January 2007 January 2006

Domestic cyclical sectors trade at PEG below 1.0x

based on 3-year EPS CAGR

The Polish market rerated in 2006 but higher

earnings growth justifies P/E increase


10

Valuation (3): Our ROE model suggests WIG20 fair-value at 3,182

Compared with the previous quarter, our simple ROE model implies a WIG20 fair-value increase of 2.3% compared with a 0.9% index change. A lower risk free rate and ERP offset the decrease in expected ROE. Compared with January 2006, the fair-value increased by 15.5% while the index gained 13.0%. The model suggests the WIG20 fair-value at 3182, 0.6% below the current level, and 12M target for the WIG20 of 3,493, a 9.1% upside potential.

CA IB WIG20 ROE valuation model


January 2007 October 2006 January 2006ROE 2007E (%) 18.9 21.8 16.4Dividend payout (%) 73.5 77.0 70Retention rate (%) 26.5 23.0 30Risk-free (%) 5.19 5.38 4.81ERP (%) 4.5 5.0 5.0Equity growth (%) 5.0 5.0 5.0Implied 2007 P/E (x) 15.7 14.4 14.5Fair-value 3,182 3,110 2,75612M target 3,493 3,437 3,045Current WIG20 (x) 3,202 3,173 2833Upside to fair-value (0.6) (2.0) (2.7)Upside to YE target 9.1 8.3 7.5 Fair-value change vs. current level 2.3 15.5 WIG change vs. current level 0.9 13.0

Valuation (4): What message does PEG send for Mid-Caps?

Following a 69% MIDWIG rally in 2006, further outperformance may appear difficult but at least our covered mid-caps do not reveal obvious overvaluation when taking into account earnings growth. Investors seem to be ready to pay 16x 2007E P/E for 10% 3-year EPS CAGR and reward growth stocks with a 3 point higher multiple for each additional 10% in CAGR.

Mid-Caps: 2007E P/E vs. 2006 – 2009E EPS CAGR


Note: Selection of stocks from CA IB coverage

Mid-Caps: Upsides to 12-month TP vs. 2007E PEG


Note: Selection of stocks from CA IB coverage

CCCLPPGRJ

PXM

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PBG

DOM

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CMR

0

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10% 15% 20% 25% 30% 35% 40% 45%3YR EPS CAGR (%)

2007

P/E

(x)

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LPP

GRJ

PXMEUR

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DOMEMF

CEDC

KTY

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(10)

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0.4 0.6 0.8 1.0 1.2 1.4 1.6PEG (x)

Ups

ide

(%)

Is 16x 2007E P/E a correct multiple for 10% 3-year

EPS CAGR?

WIG20 looks fairly-valued on our ROE model, after reducing ERP for Poland

to 4.5%


11

Economy (1): 2006: The (first) year of the boom?

GDP growth (YoY, %)

Source: GUS, CA IB estimates Source: GUS, CA IB estimates

GDP growth exceeded the most optimistic forecasts, accelerating to 5.8% YoY in 3Q 2006, driven by 5.5% growth in private consumption and a 19.8% YoY jump in investments. Growth indicators remained very firm in 4Q 2006 with industrial output up 11.7% and retail sales up 14.1% in November 2006. Exceptionally warm weather suggests massive YoY growth in construction output in December. We forecast GDP growth will remain at the record level of 5.8% in 4Q 2006. We estimate 5.7% YoY GDP growth in 2006, against just 3.5% in 2005.

GDP components growth (YoY, %)

2.22.9

3.94.3

5.25.5

5.8 5.8

3.5

5.7 5.5

0

1

2

3

4

5

6

7

1Q 20

05

2Q 20

05

3Q 20

05

4Q 20

05

1Q 20

06

2Q 20

06

3Q 20

06

4Q 20

06E

2005

2006

E20

07E

(5)

0

5

10

15

20

25

1Q 2005 2Q 2005 3Q 2005 4Q 2005 1Q 2006 2Q 2006 3Q 2006 4Q 2006EInvestments (YoY, %) Private consumption (YoY, %)Net exports (YoY, %)

Economy (2): Is 6.0% GDP growth possible in 2007?

Key economic indicators (YoY, %)

Source: GUS Source: GUS

We see no reason to anticipate a growth slowdown in 2007. Conversely, our 2007 GDP growth forecast of 5.5% might appear conservative, as consumption is set to be buoyed by a tightening labour market, while investments are set for double-digit growth. We expect unemployment to fall to 13.2% in 2007 from 14.2% in 2006 and 17.6% in 2005. Real wage growth remains in check at 4.0% in 2006 while stable inflation and the interest rate backdrop – we expect average CPI to increase from 1.1% in 2006 to 2.0% in 2007, and a main rate hike of only 50bps – should exert little drag on real purchasing power. Is 6.0% GDP growth possible in 2007? Given the robust private consumption outlook, booming private construction, and prospects of further acceleration in investment growth, fuelled by doubled inflows of EU structural funds, we believe the risks are on the upside.

CPI, PPI and wage growth (YoY, %)

0

1

2

3

4

5

6

Jan-0

6

Jan-0

6

Jan-0

6

Feb-06

Feb-06

Mar-06

Mar-06

Apr-06

Apr-06

May-06

May-06

Jun-0

6

Jun-0

6Ju

l-06Ju

l-06

Jul-0

6

Aug-06

Aug-06

Sep-06

Sep-06

Oct-06

Oct-06

CPI (YoY, %) PPI (YoY, %) Wage growth (YoY, %)

(15)(10)

(5)05

101520

2530

Jan-0

6

Feb-06

Mar-06

Apr-06

May-06

Jun-0

6Ju

l-06

Aug-06

Sep-06

Oct-06

Nov-06

Industrial output (YoY, %) Retail sales (YoY, %) Construction (YoY, %)

Given robust private consumption, booming

construction, and further double-digit investment growth, risks are on the upside to our 5.5% GDP

growth forecasts for 2007

Major positive growth surprise in 2006


12

Economy (3): The EU funds inflows set to double in 2007

EU structural funds and investment growth

Source: Ministry of Regional Development Source: Ministry of Regional Development, CA IB estimates

In 2006, Poland received EUR 2.1bn from the EU Structural and Cohesion Fund. According to the Ministry of Regional Development, in 2007 inflows are set to more than double to EUR 4.3bn. In 2008-2013 Poland should receive on average EUR 9bn annually (excluding an estimated EUR 3bn annually from CAP). The EU funds are dedicated mainly to infrastructure and environmental improvements with as much as 31% of total funds directed to transport infrastructure, followed by 19% earmarked for the environment. The key GDP growth driver - investments - appears to grow in line with EU funds inflows. Detailed data indicates that construction is the most important component of investments in Poland, with its share amounting to 53% in 3Q 2006. The increased spending on infrastructure is likely to further fuel growth of the construction sector.

EU funds by category (the 2004-2006 allocation)

Transport32%

Environment19%

HR Development15%

Other programmes9%

Community infrastructure

3%Support for Enterprises

10%

Rural Development12%

0

5

10

15

20

25

1Q 2005 2Q 2005 3Q 2005 4Q 2005 1Q 2006 2Q 2006 3Q 2006 4Q2006E

2006Equarterlyaverage

2007Equarterlyaverage

01002003004005006007008009001000

SF payments received (EURm) - rhs Fixed investments growth YoY (%) - lhs

Flow of funds (1): Massive mutual fund equity buying in 2006Pension funds: Estimated pension fund inflow

and equity purchases

Source: KNUiFE, CA IB estimates Source: IZFiA, CA IB estimates

Mutual funds’ inflows reached a record high of PLN 26.5bn in 2006, an increase of 43% YoY. As much as PLN 26.9bn was directed to equity-related funds, which led to the highest ever annual equity buying amounting to PLN 12.4bn (46.7% of total inflows).Pension fund transfers from ZUS grew 15% YoY to PLN 16.2bn. Nevertheless, net equity buying was subdued for most of the year with a rebound in 4Q, when they bought equities worth PLN 1.5bn.In all, domestic equity buying reached a record-high PLN 13.2bn, up 409% YoY, and can be seen as one of the major drivers of the superior equity market performance.

Mutual funds: Estimated mutual fund inflow and equity purchases

(4)

(2)

0

2

4

6

8

10

1Q 20

03

2Q 20

03

3Q 20

03

4Q 20

03

1Q 20

04

2Q 20

04

3Q 20

04

4Q 20

04

1Q 20

05

2Q 20

05

3Q 20

05

4Q 20

05

1Q 20

06

2Q 20

06

3Q 20

06

4Q 20

06

Inflows from Social Security Estimated net equity purchases

PLNbn

(4)

(2)

0

2

4

6

8

10

1Q 20

03

2Q 20

03

3Q 20

03

4Q 20

03

1Q 20

04

2Q 20

04

3Q 20

04

4Q 20

04

1Q 20

05

2Q 20

05

3Q 20

05

4Q 20

05

1Q 20

06

2Q 20

06

3Q 20

06

4Q 20

06

Estimated inflows Estimated net equity purchases

PLNbn

Domestic fund equity buying surged over 400%

in 2006 and can be seen as a major driver of last

year’s rally

EU inflows to double in 2007 to EUR 4bn and

further increase to EUR 9bn annually in the

2008-2013 period


13

Flow of funds (2): Local funds account for 45% of free float in 2006

Pension funds’ AUM (PLNbn)

Source: ZUS, KNUiFE, CA IB estimatesSource: IZFiA, CA IB estimates

Pension funds’ AUM increased in 2006 by 35.4% YoY to PLN 116.6bn. At the same time equity allocation rose to 34.2% from 31.6% at the end of 2005.Mutual funds’ AUM surged to PLN 98.8bn in December 2006 from PLN 61.3bn a year ago, up 62% YoY.Domestic funds’ equity investments amount to PLN 78.9bn, i.e. 45% of the WSE estimated free float.

Mutual funds’ AUM (PLNbn)

Local funds: Structure of assets

Source: IZFiA, KNUiFE, CA IB estimates

30405060708090

100110120130

Jan-0

4

Mar-04

May-04

Jul-0

4

Sep-04

Nov-04

Jan-0

5

Mar-05

May-05

Jul-0

5

Sep-05

Nov-05

Jan-0

6

Mar-06

May-06

Jul-0

6

Sep-06

Nov-06

25%26%27%28%29%30%31%32%33%34%35%

Pension funds' AUM (PLNbn, lhs) Equity investments (%, rhs)

30405060708090

100110120130

Jan-0

4

Mar-04

May-04

Jul-0

4

Sep-04

Nov-04

Jan-0

5

Mar-05

May-05

Jul-0

5

Sep-05

Nov-05

Jan-0

6

Mar-06

May-06

Jul-0

6

Sep-06

Nov-06

10%

15%

20%

25%

30%

35%

40%

45%

Mututal funds AUM (PLNbn, lhs) Equity investments (%, rhs)

Equities40%

Others17%

Treasuries43%

Mutual funds

Equities34%

Cash2%

Treasuries63%

Others1%

Pension funds

Flow of funds (3): Pension funds underweight Large-Caps vs. WIG

In 2H 2006 pension funds were sellers of TPSA (16.0m shares, estimated selling size of PLN 346m), KGHM (2.2m shares, PLN 233m) and PKO BP (5.2m shares, PLN 208m).

On the buy side, pension funds accumulated PKN Orlen (1.7m shares, PLN 87m) and Pekao (182,000 shares, PLN 38m).

Looking at relative portfolio positions, pension funds increased their underweight position vs. the WIG index in PKO BP, TP SA and PKN Orlen (despite net purchases of PKN). Underweight positions werereduced in KGHM and Pekao.

We estimate that in 2H 2006 pension funds have sold PLN 662m in the Top-5 largest equity holdings.

Company

Weight in pension funds' equity portfolio

(end-2006)

Weight in WIG (end-2006)

Overweight vs. benchmark (end-2006,

pp)

Overweight in 1H 2006 (pp)

No. of shares bought (sold) in 2H 2006 (m)

Estimated transaction value (PLNm)

PKO BP 8.5 10.1 (1.6) (0.8) (5.195) (208)PKN Orlen 7.8 8.8 (1.1) 0.2 1.696 87Pekao 7.1 7.7 (0.5) (1.9) 0.182 38TPSA 6.4 10.0 (3.6) (2.7) (16.013) (346)KGHM 4.2 5.9 (1.7) (2.9) (2.177) (233)

Pension funds’ top-5 largest equity holdings

Source: KNUiFE, CA IB estimates

Pension funds’ biggest underweight among top

five stocks is TPSA

At the end of 2006, domestic fund

investments accounted for 18% of the WSE

market capitalisation and 45% of the estimated free

float


14

Flow of funds (4): Foreign funds reverting from EME region

Poland: AUM and monthly flows of EME regional and GEM funds

Source: EPFR, CA IB estimates

Source: Bloomberg, EPFR, CA IB estimates

In 2006 foreign investors redeemed almost PLN 1.3bn from Poland’s equity market vis-à-vis a ca. PLN 3.4bn inflow in 2005.4Q saw a PLN 381m outflow; however, the monthly net balance of flows improved steadily with a PLN 20m inflow in December.The outflows reflect the general situation in Emerging Europe, which in 4Q 2006 suffered a US$ 588m outflow.Conversely, the net inflows to the emerging markets in 4Q amounted to US$ 7.3bn, of which US$ 6.4bn was directed to Asia ex-Japan funds.

4Q 2006: Equity funds flows and performance of MSCI indices

Poland (129) (73) 22.9 (412) 1,056 35.3 6,595EME (588) (17) 18.3 (1,810) 5,185 33.6 39,067Asia 6,366 252 15.0 16,790 8,380 29.8 113,235LatAm 1,130 651 21.1 3,319 4,022 39.3 21,979BRIC 120 (21) 23.5 4,294 n.a. 52.9 12,069GEM 256 (2,681) 17.3 (85) 974 29.2 141,269Total EM 7,276 (1,813) 17.3 22,442 20,285 29.2 330,556International 7,036 6,982 8.0 22,416 19,590 18.0 580,617

MSCI Index Chg.

(2006 %)

MSCI Index Chg.

(QoQ %)

Quarterly Flows - 3Q 2006 (US$m)

Assets EoM

(US$m)

Quarterly Flows - 4Q 2006 (US$m)

Flows 2006

(US$m)

Flows 2005

(US$m)

(400)(300)(200)(100)

0100200300400500

Jan-0

5

Feb-05

Mar-05

Apr-05

May-05

Jun-0

5Ju

l-05

Aug-05

Sep-05

Oct-05

Nov-05

Dec-05

Jan-0

6

Feb-06

Mar-06

Apr-06

May-06

Jun-0

6Ju

l-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Assets (US$m) - rhs Net monthly flows (US$m) - lhs

Flow of funds (5): 2007E balance of flows less supportive than in 2006

Estimated equity supply/demand balance

We conservatively estimate mutual funds should receive approximately PLN 21.7bn in 2007, which represents an 18.2% drop YoY.Pension funds should receive PLN 17.8bn from ZUS, an increase of 10% YoY.The supply side should increase materially, with an assumed value of IPOs/SPOs of PLN 9bn, a 43% rise YoY.In all, the net balance of flows – which we estimate at PLN 2.5bn, provided mutual fund foreign equity allocations remain unchanged – appears to be much less supportive for the Polish equity market than in 2006.

Source: KNUiFE, IZFiA, EPFR, CA IB estimates

2007E 2006 YoY (%) 2005 YoY (%)DemandMutual funds inflows (PLNm) 21,691 26,527 (18) 18,501 43

% of equity allocation 45.0 46.6 20.1Mutual funds equity investments (PLNm) 9,761 12,366 (21) 3,712 233Pension funds inflows (PLNm) 17,796 16,156 10 14,025 15

% of equity allocation 10.0 5.5 (7.9)Pension funds domestic equity investments (PLNm) 1,780 882 102 (1,110) n.m.Domestic equity purchases potential (PLNm) 11,541 13,247 (13) 2,603 409Foreign equity funds inflows (PLNm) (1,264) n.a. 3,378 n.m.SupplyIPO/SPO (institutional tranche, PLNm)) 9,000 6,277 43 4,250 48Secondary market balance (PLNm) 2,541 5,707 (55) 1,730 230WIG change (%) 41.6 33.7WIG20 change (%) 23.8 35.4

Domestic fund equity buying to decrease, while

IPOs/SPOs pipeline to rise in 2007

In 2006, EME funds redeemed US$ 1.8bn

from the region vs. a US$ 5.2bn inflow in 2005


15

CA IB recommended sector stance in 1Q 2007

Our main sector call remains an Overweight on the Banking sector.

Following a brief intermission in 4Q 2006, we return to our Mining vs. Oils call, downgrading Oils to Underweight from Neutral, and upgrading Mining to (small) Overweight from Neutral. Despite stunning performance in 2006, we Overweight the booming construction sector. We are upgrading media and IT to Neutral.


Sector Current Previous Adj. weight in WIG Relative weight CA IB weight CA IB vs. WIG BUY-rated stocksBanks Overweight Overweight 37.4 1.10 41.0 3.6 PKO BP, BZWBK, MillenniumOil&Gas Underweight Neutral 17.4 0.80 13.9 (3.5) n.a.Telecoms Neutral Neutral 13.4 1.00 13.4 0.0 TPSAReal Estate/Hotels Neutral Neutral 7.6 1.00 7.6 0.0 n.a.Mining Overweight Neutral 7.0 1.05 7.3 0.3 KGHMConstruction Overweight Neutral 3.8 1.10 4.1 0.4 Budimex, PolimexIndustrials Neutral Neutral 3.6 1.00 3.6 0.0 Kety, Groclin, ElstarMedia Neutral Underweight 3.6 1.00 3.6 0.0 TVNIT Neutral Underweight 2.5 1.00 2.5 0.0 ComArchRetail Neutral Neutral 1.6 1.00 1.6 0.0 CCCOthers Underweight Neutral 2.0 0.75 1.5 (0.5) n.a.Total 100.0 100.0

Earnings preview: Domestic cyclicals to show highest earnings growth4Q 2006E: Net profit growth (%)

Source: Companies data, CA IB estimates Source: Companies data, CA IB estimates

In 4Q 2006, we expect our universe to post a 4% YoY decline in aggregate net profit, in line with mere 4% YoY growth in 3Q 2006. Domestic cyclicals to show the highest EPS growth of 44-59%. Oil & gas to post an earnings drop, as PKN’s YoY recovery is offset by a plunge in Lotos and PGNiG. KGHM’s net profit growth is seen at 5% compared to 19% in 3Q 2006 and 127% in 2Q 2006. Real estate aggregate earnings are set to plunge by 54% due to lower revaluation gains. In 2007, earnings momentum may surprise on the upside again, especially in domestic cyclicals, where we expect 100% earnings growth from the construction sector, 40% growth in retail and media, as well as eventual earnings recovery in the IT sector.

2007E: Net profit growth (%)

59 59

44 41

10 5

(4)

(11)

(22)

(27)

(54)(60)

(40)

(20)

0

20

40

60

80

Constr

uctio

n

Indus

trials

Retail

Media

Banks

Mining

CA IB un

iverse IT

Oil&Gas

Teleco

ms

Real E

state&

Hotels

100

5239 39

24 186 4 1

(12) (12)(20)

0

20

40

60

80

100

120

Constr

uctio

n ITReta

il

Media

Indus

trials

Real E

state&

Hotels

Teleco

msBan

ks

CA IB un

iverse

Mining

Oil&Gas

Are 2007 earnings growth patterns already

discounted?


16

Upsides to 12-month target prices WIG20: Upsides to 12M target prices (%)

Source: Bloomberg, CA IB estimates Source: Bloomberg, CA IB estimates

Our top picks include: PKO BP, TPSA, KGHM and TVN.

Among mid-caps, we have BUY ratings on: Budimex, Polimex, Kety, CCC and Groclin.

We see downsides in banks: Handlowy, Kredyt Bank and ING BSK. Other stocks that we believe have the least upside potential include: Netia, Agora, Lotos, Grajewo, LPP, Emax, Orbis and Dom Development.

Mid-caps: Upsides to 12M target prices (%)

25.6

21.9

17.6

15.8

14.1

12.4

11.8

10.8

10.2

8.1

7.8

7.1

7.0

5.1

2.4

0.7

(0.2

)

(0.3

)

(5)

0

5

10

15

20

25

30

KGH

TPS

TVN

PKO

BZW

PXM

CEZ

MO

L

BIO

BRE

PKN

PGN

PKM

KTY

GTC LT

S

NET

AGO

33.6

33.1

17.7

17.1

15.3

12.9

12.2

10.6

8.8

8.3

8.0

7.5

5.5

4.3

3.0

2.3

0.0

(2.0

)

(2.2

)

(3.9

)

(5.0

)

(5.9

)

(7.3

)

(16.

7)(20)

(10)

0

10

20

30

40

GCN EL

SBD

XCC

CCM

RCE

DC MIL IPL

EUR

CPL

EAT

ZAP

EMF

ECH

MPP

PBG

LPP

DOM

ORB

EMX

BSK

GRJ

KRB

BHW

CA IB recommendations and target price revisions


New Old New OldBZ WBK BUY (↑) Hold 251 210 TP upgrade based on lower RFR and ERPBank Millennium BUY (↑) Hold 9.3 6.2 TP upgrade based on lower RFR and ERP and increased earningsComArch BUY (↑) Hold 225 196 TP upgrade based on increased earnings and lower RFR and ERP. Roll-up of target priceTVN BUY (↑) Hold 28.4 28.4 Recommendation upgrade on price performanceKety BUY (↑) Hold 205 200 TP upgrade based on lower RFR and ERPPolimex BUY (↑) Hold 168 160 TP upgrade based on lower RFR and ERPElstar Oils BUY (↑) Hold 17.5 17.8 Recommendation upgrade on price performanceComputerLand HOLD (↑) Sell 114 92 TP upgrade based on lower RFR and ERP and consolidation of EmaxEmax HOLD (↑) Sell 120 110 TP upgrade based on lower RFR and ERP. Roll-up of target priceInterGroclin BUY (↑) Hold 60 60 Recommendation upgrade on price performanceLPP HOLD (↑) Sell 770 700 TP upgrade based on lower RFR and ERP and increased earningsGTC HOLD (↑) Sell 43.0 35.5 TP upgrade on inclusion of new projects, lower RFR and ERPKGHM BUY Buy 103 122 TP downgrade based on decreased earningsCCC BUY Buy 54 53 TP upgrade based on lower RFR and ERPBRE HOLD Hold 350 260 TP upgrade based on lower RFR and ERP and increased earningsProkom HOLD Hold 146 132 TP upgrade based on lower RFR and ERP and increased stake in Comp. Roll-up of target priceAgora HOLD Hold 37.9 36.8 TP upgrade based on lower RFR and ERP. Roll-up of target pricePGNiG HOLD Hold 3.75 3.45 TP upgrade based on lower RFR and ERP and increased earningsMondi HOLD Hold 103 95 TP upgrade based on lower RFR and ERPPBG HOLD Hold 267 230 TP upgrade based on lower RFR and ERPEurocash HOLD Hold 8.00 7.95 TP upgrade based on lower RFR and ERPAmRest HOLD Hold 76.0 71.9 TP upgrade based on inclusion of Burger King project in the forecastsOrbis HOLD Hold 67.0 51.6 TP upgrade based on lower RFR and ERP and increased earningsING BSK SELL Sell 740 690 TP upgrade based on lower RFR and ERPGrajewo SELL Sell 53 50 TP upgrade based on lower RFR and ERPPulawy HOLD (↓) Buy 61 64 TP downgrade based on decreased earningsCEDC HOLD (↓) Buy 33.0 31.8 TP upgrade based on lower RFR and ERPEcho HOLD (↓) Buy 96 87 TP upgrade on inclusion of new projects, lower RFR and ERPImpel HOLD (↓) Buy 25.0 24.5 Recommendation downgrade on price performanceBank Handlowy SELL (↓) Hold 75 77 TP downgrade based on decreased earningsKredyt Bank SELL (↓) Hold 19.8 17.0 TP upgrade based on lower RFR and ERP

Reccommendation Target PriceReason for changeCompany

Top-picks for 2007: PKO BP, TPSA, KGHM and

TVN


17

Note: * for banks and Dom Dev. P/BV, for GTC and Echo P/NAV, **IBES consensus estimates, *** multiples for fiscal years 2005/2006 – 2007/2008, **** prices in US$

CA IB Polish coverage


P/E (x) EV/EBITDA // P/BV // P/NAV (x)* DY (%)2006E 2007E 2008E 2006E 2007E 2008E 2006E

PKO PKO Buy 46.01 53 15.2 46,010 48.5 21.2 19.3 16.8 4.6 4.1 3.6 2.4Pekao** PEO Not covered 230.00 n.a. n.a. 38,349 47.1 22.2 19.7 17.6 4.3 4.0 3.7 3.4Bank BPH** BPH Not covered 923.00 n.a. n.a. 26,505 28.8 21.1 18.6 15.9 3.9 3.6 3.3 3.7Handlowy BHW Sell 88.00 75 (14.8) 11,498 25.0 20.8 19.0 16.0 2.8 2.7 2.5 4.3BZWBK BZW Buy 225.00 251 11.6 16,416 29.5 20.4 18.5 16.2 4.4 4.1 3.7 3.7INGBSK BSK Sell 776.00 740 (4.6) 10,096 18.5 16.2 18.3 15.6 2.8 2.8 2.6 5.6BRE BRE Hold 336.00 350 4.2 9,863 29.8 22.6 19.3 15.5 4.5 3.6 3.0 0.0Bank Millennium MIL Buy 8.20 9.3 13.4 6,963 34.5 26.2 18.1 13.2 3.2 2.8 2.5 1.9Kredyt Bank KRB Sell 21.35 19.8 (7.3) 5,800 15.0 12.3 19.2 15.6 2.8 2.7 2.5 4.1TPSA TPS Buy 23.26 29 24.7 32,564 48.6 15.5 14.5 12.5 5.6 5.7 5.3 8.2Netia NET Sell 4.70 4.75 1.1 1,829 49.3 n.m. n.m. n.m. 5.8 7.2 5.5 2.8Prokom PKM Hold 137.00 146 2.9 1,900 66.0 23.7 17.8 16.2 13.7 10.1 9.3 0.7ComputerLand CPL Hold 104.00 114 9.6 777 58.7 51.8 26.5 15.8 15.4 12.4 8.8 1.0ComArch CMR Buy 191.00 225 17.8 1,530 33.4 28.4 25.5 21.6 24.6 18.0 15.0 0.0Emax EMX Hold 119.50 120 0.4 412 63.2 51.7 21.0 19.0 14.8 10.5 9.7 0.0Agora AGO Hold 38.98 37.9 (2.8) 2,143 66.3 35.8 23.7 22.1 13.8 10.7 10.3 1.3TVN TVN Buy 24.02 28.4 18.2 8,699 38.6 29.2 22.5 19.1 21.7 15.9 13.6 0.0PKN PKN Hold 48.00 51 6.3 20,530 72.5 7.5 9.4 10.1 4.2 5.8 5.9 2.1Lotos LTS Hold 45.00 46 2.2 5,117 41.2 7.6 11.8 12.7 4.3 5.1 4.8 0.0PGNiG PGN Hold 3.51 3.75 6.8 20,709 15.3 20.4 16.4 16.8 7.3 6.1 5.9 3.9KGHM KGH Buy 80.05 103 28.7 16,010 55.7 4.6 5.2 5.6 2.2 2.6 2.9 11.0Mondi MPP Hold 99.00 103 4.0 4,950 28.7 19.4 15.8 14.4 11.8 10.2 9.6 5.2Grajewo GRJ Sell 55.90 53 (5.2) 2,774 39.7 28.5 17.5 15.1 13.5 9.6 8.1 3.0Pulawy*** ZAP Hold 58.00 61 5.2 1,109 28.8 8.8 11.8 13.0 2.9 3.6 3.8 3.4Kety KTY Buy 182.00 205 12.6 1,679 100.0 18.9 15.2 14.0 11.4 9.1 8.3 2.6InterGroclin GCN Buy 46.38 60 29.4 255 46.6 20.2 10.1 7.5 9.4 6.3 5.2 0.0Budimex BDX Buy 74.50 93 24.8 1,902 40.9 420.0 38.1 21.0 43.0 18.2 11.5 0.0Polimex PXM Buy 151.00 168 11.3 2,805 100.0 37.0 28.9 19.7 21.8 15.3 11.4 0.4PBG PBG Hold 256.00 267 4.3 3,438 63.6 57.5 38.8 26.7 40.6 25.3 17.8 0.0LPP LPP Hold 745.00 770 3.4 1,269 67.1 28.1 18.4 14.0 13.9 10.1 8.1 0.0CCC CCC Buy 46.35 54 16.5 1,780 25.3 31.1 19.7 14.4 23.9 15.1 11.0 2.8Eurocash EUR Hold 7.35 8.0 8.8 939 45.0 20.8 16.0 13.5 9.5 7.8 7.0 2.4CEDC**** CEDC Hold 30.28 33 9.0 3,218 74.8 21.7 18.8 16.1 14.1 12.6 11.6 0.0AmRest EAT Hold 71.90 76 5.7 971 60.1 26.1 20.5 17.0 12.3 10.3 8.6 0.0NFI Empik EMF Hold 14.00 14.5 3.6 1,430 31.5 32.2 23.4 18.4 13.1 10.6 8.8 0.0GTC GTC Hold 42.20 43 1.9 9,295 53.6 13.7 16.4 6.1 3.3 2.7 1.7 0.0Echo ECH Hold 91.00 96 5.5 3,822 59.0 14.1 10.6 12.6 2.1 1.5 1.1 0.0Dom Dev. DOM Hold 146.90 150 2.1 3,608 21.3 25.7 18.9 15.3 7.5 5.4 4.1 0.0Impel IPL Hold 23.00 24.9 8.3 346 41.2 17.1 15.7 15.5 6.7 6.2 6.1 2.9Orbis ORB Hold 65.05 67 3.0 2,997 59.4 43.9 28.1 19.7 14.3 11.9 10.3 0.5Bioton BIO Hold 2.20 2.48 12.7 5,809 46.1 105.4 53.6 36.5 73.3 31.8 21.6 0.0Elstar Oils ELS Buy 13.30 17.5 31.6 688 49.1 73.8 23.4 15.0 33.0 16.2 10.4 0.0WIG20 WIG20 3,202 3,570 11.5 17.3 15.8 14.1WIG WIG 49,560MOL MOL Hold 308.2 335.0 8.7 27,477 64.6 6.4 9.0 9.5 4.3 5.2 5.2 2.1CEZ CEZ Buy 130.6 141.0 7.9 77,315 33.0 19.8 17.0 14.4 10.0 8.4 7.5 2.5

Free float (%)

BANKS

TELECOM

IT

MEDIA

INDUSTRY

MCAP (PLNm)Sector Company Ticker Rating Current price

(PLN)12M TP

(PLN) Upside (%)

REAL ESTATE

RETAIL

CONST.

FOREIGN STOCKS

INDEX

OTHER

SERVICE

Banks: Volume growth accelerates...

Source: GUS

Mortgage loans (PLNm)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06

PLN FX

5.1

5.4

8.1

9.2

9.9

10.2

15.3

19.5

21.9

23.7

24.7

29.0

30.8

31.8

33.4

36.1

36.5

37.3

42.8

49.6

53.9

59.1

Slovenia

Poland

Slovakia

Lithuania

Czech Rep.

Hungary

Italy

Latvia

Austria

Greece

Estonia

France

Finland

Belgium

Malta

Luxemburg

Euro area

Sweden

Germany

Spain

Portugal

Ireland

Housing loans as % of GDP (2005)

Source: ECB, Eurostat


18


Corporate loans as % of GDP (2005)

... but underpenetration persists

13.1

18.4

18.9

22.3

25.7

26.2

30.4

30.4

33.6

34.4

35.7

38.0

38.2

42.6

45.7

46.1

48.2

49.6

59.7

60.0

64.1

66.8

Poland

Czech Rep.

Slovakia

Lithuania

Hungary

Finland

Estonia

Belgium

Latvia

Germany

France

Slovenia

Greece

Euro area

Italy

Sweden

Netherlands

Austria

Portugal

Malta

Spain

Ireland

0.5

5.012.4

21.0

21.1

24.724.9

26.5

36.9

43.455.2

59.962.6

Czech Rep.

Poland

Greece

FinlandNetherlands

ItalyPortugal

Spain

BelgiumGermany

France

Euro area

Austria

Assets of Polish and euro area mutual funds as % of GDP (2005)


Banks: Overweight on strong macro and low CPI

WIG-Banks was up 50% last year, but we think it’s premature to take profits as 2007 shapes up to be the best year for the sector in at least a decade.Risks? We see little risk domestically (i.e. banks are likely to continue to outperform the equity market), but regionally valuations are as usual stretched versus CEE peers (for good reason, we argue!).Unlike in 2006, we now think that selection may be important as we now have unjustified P/E convergence, i.e. the market is neglecting growth profiles and the scale of exposure to volume growth

Banks: Comparable valuation

Source: Bloomberg, *IBES consensus, CA IB estimates

Price 12-M TP Upside P/BV (x) P/E (x) ROE (%)(local) (local) (%) 2006E 2007E 2008E 2006E 2007E 2008E 2006E 2007E 2008E

PKO BP PLN 46.0 53 15.2 BUY 4.6 4.1 3.6 21.2 19.3 16.8 23.3 22.4 22.7Pekao* PLN 230 n.a. n.a. NOT COVERED 4.3 4.0 3.7 22.2 19.7 17.6 19.9 21.7 21.8BPH* PLN 923 n.a. n.a. NOT COVERED 3.9 3.6 3.3 21.1 18.6 15.9 19.4 20.2 20.7BZ WBK PLN 225 251 11.6 BUY 4.4 4.1 3.7 20.4 18.5 16.2 22.6 22.8 24.1BRE PLN 336 350 4.2 HOLD 4.5 3.6 3.0 22.6 19.3 15.5 22.1 20.9 21.0Millennium PLN 8.2 9.3 13.4 BUY 3.2 2.8 2.5 26.2 18.1 13.2 11.6 16.5 20.1Handlowy PLN 88 75 (14.8) SELL 2.8 2.7 2.5 20.8 19.0 16.0 13.6 14.4 16.4ING BSK PLN 776 740 (4.6) SELL 2.8 2.8 2.6 16.2 18.3 15.6 18.0 15.4 17.5Kredyt Bank PLN 21.4 19.8 (7.3) SELL 2.8 2.7 2.5 12.3 19.2 15.6 25.5 14.4 16.6Poland 3.7 3.4 3.0 20.3 18.9 15.8 19.6 18.8 20.1Erste EUR 59.1 56 (5.2) HOLD 2.4 2.1 1.8 20.8 16.1 11.8 14.5 13.8 16.5OTP HUF 8,560 8,310 (2.9) BUY 3.4 2.8 2.3 12.3 11.0 10.0 30.2 26.5 23.8Komercni Banka* CZK 3,157 n.a. n.a. NOT COVERED 2.4 2.1 1.9 13.2 12.0 11.1 18.0 19.2 18.5Raiffeisen Int. EUR 114.0 96.0 (15.8) BUY 4.6 4.0 3.0 14.1 20.7 16.5 36.4 20.5 20.9FHB* HUF 1,861 1,500 (19.4) SELL 4.0 3.3 2.7 15.2 15.0 13.3 29.6 24.5 22.2Sberbank* US$ 3,450 n.a. n.a. NOT COVERED 5.9 4.4 3.4 23.9 19.1 15.2 28.0 25.9 25.2CEE peers 3.8 3.1 2.5 16.6 15.6 13.0 26.1 21.7 21.2PL/CEE (%) (2.0) 9.0 20.0 23.0 21.0 22.0 (25.0) (14.0) (5.0)

Currency RatingCompany


19

Banks: PKO BP (BUY, TP: PLN 53)

Best exposure to volume growth (especially vs. merger story Pekao).

Still valid cost-cutting story on further restructuring and IT rollout.

More transparency will help sentiment.

Valuation: P/E of 19x this year, falling to 15x in 2009; upside may come from corporate segment, mutual funds and even more cut costs.

Risks? Political influence (we think offset by potentially positive effect from co-op with Post and PZU).

90

110

130

150

170

Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07

(Rebased to 100)

PKO

WIG

Source: Companies’ data, CA IB estimates

PKO BP: Performance check

Source: Bloomberg

2005 2006E 2007E 2008E 2009ENet profit (PLNm) 1,735.0 2,168.0 2,382.0 2,743.0 3,097.0Stated EPS 1.7 2.2 2.4 2.7 3.1NAVPS 8.8 10.1 11.4 13.0 14.7NIM (%) 4.4 4.4 4.8 5.1 5.1C/I ratio (%) 64.9 60.3 57.7 54.4 52.4Provisioning (%) 0.36 0.14 0.51 0.72 0.74Adj. ROE (%) 20.9 23.3 22.4 22.7 22.6Adj. P/E (x) 26.5 21.2 19.3 16.8 14.9Adj. P/BV (x) 5.3 4.6 4.1 3.6 3.2Dividend yield (%) 1.7 2.4 2.6 3.0 3.4

BUY-rated: BZ WBK (TP: PLN 251) and Millennium (TP: PLN 9.3)

Banks: Performance check

Source: Bloomberg


2005 2006E 2007E 2008E 2009EBZ WBKAdj. ROE (%) 16.1 22.6 22.8 24.1 25.1Adj. P/E (x) 31.8 20.4 18.5 16.2 14.3Adj. P/BV (x) 4.9 4.4 4.1 3.7 3.4Dividend yield (%) 2.7 3.7 4.1 4.6 5.2MillenniumAdj. ROE (%) 9.5 11.6 16.5 20.1 20.7Adj. P/E (x) 33.4 26.2 18.1 13.2 11.4Adj. P/BV (x) 2.9 3.2 2.8 2.5 2.2Dividend yield (%) 6.6 1.9 2.8 3.8 4.4

90

110

130

150

170

Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07

(Rebased to 100)

BZW

MIL

BZ WBK: High-quality exposure to Western part of Poland (both retail and SME corporates) and subsidiaries (Arka TFI and brokerage business likely to have another record year in 2007).Valuation: Attractive again after weak stock performance; P/E of 18x falling to 14x in 2009.Bank Millennium: Quickly escaping from lack of scope by adding new retail customers; mortgage boom to filter into transactional banking, TFI, credit cards. Valuation: Fastest growth in EPS; P/E falling from 18x to just 11x in 2009.


20

BRE (HOLD, TP: PLN 350); Handlowy, ING and Kredyt Bank (SELL)

Source: Bloomberg


Banks: Performance check

80

100

120

140

160

180

200

220

Jan-06 M ar-06 M ay-06 Jul-06 Sep-06 Nov-06 Jan-07

BRE

BHW

KRB

BSK

(Rebased to 100)

BRE: Athough the stock doubled without correction, we would use any to accumulate it. New projects are generating operating leverage in the retail segment, warranting a decline in P/E from 19x to 12x in 2009

We are sellers of Kredyt Bank on valuation grounds. A growth story as well, but too high C/I ratio makes it too dangerous

ING and Handlowy: No investment story other than dividend yield; stagnant retail and falling corporate profits (both active in blue-chip segments of corporate = low margins). ROEsunder pressure. Catalysts to change our view? More success in winning retail volumes and/or SME business (ING has better odds in both)

2005 2006E 2007E 2008E 2009EBREAdj. ROE (%) 16.7 22.1 20.9 21.0 21.9Adj. P/E (x) 36.7 22.6 19.3 15.5 12.0Adj. P/BV (x) 5.6 4.5 3.6 3.0 2.4Dividend yield (%) 0.0 0.0 0.0 0.0 0.0HandlowyAdj. ROE (%) 13.7 13.6 14.4 16.4 17.3Adj. P/E (x) 18.7 20.8 19.0 16.0 14.3Adj. P/BV (x) 2.9 2.8 2.7 2.5 2.4Dividend yield (%) 4.1 4.3 3.9 4.7 5.2HandlowyAdj. ROE (%) 17.5 18.0 15.4 17.5 18.7Adj. P/E (x) 18.4 16.2 18.3 15.6 13.7Adj. P/BV (x) 3.0 2.8 2.8 2.6 2.5Dividend yield (%) 3.5 5.6 4.1 4.8 5.5Kredyt BankAdj. ROE (%) 14.6 25.5 14.4 16.6 18.0Adj. P/E (x) 25.9 12.3 19.2 15.6 13.0Adj. P/BV (x) 3.5 2.8 2.7 2.5 2.2Dividend yield (%) 1.0 4.1 2.6 3.2 3.8

Oil & Gas (1): Back to Underweight. Oil price lull, refining tougher?

We have kept an Underweight rating for Oil & Gas for most of 2006, upgrading the sector to Neutral for 4Q 2006. We are now downgrading Oil & Gas back to Underweight as we see no positive sector catalyst while company-specific risks point to a downside. While the price of crude oil seems to be bottoming with futures pointing to a 13% recovery in Brent over the next 12 months, we believe an oil price lull in the US$ 50-60 range is likely in the meantime. Refining outlook remains bleak. In 4Q, European refinery margins plunged 58% YoY with a flat Ural-Brent differential. Refining margins rebounded recently but the medium-term outlook remains poor with a growing pipeline of new capacity additions. We assume flat margins for 2007, at US$ 5.0/bbl with a 17% decrease in Ural-Brent differential to US$ 3.50/bbl. CEE oils are trading at median 2007E EV/EBITDA of 5.6x, slightly above historical multiples, at almost 40% and 27% respective premiums to European integrated and US downstream oils.

Oil fundamentals


Brent-ROT refinery margins (US$/bbl)

Source: Reuters

2007E 2006 4Q 2006 3Q 2006 QoQ (%) 4Q 2005 YoY (%)Dated Brent (US$/bbl) 61.5 65.1 59.5 69.7 (14.6) 56.7 4.9 Brent-Ural differential (US$/bbl) 3.50 4.20 3.40 4.39 (22.6) 3.28 3.7 Brent-ROT (US$/bbl) 5.00 4.89 2.97 5.20 (42.9) 7.12 (58.3)ROT+ differential (US$/bbl) 8.50 9.09 6.37 9.59 (33.6) 10.40 (38.8)

(2.0)0.02.04.06.08.0

10.012.014.0

Jan

Feb

Mar

Apr

May Jun

Jul

Aug

Sep Oct

Nov

Nov

Dec

5-year range 20052006 2007 5-year average

Oil price range-trading, refining margins outlook

bleak, valuation premium to Western peers?


21

Oil & Gas (2): PKN preferred over Lotos but mind the risks

Despite significant underperformance, a major recovery in 2007 seems unlikely. We prefer PKN’spetrochemical support against Lotos’ refining leverage.Company-specific risks weight on PKN’s performance while Lotos suffers from pure refining exposure. PKN’s MN acquisition resulted in ca. PLN 5.0/share value destruction, eliminated dividend prospects as net gearing rose to 39%, and remains a source of downside risks, in our view. Earnings outlook rather weak, especially for Lotos. PKN’s 4Q 2006E net profit down 48% QoQ (up 84% YoY due to low base). Lotos’ earnings down 52% QoQ (down 76% YoY). In 2007, PKN and Lotos net profit down a respective 19.8% and 35.7% YoY.Valuation: Trading at an EV/EBITDA of nearly 6.0x (2007-2008), PKN does not look attractive vs. its key peers. Lotos’ EV-based multiples (nearly 5.0x EV/EBITDA, adjusted for the PKRT capex) appear to be fair, but not yet overly attractive.

Oil & Gas: Comparable valuation


PKN and Lotos: relative performance


MCAP PriceUS$m 2006E 2007E 2006E 2007E

PKN 6,843 48.0 7.5 9.4 4.3 5.8Lotos 1,706 45.0 7.9 11.8 4.5 5.1OMV 15,914 40.8 9.2 8.6 5.3 4.5MOL 11,083 20,275.0 6.8 9.4 4.5 5.3SNP Petrom 12,692 0.6 15.1 12.5 8.4 7.4Tupras 4,166 24.0 7.3 9.6 4.8 5.9Unipetrol 1,996 232.5 13.2 12.2 5.7 5.4Rompetrol 761 0.1 38.8 19.0 13.2 11.1Median 8.5 10.7 5.0 5.6

P/E (x) EV/EBITDA (x)

60

70

80

90

100

110

120

130

140

Jan-

06

Feb-

06

Mar

-06

Apr

-06

May

-06

Jun-

06

Jul-0

6

Aug

-06

Sep

-06

Oct

-06

Nov

-06

Dec

-06

Jan-

07

PKN LotosWIG 20 Brent Crude

(rebased to 100)

Oil & Gas (3): The impact of different crude supplies sources?

What if the Druzhba pipeline were to never reopen? The brief answer is an easy one: You just do not want to be the shareholder of PKN (Unipetrol), Lotos and MOL. Although our core scenario remains one that assumes the swift resumption of Russian crude oil supply to Central Europe, we did the quick-and-dirty math on what the valuation impact would be on CEE oils should the title-scenario (worst case) materialise.

We estimate we would have to cut our target prices for PKN and Lotos by around 29% and that of MOL by around 16% in a worst-case scenario. Our calculation assumed an incremental cost of crude supply of US$ 2.0/bbl (only US$ 1.5/bbl at Lotos due to its coastal location), which we believe may even be a conservative estimate.

No supply problems, as alternative supply routes exist and may easily be utilised.

The impact of the potential demise of Druzhba on CEE oils - drasticPKN* Lotos MOL

Refinery throughput (m bbl), 2007E 129.6 42.7 94.9Russian pipeline supply (m bbl), 2007E 115.9 39.8 89.9Annual profit decline pre-tax, US$m** 231.8 59.7 179.6Annual profit decline post-tax, US$m** 187.7 48.3 146.4PV of annual profit decline post-tax, US$m (perpetuity) 2,086 509 1,541Current TP PLN 51.0 PLN 46.0 HUF 22,000Current target MCAP, US$m 7,295.0 1,749.0 9,769***Downside risk to our TP (%) 28.6 29.1 15.8

Note:*including Unipetrol, excluding MN, **@ US$ 2.0/bbl incremental cost Source: CA IB estimates(only US$ 1.5/bbl for Lotos, *** MOL MCAP after deducting treasury shares

29% downside to our TP if alternative crude oil

supply used

Company-specific risks weight on PKN’s

performance while Lotos suffers from pure refining

exposure


22

Telecoms: Neutral with positive bias despite regulatory risks

Positive bias despite regulatory risks due to improving mobile outlook. BUY TPSA, SELL Netia. We BUY TPSA due to its high dividend yield prospects and attractive valuation. Risk factors include a stronger than anticipated revenue impact of regulatory measures in the fixed line business which however appears offset by recovery in mobile growth. TPSA underperformed MSCI European Diversified Telecoms by 18.8 percentage points in 2006. TPSA’s 2007E EV/EBITDA multiple of 5.2x represents 5.0% and 13.7% discounts to MTel and Telefonica O2 multiples, unjustified in our view as we believe our forecast reflects Polish regulatory risks. The announcement of the dividend policy (due 1Q 2007) could be a catalyst. We forecast a 10% yield assuming the previous gearing guidance is maintained.We reiterate our SELL rating on Netia in light of a bearish earnings outlook and unattractive valuation. We forecast 10% YoY EBITDA drop in 2007 and yet the stock is trading at adjusted EV/EBITDA of 5.2x.

TPSA: Figures and ratios (2005-2008)


TPSA and Netia: Relative performancePLNm 2005 2006E 2007E 2008ENet revenues (PLNm) 18,342 18,860 18,580 18,230Net profit (PLNm) 2,316 2,100 2,250 2,600EBITDA (PLNm) 8,083 7,959 7,740 7,580EPS (PLN) 1.65 1.50 1.61 1.86P/E (x) 14.8 16.4 15.3 13.2CEPS (PLN) 4.7 4.7 4.6 4.5PCE (x) 5.2 5.2 5.3 5.4DPS (PLN) 1.0 1.9 2.1 2.4Dividend yield (%) 4.1 7.7 8.6 9.8EV/revenue (x) 2.4 2.3 2.2 2.2EV/EBITDA US$ min. adj. (x) 6.0 5.4 5.2 5.2


70

80

90

100

110

120

130

Jan-

06

Feb-

06

Mar

-06

Apr

-06

May

-06

Jun-

06

Jul-0

6

Aug

-06

Sep

-06

Oct

-06

Nov

-06

Dec

-06

TPSAMSCI Europe Diversified TelecomNetia

(rebased to 100)

Mining: Upgrade to Overweight (KGHM, BUY, TP PLN 103)

Copper: The outlook will prove positive on a 3-6 month perspective, we believe. Chinese GDP growth near 10% is continuing while the US housing sector appears to have seen its worst. KGHM: We switched to using the copper futures curve for forecasting the company’s earnings. Assuming copper at US$ 5,600/t and US$ 5,331/t in 2007 and 2008, respectively, we forecast KGHM’s net profit at PLN 3.1bnand 2.9bn. Valuation: 2007E copper business P/E ratio of 4.7x and EV/EBITDA of 2.9x, respective 37% and 17% discounts to sector peers. We expect the next dividend to yield 10.5%.

KGHM: Figures and ratios


LME copper spot price vs. inventory

Copper futures curve

Source: Bloomberg

Source: Bloomberg

*copper business

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Jan-0

5

Mar-05

May-05

Jul-0

5

Sep-05

Nov-05

Jan-0

6

Mar-06

May-06

Jul-0

6

Sep-06

Nov-06

Jan-0

7

020,00040,00060,00080,000100,000120,000140,000160,000180,000200,000

Copper price (US$/tonne, lhs)Copper inventory (tonnes, rhs)

4,000

4,400

4,800

5,200

5,600

Jan-0

7Ju

l-07

Jan-0

8Ju

l-08

Jan-0

9Ju

l-09

Jan-1

0Ju

l-10

Jan-1

1Ju

l-11

Jan-1

2

Copper futures curve Annual average

US$/t

2003 2004 2005 2006E 2007E 2008ERevenue (PLNm) 4,741 6,342 8,000 11,698 10,763 10,584EBIT (PLNm) 358 1,554 2,509 4,208 3,414 3,090Net profit (PLNm) 530 1,397 2,289 3,515 3,103 2,890Net profit core business (PLN m) 362 1,150 2,217 3,250 2,819 2,586P/E (x) 31.7 12.0 7.3 4.8 5.4 5.9P/E core business (x) 36.7 11.6 6.0 4.1 4.7 5.1EV/EBITDA (x)* 16.3 5.8 3.8 2.4 2.9 3.1Dividend yield (%) 0.0 2.4 11.9 10.5 9.2 8.6

We upgrade Mining to Overweight; longer run,

we still believe the Super Cycle will be supportive of

commodities prices

TPSA is one of our top-picks on valuation

grounds and dividend support. SELL Netia


23

Media: Upgrade to Neutral. Switch to TVN.

We are upgrading Media to Neutral ahead of the publication of results for 4Q 2006, which is seasonally the strongest quarter for media companies.We are upgrading TVN to BUY. We would turn our attention to expected strong 4Q 2006 results, robust 2007 outlook with an expected 15-20% increase in TVN’s ad prices and new entrants on the market posing no significant threat in 2007, in our view.As to Agora (HOLD), we see the stock as fully valued. While the next year is likely to bring improvement in the company’s results (we are expecting 2007E adjusted EBITDA up 29% YoY), competitive risks (such as the new daily project by Polskapresse, Springer expanding on the Polish market) still remain in place.


Source: Bloomberg

Media: Comparable valuation

Source: Agora, TVN, CA IB estimates

Media: Quarterly adj. EBITDA growth

Price Target Upside Rating Adj. P/E (x) Adj. EV/EBITDA (x)(PLN) (PLN) (%) 2006E 2007E 2008E 2006E 2007E 2008E

Agora 39.0 37.9 (2.8) HOLD 35.8 23.7 22.1 13.8 10.7 10.3TVN 24.0 28.4 18.2 BUY 29.2 22.5 19.1 21.7 15.9 13.6

36%

62%

29%

54%

-56% -51% -48%

-7%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

1Q 2006 2Q 2006 3Q 2006 4Q 2006ETVN Agora

FY 2006 performance of media companies

35557595

115135155175195

Dec-05

Jan-0

6

Feb-06

Mar-06

Apr-06

May-06

Jun-0

6Ju

l-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

Agora TVN WIG

(rebased to 100)

IT: Waiting for facts? Upgrade to Neutral

We are upgrading the IT sector to Neutral on the improved visibility of public projects (an option worth consideration given their estimated price tag of more than PLN 2bn) and cost-cutting stories.In line with our prior underweight stand, most rated companies from our IT universe underperformed the WIG index (Prokom, ComputerLand and Emax, down a respective 10%, 14% and 22% in 4Q 2006). Two exceptions included ComArch (BUY, TP: PLN 225) up 9% and Asseco Poland (Restricted) up 11%, driven primarily by excellent results as well as merger & acquisition-related newsflow.Ahead of the release of 4Q 2006 results, we prefer ComArch and a potential turnaround candidate, ComputerLand. Negative surprises include Prokom and Emax. Looking ahead, we continue to see value in ComArch, trading at a slight discount to EU software players with no premium for its superior earnings growth track record (2004-2006E CAGR of 122%) and continued success in the export arena. Prokom remains our top pick for exposure to the public sector.


IT: Comparable valuationPrice Target Upside MCAP P/E (x) EV/EBITDA (x) PEG (x)

Company Ticker Rating PLN PLN (%) PLNm 2006E 2007E 2008E 2006E 2007E 2008E 2006EAsseco Poland (consensus) ACP PW R 56.0 R n.a. 2,583 31.9 23.9 22.0 n.a. n.a. n.a. 1.6Prokom PKM PW HOLD 137.0 146.0 6.6 1,903 23.7 17.8 16.2 14.2 10.5 9.6 1.1

ComArch CMR PW BUY 191.0 225.0 17.8 1,528 28.4 25.5 21.6 23.7 16.7 14.4 1.3

ComputerLand CPL PW HOLD 104.0 114.0 9.6 733 51.8 26.5 15.8 10.6 6.9 5.0 0.6

Emax EMX PW HOLD 119.5 120.0 0.4 412 51.7 21.0 19.0 14.8 10.5 9.7 0.8Median 51.7 25.5 19.0 14.8 10.5 9.7 0.80

Average 44.0 24.3 18.8 16.4 11.4 9.7 0.92EU IT service 18.1 15.4 13.8 9.2 8.1 7.2 1.19

EU IT software 34.9 26.3 23.1 19.8 15.8 13.6 1.67

Wagering on contracts from public administration

(price tag of PLN 2bn)

Yet, only one BUY: on ComArch

4Q is seasonally the best quarter for media;

earnings momentum improving in Agora,

strong results expected in TVN


24

Real Estate: Neutral stance on top-performing sector in 2006

The real-estate/hotel sector was the top performer in 2006.

After a 32% rally in 4Q 2006 we are downgrading Echo to a HOLD, mainly due to the share price performance.

We are upgrading GTC to HOLD, raising our target price to PLN 43. GTC surprised us on the upside in terms of new sites acquisitions, having purchased plots representing ca. 105,000m2 of leaseable/sellable area in just 4Q 2006.

We are upgrading Orbis’ (HOLD) target price to PLN 67 as hotel industry operating trends look favourable with RevPar set to grow in Poland by ca. 11% p.a. in the next three years. Reportedearnings to be boosted by asset disposal.


Source: Bloomberg

Real estate companies: Comparable valuation

-10.1

-0.9

2.8

6.79.4

1.5

-0.3

-7.6

-0.3

4.42.3

9.6 9.2

4.0

12.6

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

1Q 20

03

2Q 20

03

3Q 20

03

4Q 20

03

1Q 20

04

2Q 20

04

3Q 20

04

4Q 20

04

1Q 20

05

2Q 20

05

3Q 20

05

4Q 20

05

1Q 20

06

2Q 20

06

3Q 20

06

(%)

Orbis: RevPar growth on the rise

Source: Orbis

Price TP Upside P/E (x) P/BV (x) / EV/EBITDA (x)Real estate (PLN) (PLN) (%) Rating 2006E 2007E 2008E 2006E 2007E 2008EGTC 42.2 43 1.9 HOLD 13.7 16.4 6.1 3.3 2.8 1.7Echo 91.0 97 6.6 HOLD 14.1 10.6 12.6 2.2 1.6 1.1Dom Developmen 146.9 150 2.1 HOLD 25.7 18.9 15.3 21 14.8 11.9Hotels Adj. P/E (x) Adj. EV/EBITDA (x)Orbis 65.05 67 3.0 HOLD 43.9 28.1 19.7 14.3 11.9 10.3 80

120

160

200

240

280

Jan-

06Fe

b-06

Mar

-06

Apr-0

6M

ay-0

6Ju

n-06

Jul-0

6Au

g-06

Sep-

06O

ct-0

6No

v-06

Dec-

06

GTC Echo Orbis WIG

(rebased to 100)

FY 2006 performance of real estate companies

Construction: Upgrade to Overweight. Boom to continue

Construction output increased by 18% YoY in Jan-Nov 2006 and we expect the robust trends to be continued throughout 2007.The positive outlook is underpinned by the increasing flow of EU funds (EUR 20bn planned for 2007-2013), acceleration of fixed investments among corporates and seemingly insatiable demand for residential properties in large cities.Sector valuations appear to be justified by earnings growth: 2007E P/E of 35.2x but PEG of 0.7x.Our top pick is Budimex, where we believe the market continues to undervalue the company’s housing business while the flow of EU funds suggests a recovery in road construction margins. We are also buyers of Polimex. We like the company for its persistently implemented M&A expansion strategy and the discount to its peers in comparative valuation.


Construction output growth (YoY, %)Source: CA IB estimates

Source: GUS

Construction: Comparable valuation Budimex, Polimex, PBG: EPS growth forecasts for 2007 and 2008

(7.8)(3.5)

15.5

4.1

13.4 15.7

4.9

15.321.0

28.723.4

(10)(5)05

101520253035

Jan-0

6

Feb-06

Mar-06

Apr-06

May-06

Jun-0

6Ju

l-06

Aug-06

Sep-06

Oct-06

Nov-06

%

28

48

81

47 45

1,004

0102030405060708090

100

Budimex Polimex PBG2007E 2008E

%

Company Price 12-M TP Upside Rating P/E (x) PEG (x)(PLN) (PLN) (%) 2006E 2007E 2008E 2007E 2006E 2007E 2008E

Budimex 74.5 93 25 BUY 420.0 38.1 21.0 0.2 43.0 18.2 11.5Polimex 151 168 11 BUY 37.0 28.9 19.7 1.0 21.8 15.3 11.3PBG 256 267 4 HOLD 57.5 38.8 26.7 0.9 40.6 25.3 17.8Average 171.5 35.2 22.5 0.7 35.1 19.6 13.5

EV/EBITDA (x)

Upgrade to Overweight: Positive outlook

underpinned by inflow of the EU funds, acceleration

in fixed investments and huge demand for

residential properties

We see the real estate sector as fairly valued;

GTC surprised us on the upside with new sites

acquisitions


25

Industrials: Neutral: We BUY Groclin, Kety and Elstar

Industrials are trading at the average 2007E P/E of 15.8x and EV/EBITDA of 9.6x, rich multiples in our view even despite our forecast of a 5.5% GDP growth in 2007.Our top pick is Groclin (upgrade to BUY, TP: PLN 60). The stock fell 30% in the most recent 3 months but we believe the plunge to be played out. We forecast 100% EPS growth in 2007, which yields a 2007E P/E ratio of 10.1x. Hit by the negative newsflow on biofuel regulations ElstarOils plunged 23% without material deterioration of long-term fundamentals. We are upgrading Elstar to BUY.We are upgrading Kety to BUY from Hold (TP upped to PLN 205) as a still attractively valued (2007E P/E of 15.2x) play onPoland’s strong macro environment.


Industrial stocks: 4Q 2006E earnings preview

Industrial output growth (YoY, %)


Source: GUS

Industrials: Comparable valuation

(5)

0

5

10

15

20

25

Jan-0

5

Mar-05

May-05

Jul-0

5

Sep-05

Nov-05

Jan-0

6

Mar-06

May-06

Jul-0

6

Sep-06

Nov-06

%

Company Price 12-M TP Upside Rating P/E (x)(PLN) (PLN) (%) 2006E 2007E 2008E 2006E 2007E 2008E

Grajewo 55.9 53 (5) SELL 28.5 17.5 15.1 13.5 9.6 8.1Groclin 46.38 60 29 BUY 20.2 10.1 7.5 9.4 6.3 5.2Kety 182 205 13 BUY 18.9 15.2 14.0 11.4 9.1 8.3Mondi 99 103 4 HOLD 19.4 15.8 14.4 10.2 9.6 9.2Elstar 13.3 17.5 32 BUY 73.8 23.4 15.0 33.0 16.2 10.4Average 20.2 15.8 14.4 11.4 9.6 8.3

EV/EBITDA (x)

84.6

27.519.5

6.5 1.1

39.2

21.215.0

(11.4)

2.3

-20

0

20

40

60

80

100

Mondi Grajewo Kety Groclin Elstar4Q 2006E 4Q 2005

PLNm

Retail: Neutral: Seasonality disturbed by weather; BUY CCC on weakness

We believe the normal seasonality of the retail industry has been disturbed by the one-off factor of an unusually warm winter. Among the beneficiaries, we would place LPP, AmRest and EM&F. On the other hand, we believe that CCC and CEDC were hit by the absence of a freeze. Retail stocks are currently trading at an average 2007E P/E of 19.5x, 9% higher than in our previous quarterly, implying a PEG ratio of 0.8x. We maintain our NEUTRAL weighting of the retail sector towards the benchmark.

Within the sector, we prefer the reasonably priced growth story of CCC over the fully valued EM&F, Eurocash, CEDC, recovered LPP and depending on the Burger King deal, AmRest. Our pecking order in the retail industry would be: 1) CCC (BUY, TP PLN 54), 2) AmRest (HOLD, TP PLN 76), 3) EM&F (HOLD, TP PLN 14.5), 4) Eurocash (HOLD, TP PLN 8.0), 5) LPP (HOLD, TP PLN 770), and 6) CEDC (HOLD, TP US$ 33).

Retail: Comparable valuation

Source: Companies’ data, CA IB estimates Source: CA IB estimates

Retail: 4Q 2006 earnings growth

P/E (x) EV/EBITDA (x)2006E 2007E 2008E 2006E 2007E 2008E

LPP PLN 745.0 770.0 3.4 HOLD 28.1 18.4 14.0 0.6 13.9 10.1 8.1CCC PLN 46.4 54.0 16.5 BUY 31.1 19.7 14.4 0.5 23.9 15.1 11.0Eurocash PLN 7.35 8.0 8.8 HOLD 20.8 16.0 13.5 0.8 9.5 7.8 7.0CEDC US$ 30.3 33.0 9.0 HOLD 21.7 18.8 16.1 0.6 14.1 12.6 11.6AmRest PLN 71.9 76.0 5.7 HOLD 26.1 20.5 17.0 1.4 12.3 10.3 8.6NFI Empik PLN 14.0 14.5 3.6 HOLD 32.2 23.4 18.4 0.9 13.1 10.6 8.8Average 26.7 19.5 15.6 0.8 14.5 11.1 9.2

Upside (%)

Rating PEG (x)Company Price

(local)12M TP (local)

182.7

139.1110.1

73.248.7

35.518.2

0

40

80

120

160

200

LPP

EMPiK

AmRest

Euroca

sh

Retail u

nivers

eCEDC

CCC

Neutral stance maintained; CCC is only BUY

Neutral on valuation grounds, despite strong

GDP growth prospects in 2007; our main BUY ideas

are from within small caps territory: Groclin

and Elstar Oils


26

Recommendations and Stock Ratings CA IB utilises a three-tier recommendation system for stocks under formal coverage: Buy, Hold, or Sell.

A BUY is applied when the expected total return over the next 12M is higher than the stock's cost of equity (“required return”).

A HOLD is applied when the expected total return over the next 12M is lower than its cost of equity but higher than zero.

A SELL is applied when the stock's expected total return over the next 12M is negative.

CA IB employs two further categorisations for stocks under coverage:

Restricted: A rating and financial forecasts and target price are not disclosed owing to compliance or other regulatory considerations such as a blackout period or conflict of interest.

Coverage in Transition: Due to changes in the research team, the disclosure of a stock's rating and target price and financial information are temporarily suspended. The stock remains in the CA IB research universe and disclosure of relevant information will be resumed in due course.

Temporary movements by stocks across the boundaries of these categories due to share price volatility will not necessarily trigger a recommendation change. CA IB will advise as and when coverage of securities commences and ceases. CA IB has no policy or standard as to the frequency of any updates or changes to its coverage policies.

The cost of equity for each stock is calculated using the standard Capital Asset Pricing Model utilising predicted risk-free rates for countries, market equity risk premiums for each country and individual stock betas.

Valuation Metrics • Cash earnings and, hence, CEPS are calculated with best efforts to adjust earnings

for non-cash items.

• EPS and CEPS are diluted for capital increases, rights issues, bonus shares, etc.

• Market and company valuations are made with the price at the market close on the last trading day before publication date.

• P/E (and P/CE) ratios are derived by dividing total market value by total earnings; negative earnings are treated as zero.

• NAV and, hence, book value per share refer to the most recent annual balance sheet, unless otherwise specified.

• Free float is that part of the listed MCAP that can be identified as, in principle, potentially available to a buyer in the market.

• EV/EBITDA incorporates MCAP, net debt and additional adjustments to enterprise value over EBITDA, and is also adjusted for capital changes.

Public offerings in this context are offerings of shares in issue or of new shares with current or immediate post-offering listings.

Definitions


2002 2003 2004 2005 2006E 2007E 2008EEBITDA (PLNm) 1,861 2,474 3,886 4,804 5,413 5,451 5,519Net profit (PLNm) 421 987 2,482 4,585 2,726 2,185 2,026EPS (PLN) 1.00 2.35 5.80 6.29 6.37 5.11 4.74EPS growth (%) 12.0 134.1 147.4 8.4 1.3 (19.8) (7.3)CEPS (PLN) 3.65 4.60 8.74 11.15 10.81 9.51 10.07P/E (x) 23.9 10.7 8.3 7.6 7.5 9.4 10.1 P/CE (x) 6.6 5.5 5.5 4.3 4.8 5.6 5.3 EV/EBITDA (x) 11.0 8.3 4.8 5.0 4.2 5.8 5.9 EV/DACF (x) 18.3 11.0 5.7 5.2 5.3 7.7 7.4 Dividend yield (%) 0.3 1.4 4.4 0.0 2.1 2.5 3.1 Net gearing (%) 28.1 25.0 3.0 16.4 8.6 39.1 38.6 ROE (%) 5.2 11.1 23.4 19.0 15.1 10.8 9.2 ROACE (%) 4.7 9.1 16.9 13.5 11.1 8.6 7.0

Shareholder structure: Treasury 10.20%, Nafta Polska 17.32%, free float 72.48% (including 7.69% in GDRs)EV-based multiples adjusted by treating the stake in Polkomtel as a cash equivalent at PLN 2.70bn after-tax value

Investment case: We maintain our HOLD rating and our 12M target price of PLN 51/share. PKN was one of the worst performing blue chips in Poland and also among the CEE/SEE oils in 2006. This makes many wonder if PKN is to outperform in 2007. Not likely, in our view. We continue to see a negative case for refiners in 2007-2010; we do not see PKN’s problems with MN (and with Russia) resolved; and further problems (such as uncertainty over management; potential crude supply issues in the mid-term) may also weigh on the stock. Only petchems’ strength may differentiate PKN from the rest of the sector, but this is not our core scenario for 2007 (despite expecting improving petchems YoY).

Recent developments: MN; Druzhba supply, Upstream plans. The MN deal was completed in December 2006. Our forecasts include the MN contribution from 2007. As said earlier, the consolidation will dilute EPS only in 2007 and only slightly (due to volume problems at MN), as financing costs are low, but the deal will massively dilute EV-based multiples, indicating value destruction. This is still estimated at PLN 5.0/share. The supply disruption in the Druzhba pipeline, we believe, will only be temporary. It, however, does highlight Poland’s exposure and it is entirely likely that at some point Poland will have to pay more for energy supply security. This would certainly hurt PKN. In this context, hostility with Russia clearly does not help either. PKN’s CEO confirmed PKN may come up with Upstream projects as early as in 2007 and may exceed the originally planned capex for this segment (US$ 130m/year in 2007-2009).

4Q Results preview: We see weak 4Q earnings, plunging ca. 50% QoQ to PLN 596m EBIT and PLN 507m net profit. On the other hand, these earnings will still show impressive YoY growth, but the base period was extremely weak and was also burdened by provisions, therefore this comparison may be misleading. In 4Q we expect continued strength in retail and petchems to be offset by very weak refining and more inventory holding losses (on the declining crude price). Forex gains will likely support the bottom line (on the strong PLN).

Valuation: Trading at an EV/EBITDA of nearly 6.0x (2007-2008) – EV-based multiples are boosted by the inclusion of MN – PKN does not look attractive vs. its key peers. Admittedly, near-term multiples fail to take into account PKN’s full investment cycle.

PKN Oil & Gas Poland

PLN 48.0 GDR US$ 32.0 Hold

Target price: PLN 51.0

WIG index 49,560 # of shares 427.7m MCAP PLN 20.53bn US$ 6.89bn Free float PLN 14.88bn US$ 4.99bn PKNA.WA / PKN PW

40

45

50

55

60

65

70

75

Jan-06 May-06 Sep-06 Jan-07

PKN Orlen

60

70

80

90

100

110

120

130

140


PKN Orlen WIG

(Rebased to 100)

Analysts Robert Réthy, CFA Tel. +36 1 374 7936 [email protected] Tomasz Bardzilowski, CFA Tel. +48 22 520 9979 [email protected] http://research.ca-ib.com

Will the laggard become a star? Unlikely, we think.

11 January 2007

Company Update

PKN January 2007

28

Table 2: 4Q 2006 Results preview

4Q 06 3Q 06 QoQ % 4Q 05 YoY %

Oil fundamentals Dated Brent (US$/bbl) 59.5 69.7 (14.6) 56.7 4.9Brent-Ural differential (US$/bbl) 3.40 4.39 (22.6) 3.28 3.7Brent-ROT (US$/bbl) 2.97 5.20 (42.9) 7.12 (58.3)ROT+ differential (US$/bbl) 6.37 9.59 (33.6) 10.40 (38.8)

4Q 06E 3Q 06 QoQ % 4Q 05 YoY %Financial forecasts Sales (PLNm) 11,065 14,879 (25.6) 11,353 (2.5)EBITDA (PLNm) 1,105 1,681 (34.3) 1,063 4.0EBIT (PLNm) 596 1,167 (49.0) 342 74.0o/w: Refining & Marketing 163 783 (79.3) 291 (44.1) Chemicals 253 183 38.2 195 29.8 Retail 126 183 (30.8) (32) n.a. Unipetrol 134 189 (29.2) 66 103.3 Others (80) (171) (53.3) (177) (54.7)Net profit (PLNm) 507 973 (47.9) 275 84.1

Source: Reuters, PKN, CA IB estimates

Figure 1: Rotterdam (Brent) refinery margin (US$/bbl)

3.42

5.69

4.87 5.00

3.22

7.09 7.48

7.14

5.02

6.19

5.20

2.97

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

1Q04

2Q04

3Q04

4Q04

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

3Q06

4Q06

Source: Reuters

Figure 2: Monomer spread* (ethylene margin, EUR/t)

(300)

(200)

(100)

0

100

200

300

1Q00

3Q00

1Q01

3Q01

1Q02

3Q02

1Q03

3Q03

1Q04

3Q04

1Q05

3Q05

1Q06

3Q06

* assuming 1 unit of ethylene and 0.55 unit of propylene Source: Datastream, CA IBproduced from 3 units of naphtha

Table 3: PKN – Earnings statement PLNm 2005 2006E 2007E 2008ENet revenue 41,188 50,819 56,060 58,847EBIT by segments Refining & Wholesale 2,698 1,966 1,203 910Retail 89 400 420 440Petrochemicals 788 778 930 939Other (79) 100 70 70HQ (732) (446) (411) (427)Unipetrol 261 617 607 608MN 0 0 398 591EBIT 3,025 3,414 3,217 3,131Net financials 218 15 (468) (574)Associates 203 223 228 247Extraordinary items 1,894 0 0 0Pre-tax profit 5,339 3,652 2,977 2,804Tax (701) (730) (566) (533)Minorities (53) (196) (227) (245)Net profit 4,585 2,726 2,185 2,026Depreciation (1,780) 1,999 2,234 2,388EBITDA 4,804 5,413 5,451 5,519 Source: PKN, CA IB estimates

Table 4: PKN – Cash flow PLNm 2005 2006E 2007E 2008ENet profit 4,585 2,726 2,185 2,026Depreciation 1,780 1,999 2,234 2,388Other non-cash (1,596) (104) (354) (106)Cash earnings 4,770 4,622 4,066 4,308Change in WC (1,827) (1,559) (134) (85)Capex (3,646) (1,800) (12,201) (4,250)Free cash flow (704) 1,262 (8,269) (27)Dividends (911) 0 (428) (513) Source: PKN, CA IB estimates

Table 5: PKN – Balance sheet PLNm 2005 2006E 2007E 2008EFixed assets 20,912 20,898 30,947 32,873Working capital 4,343 5,902 6,036 6,121Capital employed 25,317 26,862 37,046 39,056Shareholders equity 16,697 19,422 21,180 22,693Minority interest 2,616 2,813 3,849 4,094Net debt/(cash) 3,170 1,908 9,794 10,334Total assets 33,404 36,069 44,273 46,413 Source: PKN, CA IB estimates

Table 6: PKN – Key ratios % 2005 2006E 2007E 2008EEBITDA margin 11.7 10.7 9.7 9.4EBIT margin 7.3 6.7 5.7 5.3Net debt (cash)/equity 16.4 8.6 39.1 38.6 ROE 19.0 15.1 10.8 9.2 ROACE 13.5 11.1 8.6 7.0 Source: PKN, CA IB estimates


2002 2003 2004 2005 2006E 2007E 2008EEBITDA (PLNm) 335 540 805 1,075 1,140 890 895Net profit (PLNm) 94 289 543 930 675 434 404EPS (PLN) 1.20 3.68 6.90 6.67 5.94 3.82 3.56EPS growth (%) n.a. 207.3 87.5 (3.3) (11.0) (35.7) (6.9)CEPS (PLN) n.a. 5.05 8.74 9.75 8.67 6.66 6.63P/E (x) 37.6 12.2 6.5 6.7 7.6 11.8 12.7P/CE (x) n.a. 8.9 5.2 4.6 5.2 6.8 6.8EV/EBITDA (x) 11.8 6.9 4.6 4.5 4.3 5.1 4.8EV/DACF (x) 22.0 11.5 7.6 6.4 6.8 7.9 7.4Dividend yield (%) 0.4 0.2 0.4 0.9 0.0 0.0 0.0Net gearing (%) 32.8 13.2 4.9 (10.9) (6.6) 0.6 8.7ROE (%) 7.5 20.8 26.0 25.9 13.8 8.0 6.9ROACE (%) 7.2 17.4 22.7 21.6 15.0 9.1 8.3 Shareholder structure: Nafta Polska 51.91%; State Treasury 6.93%; free float 41.16%

Investment case: we still recommend an opportunistic stance. We keep our HOLD rating, but also reiterate our opportunistic trading suggestions (see our note, dated 24 November 2006) of selling Lotos at or around PLN 50/share (this has worked well lately) and of showing interest in Buying only below PLN 40/share. Our target price remains unchanged at PLN 46/share. The negative impact of the EPS downgrade was fully offset by our lower WACC assumptions for Poland (ERP cut by 50bps to 4.5% and the risk free rate was cut by 25bps to 5.25%).

Weakness in sector macro vs. attractive long-term growth prospects. The recent oil price decline and poor refinery margins will keep Lotos’ earnings and sentiment under pressure in the near term. We expect further deterioration of the refining macro in 2007-2009, resulting in negative earnings growth at Lotos (being one of the most leveraged on refining in the region). On the other hand, the attractive features of Lotos and the potential positive drivers, i.e. value-creating growth projects (refinery upgrade and expansion and upstream growth) are still several years away.

2007-2009 EPS cut by 4% on weaker US$ assumptions. We have lowered our PLN/US$ assumptions for our forecast horizon to a flat 2.99 from 2007 onwards. Lotos is exposed to the US$ in both its Upstream and refining segments and suffers from a weak US$/strong PLN. We have also trimmed our 2006 EPS estimate by 3%, having adjusted our 4Q forecasts for the poorer than expected refining macro in 4Q 2006.

4Q Results preview: Similarly to PKN, we expect very poor 4Q earnings. We see EBIT and net profit halving QoQ and also to be down slightly YoY. Refinery margins deteriorated further in 4Q QoQ (from US$ 5.2/bbl to US$ 3.0/bbl in 4Q) and the Ural-Brent differential also narrowed slightly. Further inventory holding losses may also hit reported earnings, and volumes seasonality does not help either.

Valuation: Lotos is traded at a rather high P/E of ca. 12.0x on 2007-2008 assumptions, a premium to the sector median. EV-based multiples (nearly 5.0x EV/EBITDA, adjusted for the PKRT capex) appear to be fair, but not yet overly attractive. The massive leverage on refining may deteriorate near-term multiples (and earnings) quickly, if the macro disappoints.

Lotos Oil & Gas Poland

PLN 45.0 Hold


WIG index 49,560 # of shares 113.7m MCAP PLN 5.12bn US$ 1.72bn Free float PLN 2.11bn US$ 0.72bn LTOS.WA / LTS PW

38

43

48

53

58

63


Lotos

80

90

100

110

120

130

140


Lotos WIG

(Rebased to 100)

Analysts Robert Réthy, CFA Tel. +36 1 374 7936 [email protected] Tomasz Bardzilowski, CFA Tel. +48 22 520 9979 [email protected] http://research.ca-ib.com

Not exciting at current price

11 January 2007

Company Update

Lotos January 2007

30

Table 7: 4Q 2006 Results preview 4Q 06 3Q 06 QoQ % 4Q 05 YoY %Oil fundamentals Dated Brent (US$/bbl) 59.5 69.7 (14.6) 56.7 4.9Brent-Ural differential (US$/bbl) 3.40 4.39 (22.6) 3.28 3.7Brent-ROT (US$/bbl) 2.97 5.20 (42.9) 7.12 (58.3)ROT+ differential (US$/bbl) 6.37 9.59 (33.6) 10.40 (38.8)

4Q 06E 3Q 06 QoQ % 4Q 05 YoY %Financial forecasts Sales (PLNm) 3,417 3,702 (7.7) 2,955 15.7EBITDA (PLNm) 197 331 (40.4) 219 (9.8)EBIT (PLNm) 120 254 (52.7) 145 (16.8)o/w: Upstream 61 47 30.0 n.a. n.a. Refining 60 198 (69.6) n.a. n.a. Retail (5) 5 n.a. n.a. Others 4 4 7.5 n.a. n.a.Net profit (PLNm) 96 200 (51.7) 408 (76.4)

Source: Bloomberg, Company data, CA IB estimates

Figure 3: Brent-ROT refinery margin (US$/bbl)

(2.0)0.02.04.06.08.0

10.012.014.0

Jan

Feb Mar AprMay Ju

n Jul

Aug Sep OctNov Nov Dec

5-year range 20052006 2007 5-year average

Source: Reuters

Figure 4: Ural-Brent differential (US$/bbl)

2.51 2.72

3.66

5.56

4.59

3.92 4.

32

3.28

4.09

4.94

4.39

3.42

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1Q04

2Q04

3Q04

4Q04

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

3Q06

4Q06

Source: Reuters

Table 8: Lotos – Income statement

PLNm 2005 2006E 2007E 2008ENet revenue 9,646 13,074 12,080 11,766EBIT by segments Upstream n.a. 197 204 270Refining n.a. 642 355 268Retail n.a. (20) 0 15Others n.a. 20 20 20EBIT 812 839 578 573Net financials 46 90 43 32Extraordinary items 288 0 0 0Pre-tax profit 1,147 929 622 605Tax (173) (181) (118) (115)Minorities (46) (73) (71) (88)Associates 2 1 2 2Net profit 930 675 434 404Depreciation (263) (301) (311) (322)EBITDA 1,075 1,140 890 895

Source: Lotos, CA IB estimates

Table 9: Lotos – Cash flow

PLNm 2005 2006E 2007E 2008ENet profit 930 675 434 404Depreciation 263 301 311 322Other non-cash (256) 10 11 28Cash earnings 938 986 757 754Change in WC (397) (349) 119 38Capex (912) (790) (1,254) (1,284)Free cash flow (371) (153) (378) (492)Dividends (18) 0 0 0Ch. in net debt 626 (154) (378) (492)


Table 10: Lotos – Balance sheet

PLNm 2005 2006E 2007E 2008EFixed assets 3,581 4,080 5,033 6,005Working capital 1,231 1,580 1,461 1,423Capital employed 4,813 5,660 6,494 7,429Shareholders equity 4,554 5,226 5,661 6,065Total debt 407 457 635 927Net debt/(cash) (497) (343) 35 527Total assets 6,990 7,768 8,302 9,005


Table 11: Lotos – Key ratios

% 2005 2006E 2007E 2008EEBITDA margin 11.1 8.7 7.4 7.6EBIT margin 8.4 6.4 4.8 4.9Net debt (cash)/equity (10.9) (6.6) 0.6 8.7ROE 25.9 13.8 8.0 6.9ROACE 21.6 15.0 9.1 8.3



2002 2003 2004 2005 2006E 2007E 2008EEBITDA (HUFbn) 128.8 178.3 358.2 427.9 461.3 383.9 374.0 Net profit (HUFbn) 65.3 99.7 209.3 244.9 366.5 202.3 190.8 EPS (HUF) 683 623 2,030 2,406 3,154 2,261 2,133EPS growth (%) n.a. (8.8) 226.0 18.5 31.1 (28.3) (5.6)CEPS (HUF) 1,719 1,559 3,556 3,350 4,698 3,563 3,463P/E (x) 29.7 32.6 10.0 8.4 6.4 9.0 9.5 P/CE (x) 11.8 13.0 5.7 6.1 4.3 5.7 5.9 EV/EBITDA (x) 17.1 13.7 6.6 5.8 4.3 5.2 5.2 EV/DACF (x) 13.9 12.1 7.1 6.9 4.4 6.5 6.8 Dividend yield (%) 0.3 0.3 0.8 1.6 2.1 2.3 2.6 Net gearing (%) 44.1 47.7 30.1 29.0 (6.8) (5.4) (6.0)ROE (%) 16.9 13.5 33.3 28.5 28.9 18.4 16.4 ROACE (%) 7.5 8.1 18.9 19.8 20.7 15.3 13.5

Shareholder structure: OMV 10.0%, State Holding Co. (APV Rt.) 1.7%, Treasury 18.2% (including 8.2% held by BNP),Magnolia Finance 5.5%, free float 64.6%

Investment case: MOL is our top pick among CEE oils. We keep our HOLD rating on MOL (12M target price of HUF 22,000/share also unchanged), but see MOL increasingly interesting. Our trading call remains to buy the stock below HUF 20,000. We favour MOL over its peers in CEE for several reasons. A) The same-old quality advantage (assets, management, strategy), which is also reflected by the fact that MOL is the only oil now in the region that has not yet made a major M&A mistake (unlike OMV and PKN). B) A potential takeover target. Fully privatised and with the voting cap expiring at the end of 2009, MOL may soon become a takeover target, in fact the only sizeable one in the sector in CEE. And Hungary may not oppose a friendly takeover. These factors may justify a valuation premium for MOL.

Recent events: Russian M&A; gas storage tender; Druzhba supply; INA. 1) The acquisition of the Russian E&P asset (Baituganskoye field) may boost MOL’s reserves and production (once the field reaches peak flow rate) by ca. 15%. 2) The gas storage project will shift operations (and profits) from Upstream to the lower-return natgas infrastructure, also resulting in the loss of 15% of the domestic gas production. 3) The Druzhba supply disruption, if permanent (not our core scenario), would hurt MOL massively, but it may also result in MOL seeking stronger ties with Russian oil companies. 4) Unfortunately, INA – despite the recent IPO – is unlikely to be a driver for MOL in 2007, as the Croatian side will not make a decision before the elections.

2007-2008 EPS downgrade (8% and 5%) on forex rates, gas storage project. The earnings downgrade reflects our weaker US$/stronger HUF assumptions – which hurt oil earnings – as well as the fallout of Upstream production due to the gas storage project. We slightly revised up our 2006 estimates due to the stronger year-end HUF/EUR rate (forex gains).

4Q Results preview: We expect MOL also to report weak 4Q profits with EBIT plunging 35% and net profit to be down 50% QoQ (3Q net profit was boosted by one-off tax items). Sector macro weakness and seasonality are the major culprits. On the other hand, 4Q earnings may be similar to the year-ago numbers. Financials are to continue to support net earnings on forex gains triggered by the very strong HUF at the end of the year.

Valuation: MOL trades at a P/E of 9.0-9.5x and EV/EBITDA of 5.2x on 2007-2008 assumptions, slightly cheaper than the sector median, whereas one may argue it should trade at a premium.

MOL Oil & Gas Hungary

HUF 20,275 Hold

Target price: HUF 22,000

BUX index 24,117 # of shares 109.33m MCAP HUF 2,217bn US$ 11.34bn Free float HUF 1,432bn US$ 7.32bn MOLB.BU / MOL HB

17,000

19,000

21,000

23,000

25,000

27,000

Jan-06 May-06 Sep-06 Dec-06

MOL

80

90

100

110

120

130

Jan-06 May-06 Sep-06 Dec-06

MOL BUX

(Rebased to 100)

Analyst Robert Réthy, CFA Tel. +36 1 374 7936 [email protected] http://research.ca-ib.com

Our preferred CEE oil may soon be a trading Buy

11 January 2007

Company Update

MOL January 2007

32


4Q 06 3Q 06 QoQ % 4Q 05 YoY %Oil fundamentals Dated Brent (US$/bbl) 59.5 69.7 (14.6) 56.7 4.9Brent-Ural differential (US$/bbl) 3.40 4.39 (22.6) 3.28 3.7Brent-ROT (US$/bbl) 2.97 5.20 (42.9) 7.12 (58.3)ROT+ differential (US$/bbl) 6.37 9.59 (33.6) 10.40 (38.8)

4Q 06E 3Q 06 QoQ % 4Q05 YoY %Financial forecasts Sales (HUFbn) 686.0 765.6 (10.4) 758.4 (9.5)EBITDA (HUFbn) 93.2 127.1 (26.7) 105.4 (11.6)EBIT (HUFbn) 61.7 94.8 (34.9) 64.4 (4.2)Net profit (HUFbn) 59.6 119.5 (50.1) 52.1 14.4

* includes HUF 60bn one-off gain Source: Bloomberg, MOL, CA IB estimates

Figure 5: Brent and Urals crude prices (US$/bbl)

31.9 35

.4 41.4

44.2 47.6 51

.6 61.6

56.7 61

.8 69.5

69.7

59.6

29.4 32.7 37

.7

38.6 43

.0 47.7 57

.2

53.4 57

.7 64.6

65.3

56.2

0.010.020.030.040.050.060.070.080.0

1Q04

2Q04

3Q04

4Q04

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

3Q06

4Q06

BRENT URAL

Source: Reuters

Figure 6: Key product crack spreads (ROT-Ural, US$/t)

124.

7 177.

3

160.

9

139.

3

120.

4 157.

4

232.

0

147.

0

148.

0

242.

2

205.

7

117.

7

87.7 10

5.4 13

9.2

212.

0

163.

4

184.

8

184.

3

174.

8

151.

6

178.

0

170.

7

154.

9

0.0

50.0

100.0

150.0

200.0

250.0

300.0

1Q04

2Q04

3Q04

4Q04

1Q05

2Q05

3Q05

4Q05

1Q06

2Q06

3Q06

4Q06

GASOLINE DIESEL

Source: Reuters

Table 13: Earnings statement

HUFbn 2005 2006E 2007E 2008ENet revenue 2,473.6 2,961.4 2,308.9 2,104.1 EBITDA 427.9 461.3 383.9 374.0 Gas 50.4 35.5 27.9 28.7 Upstream 105.4 136.1 115.5 112.3 Downstream 185.6 180.9 141.4 128.0 Petrochemicals 19.1 20.5 21.2 21.9 HQ expenses (41.8) (46.0) (46.0) (46.0)Intersegment (5.7) 6.0 0.0 0.0 Provisions (8.6) 0.0 0.0 0.0 EBIT after provisions 304.4 333.0 259.9 245.0 Net financials (32.2) (15.8) (9.2) (4.5)Exceptional items 0.0 81.0 0.0 0.0 Pre-tax profit 272.3 398.2 250.8 240.5 Net profit 244.9 366.5 202.3 190.8

Source: MOL, CA IB estimates

Table 14: Cash flow

HUFbn 2005 2006E 2007E 2008ENet profit 244.9 285.5 202.3 190.8 Depreciation 123.5 128.3 123.9 129.0 Other non-cash (27.4) 23.6 (7.4) (10.0)Cash earnings 341.0 437.4 318.8 309.9 Change in WC (48.8) 59.6 (9.6) (7.5)Capex, acquisitions, divestitures (262.9) 40.4 (185.0) (200.0)Free cash flow 29.3 537.4 124.2 102.4Dividends (17.0) (35.0) (47.6) (50.6)Ch. in net debt (63.3) 409.0 (17.0) 11.3


Table 15: Balance sheet

HUFbn 2005 2006E 2007E 2008EFixed assets 1,310.7 1,231.0 1,270.1 1,319.1 Working capital 175.3 115.7 125.3 132.8 Capital employed 1,519.5 1,366.9 1,411.5 1,466.4 Shareholders equity 983.3 1,079.0 1,125.3 1,208.3 Minority interest 70.4 186.4 167.8 151.0 Total debt 387.1 263.4 230.4 219.1 Net debt/(cash) 322.4 (86.6) (69.6) (80.9)Total assets 2,028.8 2,216.9 2,100.6 2,120.7


Table 16: Key ratios

2005 2006E 2007E 2008EEBITDA margin (%) 17.3 15.6 16.6 17.8 EBIT margin (%) 12.3 11.2 11.3 11.6 Net debt (cash)/equity (%) 29.0 (6.8) (5.4) (6.0)ROE (%) 28.5 28.9 18.4 16.4 ROACE (%) 19.8 20.7 15.3 13.5



2003 2004 2005 2006E 2007E 2008ERevenue (PLNm) 10,189 10,909 12,560 15,549 17,447 18,004EBITDA (PLNm) 2,747 2,856 2,654 2,568 2,923 2,962Net profit (PLNm) 677 793 880 1,014 1,265 1,234EPS (PLN) 0.14 0.16 0.17 0.17 0.21 0.21CEPS (PLN) 0.33 0.46 0.44 0.39 0.45 0.46BVPS (PLN) 1.47 3.55 3.52 3.54 3.62 3.66P/E (x) 25.9 22.1 20.8 20.4 16.4 16.8P/CE (x) 10.5 7.6 8.0 8.9 7.8 7.6P/BV (x) 2.4 1.0 1.0 1.0 1.0 1.0EV/Sales* (x) 1.6 1.5 1.3 1.1 0.9 0.9EV/EBITDA* (x) 6.0 5.8 6.2 7.3 6.1 5.9Dividend yield (%) 1.1 2.4 4.3 3.9 4.9 4.8

Shareholder structure: State Treasury 84.7% *EV adjusted for NPV of lease contract and stake in EUROPOLGAZ; EBITDA adjusted for interest from lease contract

Investment case: We reiterate our HOLD rating on PGNiG with our 12-month target price upped to PLN 3.75 from PLN 3.45. Although the regulator’s recent decisions regarding new natural gas tariffs appear to be favourable for PGNiG, the company’s earnings potential is still locked in by the regulatory price regime. The change in that pricing system seems to be a key issue for the company in light of the plans for LNG seaport construction and importation of LNG (the price of which is likely to exceed Gazprom’s prices). In the short run, unusually warm weather may put pressure on earnings in 1Q 2007.

Recent developments: PGNiG has been allowed to increase the regulated tariff for natural gas by 10% as of January 2007 resulting from a change in pricing formula that the company pays when importing natural gas from Gazprom (the change in formula implied an approximately 10% increase in import price). We estimate the increase in the regulated tariff will more that offset the increase in PGNiG’s costs, and therefore have increased our 2007 EBITDA forecast for the company by 7% to PLN 2.923m, and by 1% to PLN 2,962m for 2008. We have increased our net profit estimates by 21% and 7%, respectively, for 2007 and 2008.

4Q 2006 Results and outlook: We forecast PGNiG to report 4Q 2006 results with a 5% YoY decline in EBITDA to PLN 498m and 46% fall in net profit to 152m. The exceptionally warm weather in January 2007 creates a risk to the company’s 1Q 2007 results, which is seasonally the strongest in each year.

Valuation: Having updated our DCF model for revised earnings forecasts as well as assumptions for RFR (down to 5.25% from 5.5%) and ERP (down to 4.5% from 5.0%), we have increased our 12-month target price for PGNiG to PLN 3.75 from PLN 3.45. We reiterate our HOLD recommendation on the stock, which is trading at an adjusted 2007E EV/EBITDA of 6.1% while the nearest dividend payment yields 3.9%.

PGNiG Oil & Gas Poland

PLN 3.51 Hold

Target price: PLN 3.75 (Previously: PLN 3.45)

WIG index 49,560 # of shares 5.9bn MCAP PLN 20.7bn US$ 6.9bn Free float PLN 3.2bn US$ 1.1bn PGNI.WA / PGN PW

3.0

3.2

3.4

3.6

3.8

4.0

4.2


PGNiG

80

90

100

110

120

130

140

150


PGNiG WIG

(Rebased to 100)

Analyst Tomasz Krukowski, CFA Tel. +48 22 520 9859 [email protected] http://research.ca-ib.com

Waiting for the real winter weather

11 January 2007

Company Update

PGNiG January 2007

34

Table 17: PGNiG: 4Q 2006 Results preview

PLNm 4Q 2006E 4Q 2005 YoY (%) 2006E 2005 YoY (%)Sales 4,591 4,015 14 15,549 12,560 24 EBITDA 498 524 (5) 2,568 2,654 (3)EBIT 165 229 (28) 1,261 1,253 1 Net profit 152 282 (46) 1,014 880 15

Source: PGNiG, CA IB estimates

Table 18: PGNiG: Earnings revision

PLNm 2006E 2007E 2008E New Ch. % New Ch. % New Ch. % Sales 15,549 (1) 17,447 3 18,004 (4)EBITDA 2,568 (1) 2,923 7 2,962 1 Net profit 1,014 2 1,265 21 1,234 7



PLNm 2004 2005 2006E 2007E 2008ENet revenues 10,909 12,560 15,549 17,447 18,004 Operating costs 8,052 9,905 13,288 14,762 15,215 EBITDA 2,856 2,654 2,568 2,923 2,962 Depreciation 1,531 1,402 1,307 1,381 1,479 EBIT 1,326 1,253 1,261 1,542 1,483 Net financials (168) 2 (8) 22 42 Pre-tax profit 1,158 1,254 1,252 1,563 1,525 Tax 365 374 238 297 290 Net profit 793 880 1,014 1,265 1,234


Table 20: Cash flow

PLNm 2004 2005 2006E 2007E 2008ENet profit 793 880 1,014 1,265 1,234 Depreciation 1,531 1,402 1,307 1,381 1,479 Other non-cash 589 197 735 467 137 Cash earnings 2,912 2,478 3,055 3,113 2,850 Change in WC 43 (79) (323) (205) (60)Capex (1,274) (1,321) (1,400) (2,300) (2,300)Free cash flow 1,681 1,078 1,333 608 490 Change in LT investments (6) 588 784 969 1,108 Dividends (197) (500) (885) (811) (1,012)New capital (debt) (1,276) 1,127 (0) 0 0 Change in liquid funds 202 2,294 1,232 766 586



PLNm 2004 2005 2006E 2007E 2008EFixed assets 23,989 23,146 22,524 22,518 22,243 Working capital 1,276 1,356 1,678 1,883 1,943 Capital employed 25,265 24,502 24,202 24,401 24,187 Shareholders equity 17,740 20,760 20,889 21,343 21,565 Net debt/(cash) 3,473 (742) (1,974) (2,740) (3,326)Other liabilities 5,028 5,036 5,936 6,507 6,674 Total assets 28,420 30,364 31,894 33,238 33,721



2004 2005 2006E 2007E 2008EEBITDA margin (%) 26.2 21.1 16.5 16.8 16.5 EBIT margin (%) 12.2 10.0 8.1 8.8 8.2 Net debt (cash)/equity (%) 19.6 (3.6) (9.4) (12.8) (15.4)Current ratio (x) 0.7 2.4 2.5 2.6 2.7 Debtors turnover (x) 5.5 5.5 5.2 5.0 4.8 ROE (%) 6.3 4.6 4.9 6.0 5.8 ROCE (%) 5.2 3.7 4.5 5.6 5.4



2003 2004 2005 2006E 2007E 2008ERevenue (PLNm) 4,741 6,342 8,000 11,698 10,763 10,584EBIT (PLNm) 358 1,554 2,509 4,208 3,414 3,090Net profit (PLNm) 530 1,397 2,289 3,515 3,103 2,890Net profit core business (PLNm) 362 1,150 2,217 3,250 2,819 2,586EPS (PLN) 2.65 6.99 11.45 17.57 15.44 14.31EPS core business (PLN) 1.81 5.75 11.09 16.25 14.09 12.93CEPS (PLN) 4.13 8.35 12.90 19.16 17.08 16.17P/E (x) 31.7 12.0 7.3 4.8 5.4 5.9P/E core business (x) 36.7 11.6 6.0 4.1 4.7 5.1P/CE (x) 20.3 10.1 6.5 4.4 4.9 5.2EV/Sales (x)* 2.3 1.7 1.3 0.9 1.0 1.0EV/EBITDA (x)* 16.3 5.8 3.8 2.4 2.9 3.1Dividend yield (%) 0.0 2.4 11.9 10.5 9.2 8.6

Shareholder structure: State Treasury 44.3% *Note: EV adjusted for stakes in Polkomtel and Dialog

KGHM’s share price lost 19% in the past month with the sell-off being triggered by an 18% plunge in the price of copper. Although we still remain positive on the fundamentals of copper, we have decided to base our earnings forecast and valuation of the company on the copper futures curve. The latter yields US$ 5,600/tonne in 2007 and US$ 5,331/tonne in 2008, 12% and 3% respectively below our previous assumptions. This as well as a more conservative approach to the forex market (we assume a PLN/US$ exchange rate of 2.99 from 2007 forward versus 3.10 previously) has led to respective 29% and 20% cuts in our earnings forecasts for 2007 and 2008. A significant earnings downgrade notwithstanding, we reiterate our BUY recommendation on KGHM with the target price reduced by 16% to PLN 103. KGHM’s inexpensive valuation (2007E P/E of 4.7x) and hefty dividend yield (10.5%) are among the arguments to buy the stock.

We believe the outlook for the copper market will prove positive on a 3-6 month perspective. Chinese GDP growth near 10% is continuing while the US housing sector appears to have seen its worst. The odds of a decline in visible inventories on the LME look high, and when this occurs – probably by April – copper prices should see a resumption in support.

For forecasting KGHM’s earnings, we currently apply the copper futures curve, which points to US$ 5,600/tonne in 2007 (vs. our previous estimate of US$ 6,400/tonne) and US$ 5,331/tonne in 2008 (vs. US$ 5,500/tonne). We have trimmed our 2006 earnings forecasts by 4% to PLN 3,515m, and slashed them by 29% for 2007 to PLN 3,103m and by 20% for 2008 to PLN 2,890m. We forecast 4Q 2006 net profit at PLN 694m.

We have reduced our 12-month target price for KGHM by 16% to PLN 103. Nevertheless, with a 12-month 23% upside on a 12-month horizon, we reiterate our BUY rating on the stock. An inexpensive valuation (2007E copper business P/E ratio of 4.7x and EV/EBITDA of 2.9x) as well as the expectation of a hefty dividend payment (we forecast a yield of 10.5% based on a 50% payout ratio assumption) are the other arguments that we find as positives.

KGHM Metal and Mining Poland

PLN 84.0* Buy

Target price: PLN 103 (Previously: PLN 122) *Pricing as of 8 Jan 2007

WIG index 49,560 # of shares 200m MCAP PLN 16.8bn US$ 5.6bn Free float PLN 9.4bn US$ 3.1bn KGHM.WA / KGH PW

60

80

100

120

140


KGHM

90

110

130

150

170

190


KGHM WIG

(Rebased to 100)

Analysts Tomasz Krukowski, CFA Tel. +48 22 520 9859 [email protected] Tomasz Bardzilowski, CFA Tel. +48 22 520 9979 [email protected] http://research.ca-ib.com

When it settles

11 January 2007

Company Update

KGHM January 2007

36

4Q 2006 Results preview 4Q 2006 was the first quarter of a declining environment for KGHM. The copper price averaged US$ 7,088/tonne, and although it increased by 65% YoY, it subsided by 8% QoQ. Additionally, the zloty has continued its appreciation trend vis-à-vis the dollar, averaging 2.98 in 4Q 2006 versus 3.29 in 4Q 2005 and 3.10 in 3Q 2006. Against that backdrop, and forecasting KGHM’s volumes to decline by 9% YoY to 140,000 tonnes, we estimate the company will report revenues of PLN 2,757m, up 14% YoY and down 17% QoQ.

Looking at unit production costs, we forecast a 42% YoY gain to PLN 11,750/tonne. Our cost forecasts includes a bonus payment for employees of approximately PLN 100m that we expect to be booked in 4Q 2006.

Based on the above trends, we forecast KGHM to report EBIT of PLN 795m, down 8% YoY and net profit of PLN 694m, up 5% YoY (we note that in 4Q 2005 KGHM recognised a write-down of PLN 159m for its stake in Dialog, which depressed the bottom line).

Table 23: KGHM: 4Q 2006 Results preview

PLNm 4Q 2006E

4Q2005

YoY, %

3Q2006

QoQ, %

Sales 2,757 2,421 14 3,339 (17)EBIT 795 862 (8) 1,257 (37)Net profit 694 660 5 825 (16)Net profit core business 654 819 (20) 748 (13)

Copper volume sold ('000 t) 140 153 (9) 136 3 Silver volume sold (t) 300 283 6 343 (12)

Copper production costs (PLN/t) 11,750 8,275 42 11,537 2 Copper production costs (US$/t) 3,943 2,515 57 3,719 6

Copper price (US$/t) 7,088 4,297 65 7,670 (8)PLN/US$ rate 2.98 3.29 (9) 3.10 (4)

Source: KGHM, CA IB estimates


PLNm 2004 2005 2006E 2007E 2008ENet revenue 6,342 8,000 11,698 10,763 10,584 COGS 4,196 4,724 6,843 6,712 6,843 SG&A 517 570 574 584 598 Other operating items (75) (198) (73) (54) (53)EBITDA 1,827 2,800 4,525 3,744 3,467 Depreciation 273 291 318 330 376 EBIT 1,554 2,509 4,208 3,414 3,090 Net financials (108) 126 35 66 102 Pre-tax profit 1,446 2,635 4,242 3,480 3,193 Tax 296 417 992 661 607 Income from cons. subsidiaries 247 72 265 285 304 Net profit 1,397 2,289 3,515 3,103 2,890 Net profit core business 1,150 2,217 3,250 2,819 2,586


Table 25: Cash flow

PLNm 2004 2005 2006E 2007E 2008EEBIT 1,359 2,509 4,208 3,414 3,090 Tax 296 477 799 649 587 NOPAT 1,063 2,032 3,408 2,765 2,503 Depreciation 273 291 318 330 376 Gross cash flow 1,336 2,323 3,726 3,096 2,879 Change in operating WC 270 0 0 0 0 Capex 520 521 932 986 888 Increase in other assets, net 172 0 0 0 0 Free cash flow 373 1,802 2,794 2,110 1,991



PLNm 2004 2005 2006E 2007E 2008EFixed assets 6,552 7,079 8,320 9,169 9,967 Working capital 1,275 1,461 2,324 2,138 2,103 Capital employed 6,720 6,286 7,161 8,135 8,957 Shareholders equity 5,337 6,214 7,729 9,075 10,413 Net debt/(cash) (77) (1,595) (2,247) (2,648) (3,208)Total assets 8,948 10,977 13,915 14,933 16,246



PLNm 2004 2005 2006E 2007E 2008EEBITDA margin (%) 28.8 35.0 38.7 34.8 32.8 EBIT margin (%) 24.5 31.4 36.0 31.7 29.2 Net debt (cash)/equity (%) (1.4) (25.7) (29.1) (29.2) (30.8)Current ratio (x) 1.2 1.4 1.4 1.5 1.7 ROE (%) 26.1 38.4 46.6 33.5 26.5 ROCE (%) 23.1 39.9 58.8 42.0 34.5



PLNm 2005 2006E 2007E 2008E 2009ENet revenues (PLNm) 18,342 18,860 18,580 18,230 18,360 Net profit (PLNm) 2,316 2,100 2,250 2,600 2,850 EBITDA (PLNm) 8,083 7,959 7,740 7,580 7,430 EPS (PLN) 1.65 1.50 1.61 1.86 2.04P/E (x) 14.1 15.5 14.5 12.5 11.4CEPS (PLN) 4.7 4.7 4.6 4.5 4.5PCE (x) 5.0 4.9 5.0 5.1 5.2DPS (PLN) 1.00 1.90 2.10 2.40 2.50Dividend yield (%) 4.3 8.2 9.0 10.3 10.7EV/revenue (x) 2.3 2.2 2.1 2.1 2.1EV/EBITDA US$ min. adj. (x) 5.8 5.1 5.0 5.0 5.1 Shareholder structure: France Telecom 47.50%, Polish state 3,87%, free float 48,63%

Due to positive developments in the cellular and broadband business lines, TPSA has been enjoying stronger than expected 2Q and 3Q results. A number of factors, including high dividend yield prospects and attractive valuation, led us to maintain our BUY rating and to increase the target price to PLN 29 on 15 December 2006. Nevertheless, we note substantial risk factors including heavy fixed line disconnections due to the implementation of wholesale line rental and the forced unbundling of TPSA’s DSL and fixed line subscriptions.

Results & developments: Although TPSA looks set to report volatile earning figures due to sustaining heavy fixed line losses, there are a number of factors that lead us to believe that the stock should not be underweighted during this period. TPSA’s EV/EBITDA multiple of 5.0x represents a 17% discount compared to the average Magyar Telecom and Telefonica O2 multiple. This discount seems to be unjustified given that our forecasts fully reflect the Polish regulatory risk and we do believe that the market will reduce this discount. Moreover, TPSA offers attractive dividend yield prospects. A detailed dividend policy announcement is expected in 1Q 2007. We also believe that TPSA will rake back at least half of the revenue decline that resulted from the previously mentioned customer base losses. The aggressive new head of the UKE might also be replaced soon due to EU complaints about the lack of independence of the UKE. The stock also gains an effective edge due to the market having already set its sights at a quite low level for next year.

Short-term outlook and 4Q 2006 results preview: We are expecting 4Q 2006 net profit of PLN 387m, down 30% YoY, on sales of PLN 4,921m, up 5% YoY driven primarily by strong growth in the cellular business (up 19.5% YoY), which partially offsets the expected sales declines in the fixed line segment (down 5.1% YoY). We are looking for EBITDA margin expansion to 36.4% from 34.6% in the corresponding period of 2005.

Valuation: TPSA is currently trading with 25% upside to our target of PLN 29.0. Based on our estimated 2006 and 2007 EV/EBITDA of 5.1x and 5.0x, TPSA trades at a 21% and 22% discount to the CEE diversified peer group and a 27% and 18% discount to the CEE median, respectively.

TPSA Telecoms – Diversified Poland

PLN 23.26 Buy


WIG index 49,560 # of shares 1,400m MCAP PLN 33,880m US$ 11,369m Free float PLN 16,465m US$ 5,525 TPSAs.WA / TPS PW

17.5

18.5

19.5

20.5

21.5

22.5

23.5

24.5

25.5


TPSA

70

80

90

100

110

120

130

140


TPSA WIG

(Rebased to 100)

Analysts Anna Bossong, CFA Tel. +44 207 309 7840 [email protected] Przemyslaw Sawala-Uryasz Tel. +48 22 520 9960 [email protected] http://research.ca-ib.com

Good story – not for the faint hearted

11 January 2007

Company Update

TPSA January 2007

38

Table 28: 4Q Results preview (IFRS, consolidated) PLNm 4Q 2006E 4Q 2005 Ch.% 2006E 2005 Ch.%Fixed line telephony 2,230 2,350 (5) 8,863 9,794 (10)Mobile telephony 1,865 1,561 19 6,942 5,773 20Data services 577 544 6 2,247 2,099 7Group revenue 4,921 4,686 518,86018,342 3EBITDA 1,791 1,621 10 7,959 8,083 (2)EBITDA margin (%) 36 35 5 18 44 (59)EBIT 695 612 14 3,380 3,827 (12)FX gains/(losses) - 24 (100) (6) (24) (75)Pre-tax profit 497 516 (4) 2,613 3,005 (13)Net profit 387 553 (30) 2,100 2,316 (9)

Source: CA IB

Preliminary 4Q 2006 preview

TPSA will release its 4Q 2006 earnings on 1 March. We expect 4Q net profit to decline 30% YoY in spite of 5% sales growth YoY. The main reasons for this are:

• Heavy fixed line disconnections resulting from wholesale line rental.

• Forced unbundling and fines associated with TPSA’s DSL and fixed line subscriptions.

Despite the group’s 5% YoY fall in fixed line telephony, we expect EBITDA and EBITDA margin growth due to:

• Fixed line margins being bolstered by recent agreements with unions.

• Strong cellular business performance and increased per minute revenues.

We are looking for the group to report a 19.5% YoY growth in mobile telephony. The EBITDA margin should grow 5% to 36.4%, which will result in 10.5% EBITDA growth to PLN 1,791.

Table 29: Earnings statement (IFRS, consolidated) PLNm 2005 2006E 2007E 2008E 2009E 2010ERevenue: fixed line 9,794 8,863 7,882 7,270 6,969 6,835Revenue: cellular 5,773 6,942 7,456 7,579 8,065 8,422Net revenue 18,342 18,860 18,580 18,230 18,360 18,680 Net revenue, change % (1.0) 2.8 (1.5) (1.9) 0.7 1.7 EBITDA 8,083 7,959 7,740 7,580 7,430 7,580 EBITDA, change % (1.7) (1.5) (2.8) (2.1) (2.0) 2.0 EBIT 3,827 3,380 3,470 3,850 3,970 4,280 EBIT, change % 1.0 (11.7) 2.7 11.0 3.1 7.8 Net financials (822) (767) (610) (470) (400) (340)Pre-tax profit 3,005 2,613 2,860 3,380 3,570 3,940 Tax (514) (610) (780) (720) (750) (800)Net profit 2,316 2,100 2,250 2,600 2,850 3,190

Source: UniCredit CA IB

Table 30: Cash flows (IFRS, consolidated) PLNm 2005 2006E 2007E 2008E 2009E 2010ECash earnings 6,576 6,630 6,470 6,330 6,310 6,490 Ch. in working cap 554 (35) 14 (24) 78 25 Capex (3,046) (3,009) (2,596) (2,481) (2,593) (2,630)Free cash flow 4,084 3,586 3,888 3,826 3,795 3,885Other op. CF 29 114 (68) (78) 22 72Dividends (462) (1,400) (2,660) (2,940) (3,360) (3,500)Acquisitions/disposals (4,880) 0 0 0 0 0 Change in liquid funds (1,229) 2,300 1,160 808 457 457Closing net debt 7,784 5,484 4,323 3,516 3,058 2,601

Source: CA IB

Table 31: Balance Sheet (IFRS, consolidated) PLNm 2005 2006E 2007E 2008E 2009E 2010ELong-term assets 31,262 29,743 28,121 26,873 26,008 25,340 Cash 1,702 1,655 3,177 3,484 3,442 2,899 Current assets 4,362 4,385 5,873 6,124 6,114 5,606 Total assets 35,624 34,125 33,993 32,994 32,124 30,946 Current liabilities 8,694 7,772 9,089 7,480 7,601 7,688 Capital employed 26,930 26,353 24,904 25,514 24,523 23,258 Equity 17,977 18,677 18,267 17,927 17,417 17,107 Minorities 13 10 10 10 10 10 LT debt 6,347 5,000 4,000 5,000 4,500 3,500 Other LT liabilities 2,593 2,666 2,627 2,577 2,596 2,641 Total equity and liabilities 35,624 34,125 33,993 32,994 32,124 30,946

Source: CA IB

Table 32: Key ratios (IFRS, consolidated) 2005 2006E 2007E 2008E 2009E 2010EROE (%) 12.9 11.2 12.3 14.5 16.4 18.6 ROA (%) 10.7 9.9 10.2 11.7 12.4 13.8 ROCE (%) 14.2 12.8 13.9 15.1 16.2 18.4 Net debt/equity (%) 43.3 29.4 23.7 19.6 17.6 15.2Interest cover 4.0 4.4 5.1 6.7 7.8 9.5 Fixed channels (‘000s) 10,607 10,155 9,370 8,858 8,283 7,786 ARPL (US$/mth) 34.1 35.3 36.5 36.7 38.0 40.2 Cellular subs (‘000s) 9,919 12,491 13,294 13,874 14,218 14,233 ARPU (US$/mth) 19.1 17.5 16.9 16.3 16.6 16.9 MOU (min/mth) 97 101 105 105 104 105

Source: CA IB


PLNm 2004 2005 2006E 2007E 2008E 2009ENet revenues (PLNm) 865 909 877 926 1,021 1,113Net profit (PLNm) 158.1 59.0 (26.1) (48.4) (67.1) (38.6)EBITDA (PLNm) 343 339 269 241 288 309EPS (PLN) 0.44 0.15 (0.07) (0.12) (0.17) (0.10)EPS diluted (PLN) 0.40 0.16 (0.06) (0.12) (0.16) (0.09)P/E diluted (x) 12.7 32.4 n.a. n.a. n.a. n.a.CEPS (PLN) 1.0 0.8 0.7 0.5 0.5 0.5 PCE (x) 4.9 6.3 7.7 9.8 11.0 9.6 DPS (PLN) 0.10 0.13 0.13 0.13 0.13 0.00 Dividend yield (%) 2.0 2.6 2.6 2.6 2.6 0.0 EV/Revenue diluted (x) 2.3 2.0 2.2 2.1 2.0 1.9 EV/EBITDA diluted (x) 5.8 5.3 7.3 8.2 7.2 6.8 Net debt (cash) /equity (%) (13.2) (11.1) 1.1 5.0 3.5 (0.8)

Shareholder structure: Novator Telecom Poland 25.24% SISU Capital Ltd. 6.10%, Third Avenue Management LLC: 14.27%, Pioneer Pekao 5.08%, Free float 49.31%

In our recent note, we have reviewed our Netia earnings forecasts in the light of the disappointing 3Q 2006 results and management’s more bearish statements about the outlook for earnings in 2007. We have reduced our underlying EBITDA forecasts for 2007 and 2008 by 15% with revenue expectations in 2007 and 2008 cut by 2.6% and 3.8%, respectively. This had a negative impact on the 12-month valuation in our model (cutting it by ca. PLN 0.4 per share), but we have decided to wait until management issues its revised earnings guidance for 2007 before altering our 12-month target price from the current PLN 4.75, in case our revisions have been too bearish. We are maintaining our SELL rating given the 6% downside to our current target price.

4Q 2006 Preliminary preview: We are expecting Netia to report a net loss of PLN 20m (compared to a PLN 11.6m net loss in 4Q 2005) on sales of PLN 225m, down 5% YoY. The fourth quarter results were boosted by the inclusion of PLN 13.5m in licence fee write-backs, being the last remaining liabilities related to EI-Net’s licences. Primary factors behind the weak results include: continued pressure on call revenues (weak demand for fixed line voice services), declining fixed to mobile tariffs (due to a 22% cut in mobile interconnection tariffs in December 2006) and continued high leased line costs (see over).

Outlook: Reduced mobile interconnection rates in December are likely to put further downward pressure on call revenues in 2007 by pushing down fixed to mobile call tariffs. Management has advised that 2007 margin and revenue targets will almost certainly require downward revision. P4 is set to launch operations in 1Q 2007 but the market is unlikely to get a feel for its performance until the third quarter 2007. Management has recently warned that the company is likely to find it costly to attract subscribers.

Netia Telecoms – Diversified Poland

PLN 4.83* Sell

Target price: PLN 4.75 *Pricing as of 4 Jan 2007

WIG index 49,560 # of shares 389.2m MCAP PLN 1,880m US$ 631m Free float PLN 927m US$ 311m NTIA.WA/NET PW

4.0

4.5

5.0

5.5

6.0


Netia

65

75

85

95

105

115

125

135


Netia WIG

(Rebased to 100)

Analysts Anna Bossong, CFA Tel. +44 207 309 7840 [email protected] Przemyslaw Sawala-Uryasz Tel. +48 22 520 9960 [email protected] http://research.ca-ib.com

Cutting earnings down to size

11 January 2007

Company Update

Netia January 2007

40

Table 33: 3Q 2006 Results preview (IFRS, consolidated) PLNm 4Q 06E 4Q 05 Ch. % 3Q 06 2Q 06 1Q 06Net revenue 225.1 237.1 (5.0) 230.5 203.3 218.4Net interconnection (65.6) (56.7) 15.7 (66.9) (49.1) (56.1)Gross profit 159.5 180.4 (11.6) 163.6 154.2 162.3 EBITDA 55.4 72.8 (24.0) 94.7 58.4 58.8 EBITDA margin (%) 24.6 30.7 0.0 41.1 28.7 26.9 EBIT (13.1) 10.1 (229.2) 25.1 (9.5) (5.8)Associates (10.0) (2.5) 292.4 (7.3) (4.7) (3.1)Net financials (0.0) 0.4 (111.6) (0.2) 0.5 1.4 Pre-tax profit (23.1) 8.0 (389.5) 17.7 (13.7) (7.6)Net profit (loss) (20.1) (11.6) 72.6 17.7 (12.8) (10.8)

Source: Netia, CA IB

Preliminary 4Q 2006 preview

Netia will release its 4Q 2006 earnings on 1 March. We expect the fourth quarter results to be boosted by the inclusion of PLN 13.5m in licence fee write-backs, being the last remaining liabilities related to El-Net’s licences. The results are nevertheless likely to fall well short of the third quarter result, which was boosted by PLN 40.7m in licence fee write-downs. The main reasons for this are:

• Continued pressure on call revenues from weak demand for fixed line voice services

• Declining fixed to mobile tariffs resulting from a 22% cut in mobile interconnection tariffs in December 2006.

• Continued high leased line costs in the fourth quarter following a sharp rise in the third quarter as a result of the acquisition of Pro Futuro. Netia management expects these costs to come down in 2007 as Pro Futuro’s leased line contracts expire and it switches to using Netia’s network but, in the meantime, this will remain a negative factor on the cost side.

Given these factors, we are looking for the group to report a 5.0% YoY fall in revenues in the fourth quarter and an EBITDA margin of 24.6%. This is expected to result in a 24.0% YoY decline in EBITDA to PLN 55.4m.

Table 34: Earnings statement (IFRS, consolidated) PLNm 2004 2005 2006E 2007E 2008ENet revenue 865 909 877 926 1,021Net revenue, change % 22.8 5.0 (3.4) 5.5 10.3 EBITDA 343 339 269 241 288EBITDA , change % 66.9 (1.3) (20.5) (10.4) 19.1 EBIT 125.9 90.3 (3.3) (6.8) 42.3 EBIT, change % (300.4) (28.3) (103.6) 107.9 (722.6)Net financials (4.9) 8.2 1.6 (2.3) (2.9)Associates 0.0 (3.1) (25.0) (90.1) (116.9)Pre-tax profit 121.0 95.5 (26.7) (99.2) (77.5)Tax 46.3 (35.3) 1.2 51.4 11.0 Extraordinaries (8.3) 0.0 0.0 0.0 0.0 Net profit 158.1 59.0 (26.1) (48.4) (67.1)


Table 35: Cash flow (IFRS, consolidated) PLNm 2004 2005 2006E 2007E 2008ECash earnings 338 343 245 151 168Ch. in working cap 5 32 (21) 5 (12)Capex (191) (146) (269) (185) (184)Free cash flow 152 229 (45) (29) (28)Other cash flows (32) (58) 14 84 114Dividends - (39) (50) (51) (51)Shares issued 55 (41) 21 - -Acquisitions/disposals (101) (134) (225) (89) -Change in liquid funds 74 (41) (285) (84) 36Net cash (debt) 302 260 (25) (109) (74)


Table 36: Balance sheet (IFRS, consolidated) PLNm 2004 2005 2006E 2007E 2008EFixed assets 2,095 2,196 2,393 2,382 2,217Working capital (49) (81) (60) (65) (53)Capital employed 2,348 2,376 2,338 2,278 2,140Equity 2,285 2,354 2,299 2,200 2,082Net debt (302) (260) 25 109 74Minorities 5 6 7 8 8Total assets 2,533 2,627 2,563 2,493 2,336


Table 37: Key data (IFRS, consolidated) 2004 2005 2006E 2007E 2008ENet debt (US$m) (100) (80) 8 36 24Interest cover n.a. n.a. (31.4) (21.6) (14.6)Net debt/equity (%) (13.2) (11.1) 1.1 5.0 3.5ROE (%) 6.9 2.5 (1.1) (2.2) (3.2)ROCE (%) 5.4 3.8 (0.1) (0.3) 2.0Fixed lines (‘000s) 425 413 396 397 397Business subs (%) 34.3 28.4 0.3 28.4 12.8ARPL (US$/mth) 31.9 33.6 4.8 38.8 2.0



2005 2006E 2007E 2008E 2009E

Net profit (PLNm) 1,735 2,168 2,382 2,743 3,097

Stated EPS 1.7 2.2 2.4 2.7 3.1

NAVPS 8.8 10.1 11.4 13.0 14.7

NIM (%) 4.4 4.4 4.8 5.1 5.1

C/I ratio (%) 64.9 60.3 57.7 54.4 52.4

Provisioning (%) 0.36 0.14 0.51 0.72 0.74

Adj. ROE (%) 20.9 23.3 22.4 22.7 22.6

Adj. P/E (x) 26.5 21.2 19.3 16.8 14.9

Adj. P/BV (x) 5.3 4.6 4.1 3.6 3.2

Dividend yield (%) 1.7 2.4 2.6 3.0 3.4

Shareholder structure: State Treasury 51.5%

PKO BP is our top pick for the year, even despite strong performance since we upgraded it to a BUY on 1 December 2006. The stock offers all the features that we seek for this year (exposure to retail, rising volumes, cost containment/restructuring option), plus a play on more transparency. It also has certain risks, most important of which for us are potential politically-driven disruptions and delays in IT rollout or selling of mutual funds. Nevertheless, we think that positives outpace the risks and we buy the stock on any weakness. We look for strong YoY earnings in 4Q. The stock trades at P/E of 19.3x, falling to 16.8x next year.

Recent developments. The market absorbed very well an overhang from employees, amounting to 105m shares. On the negative side, we do not like the direction in which the management change saga is leading, as Mr. Slawomir Skrzypek, the acting CEO, seems on his way to the NBP, and PKO BP is left with no CEO, a leaving Head of Retail, and generally a lot of uncertainty. Lack of strong appointments to the Management Board remains a risk factor.

4Q Results preview. For 4Q 2006, we are looking for PLN 602m net profit, huge improvement YoY against a weak base, but flattish QoQ. We look for a 19% rise in interest income, continued strong growth in fees (42%), and overall 32% YoY and 9% QoQ increase in total banking revenues. We factor in a seasonally increased cost base and normal provisioning for this part of the cycle.

Valuation summary. The stock trades at P/E of 19.3x for 2007, and P/BV of 4.1x. We believe that some upside to our earnings forecasts is likely in the course of the year, but we prefer to stand on conservative footing in terms of mutual funds. There is little support, we believe, from the yield. Risks are difficult to quantify into numbers, but continued management uncertainty may lead to a slower pace of cost restructuring, plus the band may start to lose market share in the growing market, which so far has not been the case. BUY maintained.

PKO BP Banks Poland

PLN 46.01 Buy

Target price: PLN 53

WIG index 49,560 # of shares 1bn MCAP PLN 46.0bn US$ 15.4bn Free float PLN 22.3bn US$ 7.5bn PKOW.WA / PKO PW

25

30

35

40

45

50

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07PKO BP

90

110

130

150

170

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07

PKO BP WIG

(Rebased to 100)

Analyst Marcin Jablczynski Tel. +48 22 520 9962 [email protected] http://research.ca-ib.com

Our top pick in the sector

11 January 2007

Company Update

PKO BP January 2007

42

Table 38: PKO BP: Profit & loss account

PLNm (unless otherwise stated) 2005 2006E 2007E 2008E 2009ENet interest income 3,544 3,823 4,411 5,034 5,566 Net interest margin (%) 4.4 4.4 4.8 5.1 5.1 Spread (%) 4.2 4.4 4.6 4.9 4.9 NII growth (%) (2.3) 7.9 15.4 14.1 10.6 Net commission income 1,218 1,731 1,952 2,255 2,472 Income from securities 16 5 5 6 6 Financial income & capital gains 309 0 0 0 0 Forex gains 612 550 605 666 732 Other non-interest income 0 0 0 0 0 Revenue from banking operations 5,699 6,109 6,973 7,961 8,776 Change (%) 1.9 7.2 14.1 14.2 10.2 Other operating income/cost 767 660 605 552 500 Personnel cost (2,053) (2,074) (2,159) (2,197) (2,269)Depreciation (467) (350) (448) (538) (548)Other administrative cost (1,642) (1,571) (1,664) (1,789) (1,922)Operating costs (4,161) (3,995) (4,271) (4,524) (4,739) Change (%) 11.1 (4.0) 6.9 5.9 4.8 Cost/income (%) 64.9 60.3 57.7 54.4 52.4 Pre-provision profit 2,305 2,773 3,307 3,988 4,536 Net provisions (161) (78) (339) (565) (663)Consolidation gain + extraordinary items

24 25 26 27 29

Pre-tax profit 2,167 2,720 2,994 3,451 3,902 Income tax (411) (512) (564) (650) (736)Profit/loss from subsidiaries (21) (40) (48) (58) (69)Net income 1,735 2,168 2,382 2,743 3,097 Change (%) 14.6 25.0 9.9 15.1 12.9 Accounting standard IFRS IFRS IFRS IFRS IFRS

Source: PKO BP, CA IB estimates

Table 39: PKO BP: 4Q 2006 Results preview

4Q 2006E 3Q 2006QoQ (%) 4Q 2005 YoY (%)Interest income 1,031 964 7 864 19 Fees and commissions 457 445 3 322 42 Revenue from banking 1,673 1,540 9 1,270 32 Other operating result 172 152 14 332 (48)Operating costs (1,094) (932) 17 (1,153) (5)Net provisions (53) 16 n.m. (20) 163 Pre-tax profit 722 778 (7) 434 66 Net profit 602 614 (2) 361 67


Table 40: PKO BP: Balance sheet

PLNm (unless otherwise stated) 2005 2006E 2007E 2008E 2009ECash + CB accounts 3,895 2,862 3,022 3,269 3,595 Receivables from FI 12,663 8,232 2,274 71 126 Loans to customers 46,875 57,304 70,152 81,877 92,726 Debt securities 22,792 24,000 23,000 22,000 22,000 Shares 184 184 184 184 184 Fixed assets 2,644 2,511 2,386 2,267 2,153 Intangible assets 532 1,189 1,130 1,073 1,019 Accrued interest & other assets 2,028 2,058 2,058 2,058 2,058 goodwill 156 156 156 156 156 Total assets 91,613 98,341 104,207 112,799 123,863 Liabilities to FI 2,084 1,000 1,000 1,000 1,000 Liabilities to customers 76,748 81,778 86,346 93,386 102,725 Debt securities 68 120 120 120 120 Accrued interest & other liabilities 3,938 5,300 5,300 5,300 5,300 of which subordinated debt 0 0 0 0 0 Total liabilities 82,838 88,198 92,766 99,806 109,145 Share capital 1,000 1,000 1,000 1,000 1,000 Reserve capital 7,775 9,143 10,441 11,993 13,718 Shareholders equity 8,775 10,143 11,441 12,993 14,718 Total liabilities & equity 91,613 98,341 104,207 112,799 123,863 Accounting standard IFRS IFRS IFRS IFRS IFRS


Table 41: PKO BP: Key ratios

2005 2006E 2007E 2008E 2009ENet loans (PLNm) 46,875 57,304 70,152 81,877 92,726 Gross YE (PLNm) 49,819 59,976 72,813 84,703 95,715 NPLs (PLNm) 3,360 3,026 3,213 3,783 4,409 Provisions (PLNm) 2,945 2,673 2,661 2,826 2,989 NPL ratio (%) 6.7 5.0 4.4 4.5 4.6 Coverage ratio (%) 87.6 88.3 82.8 74.7 67.8 Dividend per share (PLN) 0.80 1.08 1.19 1.37 1.55 Payout ratio (%) 46.1 50.0 50.0 50.0 50.0 BIS ratio (%, YE) 13.90 13.19 13.15 13.20 13.41 Tier1 ratio (%, YE) 13.90 13.19 13.15 13.20 13.41



2005 2006E 2007E 2008E 2009E

Net profit (PLNm) 516 806 889 1,015 1,147

Stated EPS 7.1 11.0 12.2 13.9 15.7

NAVPS 46.3 51.4 55.3 60.1 65.4

NIM (%) 3.6 3.6 3.8 3.8 3.8

C/I ratio (%) 61.4 51.9 49.9 48.3 47.1

Provisioning (%) 0.44 0.40 0.60 0.60 0.60

Adj. ROE (%) 16.1 22.6 22.8 24.1 25.1

Adj. P/E (x) 31.8 20.4 18.5 16.2 14.3

Adj. P/BV (x) 4.9 4.4 4.1 3.7 3.4

Dividend yield (%) 2.7 3.7 4.1 4.6 5.2

Shareholder structure: AIB 70.5%

BZ WBK has underperformed recently, which we think was caused by a slight disappointment in 3Q numbers. Recently, we saw continued strong performance of the mutual fund business and other subsidiaries. We also like the improved risk/reward profile of the stock. Awaiting news on the new CEO, we expect strong earnings in 4Q. The stock trades at P/E of 18.5x, falling to 16.2x next year. Upgrade to BUY.

Recent developments. BZ WBK is a relatively quiet stock in terms of newsflow, which is obviously good for a bank. 3Q figures were weak, but we believe that mutual fund fees will gradually stabilise, with a higher share of management fees at the expense of upfront. If the word on the street about the new CEO proves true (reportedly Mr. Justyn Konieczny, Head of Investment Banking), we would be pleased.

4Q Results preview. For 4Q 2006, we are looking for PLN 212m net profit, a huge improvement YoY against a weak base, and up 25% QoQ. We look for an 11% rise in interest income, continued strong growth in fees (48%), and overall 29% YoY and 14% QoQ increase in total banking revenues. We factor in a seasonally increased cost base and normal provisioning for this part of the cycle, but we may be too cautious on risk charges.

Valuation summary. The stock trades at P/E of 18.5x for 2007, P/BV of 4.1x. With the rise of its mutual fund business, BZ WBK substantially lifted its ROE to 23%, which is (given the bank’s cost and capital discipline) good news for investors seeking both a nice yield and still growth in the underlying business. Following the recent stock underperformance, we now upgrade BZ WBK back from Hold to BUY with an upside of 12%.

BZ WBK Banks Poland

PLN 225.0 Buy (Upgrade from Hold)

Target price: PLN 251 (Previously: PLN 210)

WIG index 49,560 # of shares 73m MCAP PLN 16.4bn US$ 5.5bn Free float PLN 4.8bn US$ 1.6bn BZWB.WA / BZW PW

130

150

170

190

210

230

250

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07BZ WBK

90

110

130

150

170


BZ WBK WIG

(Rebased to 100)


Good value for the money

11 January 2007

Company Update

BZ WBK January 2007

44

Table 42: BZ WBK: Profit & loss account

PLNm (unless otherwise stated) 2005 2006E 2007E 2008E 2009ENet interest income 909 1,022 1,186 1,360 1,537 Net interest margin (%) 3.6 3.6 3.8 3.8 3.8 Spread (%) 3.4 3.4 3.5 3.6 3.6 NII growth (%) 4.5 12.4 16.0 14.7 13.0 Net commission income 697 1,026 1,142 1,221 1,326 Income from securities 48 55 59 63 67 Financial income & capital gains 24 75 35 35 35 Forex gains 218 210 221 232 243 other non-interest income 0 0 0 0 0 Revenue from banking operations

1,896 2,388 2,642 2,910 3,208

Change (%) 3.6 25.9 10.6 10.2 10.2 Other operating income/cost 20 15 15 15 15 Personnel cost (574) (665) (704) (738) (783)Depreciation (186) (168) (176) (185) (194)Other administrative cost (404) (406) (438) (483) (534)Operating costs (1,165) (1,239) (1,318) (1,406) (1,512) Change (%) 1.7 6.4 6.4 6.7 7.5 Cost/income (%) 61.4 51.9 49.9 48.3 47.1 Pre-provision profit 751 1,164 1,339 1,519 1,712 Net provisions (62) (66) (118) (137) (155)Consolidation gain + extraordinary items

0 0 0 0 0

Pre-tax profit 689 1,098 1,220 1,382 1,557 Income tax (144) (209) (232) (263) (296)Profit/loss from subsidiaries (30) (84) (100) (104) (114)Net income 516 806 889 1,015 1,147 Change (%) 16.2 56.1 10.3 14.3 13.0 Accounting standard IFRS IFRS IFRS IFRS IFRS

Source: BZ WBK, CA IB estimates

Table 43: BZ WBK: 4Q 2006 Results preview

4Q 2006E3Q 2006 QoQ (%)4Q 2005 YoY (%)Interest income 270 259 4 243 11 Fees and commissions 296 240 23 201 48 Revenue from banking 639 562 14 497 29 Other operating result 3 4 (13) 6 (47)Operating costs (328) (304) 8 (312) 5 Net provisions (43) (6) 633 (33) 30 Pre-tax profit 271 256 6 158 72 Net profit 212 170 25 104 105


Table 44: BZ WBK: Balance sheet

PLNm (unless otherwise stated) 2005 2006E 2007E 2008E 2009ECash + CB accounts 572 833 925 1,027 1,129 Receivables from FI 3,608 4,737 4,336 6,533 8,415 Loans to customers 14,212 17,170 20,705 23,378 26,445 Debt securities 8,916 8,000 8,000 8,000 8,000 Shares 73 450 450 450 450 Fixed assets 519 503 488 473 459 Intangible assets 174 139 111 89 71 Accrued interest & other assets 1,529 990 960 930 930 goodwill 0 0 0 0 0 Total assets 29,604 32,822 35,975 40,881 45,899 Liabilities to FI 1,693 1,693 1,693 1,693 1,693 Liabilities to customers 21,839 23,804 26,422 29,329 32,262 Debt securities 840 1,740 2,040 3,740 5,440 Accrued interest & other liabilities

1,851 1,836 1,786 1,736 1,736

of which subordinated debt 0 0 0 0 0 Total liabilities 26,223 29,073 31,941 36,498 41,131 Share capital 730 730 730 730 730 Reserve capital 2,652 3,020 3,304 3,653 4,039 Shareholders equity 3,382 3,750 4,034 4,383 4,769 Total liabilities & equity 29,604 32,822 35,975 40,881 45,899 Accounting standard IFRS IFRS IFRS IFRS IFRS


Table 45: BZ WBK: Key ratios

2005 2006E 2007E 2008E 2009ENet loans (PLNm) 14,212 17,170 20,705 23,378 26,445 Gross YE (PLNm) 14,939 17,888 21,465 24,201 27,347 NPLs (PLNm) 1,030 1,023 1,096 1,196 1,323 Provisions (PLNm) 727 718 761 823 902 NPL ratio (%) 6.9 5.7 5.1 4.9 4.8 Coverage ratio (%) 70.6 70.1 69.4 68.8 68.2 Dividend per share (PLN) 6.00 8.28 9.14 10.44 11.79 Payout ratio (%) 84.8 75.0 75.0 75.0 75.0 BIS ratio (%, YE) 16.05 14.65 13.88 13.42 13.01 Tier1 ratio (%, YE) 16.05 14.65 13.88 13.42 13.01



2005 2006E 2007E 2008E 2009E

Net profit (PLNm) 248 405 476 591 763

Stated EPS 8.6 13.9 16.2 20.1 26.0

NAVPS 70.0 83.2 99.4 119.5 145.5

NIM (%) 2.3 2.3 2.5 2.8 2.9

C/I ratio (%) 72.3 63.5 61.0 55.9 52.0

Provisioning (%) 0.54 0.35 0.45 0.65 0.65

Adj. ROE (%) 16.7 22.1 20.9 21.0 21.9

Adj. P/E (x) 36.7 22.6 19.3 15.5 12.0

Adj. P/BV (x) 5.6 4.5 3.6 3.0 2.4

Dividend yield (%) 0.0 0.0 0.0 0.0 0.0

Shareholder structure: Commerzbank 70.2%

As much as we like the current transformation of BRE, we unfortunately downgraded the stock to HOLD too early and missed the recent leg of the rally. At this juncture, we believe the stock is fairly valued, but we would accumulate on any weakness. Both underlying business growth and new projects warrant decent visibility of earnings. We look for strong YoY earnings growth in 4Q. The stock trades at P/E of 19.3x, falling to 15.5x next year. HOLD maintained, with a materially upgraded target price to PLN 350.

Recent developments. All the current and potential newsflow is positive, including a fast pace of growth in underlying businesses (mainly retail and SME), divestment of non-core assets (such as Skarbiec and potentially PTE as well). Moreover, on its ever-rising retail customer base, BRE is launching new projects such as an insurance concept or MVNO, all nicely accretive to EPS in the mid-term. Therefore, we like the mid-term earnings growth.

4Q Results preview. For 4Q 2006, we are looking for PLN 99m net profit, a huge improvement YoY against a weak base, but down QoQ. We look for a 46% rise in interest income, continued strong growth in fees (73%), and overall 18% YoY and 3% QoQ increase in total banking revenues. We factor in a seasonally increased cost base and normal provisioning for this part of the cycle. The drop in earnings QoQ could be attributed to our more conservative forecast of risk charges in 4Q.

Valuation summary. The stock trades at P/E of 19.3x for 2007, and P/BV of 3.6x. We remind our readers that our approach to multiples excludes the impact of one-offs, i.e. we do not account for the Skarbiec disposal, which will be booked in 1Q 2007. This transaction lowers BRE’s headline P/E to 15.3x, making it more attractive to the headline-oriented community. HOLD for now, but definitely overweight in the portfolio context and wait for any dip to Buy.

BRE Banks Poland

PLN 336.0 Hold


WIG index 49,560 # of shares 29m MCAP PLN 9.9bn US$ 3.3bn Free float PLN 2.9bn US$ 986m BREP.WA / BRE PW

150

180

210

240

270

300

330

360

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07BRE

90

110

130

150

170

190

210


BRE WIG

(Rebased to 100)


We missed the last leg of the rally; still HOLD

11 January 2007

Company Update

BRE January 2007

46

Table 46: BRE: Profit & loss account

PLNm (unless otherwise stated) 2005 2006E 2007E 2008E 2009ENet interest income 622 738 921 1,119 1,333 Net interest margin (%) 2.3 2.3 2.5 2.8 2.9 Spread (%) 2.7 2.5 2.7 2.9 2.9 NII growth (%) 13.8 18.6 24.9 21.5 19.1 Net commission income 394 502 550 614 683 Income from securities 47 19 21 23 25 Financial income & capital gains 50 55 58 61 64 Forex gains 258 330 363 399 439 Other non-interest income 0 0 0 0 0Revenue from banking operations

1,371 1,644 1,914 2,217 2,545

Change (%) 28.2 19.9 16.4 15.9 14.8 Other operating income/cost (13) 0 0 29 66 Personnel cost (424) (471) (544) (588) (622)Depreciation (140) (175) (201) (231) (265)Other administrative cost (377) (399) (422) (437) (469)Operating costs (940) (1,044) (1,167) (1,255) (1,356) Change (%) 5.7 11.1 11.7 7.6 8.1 Cost/income (%) 72.3 63.5 61.0 55.9 52.0 Pre-provision profit 417 599 747 991 1,254 Net provisions (79) (72) (123) (215) (252)Consolidation gain + extraordinary items

(0) 0 0 0 0

Pre-tax profit 338 528 623 776 1,003 Income tax (70) (100) (118) (147) (191)Profit/(loss) from subsidiaries (20) (22) (29) (38) (49)Net income 248 405 476 591 763 Change (%) (188.9) 63.7 17.4 24.2 29.2 Accounting standard IFRS IFRS IFRS IFRS IFRS

Source: BRE, CA IB estimates

Table 47: BRE: 4Q 2006 Results preview

4Q 2006E 3Q 2006QoQ (%) 4Q 2005 YoY (%)Interest income 210 195 8 144 46 Fees and commissions 142 130 9 82 73 Revenue from banking 442 428 3 374 18 Other operating result 9 5 68 (8) n.m.Operating costs (296) (272) 9 (274) 8 Net provisions (31) (7) 323 (28) 13 Pre-tax profit 124 154 (19) 64 93 Net profit 99 126 (21) 47 110


Table 48: BRE: Balance sheet

PLNm (unless otherwise stated) 2005 2006E 2007E 2008E 2009ECash + CB accounts 1,816 838 961 1,101 1,211 Receivables from FI 4,668 5,924 3,113 5,208 5,293 Loans to customers 15,464 23,692 29,395 34,769 40,343 Debt securities 7,653 5,400 5,500 3,400 3,400 Shares 6 6 5 5 4 Fixed assets 559 570 581 593 605 Intangible assets 103 109 115 121 127 Accrued interest & other assets 2,549 3,388 3,450 3,517 3,640 goodwill 304 304 304 304 304 Total assets 32,817 39,926 43,120 48,714 54,622 Liabilities to FI 4,337 4,300 3,500 4,500 6,500 Liabilities to customers 20,443 23,935 27,453 31,456 34,602 Debt securities 3,906 7,000 7,000 7,000 7,000 Accrued interest & other liabilities 2,095 2,249 2,249 2,249 2,249 of which subordinated debt 1,363 1,363 1,363 1,363 1,363 Total liabilities 30,782 37,484 40,202 45,205 50,351 Share capital 116 117 117 117 117 Reserve capital 1,919 2,324 2,800 3,391 4,154 Shareholders equity 2,035 2,442 2,918 3,508 4,272 Total liabilities & equity 32,817 39,926 43,120 48,714 54,622 Accounting standard IFRS IFRS IFRS IFRS IFRS


Table 49: BRE: Key ratios

2005 2006E 2007E 2008E 2009ENet loans (PLNm) 15,464 23,692 29,395 34,769 40,343 Gross YE (PLNm) 16,327 24,552 30,304 35,817 41,568 NPLs (PLNm) 1,388 1,390 1,470 1,688 1,960 Provisions (PLNm) 864 860 909 1,048 1,225 NPL ratio (%) 8.5 5.7 4.9 4.7 4.7 Coverage ratio (%) 62.2 61.9 61.8 62.1 62.5 Dividend per share (PLN) 0.00 0.00 0.00 0.00 0.00 Payout ratio (%) 0.0 0.0 0.0 0.0 0.0 BIS ratio (%, YE) 11.1 9.6 9.4 9.4 9.6 Tier1 ratio (%, YE) 6.8 5.7 6.1 6.6 7.1



2005 2006E 2007E 2008E 2009E

Net profit (PLNm) 567 266 384 527 612

Stated EPS 0.67 0.31 0.45 0.62 0.72

NAVPS 2.82 2.59 2.88 3.28 3.69

NIM (%) 3.3 3.1 3.2 3.2 3.2

C/I ratio (%) 52.9 70.7 63.1 56.2 54.9

Provisioning (%) 0.40 0.40 0.55 0.60 0.60

Adj. ROE (%) 9.5 11.6 16.5 20.1 20.7

Adj. P/E (x) 33.4 26.2 18.1 13.2 11.4

Adj. P/BV (x) 2.9 3.2 2.8 2.5 2.2

Dividend yield (%) 6.6 1.9 2.8 3.8 4.4

Shareholder structure: BCP 65.5%

We return to Millennium, upgrading the stock back to BUY, as we believe that the growth prospects of the bank still have not been fully reflected. Amid an aggressive strategy of capturing new retail business, Millennium is fast outrunning its economies-of-scale problem. We look for strong YoY earnings in 4Q, if adjusted for branch expansion costs. The stock trades at P/E of 18.1x, falling to only 13.2x next year, according to our upgraded forecasts.

Recent developments. Having implemented a category-killer approach to the mortgage business, MIL is doing the same for credit cards, capturing new client relationships. Its bundle-offer of mutual funds is selling well, with new branch openings targeting prime locations. Moreover, overhang concerns are out, as BCP increased its stake to 65.5% in a tender, and we should not expect supply concerns. To sum up, we regret we took an overdose of conservatism earlier, prematurely downgrading the stock, as it seems that everything looks rosier than ever.

4Q Results preview. For 4Q 2006, we are looking for PLN 54m net profit, down both YoY and QoQ, but due to factoring in most of the expansion costs. We look for a 65% rise in interest income, continued strong growth in fees (45%), and overall 40% YoY and 9% QoQ increase in total banking revenues (adjusted for the PZU transaction impact last year). We factor in a seasonally increased cost base and normal provisioning for this part of the cycle. On any weakness caused by the poor appearance of headline profits, we are buyers.

Valuation summary. The stock trades at P/E of 18.1x for 2007, and P/BV of 2.8x. While this bank is definitely a higher beta exposure to the sector in Poland due to its smaller size, we believe that P/E falling to 13.2x and 11.4x for 2008 and 2009 cannot be neglected. Risks to our scenario? Having forecasts above the management guidance (some lag is however normal in updating it, we feel), plus more competition for CHF-based mortgage loans from Handlowy, which will come to market as a new entrant.

Bank Millennium Banks Poland



WIG index 49,560 # of shares 849m MCAP PLN 7.0bn US$ 2.3bn Free float PLN 2.4bn US$ 806m BIGW.WA / MIL PW

5

6

7

8

9

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07Millennium

90

100

110

120

130

140

150

160


Millennium WIG

(Rebased to 100)


Don’t call me small anymore!

11 January 2007

Company Update

Bank Millennium January 2007

48

Table 50: Millennium: Profit & loss account

PLNm (unless otherwise stated) 2005 2006E 2007E 2008E 2009ENet interest income 620 694 841 984 1,109 Net interest margin (%) 3.3 3.1 3.2 3.2 3.2 Spread (%) 3.0 2.9 3.0 3.0 3.0 NII growth (%) 5.4 12.0 21.1 17.1 12.7 Net commission income 265 351 421 499 585 Income from securities 2 2 2 2 2 Financial income & capital gains 485 25 26 28 29 Forex gains 93 150 180 198 218other non-interest income 0 0 0 0 0 Revenue from banking operations

1,465 1,223 1,470 1,711 1,943

Change (%) 0.1 (16.6) 20.3 16.4 13.5 Other operating income/cost 16 16 16 16 16 Personnel cost (326) (356) (389) (425) (464)Depreciation (86) (103) (124) (148) (178)Other administrative cost (344) (399) (403) (372) (406)Operating costs (756) (859) (916) (946) (1,048) Change (%) (28.8) 13.6 6.7 3.2 10.8 Cost/income (%) 52.9 70.7 63.1 56.2 54.9 Pre-provision profit 725 380 570 781 910 Net provisions (15) (51) (96) (130) (155)Consolidation gain + extraordinary items

0 0 0 0 0

Pre-tax profit 710 328 474 651 756 Income tax (143) (62) (90) (124) (144)Profit/loss from subsidiaries 0 0 0 0 0 Net income 567 266 384 527 612 Change (%) 135.8 (53.1) 44.4 37.2 16.1 Accounting standard IFRS IFRS IFRS IFRS IFRS

Source: Millennium, CA IB estimates

Table 51: Millennium: 4Q 2006 Results preview

4Q 2006E 3Q 2006QoQ (%) 4Q 2005 YoY (%)Interest income 209 164 28 126 65 Fees and commissions 100 87 14 68 45 Revenue from banking 340 311 9 653 (48)Other operating result 3 (1) n.m. 14 (81)Operating costs (258) (206) 25 (201) 28 Net provisions (20) (13) 51 5 n.m.Pre-tax profit 65 91 (29) 470 (86)Net profit 54 72 (25) 377 (86)


Table 52: Millennium: Balance sheet

PLNm (unless otherwise stated) 2005 2006E 2007E 2008E 2009ECash + CB accounts 511 698 806 929 1,060 Receivables from FI 2,603 3,371 5,303 6,703 6,434 Loans to customers 9,903 14,415 19,069 22,924 26,996 Debt securities 8,215 6,000 4,000 3,000 3,000 Shares 2 2 2 2 2 Fixed assets 232 290 363 453 567 Intangible assets 27 26 25 25 24 Accrued interest & other assets

659 706 760 821 887

goodwill 3 0 0 0 0 Total assets 22,151 25,508 30,328 34,856 38,969 Liabilities to FI 1,067 1,300 2,000 2,700 2,700 Liabilities to customers 17,055 19,946 23,025 26,541 30,277 Debt securities 573 700 1,500 1,500 1,500 Accrued interest & other liabilities 1,064 1,364 1,353 1,331 1,360 of which subordinated debt 310 310 325 325 325 Total liabilities 19,760 23,310 27,879 32,072 35,836 Share capital 849 849 849 849 849 Reserve capital 1,542 1,349 1,600 1,935 2,284 Shareholders equity 2,391 2,198 2,449 2,784 3,133 Total liabilities & equity 22,151 25,508 30,328 34,856 38,969 Accounting standard IFRS IFRS IFRS IFRS IFRS


Table 53: Millennium: Key ratios

2005 2006E 2007E 2008E 2009ENet loans (PLNm) 9,903 14,415 19,069 22,924 26,996 Gross YE (PLNm) 10,568 15,082 19,782 23,717 27,894 NPLs (PLNm) 1,076 1,083 1,157 1,283 1,445 Provisions (PLNm) 665 667 713 793 898 NPL ratio (%) 10.2 7.2 5.8 5.4 5.2 Coverage ratio (%) 61.8 61.6 61.6 61.8 62.2 Dividend per share (PLN) 0.54 0.16 0.23 0.31 0.36 Payout ratio (%) 80.9 50.0 50.0 50.0 50.0 BIS ratio (%, YE) 19.07 14.74 12.33 11.28 10.76 Tier1 ratio (%, YE) 15.90 12.41 10.49 9.73 9.41



2005 2006E 2007E 2008E 2009E

Net profit (PLNm) 616 654 605 720 804

Stated EPS 4.7 5.0 4.6 5.5 6.1

NAVPS 40.3 41.2 42.1 44.2 46.2

NIM (%) 4.0 3.8 3.9 4.6 4.9

C/I ratio (%) 67.8 66.6 67.1 63.3 60.4

Provisioning (%) (0.36) (0.35) 0.35 0.60 0.90

Adj. ROE (%) 13.7 13.6 14.4 16.4 17.3

Adj. P/E (x) 18.7 20.8 19.0 16.0 14.3

Adj. P/BV (x) 2.9 2.8 2.7 2.5 2.4

Dividend yield (%) 4.1 4.3 3.9 4.7 5.2

Shareholder structure: Citigroup 75%

Bank Handlowy has enjoyed a remarkable rally as both the investment community and sell-side analysts turned positive on the stock. We agree that the overhang from bondholders is out, but we see no discount at all, although we would welcome one for a stagnant corporate bank. It delivered two quarters of earnings disappointments. While we expect good 4Q figures, we recommend selling strongly into them, as earnings disappointment is likely to continue next year. We would also want to see something before we believe in traditional retail business turnaround, helped by the introduction of a mortgage offer. With P/E of 19x; P/BV (adjusted for goodwill) of 2.7x, hardly falling onwards; and poor ROE, we downgrade from Hold to SELL.

Recent developments. Good news mixed with bad. On a positive note, the overhang is gone, the bank is about to rebuild its underperforming retail business, plus the market gave it the benefit of the doubt for that. The negatives are more serious: constant disappointments in earnings, pressure in corporate margins, along with volatile trading revenues.

4Q Results preview. For 4Q 2006, we are looking at PLN 169m net profit, a nice improvement YoY against a weak base, but flattish QoQ (pre-tax). We look for a mere 7% rise in interest income, solid fees (22% up), but overall only a 6% YoY and 14% QoQ increase in total banking revenues. We factor in a seasonally increased cost base and almost no provisioning.

Valuation summary. The stock trades at P/E of 19.0x for 2007, and P/BV of 2.7x. Both P/E and P/BV multiples are falling much more slowly than in the sector, so in fact it turns out to be a premium valuation to the sector from 2008 onwards. The only help we see is from a yield of ca. 4%, as the bank continues to be terribly overcapitalised for its stagnant RWA. SELL into the current price or wait for the 4Q release and do it then.

Bank Handlowy Banks Poland

PLN 88.0 Sell (Downgrade from Hold)


WIG index 49,560 # of shares 131m MCAP PLN 11.5bn US$ 3.9bn Free float PLN 2.9bn US$ 964m BHWA.WA / BHW PW

60

65

70

75

80

85

90

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07Handlowy

90

100

110

120

130

140


Handlowy WIG

(Rebased to 100)


P/E of 19x for a corporate, stagnant bank?

11 January 2007

Company Update

Bank Handlowy January 2007

50

Table 54: Handlowy: Profit & loss account

PLNm (unless otherwise stated) 2005 2006E 2007E 2008E 2009ENet interest income 1,026 1,025 1,150 1,331 1,485 Net interest margin (%) 4.0 3.8 3.9 4.6 4.9 Spread (%) 3.6 3.5 3.5 4.2 4.5 NII growth (%) 13.4 (0.1) 12.2 15.8 11.6 Net commission income 599 617 690 774 874 Income from securities 2 2 2 2 3 Financial income & capital gains 259 110 90 70 50 Forex gains 346 310 326 342 359 Other non-interest income 0 0 0 0 0 Revenue from banking operations

2,232 2,064 2,257 2,520 2,770

Change (%) 13.5 (7.5) 9.4 11.6 10.0 Other operating income/cost 73 196 92 97 102 Personnel cost (686) (576) (605) (636) (667)Depreciation (140) (147) (155) (162) (171)Other administrative cost (717) (760) (795) (831) (869)Operating costs (1,543) (1,484) (1,555) (1,629) (1,706) Change (%) 8.0 (3.9) 4.8 4.8 4.7 Cost/income (%) 67.8 66.6 67.1 63.3 60.4 Pre-provision profit 762 776 795 988 1,166 Net provisions 37 41 (48) (99) (174)Consolidation gain + extraordinary items

(6) 0 0 0 0

Pre-tax profit 793 817 747 888 992 Income tax (177) (163) (142) (169) (188)Profit/loss from subsidiaries 0 0 0 0 0 Net income 616 654 605 720 804 Change (%) 48.1 6.1 (7.5) 19.0 11.7 Accounting standard IFRS IFRS IFRS IFRS IFRS

Source: Handlowy, CA IB estimates

Table 55: Handlowy: 4Q 2006 Results preview

4Q 2006E 3Q 2006QoQ (%) 4Q 2005 YoY (%)Interest income 253 264 (4) 237 7 Fees and commissions 170 145 17 139 22 Revenue from banking 555 485 14 525 6 Other operating result 17 22 (22) 36 (52)Operating costs (369) (366) 1 (402) (8)Net provisions (6) 38 n.m. 3 n.m.Pre-tax profit 192 181 6 165 17 Net profit 169 142 19 123 37


Table 56: Handlowy: Balance sheet

PLNm (unless otherwise stated) 2005 2006E 2007E 2008E 2009ECash + CB accounts 923 628 697 774 852 Receivables from FI 6,467 3,868 3,490 3,654 5,283 Loans to customers 9,607 10,639 13,542 16,274 19,050 Debt securities 9,055 15,000 12,000 9,000 7,000 Shares 82 91 100 110 121 Fixed assets 700 760 740 720 700 Intangible assets 65 61 67 63 69 Accrued interest & other assets 6,016 6,493 7,017 7,594 8,229 goodwill 1,249 1,249 1,249 1,249 1,249 Total assets 32,916 37,540 37,653 38,190 41,304 Liabilities to FI 5,224 7,500 5,000 2,500 2,500 Liabilities to customers 17,262 17,951 19,926 22,118 24,330 Debt securities 0 0 0 0 0 Accrued interest & other liabilities 5,166 6,701 7,225 7,803 8,441 of which subordinated debt 0 0 0 0 0 Total liabilities 27,651 32,152 32,151 32,421 35,271 Share capital 523 523 523 523 523 Reserve capital 4,742 4,866 4,980 5,246 5,510 Shareholders equity 5,265 5,388 5,503 5,769 6,033 Total liabilities & equity 32,916 37,540 37,653 38,190 41,304 Accounting standard IFRS IFRS IFRS IFRS IFRS


Table 57: Handlowy: Key ratios

2005 2006E 2007E 2008E 2009ENet loans (PLNm) 9,607 10,639 13,542 16,274 19,050 Gross YE (PLNm) 11,361 12,276 15,152 17,909 20,784 NPLs (PLNm) 2,165 1,878 1,725 1,649 1,685 Provisions (PLNm) 1,754 1,637 1,610 1,634 1,733 NPL ratio (%) 19.1 15.3 11.4 9.2 8.1 Coverage ratio (%) 81.0 87.2 93.4 99.1 102.9 Dividend per share (PLN) 3.60 3.75 3.47 4.13 4.61 Payout ratio (%) 76.3 75.0 75.0 75.0 75.0 BIS ratio (%, YE) 14.63 14.72 13.73 12.91 12.06 Tier1 ratio (%, YE) 14.63 14.72 13.73 12.91 12.06



2005 2006E 2007E 2008E 2009E

Net profit (PLNm) 550 623 552 646 738

Stated EPS 42.3 47.9 42.4 49.7 56.7

NAVPS 272.8 293.2 292.5 310.3 329.8

NIM (%) 2.0 2.3 2.2 2.2 2.2

C/I ratio (%) 67.2 67.8 63.6 60.5 58.2

Provisioning (%) (1.2) (1.4) 0.5 0.6 0.7

Adj. ROE (%) 17.5 18.0 15.4 17.5 18.7

Adj. P/E (x) 18.4 16.2 18.3 15.6 13.7

Adj. P/BV (x) 3.0 2.8 2.8 2.6 2.5

Dividend yield (%) 3.5 5.6 4.1 4.8 5.5

Shareholder structure: ING 75%, Commercial Union OFE BPH CU WBK 6.53%

We fear that the market may lose patience, waiting for a turnaround in the bank’s retail lending business (as we did). Moreover, we see real risk to reported earnings once the NPL write-backs are out, a moment that we think is approaching. In light of sluggish growth in revenues, little cost discipline and this threat from normalising risk charges, we find the stock unattractive. Risks to our negative stance: nice dividend yields and generally defensive aspects of the stock, which the market may reward in the potentially falling equity market, and successful cross selling within the growing base of depositors. We look for weak (flat) YoY earnings in 4Q. The stock trades at P/E of 18.3x, falling to 15.6x next year, on our ambitious forecast given the poor track record in operating surplus. SELL maintained.

Recent developments. A very quiet period in terms of newsflow, but perhaps worth mentioning is the success of the bank in selling mutual funds, utilising the first mover advantage in umbrella funds, which allow for tax postponement. But, similarly to 3Q, the impact for the bank (which does not own the ING mutual fund business and thus benefits only from fee sharing) may be too small to ascertain.

4Q Results preview. For 4Q 2006, we are looking for PLN 134m in net profit, almost no improvement YoY against a weak base, but down QoQ. Upside risk to reported earnings may come as usual from NPL write-backs. We foresee 26% YoY and 13% QoQ increases in total banking revenues, but from a very low base. We believe that operating costs will grow more slowly than revenues, which has not happened recently and is generally a unique phenomenon among Polish banks.

Valuation summary. The stock trades at P/E of 18.3x for 2007, and P/BV of 2.8x. It is not sky-high, but other than for the yield, we think the fact that earnings rise slowly is negative. We are sellers of the stock, especially on any further upturns, unless the story changes.

ING Bank Slaski Banks Poland

PLN 776.0 Sell


WIG index 49,560 # of shares 13m MCAP PLN 10.1bn US$ 3.4bn Free float PLN 1.9bn US$ 626m SLAS.WA / BSK PW

500

550

600

650

700

750

800

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07ING Bank Slaski

90

100

110

120

130

140


ING Bank Slaski WIG

(Rebased to 100)


Not for the faint-hearted

11 January 2007

Company Update

ING Bank Slaski January 2007

52

Table 58: ING: Profit & loss account

PLNm (unless otherwise stated) 2005 2006E 2007E 2008E 2009ENet interest income 721 929 1,004 1,102 1,167 Net interest margin (%) 2.0 2.3 2.2 2.2 2.2 Spread (%) 1.9 2.1 2.1 2.1 2.0 NII growth (%) (13.5) 28.8 8.2 9.8 5.9 Net commission income 528 623 719 829 956 Income from securities 2 3 0 0 0 Financial income & capital gains 214 80 83 85 80 Forex gains 176 150 158 165 174 Other non-interest income 0 0 0 0 0 Revenue from banking operations

1,641 1,785 1,964 2,181 2,377

Change (%) (2.5) 8.7 10.0 11.1 9.0 Other operating income/cost 26 40 42 44 46 Personnel cost (537) (586) (601) (642) (675)Depreciation (128) (145) (160) (167) (176)Other administrative cost (445) (507) (515) (538) (561)Operating costs (1,109) (1,237) (1,276) (1,347) (1,411) Change (%) 7.4 11.5 3.1 5.6 4.7 Cost/income (%) 67.2 67.8 63.6 60.5 58.2 Pre-provision profit 557 587 730 878 1,012 Net provisions 122 163 (62) (94) (114)Consolidation gain + extraordinary items

27 34 31 33 35

Pre-tax profit 706 785 699 818 933 Income tax (139) (143) (127) (149) (171)Profit/loss from subsidiaries (17) (19) (21) (23) (25)Net income 550 623 552 646 738 Change (%) 50.1 13.4 (11.5) 17.1 14.2 Accounting standard IFRS IFRS IFRS IFRS IFRS

Source: ING, CA IB estimates

Table 59: ING: 4Q 2006 Results preview

4Q 2006E 3Q 2006QoQ (%) 4Q 2005 YoY (%)Interest income 238 243 (2) 109 119 Fees and commissions 162 157 3 141 14 Revenue from banking 489 433 13 389 26 Other operating result 10 3 201 24 (60)Operating costs (335) (304) 10 (293) 14 Net provisions 15 55 (73) 53 (72)Pre-tax profit 185 196 (6) 182 1 Net profit 134 157 (14) 131 2


Table 60: ING: Balance sheet

PLNm (unless otherwise stated) 2005 2006E 2007E 2008E 2009ECash + CB accounts 1,176 1,252 1,390 1,543 1,697 Receivables from FI 12,574 17,147 20,651 26,454 31,924 Loans to customers 9,903 11,834 13,734 15,223 17,105 Debt securities 17,078 14,000 13,000 10,000 7,000 Shares 75 56 36 13 (12)Fixed assets 601 571 542 515 489 Intangible assets 95 100 105 110 116 Accrued interest & other assets 625 766 776 786 796 goodwill 224 224 224 224 224 Total assets 42,127 45,727 50,234 54,645 59,116 Liabilities to FI 1,329 1,329 1,900 1,700 1,500 Liabilities to customers 32,824 35,778 39,713 44,082 48,490 Debt securities 3,686 3,686 3,686 3,686 3,686 Accrued interest & other liabilities 740 1,120 1,130 1,140 1,150 of which subordinated debt 0 0 0 0 0 Total liabilities 38,578 41,913 46,429 50,608 54,826 Share capital 130 130 130 130 130 Reserve capital 3,419 3,684 3,675 3,907 4,160 Shareholders equity 3,549 3,814 3,805 4,037 4,290 Total liabilities & equity 42,127 45,727 50,234 54,645 59,116 Accounting standard IFRS IFRS IFRS IFRS IFRS


Table 61: ING: Key ratios

2005 2006E 2007E 2008E 2009ENet loans (PLNm) 9,903 11,834 13,734 15,223 17,105 Gross YE (PLNm) 10,716 12,627 14,731 16,457 18,596 NPLs (PLNm) 1,048 921 1,244 1,632 2,060 Provisions (PLNm) 813 793 997 1,234 1,491 NPL ratio (%) 9.8 7.3 8.4 9.9 11.1 Coverage ratio (%) 77.6 86.1 80.1 75.6 72.4 Dividend per share (PLN) 27.50 43.12 31.80 37.25 42.53 Payout ratio (%) 65.1 90.0 75.0 75.0 75.0 BIS ratio (%, YE) 18.60 17.27 15.70 14.79 14.01 Tier1 ratio (%, YE) 18.60 17.27 15.70 14.79 14.01



2005 2006E 2007E 2008E 2009E

Net profit (PLNm) 416 472 302 372 445

Stated EPS 1.53 1.74 1.11 1.37 1.64

NAVPS 6.2 7.7 7.9 8.8 9.7

NIM (%) 3.9 3.8 3.8 4.0 4.0

C/I ratio (%) 74.2 74.0 70.2 65.0 61.8

Provisioning (%) 0.1 (1.2) 0.5 0.8 0.9

Adj. ROE (%) 14.6 25.5 14.4 16.6 18.0

Adj. P/E (x) 25.9 12.3 19.2 15.6 13.0

Adj. P/BV (x) 3.5 2.8 2.7 2.5 2.2

Dividend yield (%) 1.0 4.1 2.6 3.2 3.8

Shareholder structure: KBC 80%, Sofina 5.5%

Kredyt Bank is paying a high price for being late in the chase for retail customers, which translates into weaker margins. While we generally like the turnaround that is being delivered by the current management, we think the share price has gone up too much. We also reckon that limited liquidity should warrant an additional discount, not a premium. KRB remains one of the most risky bets as its operating leverage is the highest. Our remaining worry is that a reported earnings drop is not fully reflected in the price. We look for stagnant YoY earnings in 4Q. The stock trades at P/E of 19.2x, falling to 15.6x next year.

Recent developments. We pretty much appreciate the fact that KRB not only gradually delivers turnaround in its business by using a nice bancassurance approach to retail. We also like the quality of the bank’s presentations, which is constantly improving. However, it looks to us as though the underlying profitability, cleared of NPL write-backs and sales and other one-offs, is weak, and operating leverage very high.

4Q Results preview. For 4Q 2006, we are looking for PLN 85m net profit, flattish YoY, and flattish QoQ. We look for an 11% drop in interest income, a continued drop in fees (1%), and overall 0% YoY and 17% QoQ increase in total banking revenues. Such an announcement is likely to be negatively received by the market, we think.

Valuation summary. The stock trades at P/E of 19.2x for 2007, P/BV of 2.7x. For a risky story, with by far the highest C/I ratio, we believe that some discount may be needed. While we generally remain constructive on the bank, we are less so at the current stock price. If any correction occurs, we would treat the stock as a welcomed addition to the Polish banking “growth stories” portfolio.

Kredyt Bank Banks Poland

PLN 21.35 Sell (Downgrade from Hold)


WIG index 49,560 # of shares 272m MCAP PLN 5.8bn US$ 1.9bn Free float PLN 870m US$ 292m BKRE.WA / KRB PW

13

15

17

19

21

23

25

Jan-06 Apr-06 Jul-06 Oct-06 Jan-07Kredyt Bank

90

110

130

150

170


Kredyt Bank WIG

(Rebased to 100)


Too few highlights for such a rally

11 January 2007

Company Update

Kredyt Bank January 2007

54

Table 62: Kredyt Bank: Profit & loss account

PLNm (unless otherwise stated) 2005 2006E 2007E 2008E 2009ENet interest income 753 770 833 938 1,025 Net interest margin (%) 3.9 3.8 3.8 4.0 4.0 Spread (%) 3.9 3.6 3.6 3.7 3.8 NII growth (%) 18.7 2.2 8.2 12.5 9.3 Net commission income 315 287 357 440 543 Income from securities 1 0 0 0 0 Financial income & capital gains 92 30 32 33 35 Forex gains 48 130 143 157 173 Other non-interest income 0 0 0 0 0 Revenue from banking operations

1,209 1,218 1,365 1,568 1,776

Change (%) (9.0) 0.7 12.1 14.9 13.3 Other operating income/cost 11 12 12 13 14 Personnel cost (411) (426) (455) (485) (526)Depreciation (135) (122) (128) (134) (141)Other administrative cost (345) (347) (366) (385) (414)Operating costs (891) (895) (949) (1,005) (1,081) Change (%) (15.6) 0.5 6.0 5.9 7.6 Cost/income (%) 74.2 74.0 70.2 65.0 61.8 Pre-provision profit 329 335 429 576 709 Net provisions (9) 152 (64) (129) (176)Consolidation gain + extraordinary items

1 5 8 12 16

Pre-tax profit 321 491 372 459 550 Income tax 94 (19) (71) (87) (104)Profit/loss from subsidiaries 1 0 0 0 0 Net income 416 472 302 372 445 Change (%) 124.6 13.5 (36.1) 23.3 19.7 Accounting standard IFRS IFRS IFRS IFRS IFRS

Source: Kredyt Bank, CA IB estimates

Table 63: Kredyt Bank: 4Q 2006 Results preview

4Q 2006E 3Q 2006QoQ (%) 4Q 2005 YoY (%)Interest income 190 187 2 214 (11)Fees and commissions 97 69 39 98 (1)Revenue from banking 344 293 17 344 (0)Other operating result 7 (4) n.m. 2 361 Operating costs (235) (222) 6 (234) 0 Net provisions (20) 35 n.m. (42) (52)Pre-tax profit 100 103 (3) 69 43 Net profit 85 90 (5) 91 (6)


Table 64: Kredyt Bank: Balance sheet

PLNm (unless otherwise stated) 2005 2006E 2007E 2008E 2009ECash + CB accounts 607 558 620 688 757 Receivables from FI 2,227 6,198 4,628 3,317 1,862 Loans to customers 9,702 11,657 14,539 18,063 21,786 Debt securities 7,414 3,500 3,300 3,000 2,700 Shares 9 9 9 9 9 Fixed assets 416 396 376 357 339 Intangible assets 111 117 123 129 135 Accrued interest & other assets 355 499 509 519 529 goodwill 36 36 36 36 36 Total assets 20,841 22,934 24,103 26,082 28,117 Liabilities to FI 2,562 2,562 1,900 1,700 1,500 Liabilities to customers 14,534 15,957 17,712 19,660 21,626 Debt securities 771 771 771 771 771 Accrued interest & other liabilities 1,293 1,550 1,560 1,570 1,580 of which subordinated debt 590 430 430 430 430 Total liabilities 19,160 20,840 21,943 23,701 25,477 Share capital 1,358 1,358 1,358 1,358 1,358 Reserve capital 323 736 801 1,022 1,282 Shareholders equity 1,682 2,094 2,160 2,381 2,640 Total liabilities & equity 20,841 22,934 24,103 26,082 28,117 Accounting standard IFRS IFRS IFRS IFRS IFRS


Table 65: Kredyt Bank: Key ratios

2005 2006E 2007E 2008E 2009ENet loans (PLNm) 9,702 11,657 14,539 18,063 21,786 Gross YE (PLNm) 12,306 12,977 15,573 18,877 22,425 NPLs (PLNm) 3,558 2,200 1,838 1,607 1,468 Provisions (PLNm) 2,604 1,320 1,034 813 639 NPL ratio (%) 28.9 17.0 11.8 8.5 6.5 Coverage ratio (%) 73.2 60.0 56.3 50.6 43.5 Dividend per share (PLN) 0.22 0.87 0.56 0.68 0.82 Payout ratio (%) 14.4 50.0 50.0 50.0 50.0 BIS ratio (%, YE) 16.42 17.54 17.02 15.47 14.44 Tier1 ratio (%, YE) 10.99 13.57 13.58 12.55 11.91



2004 2005 2006E 2007E 2008ERevenue (PLNm) 1,001.1 1,202.1 1,138.5 1,157.1 1,201.8Adj. EBITDA (ex-SOP, PLNm) 204.9 252.9 143.5 184.5 192.3EBITDA (PLNm) 204.9 245.8 110.5 151.5 159.3Net profit (PLNm) 67.3 126.7 26.8 57.6 63.8Adj. net profit (PLNm) 67.3 133.8 59.8 90.6 96.8Adj. EPS (PLN) 1.19 2.37 1.09 1.65 1.76CEPS (PLN) 3.38 4.08 2.47 3.07 3.23BVPS (PLN) 19.8 19.9 20.4 21.0 21.6Adj. P/E (x) 32.9 16.4 35.8 23.7 22.1P/CE (x) 11.5 9.6 15.8 12.7 12.1P/BV (x) 2.0 2.0 1.9 1.9 1.8EV/Sales (x) 2.0 1.7 1.7 1.7 1.7EV/Adj. EBITDA (x) 9.7 7.8 13.8 10.7 10.3EV/FCF 15.0 11.4 23.1 17.9 18.1Dividend yield (%) 1.3 1.3 1.3 1.3 1.3

Shareholder structure: Agora Holding 18.6% of equity and 37.9% of votes, Julius Baer IM 7.2% of equity and 5.3% of votes, employees 7.9% of equity and 5.3% of votes

Investment case: Agora’s share price outperformed the WIG index by 8% in 4Q 2006 as, we believe, investors turned their attention to efficiency improvements in 2007 and developments in segments other than press, i.e. outdoor and Internet. While we currently see the stock as fully valued, we are waiting to ascertain the affect of Dziennik’s market entry on Agora’s advertising revenues and to assess the degree of completion (and effectiveness) of the company’s restructuring programme.

Recent developments: The competitive positions of Gazeta Wyborcza and Dziennik appear to be stabilising, with Agora achieving average daily circulation of 430,000 copies vs. 200,000 copies of Dziennik. Importantly, Rzeczpospolita, the third largest quality daily in Poland, began to lose circulation in October (down 8%) and November (down 16% to 151,400 copies), indicating a slightly stronger position for GW and Dziennik in the overall advertising pie. In January, Metro International, Agora’s largest competitor in the free press area, halted the publication of its newspaper, leaving Agora’s complimentary Metro as the unquestionable leader of the free press ad market.

4Q 2006 Preview and outlook: We are expecting Agora to post an 8% decrease in revenues to PLN 303.8m in 4Q 2006 on the back of a 14% decline in press segment revenues (the effect of a cover price cut in April and a high base related to the launch of Nowy Dzien in November 2005). We are forecasting the decline in SOP-adjusted EBITDA to slow down to 7.3% YoY (PLN 41.3m) from a 50% drop recorded in 1-3Q 2006, mainly as a result of the high base effect (last year’s 4Q included marketing spending related to the launch of Nowy Dzien). In reported figures, we are expecting PLN 34.7m in EBITDA and PLN 12.4m in net profit. The key performance factors in 2007 are the potential advertising market share loss to Dziennik (we expect 3 percentage points) and the launch of the Polskapresse nationwide project in 2H 2007.

Valuation: We are increasing our target price by 3% to PLN 37.9, while maintaining our HOLD recommendation. With Agora’s 2007E adjusted EV/EBITDA of 10.7x and 2007E adjusted P/E of 23.7x, we see the stock as fairly valued.

Agora Media Poland

PLN 38.98 Hold


WIG index 49,560 # of shares 55.0 MCAP PLN 2.1bn US$ 0.7bn Free float PLN 1.7bn US$ 0.5bn AGO PW / AGOD.WA

25

35

45

55

65

75


Agora

25

45

65

85

105

125

145


Agora WIG

(Rebased to 100)

Analysts Marcin Szortyka Tel. +48 22 520 9972 [email protected] Tomasz Bardziłowski, CFA Tel. +48 22 520 9979 [email protected] http://research.ca-ib.com

Catalyst needed

11 January 2007

Company Update

Agora January 2007

56

Table 66: Agora: 4Q 2006 Results preview

PLNm 4Q 2006E 4Q 2005 Ch. YoYRevenues 303.8 329.2 (7.7)EBITDA 34.7 37.4 (7.3)EBITDA (ex-SOP) 41.3 44.5 (7.3) EBIT 15.9 12.3 29.0 Net profit 12.4 8.5 45.9 Net profit (ex-SOP) 19.0 15.6 21.8

Source: Agora, CA IB estimates

We are expecting a 7.7% decrease in revenues to PLN 303.8m on the back of a 14% decrease in press segment revenues (the effect of the cover price cut in April and a high base related to the launch of Nowy Dzien in November 2005) and a 5-10% YoY increase in outdoor, magazines and radio segments.

In 4Q 2006 we are expecting the decline in SOP-adjusted EBITDA to slow down to 7.3% YoY (PLN 41.3m) from the 50% drop recorded in 1-3Q 2006, mainly as a result of the high base effect (last year’s 4Q included marketing spending related to the launch of the publication Nowy Dzien). In reported figures, we are expecting PLN 34.7m in EBITDA and PLN 12.4m in net profit.

Table 67: Agora: Profit & loss account

PLNm 2005 2006E 2007E 2008ENet sales 1,202.1 1,138.5 1,157.1 1,201.8 Operating costs 1,051.3 1,103.9 1,083.9 1,123.5 o/w SOP 7.1 33.0 33.0 33.0 Operating profit 150.8 34.6 73.2 78.3 D&A 96.4 75.9 78.4 81.0 EBITDA 245.8 110.5 151.5 159.3 EBITDA ex-SOP 252.9 143.5 184.5 192.3 Interest and financial items 3.1 4.8 3.6 6.0 Finance income 17.9 11.2 10.3 13.2 Finance costs (14.8) 6.3 6.7 7.1 Result of associates 0.2 0.2 0.2 0.2 Profit before tax 154.1 39.7 77.0 84.6 Income tax 28.5 12.8 19.4 20.8 Minority interest (1.1) 0.0 0.0 Net profit 126.7 26.8 57.6 63.8 Net profit ex-SOP 133.8 59.8 90.6 96.8


Table 68: Agora: Balance sheet

PLNm 2005 2006E 2007E 2008ECurrent assets 502.8 519.5 577.8 641.8 cash and equivalents 189.7 218.5 273.2 328.7 short-term securities 75.5 75.5 75.5 75.5 accounts receivable 209.2 198.1 201.4 209.1 inventories 18.8 17.8 18.1 18.8other 9.6 9.6 9.6 9.6Fixed assets 1,001.2 975.0 948.9 926.1 PPE 680.1 654.0 627.8 605.1 long-term investments 12.0 12.0 12.0 12.0 intangibles, inc. goodwill 273.4 273.4 273.4 273.4 other 35.6 35.6 35.6 35.6Total assets 1,504.0 1,494.6 1,526.7 1,567.9Current liabilities 131.3 124.4 126.4 131.3 short-term borrowings 0.0 0.0 0.0 0.0 accounts payable 131.3 124.4 126.4 131.3Long-term provisions 47.1 47.1 47.1 47.1Long-term liabilities 218.6 218.6 218.6 218.6 long-term borrowings 158.7 158.7 158.7 158.7 deferred income taxes 59.9 59.9 59.9 59.9Minority interest (18.5) (18.5) (18.5) (18.5)Equity 1,125.4 1,123.0 1,153.0 1,189.4Total liabilities and equity 1,504.0 1,494.6 1,526.7 1,567.9


Table 69: Agora: Cash flow statement

PLNm 2005 2006E 2007E 2008ECash flow from operations 207.7 107.8 134.5 141.2Cash flow from investment (111.1) (49.7) (52.2) (58.2)Cash flow from financing (134.3) (29.3) (27.5) (27.5)Net change in cash (37.7) 28.8 54.8 55.5



2004 2005 2006E 2007E 2008ERevenue (PLNm) 717.1 860.3 1,121.9 1,470.1 1,673.4Adj. EBITDA (PLNm) 209.7 295.7 443.0 606.0 705.5EBITDA (PLNm) 209.7 295.1 386.0 562.0 685.5EBIT (PLNm) 178.1 255.4 338.6 500.1 607.7Net profit (PLNm) 196.3 209.3 217.2 328.8 425.1Adj. EPS (PLN) 0.12 0.13 0.82 1.07 1.26BVPS (PLN) 0.9 1.2 3.1 4.2 4.8Adj. P/E (x) 40.3 37.3 29.2 22.5 19.1P/BV (x) 26.0 19.4 7.6 5.8 5.0EV/Sales (x) 13.4 11.2 8.6 6.5 5.8Adj. EV/EBITDA (x) 45.9 32.6 21.7 15.9 13.6

Shareholder structure: ITI Holdings 61%

Investment case: We are upgrading TVN to BUY from Hold, maintaining our recently increased target price of PLN 28.4 We now believe the risks to TVN’s business are discounted and we would turn our attention to the three main positive factors: 1) expected strong 4Q 2006 results; 2) robust 2007 outlook with an expected 15-20% increase in TVN’s ad prices; and 3) new entrants on the market posing no significant threat in 2007, in our view.

Recent developments: On 3 January the company revealed audience share figures for December 2006 and FY 2006. TVN Group audience share increased 2.1 percentage points YoY in December to 21.0%, while the TVN channel recorded a 0.8 percentage point YoY increase to 16.7%. In FY 2006, TVN ranked third with an all day audience share of 16.7% (up 1.7 percentage points YoY) for the first time beating Polsat (16.1%). We believe that the audience share gains confirm TVN’s growth story.

4Q 2006 Preview and outlook: The increase in audience share indicates a strong 4Q 2006. Following a 2-3 percentage-point increase in audience share in 4Q 2006, we are expecting TVN to post strong 4Q 2006 figures, forecasting respective revenue, adjusted EBITDA and earnings growth of 31%, 54% and 22%. Next year’s outlook sees TVN having started negotiations with advertisers with a more than 20% increase in ad prices. The station is confident in its pricing power, showing little willingness to reduce the increase, according to Press magazine. In our model, we are expecting a 21% increase in advertising prices and 30.4% growth in total revenues.

Valuation: TVN is trading at 2007E adjusted P/E of 22.5x, a 5% discount to Agora’s respective adjusted P/E. While the EV/EBITDA multiple of 15.9x implies a premium to peers, we believe it is justified given the 24% 2006E-2008E adjusted EBITDA CAGR offered by TVN vs. 12% for peers. We also note that historically TVN has traded within a range of 17.0x-20.0x current year EV/EBITDA.

TVN Media Poland



WIG index 49,560 # of shares 362.2 MCAP PLN 8.7bn US$ 3.0bn Free float PLN 3.4bn US$ 1.2bn TVN PW / TVNA.WA

15

20

25

30


TVN

85

95

105

115

125

135

145

155

165


TVN WIG

(Rebased to 100)

Analysts Marcin Szortyka Tel. +48 22 520 9972 [email protected] Tomasz Bardziłowski, CFA Tel. +48 22 520 9979 [email protected] http://research.ca-ib.com

Turning to positives. Upgrading to BUY.

11 January 2007

Company Update

TVN January 2007

58

Table 70: TVN: 4Q 2006 Results preview

PLNm 4Q 2006E 4Q 2005 YoY (%)Sales 361.8 275 31.5EBITDA 135.4 98.7 37.1EBITDA (ex-SOP) 151.6 98.7 53.5EBIT 121.2 90.8 33.5Net profit 82.4 67.6 21.9Net profit (ex-SOP) 98.7 67.6 45.9

Source: TVN, CA IB estimates

We are expecting a 31.5% YoY increase in TVN’s revenues in 4Q 2006 to PLN 316.8m. The major revenue drivers are advertising revenues, which we estimate to grow 35.5% YoY in 4Q 2006 to PLN 308m, based on a 24% increase in TV advertising to PLN 282.5m, and the consolidation of Onet from 2H 2006 (PLN 25.8m contribution in 4Q 2006). Meanwhile, we are expecting 12.7% growth in non-advertising revenues to PLN 53.5m.

In 4Q 2006, we are expecting TVN to post EBITDA of PLN 135.4m, up 37% YoY. Excluding the costs of the stock option plan, we are expecting EBITDA to surge 53.5% to PLN 151.6m. On the bottom line we are expecting PLN 82.4m in net profit.

Table 71: TVN: Profit & loss account

PLNm 2005 2006E 2007E 2008ENet sales 860.3 1121.9 1470.1 1673.4 Cost of sales 498.6 613.5 780.7 885.1 Gross profit 361.7 508.4 689.4 788.3 SG&A 103.9 169.7 189.3 180.7 Other operating income, net (2.4) 0.0 0.0 0.0 EBITDA 295.1 386.0 562.0 685.5 Adjusted EBITDA (ex SOP) 295.7 443.0 606.0 705.5 depreciation 39.6 47.3 61.9 77.9 Operating profit 255.4 338.6 500.1 607.7 Net financial income/(costs) 8.2 (57.1) (83.9) (78.1)Profit before tax 263.6 281.5 416.2 529.5 Income tax 54.3 64.3 87.4 104.4 Net profit 209.3 217.2 328.8 425.1 Adjusted net profit 209.9 274.2 372.8 445.1


Table 72: TVN: Balance sheet

2005 2006E 2007E 2008ECurrent assets, of which: 496.7 568.5 766.7 975.1 cash and equivalents 80.8 96.8 221.1 382.4 trade receivables 137.3 179.0 234.6 267.0 programming inventory 151.1 157.0 164.5 172.8 Fixed assets, of which: 944.7 1777.9 1926.6 2014.4 PPE 139.7 199.0 335.6 412.2 intangibles 23.6 27.2 32.9 38.8 goodwill 144.1 1471.1 1471.1 1471.1 programming inventory 55.0 57.2 59.9 62.9 bond receivable 561.6 0.0 0.0 0.0 Total assets 1,441.4 2,346.4 2,693.3 2,989.5 Current liabilities, of which 155.9 275.1 249.1 283.5 bank debt 0.0 85.0 0.0 0.0 trade payables 56.0 73.0 95.7 108.9 other current liabilities 89.7 117.0 153.3 174.5 Long-term liabilities, of which: 888.8 979.5 979.5 979.5 bank debt 843.5 843.5 843.5 843.5 deferred tax liability 45.3 136.0 136.0 136.0 Equity 396.7 1091.9 1464.8 1726.6 Total liabilities and equity 1,441.4 2,346.4 2,693.3 2,989.5


Table 73: TVN: Cash flow statement

Cash flow statement 2005 2006E 2007E 2008ECash flow from operations 93.6 213.4 336.8 466.1 Cash flow from investment (44.5) (760.5) (171.6) (141.4)Cash flow from financing (34.1) 563.0 (40.9) (163.4)

Net change in cash 15.0 16.0 124.3 161.3



PLNm 2004 2005 2006E 2007E 2008ERevenues 1,573.3 1,854.8 1,682.3 2,130.4 2,235.9EBITDA 171.5 226.2 209.3 277.2 298.0EBITDA adj. 139.5 167.5 147.6 200.0 217.3EBIT 72.6 151.1 148.1 206.8 220.8Net profit 41.6 80.3 80.0 106.6 117.4EPS (PLN) 3.00 5.79 5.77 7.69 8.46CEPS (PLN) 10.1 11.2 10.2 12.8 14.0P/E (x) 45.6 23.7 23.7 17.8 16.2P/CE (x) 13.5 12.2 13.5 10.7 9.8EV/EBITDA adj. (x) 14.5 12.1 13.7 10.1 9.3Dividend yield (%) 0.0 0.2 1.1 0.7 0.9DPS 0.0 0.25 1.50 1.01 1.26

Shareholder structure: R. Krauze 11.26%, Prokom Investments 10.23%Note: 2004 earnings goodwill adjusted PAS. 2005 and beyond IFRS. EV/EBITDA adjusted for minority interest.

Prokom has the broadest exposure to the dynamically consolidating IT market in Poland, is possibly best positioned to benefit from expected EU-subsidised public projects and is passively participating in CEE expansion through its subsidiary Asseco Poland. A win-win situation? Perhaps long term. In the immediate perspective, the 4Q 2006 results are likely to bring little inspiration as Prokom itself continues to experience weakening sales although its FY 2006 earnings guidance is helped by favourable financial contributions from subsidiaries. We are rolling our target price upwards by 11% to PLN 146 and maintaining our HOLD recommendation.

Recent developments: 4Q 2006E brought no breakthrough contracts or tenders in the public administration projects arena. Prokom announced contracts worth PLN 93m, slightly higher than PLN 57m in 4Q 2005 but still negligible from the quarterly results perspective being mostly of a long-term or of continued maintenance nature. The Prokom Group continued its reorganisation process, concluding the merger of Softbank and Asseco Poland, advancing the merger of Spin and ABG and finalising the acquisition of the controlling stake in Comp. As a result, Prokom Group has become a well diversified and specialised IT group prepared to claim its share of the public administration projects’ pie, estimated at PLN 2bn to PLN 4bn (based on the government’s IT systems priority projects list prepared for 2007-2010).

Forecasts revisions: We have reduced our 2006E top line forecast by 13% to PLN 1,682m to reflect the low contribution of the parent company. We subsequently cut our operating profit by 10% to PLN 148m while leaving our bottom line unchanged (boosted by financial contributions from subsidiaries). We have applied only cosmetic changes to our figures for subsequent years (see over).

4Q 2006 Preview: We are expecting Prokom Group to post a 4Q 2006 net profit of PLN 23.6m, down 35% primarily due to the high base in 4Q 2005 (non-operating financial items and a gain on the sale of a subsidiary group) and the weak contribution of Prokom itself (our estimated net profit of PLN 2m, significantly below PLN 30m in the corresponding period of 2005).

Valuation: Prokom is trading at our estimated 2007E P/E of 18x, one of the lowest multiples in our universe. Opportunity? The finalisation of the reorganisation process and the conclusion of the ambitious acquisition plans of subsidiaries are likely to contribute significantly (pro rata, adjusted for minority stakes). Major risk: further declines in the parent company’s business. We continue our coverage with a HOLD recommendation.

Prokom IT Poland

PLN 137 Hold


WIG index 49,560 # of shares 13.9m MCAP PLN 1903m US$ 639m Free float PLN 1,257m US$ 422m PKMD.WA / PKM PW

115

125

135

145

155

165


Prokom

70

80

90

100

110

120

130

140


Prokom WIG

(Rebased to 100)

Analyst Przemyslaw Sawala-Uryasz Tel. +48 22 520 9960 [email protected] http://research.ca-ib.com

Silent consolidator

11 January 2007

Company Update

Prokom January 2007

60

Table 74: Prokom: Consolidated 4Q preview

PLNm 4Q 2006E

4Q 2005

YoY (%)

2006E 2005 YoY (%)

Revenues 514.3 701.0 (26.6) 1,682.31,854.8 (9.3)EBIT 45.2 58.3 (22.4) 148.1 151.1 (2.0)EBIT adj.* 45.2 58.3 (22.4) 148.1 139.9 5.8Net profit 23.6 36.3 (35.0) 80.0 80.3 (0.3)Net adj.* 23.6 36.3 (35.0) 80.0 77.5 3.3

EBIT margin, adj. (%) 8.8 8.3 8.8 7.5 Net margin, adj. (%) 4.6 5.2 4.8 4.2 Note: 9M 2005 EBIT and net profit adjusted for Source Prokom, CA IB estimates income tax recovered

Table 75: Prokom: Unconsolidated 4Q preview

PLNm 4Q 2006E

4Q 2005

YoY (%)

2006E 2005 YoY (%)

Revenues 150.0 224.3 (33.1) 557.1 773.5 (28.0)EBIT 6.9 26.3 (73.7) 56.8 68.9 (17.5)Net profit 1.8 30.0 (94.1) 47.0 68.3 (31.3)

EBIT margin (%) 4.6 11.7 3.4 3.7 Net margin (%) 1.2 13.4 2.8 3.7

Source: Prokom, CA IB estimates

Table 76: Prokom Group: Forecasts revisions

PLNm 2006E Ch. 2007E Ch. 2008E Ch. New Prior (%) New Prior (%) New Prior (%)Revenues 1,682 1,944 (13.4) 2,130 2,215 (3.8) 2,236 2,300 (2.8)EBIT 148.1 165.3 (10.4) 206.8 208.6 (0.9) 220.8 220.1 0.3Net profit 80.0 80.5 (0.6) 106.6 107.4 (0.7) 117.4 116.4 0.8

EBIT margin (%)

8.8 8.5 9.7 9.4 9.9 9.6

Net margin (%)

4.8 4.1 5.0 4.8 5.2 5.1


Table 77: Profit & loss

PLNm 2004 2005 2006E 2007E 2008ENet revenue 1,573.3 1,854.8 1,682.3 2,130.4 2,235.9COGS (1,062.9) (1,280.2) (1,145.4) (1,478.1) (1,555.4)SG&A (415.7) (417.8) (389.3) (445.5) (459.6)Other operating (22.1) (5.6) 0.5 0.0 0.0EBITDA 171.5 226.2 209.3 277.2 298.0Depreciation (98.9) (75.0) (61.2) (70.4) (77.2)EBIT 72.6 151.1 148.1 206.8 220.8Net financials (36.9) 4.4 (5.1) (18.1) (16.9)Profit from affiliates (2.5) 3.7 9.4 10.7 11.9Profit on sale of subsidiaries

28.2 (1.5) 5.0 0.0 0.0

Pre-tax profit 61.4 157.7 157.4 199.5 215.8Tax (14.3) (33.3) (15.1) (37.9) (41.0)Minority interest (5.5) (44.1) (62.3) (55.0) (57.4)Net profit 41.6 80.3 80.0 106.6 117.4


Table 78: Cash flow

PLNm 2004 2005 2006E 2007E 2008ENet profit 41.6 80.3 80.0 106.6 117.4Depreciation 98.9 75.0 61.2 70.4 77.2Cash earnings 140.6 155.3 141.2 177.0 194.6Change in WC 151.0 (4.9) (11.2) (56.1) (13.2)Operations 291.5 150.5 130.0 120.9 181.4Investments (469.2) (70.7) (114.7) (81.3) (158.4)Financing 213.5 (49.1) (28.7) (4.8) (14.8)Dividends 0.0 (3.5) (20.8) (14.1) (17.5)Change in cash 35.8 30.8 (13.4) 34.8 8.2



PLNm 2004 2005 2006E 2007E 2008EFixed assets 1,379.4 1,400.1 1,443.7 1,480.4 1,567.7Net working capital 209.7 220.2 228.0 293.0 308.3Capital employed 1,589.1 1,620.3 1,671.7 1,773.5 1,876.0Shareholders equity 730.1 813.5 890.3 949.5 1,042.0Minorities 155.0 313.2 313.2 313.2 313.2Debt & lease obligations 704.0 493.6 468.1 510.7 520.7Marketable securities and cash

287.6 305.9 315.8 326.3 377.0

Total assets 2,137.3 2,242.9 2,216.8 2,447.9 2,580.9


Table 80: Ratios

2004 2005 2006E 2007E 2008EEBITDA margin (%) 10.9 12.2 12.4 13.0 13.3EBIT margin (%) 4.6 8.1 8.8 9.7 9.9Interest cover (x) 1.6 3.1 4.2 6.1 6.5Net debt/equity (%) 57.0 23.1 17.1 19.4 13.8Current ratio (x) 1.8 1.8 2.0 1.9 1.9Sales/receivables (x) 2.4 2.6 2.6 2.6 2.6ROE (%) 5.9 10.4 9.4 11.6 11.8ROCE (%) 5.0 9.4 9.0 12.0 12.1



PLNm 2004 2005 2006E 2007E* 2008E*Revenues 755.9 858.1 956.5 1,226.6 1,252.0EBITDA 69.5 56.5 61.6 94.2 130.5EBITDA (adj.) 69.5 66.9 61.6 94.2 130.5EBIT 44.1 34.1 33.3 56.0 88.3Net profit 12.7 11.5 9.8 37.1 69.6Net profit (adj.) 22.2 30.5 15.0 37.1 69.6EPS 1.86 1.66 1.31 3.93 6.57EPS (adj. PLN) 3.24 4.42 2.01 3.93 6.57P/E (x) 56.1 62.6 79.5 26.5 15.8P/E (adj. x) 32.1 23.5 51.8 26.5 15.8EV/EBITDA (x) 13.3 16.4 15.0 9.8 7.1EV/EBITDA (adj. x) 10.4 9.6 15.4 12.4 8.8Dividend yield 0.0 0.0 1.0 1.0 1.0DPS 0.00 0.00 1.00 1.00 1.00

Shareholder structure: BBI Capital 12.55%, T. Sielicki 7.51%, Pioneer IM 9.12%, CU OFE 6.27%, ING NN OFE 5.90%* Note: Emax 100% consolidated as of 2H 2007, includes synergies at 50% probability.

We are upgrading ComputerLand to a HOLD and increasing our 12-month target price to PLN 114 following incorporation of the synergies presented by the management of Emax and ComputerLand, albeit at a 50% probability, and lower equity risk premium. With no profit warning in sight, it appears as though ComputerLand is set to deliver on its 2H 2006E net profit forecast of PLN 20m (+/- 10%), which implies an annual net profit of ca. PLN 5m – prior to the contribution from Emax. While we take this as a good omen, it is still too early for us to begin to trumpet about ComputerLand having turned the corner. Management’s expected synergies, which now add PLN 12 per share to our valuation, are key to the upside.

Recent developments: No announcement of major contracts in 4Q 2006 has been made, which may be indicative of a weak opening of and significantly lower backlog for 2007. Management’s phrasing of the company’s long-term goal (maintaining stable sales level through 2008) implies at most flat or lower sales in 2007. In exchange, management is targeting 8% operating profit margins by 2008. This then defines the primary long-term risk: will improved backlog quality, i.e. volume of service contracts and proprietary software sales, indeed compensate for lower (or no) growth?

Forecast revisions: We are reducing our net profit forecasts (2007) by 33% to PLN 27m and (2008) by 35% to PLN 30m following respective 9% and 12% cuts to our sales estimates. Starting in 4Q 2006, we have consolidated the results of Emax with ComputerLand adjusting for minority interest (consolidation of Emax as of 4Q 2006 at 37.65%). We have merged the two companies entirely as of 3Q 2007 and forward, subject to General Shareholders’ approval. To such calculated pro forma results we have applied management’s estimated synergies with a 50% probability. (Our front page table presents our estimated results of ComputerLand and Emax combined, while the following page of this update presents ComputerLand’s standalone figures.)

4Q 2006E Results outlook: We expect ComputerLand to report a net profit of PLN 22m, up more than 100% YoY (on our one-off adjusted figures) including the contribution from Emax. Excluding Emax, we expect ComputerLand to deliver net profit of PLN 16m, in line with its original guidance.

Valuation: Demanding in light of our estimated 2007 P/E of 26.5x, but drops to 16x in 2008E, subject to at least partial delivery of the estimated synergies. Thus, HOLD… and see?

ComputerLand IT Poland

PLN 104.0 Hold (Upgrade from Sell)


WIG index 49,560 # of shares 8.0m MCAP PLN 838m US$ 281m Free float PLN 491m US$ 165 COMW.WA / CPL PW

85.0

90.0

95.0

100.0

105.0

110.0

115.0

120.0


ComputerLand

85

95

105

115

125

135

145


ComputerLand WIG

(Rebased to 100)


Synergies key for upside. Up to Hold.

11 January 2007

Company Update

ComputerLand January 2007

62

Table 81: ComputerLand and Emax 4Q 2006 Preview

PLNm 4Q 2006E

4Q 2005

YoY % 2006E 2005 YoY %

Revenue 449.9 362.9 24.0 956.5 858.1 11.5EBIT 39.3 9.0 334.5 33.3 34.1 (2.2)EBIT adjusted* 39.3 19.4 102.5 33.3 44.4 (25.0)Net profit 22.2 0.4 n.m. 9.8 11.5 (14.6)Net profit adjusted* 22.2 10.8 106.1 9.8 21.8 (55.2)

EBIT margin adj. (%) 8.7 5.4 3.5 5.2Net margin, adj. (%) 4.9 3.0 1.0 2.5Note: 4Q and FY 2005 adjusted for PLN 10.4m Source: ComputerLand, CA IB estimates provision for ARiMR-imposed fine

Table 82: ComputerLand 4Q 2006 Results preview

PLNm 4Q 2006E

4Q 2005

YoY % 2006E 2005 YoY %

Revenue 286.0 362.9 (21.2) 792.8 858.1 (7.6)EBIT 21.0 9.0 131.6 15.1 34.1 (55.7)EBIT adjusted* 21.0 19.4 7.9 15.1 44.4 (66.0)Net profit 16.3 0.4 n.m. 4.3 11.5 (62.6)Net profit adjusted* 16.3 10.8 50.9 4.3 21.8 (80.4)

EBIT margin adj. (%) 7.3 5.4 1.9 5.2 Net margin, adj. (%) 5.7 3.0 0.5 2.5 Note: 4Q and FY 2005 adjusted for PLN 10.4m Source: ComputerLand, CA IB estimates provision for ARiMR-imposed fine; ComputerLand’s 4Q 2006E standalone results (prior to consolidation of Emax)

Table 83: ComputerLand: Forecasts revisions

PLNm 2006E Ch. 2007E Ch. 2008E Ch. New Prior (%) New Prior (%) New Prior (%)Revenue 792.8 792.6 0.0 713.1 785.9 (9.3) 713.1 814.3 (12.4)EBIT 15.1 9.4 60.6 39.5 45.1 (12.5) 43.6 52.2 (16.5)Net profit 4.3 0.1 n.m. 26.6 40.0 (33.4) 30.1 46.4 (35.2)

EBIT margin (%)

1.9 1.2 5.5 5.7 6.1 6.4

Net margin (%)

0.5 0.0 3.7 5.1 4.2 5.7



PLNm 2004 2005 2006E 2007E 2008ENet revenue 755.9 858.1 792.8 713.1 713.1COGS (527.9) (638.9) (607.5) (529.9) (529.3)SG&A (181.6) (175.4) (173.5) (143.0) (140.0)Other operating, net (2.3) (9.8) 3.3 (0.8) (0.2)EBITDA 69.5 56.5 40.7 66.4 73.5Depreciation (25.3) (22.4) (25.6) (26.9) (29.9)EBIT 44.1 34.1 15.1 39.5 43.6Net financials (23.4) (12.5) (7.0) (6.4) (6.3)Pre-tax profit 20.8 21.5 8.1 33.0 37.3Tax (7.9) (9.6) (3.7) (6.3) (7.1)Minorities (0.2) (0.4) (0.1) (0.1) (0.1)Net profit 12.7 11.5 4.3 26.6 30.1

Source: ComputerLand, CA IB estimates

Table 85: Cash flow

PLNm 2004 2005 2006E 2007E 2008ENet profit 12.7 11.5 4.3 26.6 30.1Depreciation 25.3 22.4 25.6 26.9 29.9Cash earnings 38.0 33.9 29.9 53.5 59.9Change in WC (1.0) 77.0 (115.3) 14.2 (0.1)Operations 37.1 110.9 (85.4) 67.7 59.8Investments (41.7) (31.8) (201.4) (33.6) (37.3)Financing 9.9 12.0 119.1 (8.2) (8.2)Dividends 7.5 8.1 8.2Change in cash 5.3 91.1 (167.7) 25.9 14.3



PLNm 2004 2005 2006E 2007E 2008EFixed assets 204.4 302.9 312.3 346.5 368.2Net working capital 99.6 24.6 138.5 122.7 122.8Capital employed 304.0 327.4 450.8 469.2 491.0Shareholders equity 197.3 216.0 335.9 354.3 376.1Minorities 8.0 4.5 4.0 4.0 4.0Debt 98.6 106.9 110.9 110.9 110.9Marketable securities & cash 83.8 172.9 6.5 34.0 48.3Total assets 478.1 634.6 665.0 662.5 684.3


Table 87: Ratios

2004 2005 2006E 2007E 2008EEBITDA margin (%) 9.2 6.6 5.1 9.3 10.3EBIT margin (%) 5.8 4.0 1.9 5.5 6.1Net debt/equity (%) 7.5 (30.6) 31.1 21.7 16.7Current ratio (x) 2.1 1.6 1.7 1.8 1.9Sales/receivables (x) 4.9 3.8 3.2 3.2 3.2ROE (%) 6.7 5.5 1.6 7.7 8.2ROCE (%) 15.1 10.8 3.9 8.6 9.1



PLNm 2004 2005 2006E 2007E 2008E

Revenues 328.4 444.0 473.4 616.0 708.4

EBITDA 25.9 38.0 58.5 83.2 96.1

EBIT 16.1 26.7 46.0 67.2 79.3

Net profit 10.2 27.3 50.6 55.5 66.8

Net profit (adj.)* 8.8 28.1 45.2 53.9 63.4

EPS (PLN) 1.51 3.95 6.74 6.92 8.33

EPS (adj. PLN) 1.29 4.06 6.02 6.72 7.91

P/E (x) 126.7 48.4 28.3 27.6 22.9

P/E (adj. x) 132.8 42.1 28.4 25.5 21.6

EV/EBITDA (x) 51.8 35.4 24.6 18.0 15.0

Shareholder structure: J. and E. Filipiak 43.08%, TFI BZ WBK AM 23.53 Note: *Net profit and P/E adjusted for Interia.pl's valuation impact (MCAP & net profit), 2005 negative goodwill on MKS Cracovia, 2006E after-tax gain on sale of stake in Interia.pl and NetBrokers, and management's stock option costs

ComArch has traded flat since our downgrade to Hold (27 October 2006). Reported 3Q results and management’s upgrade of FY 2006 forecast appeared to have been priced in before their release. Outstanding 4Q 2006 figures (expected earnings up ca. 60% YoY), preceded by the CEO’s guidance, should strongly support current price levels. Beyond the near term, we see more upside stemming from a bulging backlog, which implies 2007E sales growth from 35% to 40% and improving sales mix coupled with growing references in software implementations abroad. We are upgrading ComArch to a BUY and rolling our price target up 15% to PLN 225.

4Q 2006E Preview: In line with the CEO’s guidance, ComArch should have no problem delivering on its FY 2006 net profit forecast of PLN 50m, translating into ca. PLN 20m in 4Q 2006, up more than 70% YoY on sales of PLN 165m, down 16% YoY. Lower YoY sales are primarily due to a high base, as 4Q 2005 was the period in which the company realised more than PLN 70m in PC delivery contracts for the Ministry of Education (high volumes but low margins). A superior sales mix more than compensated for lower volumes (the company expected services and proprietary software to comprise 67% of sales in 2006 vs. 53% in 2005).

Outlook: ComArch’s beginning of the year backlog is up 35% to 40% YoY, according to the CEO, which implies 2007E sales of PLN 640m to PLN 660m based on the historical backlog level at this point in the year. We view the CEO’s absolute minimum sales growth guidance at 20% YoY as a conservative minimum indeed. The company is negotiating with global corporations (names have not yet been made public) and contract signings are expected already in 1Q 2007.

Forecasts revisions: We are increasing our 2007 and 2008 net profit forecasts by 18% and 11%, respectively, primarily on an improved sales mix and management’s supportive commitment to target the maintenance of the ca. 9% profit margins going forward.

Valuation: Based on our adjusted earnings, ComArch is trading at our adjusted 2007E P/E of 26x, in line with the EU software houses but reflecting no premium for its outstanding growth track record. Following our forecast upgrade, the incorporation of lower equity risks premium as well as 6% shares dilution from the management stock option plan, we are upgrading our target price to PLN 225. With an 18% upside, we are upgrading ComArch to a BUY.

ComArch IT Poland

PLN 191 Buy (Upgrade from Hold)


WIG index 49,560 # of shares 7.5m MCAP PLN 1,530m US$ 515m Free float PLN 511m US$ 172m COMH.WA / CMR PW

60

80

100

120

140

160

180

200

220


ComArch

90

130

170

210

250

290

330


ComArch WIG

(Rebased to 100)


Keeps going and going… Upgrade to Buy

11 January 2007

Company Update

ComArch January 2007

64

Table 88: 4Q Results preview

PLNm 4Q 2006E

4Q 2005

YoY % 2006E 2005 YoY %

Revenue 164.6 195.0 (15.6) 473.4 444.0 6.6EBIT 17.9 14.3 25.1 46.0 26.7 72.1Net profit 20.7 12.0 72.3 50.6 27.3 85.6 (-) Gain on sale of Interia.pl and NetBrokers 0.0 0.0 n.a. (6.6) 0.0 n.a.Net profit adj. 20.7 12.0 72.3 44.0 27.3 61.3

EBIT margin (%) 10.9 7.3 9.7 6.0 Net margin (%) 12.6 6.2 10.7 6.1Net margin adj. (%) 12.6 6.2 9.3 6.1

Source: ComArch, CA IB estimates

Forecasts upgrade

Based on the company’s year-to-date performance, we have upgraded our sales mix and profitability assumptions. The 2007E backlog now 35-40% higher than this time last year bodes well for our sales estimates. The major risks to our forecasts include:

1) pressure on otherwise growing profit margins due to higher salary costs resulting from a competitive pricing environment and a maturing workforce (recruited students becoming full-time employees on the payroll).

2) foreign exchange risks (an increasing portion – more than 20% in 2006 and up to 40% in 2008E – of ComArch’s business is derived from the EUR and US$ zones).

Table 89: ComArch: Forecast revision

2006E YoY 2007E YoY 2008E YoYPLNm New Prior (%) New Prior (%) New Prior (%)Revenues 473.4 544.6 (13.1) 616.0 642.6 (4.1) 708.4 755.9(6.3)EBIT 46.0 44.6 3.1 67.2 54.8 22.7 79.3 69.4 14.3Net profit 50.6 44.1 14.8 55.5 47.0 18.0 66.8 60.0 11.3

EBIT margin (%) 9.7 8.2 10.9 8.5 11.2 9.2Net margin 10.7 8.1 9.0 7.3 9.4 7.9



PLNm 2004 2005 2006E 2007E 2008ENet revenue 328.4 444.0 473.4 616.0 708.4COGS (254.2) (354.3) (358.4) (459.4) (526.8)SG&A (56.7) (60.0) (67.7) (88.1) (101.3)Other operating, net (1.3) (2.9) (1.4) (1.2) (1.0)EBITDA 25.9 38.0 58.5 83.2 96.1Depreciation (9.7) (11.3) (12.5) (15.9) (16.7)EBIT 16.1 26.7 46.0 67.2 79.3Financials, net (6.1) (4.2) 7.3 (1.0) 0.3Share of profit in subsidiaries (0.8) 1.3 2.7 2.8 3.4Pre-tax profit 9.2 23.8 56.0 69.0 83.0Tax (0.6) 3.3 (4.9) (13.1) (15.8)Minorities profit 1.6 0.2 (0.4) (0.4) (0.4)Net profit 10.2 27.3 50.6 55.5 66.8


Table 91: Cash Flow

PLNm 2004 2005 2006E 2007E 2008ENet profit 10.2 27.3 50.6 55.5 66.8Depreciation 9.7 11.3 12.5 15.9 16.7Cash earnings 20.0 38.6 63.1 71.4 83.5Change in WC (8.6) 8.6 (11.1) (10.6) (6.9)Operations 11.4 47.1 52.0 60.8 76.6Investments (29.6) (40.7) (59.3) (57.6) (74.6)Financing 1.8 13.7 (18.0) 3.9 2.5Dividends 0.0 0.0 0.0 0.0 1.0Change in cash (16.4) 20.2 (25.3) 7.1 4.6



PLNm 2004 2005 2006E 2007E 2008EFixed assets 150.6 199.0 220.3 267.7 329.3Net working capital 35.9 28.5 39.8 51.8 59.6Capital employed 186.5 227.5 260.2 319.6 388.9Shareholders equity 118.4 146.2 197.5 252.9 319.7Minorities 14.0 14.5 14.5 14.5 14.5Debt 54.1 66.8 48.2 52.2 54.7Marketable securities & cash 27.5 44.7 40.1 80.0 137.7Total assets 272.9 346.0 376.8 471.4 563.4


Table 93: Ratios

2004 2005 2006E 2007E 2008ESales growth 27.9 35.2 6.6 30.1 15.0EBITDA margin (%) 7.9 8.6 12.3 13.5 13.6EBIT margin (%) 4.9 6.0 9.7 10.9 11.2Interest cover (x) 3.2 5.2 11.4 22.3 24.7Net debt/equity (%) 22.5 15.1 4.1 (11.0) (26.0)Current ratio (x) 1.7 1.6 1.7 1.9 2.1Sales/receivables (x) 3.2 3.8 3.8 3.8 3.8ROE (%) 8.6 20.6 29.5 24.6 23.3ROCE (%) 10.7 20.2 24.7 25.3 26.8Net profit margin (%) 3.1 6.1 10.7 9.0 9.4



PLNm 2004 2005 2006E 2007E 2008E

Revenues 327.2 379.2 443.4 495.9 515.7

EBITDA 36.0 37.5 29.2 41.4 44.5

EBIT 23.0 28.7 18.8 30.1 32.3

Net profit 9.2 20.4 8.0 19.6 21.6

EPS (PLN) 2.71 5.96 2.31 5.69 6.27

CEPS (PLN) 6.5 8.5 5.3 9.0 9.8

P/E (x) 44.1 20.0 51.7 21.0 19.0

P/CE (x) 18.3 14.0 22.5 13.3 12.2

EV/EBITDA (x) 12.0 11.6 14.8 10.5 9.7Shareholder structure: ComputerLand 36.8%, AIG OFE 9.26% Note: Emax’s standalone estimates, include no synergies from merger with ComputerLand

We are upgrading Emax to a HOLD to reflect favourable share price parity (1:1.2) in its merger with ComputerLand, which implies Emax’s share price at PLN 136, 13.5% above the company’s current price. Since the merger and the parity still require shareholders’ approval (planned in March 2007), we find it a bit risky to extend a parity-implied valuation to Emax’s shares at this time, especially in light of the upcoming, quite weak in our view quarterly results. We are rolling our target price upwards 9% to PLN 120 per share following the incorporation of lower equity risk premium assumptions.

Developments: While the company’s backlog should continue to expand at a double-digit pace (the value of our estimated aggregate announced contracts increased more than 63% YoY to ca. PLN 100m in 4Q 2006), Emax’s immediate reporting season may be disappointing due to the delays in projects executed for Polish Post. As 4Q has been a significant contributor to profit margins in the past, 4Q 2006 may significantly underperform investors’ expectations. We expect the Polish Post project to return to the backlog list and we would forecast the company’s net profit to recover in 2007. More importantly though, 4Q 2006 will test Emax’s ability to maintain its profit margins at the levels at which they have been in the past once this project concludes.

Forecasts revisions: We are cutting our 2006E net profit estimates in half to PLN 8m and reducing our 2007 and 2008 net profit by 12.5% and 11.4% YoY, respectively, reflecting the growing risks associated with the contribution from Polish Post, the company’s largest project to date.

4Q 2006 Results preview: We expect Emax to post a net profit of PLN 12m, down 47% YoY, on revenues of PLN 164m, down 8% YoY. Downside risks exist to our quarterly forecast despite our significantly reduced figures; the company’s CEO, as quoted by the daily Parkiet, has indicated that the company has had a weak quarter, but it should end the year in the black (for the three quarters of 2006, Emax accumulated a net loss of PLN 4.2m).

Valuation: At our estimated 2007E P/E of 21x, investors appear to give Emax credit resulting from the merger parity (1.2 shares of ComputerLand for 1 share of Emax). Once the merger is operationally digested, both companies should benefit from the synergies, estimated by the management at ca. PLN 25m p.a. starting 2008. Credit for parity? We upgrade to HOLD.

Emax IT Poland



WIG index 49,560 # of shares 3.5m MCAP PLN 412m US$ 138m Free float PLN 225m US$ 75m EMXX.WA / EMX PW

100

110

120

130

140


Emax

90

100

110

120

130

140


Emax WIG

(Rebased to 100)


Credit for favourable parity. Up to Hold.

11 January 2007

Company Update

Emax January 2007

66


PLNm 4Q 2006E4Q 2005 YoY (%) 2006E 2005 YoY (%)Revenues 164.0 178.6 (8.2) 443.4 379.2 16.9EBIT 18.4 29.6 (38.0) 18.8 28.7 (34.4)Net profit 12.2 22.9 (46.9) 8.0 20.4 (60.9)

EBIT margin (%) 11.2 16.6 4.3 7.6Net margin (%) 7.4 12.8 1.8 5.4

Source: Emax, CA IB estimates

Table 95: Emax: Forecasts revisions

PLNm 2006E Ch. 2007E Ch. 2008E Ch. New Prior (%) New Prior (%) New Prior (%)Revenues 443.4 450.4 (1.6) 495.9 503.2 (1.4) 515.7 529.8 (2.7)EBIT 18.8 31.0 (39.2) 30.1 32.7 (7.9) 32.3 35.0 (7.8)Net profit 8.0 19.2 (58.5) 19.6 22.4 (12.5) 21.6 24.4 (11.4)

EBIT margin (%)

4.3 6.9 6.1 6.5 6.3 6.6

Net margin (%)

1.8 4.3 4.0 4.5 4.2 4.6



PLNm 2004 2005 2006E 2007E 2008ENet revenue 327.2 379.2 443.4 495.9 515.7COGS (265.9) (315.8) (389.5) (426.5) (443.2)SG&A (32.7) (35.1) (37.7) (39.3) (40.2)Other operating income/cost (5.5) 0.4 2.7 0.0 0.0EBITDA 36.0 37.5 29.2 41.4 44.5Depreciation (12.9) (8.8) (10.3) (11.3) (12.3)EBIT 23.0 28.7 18.8 30.1 32.3Net financials (7.0) (2.1) (6.4) (2.9) (2.8)Pre-tax profit 16.0 26.7 12.5 27.2 29.5Tax (5.4) (5.0) (2.8) (5.9) (5.6)Minority interest (1.4) (1.3) (1.7) (1.7) (2.3)Net profit 9.2 20.4 8.0 19.6 21.6 Source: Emax, CA IB estimates

Table 97: Cash flow

PLNm 2004 2005 2006E 2007E 2008ENet profit 9.2 20.4 8.0 19.6 21.6Depreciation 12.9 8.8 10.3 11.3 12.3Cash earnings 22.1 29.1 18.3 30.9 33.9Change in WC (16.5) (26.8) (19.7) (8.1) (3.0)Operations 5.6 2.3 (1.4) 22.8 30.8Investments (11.9) (8.7) (14.3) (14.3) (15.2)Financing 11.0 13.3 7.6 7.3 2.7Dividends 0.0 0.0 0.0 0.0 1.0Change in cash 4.8 6.9 (8.1) 15.7 18.3 Source: Emax, CA IB estimates


PLNm 2004 2005 2006E 2007E 2008EFixed assets 68.8 74.6 69.3 87.0 108.0Net working capital 63.4 91.3 112.2 121.4 124.8Capital employed 132.2 165.9 181.5 208.4 232.8Shareholders equity 81.5 105.2 113.1 132.7 154.4Minority capital 4.4 5.6 5.9 5.9 5.9Debt 46.3 55.1 62.4 69.7 72.5Marketable securities & cash 24.4 26.5 17.1 31.8 49.7Total assets 253.8 313.3 353.2 398.0 429.1 Source: Emax, CA IB estimates

Table 99: Ratios

2004 2005 2006E 2007E 2008EEBITDA margin (%) 11.0 9.9 6.6 8.3 8.6EBIT margin (%) 7.0 7.6 4.3 6.1 6.3Interest cover (x) 7.5 10.0 5.6 8.0 8.0Net debt/equity (%) 26.9 27.2 40.1 28.6 14.7Current ratio (x) 1.7 1.7 1.7 1.8 1.8Sales/receivables (x) 2.7 2.4 2.4 2.4 2.4ROE (%) 11.3 19.4 7.0 14.8 14.0ROCE (%) 17.4 17.3 10.4 14.4 13.9

Source: Emax, CA IB estimates


2003 2004 2005 2006E 2007E 2008ERevenue (PLNm) 552.8 634.3 998.2 1,138.6 1,527.4 1,764.4EBIT (PLNm) 86.1 157.6 130.3 157.0 217.9 258.9Net profit (PLNm) 61.8 144.1 92.4 97.3 158.8 184.0EPS (PLN) 1.50 3.17 1.86 1.96 3.20 3.71CEPS (PLN) 2.05 3.73 2.92 3.06 5.00 5.80BVPS (PLN) 6.77 11.39 11.64 12.32 13.85 15.94P/E (x) 37.3 17.6 30.0 28.5 17.5 15.1P/CE (x) 27.3 15.0 19.2 18.2 11.2 9.6P/BV (x) 8.3 4.9 4.8 4.5 4.0 3.5EV/Sales (x) 5.2 4.5 2.9 2.5 1.9 1.6EV/EBITDA (x) 26.3 15.7 15.7 13.5 9.6 8.1Dividend yield (%) 2.7 3.1 2.3 3.0 2.9 3.0

Shareholder structure: Pfleiderer AG 64.1%, CU Pension Fund 10.2% *Note: EV/EBITDA adjusted for minorities

Investment case: We reiterate our SELL recommendation on Grajewo, increasing our 12-month target price to PLN 53 from PLN 50. The company just recently downgraded its 2006 net profit forecast from PLN 115m to PLN 97m, primarily placing the blame on its failure to acquire Prospan. Consequently we have downgraded our 2006 net profit estimate by 8% to PLN 97.3m. Grajewo is trading at 2007E P/E of 17.5x, a 15% premium to Kety and an 11% premium to Mondi.

Recent developments: Grajewo is currently taking part in exclusive talks with the State Treasury for the acquisition of a 43% stake in Prospan. Our base case scenario calls for the talks to soon be completed and for Grajewo to buy out Prospan by the end of 1Q 2007, paying a total consideration of PLN 215m. As to the company’s investments plans beyond 2008, Grajewo is likely to reveal those in early March, together with earnings forecasts for 2007.

4Q 2006 Results and outlook: We expect strong earnings figures in 4Q 2006 with a 17% YoY increase in revenues to PLN 330m, a 36% rise in EBIT to PLN 44.6m and a 29% rise in net profit of PLN 27.5m. In FY 2007, we forecast a 62% increase in net profit to PLN 158.8m, driven by 1) the buyout of a 43% stake in Prospan from the State Treasury, 2) increased contribution from the Russian manufacturing plant (launched in mid-2006) and 3) the launch of the MDF production facility in Poland.

Valuation: Based on our updated DCF model (RFR cut to 5.25% from 5.5% and ERP cut to 4.5% from 5.0%), we have increased our target price from PLN 50 to PLN 53. The latter implies a 5% downside on a 12-month horizon and warrants reiteration of our SELL rating.

Pfleiderer Grajewo Engineered Wood Poland

PLN 55.9 Sell


WIG index 49,560 # of shares 49.6m MCAP PLN 2.8bn US$ 931m Free float PLN 1.0bn US$ 327m GRAJ.WA / GRJ PW

30

35

40

45

50

55

60


Grajewo

80

100

120

140

160


Grajewo WIG

(Rebased to 100)


New investments to be announced in March

11 January 2007

Company Update

Pfleiderer Grajewo January 2007

68

Table 100: Grajewo: 4Q 2006 Results preview

PLNm 4Q 2006E 4Q 2005YoY, % 2006E 2005 YoY, %Sales 330.0 281.6 17 1,138.6 998.2 14 EBIT 44.6 32.8 36 157.0 130.3 21 Net profit 27.5 21.2 29 97.3 92.4 5

Source: Grajewo, CA IB estimates

Table 101: Grajewo: Earnings revision

PLNm 2006E 2007E 2008E New Ch. % New Ch. % New Ch. % Sales 1,138.6 1 1,527.4 0 1,764.4 (1)EBIT 157.0 (6) 217.9 0 258.9 (1)Net profit 97.3 (8) 158.8 (0) 184.0 (1)

Source: Grajewo, CA IB estimates


PLNm 2004 2005 2006E 2007E 2008ENet revenues 634.3 998.2 1,138.6 1,527.4 1,764.4 COGS 477.5 758.1 862.5 1,137.5 1,309.2 Gross profit 156.9 240.1 276.1 389.9 455.2 SG&A 57.4 115.3 121.2 171.9 196.2 Other operating incomes, net 58.1 5.5 2.2 0.0 0.0 EBITDA 183.1 182.5 211.8 307.5 362.6 Depreciation 25.5 52.2 54.7 89.5 103.6 EBIT 157.6 130.3 157.0 217.9 258.9 Net financials (5.8) (13.8) (0.6) 13.2 12.8 Pre-tax profit 163.4 144.1 157.6 204.7 246.2 Tax 19.3 29.1 31.6 38.9 46.8 Minorities/associates 0.0 (22.5) (28.7) (7.1) (15.4)Net profit 144.1 92.4 97.3 158.8 184.0 Source: Grajewo, CA IB estimates

Table 103: Cash flow

PLNm 2004 2005 2006E 2007E 2008ENet profit 144.1 92.4 97.3 158.8 184.0 Depreciation 25.5 52.2 54.7 89.5 103.6 Other non-cash 14.5 (128.4) 23.8 (1.2) (0.3)Cash earnings 184.1 16.2 175.8 247.1 287.3 Change in WC (106.4) (6.3) (56.2) (86.5) (52.7)Capex (116.2) (133.9) (242.2) (197.0) (61.8)Free cash flow (38.5) (124.0) (122.6) (36.5) 172.8 Change in LT investments 16.4 8.4 2.8 7.8 4.8 Dividends (61.8) (84.7) (63.5) (82.9) (80.1)New capital (debt) 182.5 55.0 185.0 171.8 38.1 Change in liquid funds 98.6 (145.3) 1.7 60.2 135.6 Source: Grajewo, CA IB estimates


PLNm 2004 2005 2006E 2007E 2008EFixed assets 452.0 682.9 870.4 977.9 936.0 Working capital 190.9 197.1 253.4 339.9 392.6 Capital employed 642.8 880.1 1,123.8 1,317.8 1,328.7 Shareholders equity 565.0 577.7 611.5 687.3 791.2 Net debt/(cash) (109.8) 93.6 215.1 294.9 159.3 Other liabilities 209.8 234.1 323.2 363.5 407.2 Total assets 852.2 1,015.9 1,275.7 1,569.7 1,740.4 Source: Grajewo, CA IB estimates


2004 2005 2006E 2007E 2008EEBITDA margin (%) 28.9 18.3 18.6 20.1 20.6 EBIT margin (%) 24.8 13.0 13.8 14.3 14.7 Net debt (cash)/equity (%) (19.4) 16.2 35.2 42.9 20.1 Current ratio (x) 4.1 1.7 1.9 2.3 2.8 Debtors turnover (x) 5.2 5.6 5.2 5.2 4.9 ROE (%) 34.1 16.2 16.4 24.4 24.9 ROCE (%) 31.2 12.1 9.7 13.0 13.9 Source: Grajewo, CA IB estimates


2003 2004 2005 2006E 2007E 2008ERevenue (PLNm) 664.9 781.6 752.4 1,028.5 1,139.6 1,228.6EBIT (PLNm) 77.6 117.7 94.2 114.5 141.1 152.7Net profit (PLNm) 69.9 95.1 88.0 89.0 110.4 119.7EPS (PLN) 7.84 10.31 9.54 9.65 11.97 12.97CEPS (PLN) 11.90 14.06 13.55 14.19 17.82 19.60BVPS (PLN) 40.92 60.88 66.41 71.29 78.43 85.42P/E (x) 23.2 17.7 19.1 18.9 15.2 14.0P/CE (x) 15.3 12.9 13.4 12.8 10.2 9.3P/BV (x) 4.4 3.0 2.7 2.6 2.3 2.1EV/Sales (x) 2.7 2.3 2.4 1.7 1.6 1.4EV/EBITDA (x) 15.6 11.7 13.5 11.4 9.1 8.3Dividend yield (%) 1.6 2.2 2.2 2.6 2.7 3.3

Shareholder structure: NN Pension Fund 10.9%, PZU Pension Fund 9.6%, CU Pension Fund 6.6%, Pioneer 5.9%, Julius Bear IM 5.9%, Raiffeisen 5.7%

Investment case: We are upgrading Kety to BUY from Hold inching our target price upwards to PLN 205 from PLN 200. With expected 5.5% GDP growth in Poland in 2007, we forecast Kety to deliver 24% EPS growth in 2007. The return of strong earnings momentum will already be visible in 4Q 2006 results, where the company preliminarily expects 30% YoY earnings growth.

Recent developments: Kety has just presented its earnings guidance for 2007 with revenues of PLN 1.2bn and net profit of PLN 98m. Although the latter is 11% below our own forecasts, we keep them almost intact at PLN 110.4m. We believe Kety’s management underestimates the potential for growth in the Polish economy in 2007 (Kety forecast only 4% GDP growth) and we expect the company’s guidance to be upgraded over the course of 2007. Additional upside may appear from the likely reduction in custom duty for imports of primary aluminium to the EU from Russia from 6% to 3%, which has been suggested by the European Commission.

4Q 2006 Results and outlook: Kety has reported its preliminary results for 4Q 2006, with a 40% YoY increase in revenues to PLN 285m, a 58% YoY rise in EBIT to PLN 28-30m and a 30% increase in net profit to PLN 19-20m.

Valuation: Based on the updated DCF model (minor revisions in earnings, RFR cut to 5.25% from 5.5% and ERP cut to 4.5% from 5.0%), we have increased our target price on Kety to PLN 205 from PLN 200. With a 13% upside in a 12-month horizon, we upgrade our recommendation to BUY from Hold. The stock is trading at a 2007E P/E ratio of 15.2x, an 8% discount to our Polish mid-cap industrials universe.

Kety Aluminium processing/packaging Poland



WIG index 49,560 # of shares 9.2m MCAP PLN 1.7bn US$ 563m Free float PLN 1.7bn US$ 563m KETY.WA / KTY PW

110

130

150

170

190

210


Kety

85

95

105

115

125

135

145

155


Kety WIG

(Rebased to 100)


Momentum is on its way back

11 January 2007

Company Update

Kety January 2007

70

Table 106: Kety: Preliminary 4Q 2006 results

PLNm 4Q 2006E 4Q 2005YoY, % 2006E 2005 YoY, %Sales 285.0 202.9 40 1,028.5 752.4 37 EBIT 28-30 18.4 58 114.5 94.2 (69)Net profit 19-20 15.0 30 89.0 88.0 (78)

Source: Kety, CA IB estimates

Earnings revisions We have tuned-up our 2006-2008 earnings estimates for Kety. We have left our 2006 net profit forecast intact at PLN 89m, but we have increased this figure by 1% to PLN 110.4m for 2007 and we have decreased it by 2% to PLN 119.7m for 2008.

Table 107: Kety: Earnings update

PLNm 2006E 2007E 2008E New Old Ch. % New Old Ch. % New Old Ch. %Sales 1,029 1,029 0 1,140 1,112 2 1,229 1,192 3 EBIT 114.5 112.5 2 141.1 138.0 2 152.7 151.3 1 Net profit 89.0 89.0 0 110.4 109.4 1 119.7 121.7 (2)



PLNm 2004 2005 2006E 2007E 2008ENet revenues 781.6 752.4 1,028.5 1,139.6 1,228.6 COGS 663.9 658.3 914.0 998.5 1,075.9 Gross profit 117.7 94.2 114.5 141.1 152.7 SG&A 0.0 0.0 0.0 0.0 0.0 Other operating incomes, net 0.0 0.0 0.0 0.0 0.0 EBITDA 152.4 131.1 156.4 195.1 213.9 Depreciation 34.6 36.9 41.9 54.0 61.2 EBIT 117.7 94.2 114.5 141.1 152.7 Net financials 6.4 (8.9) 9.0 10.4 11.1 Pre-tax profit 111.4 103.0 105.5 130.7 141.6 Tax 15.1 14.3 15.8 19.6 21.2 Minorities/associates (1.2) (0.7) (0.7) (0.7) (0.7)Net profit 95.1 88.0 89.0 110.4 119.7



PLNm 2004 2005 2006E 2007E 2008ENet profit 95.1 88.0 89.0 110.4 119.7 Depreciation 34.6 36.9 41.9 54.0 61.2 Other non-cash (1.4) (22.6) 2.4 1.0 0.8 Cash earnings 128.4 102.4 133.3 165.3 181.6 Change in WC (56.5) (30.8) (80.4) (32.3) (25.9)Capex (77.3) (80.1) (139.6) (163.9) (64.6)Free cash flow (5.5) (8.5) (86.7) (30.9) 91.1 Change in LT investments 2.1 7.1 3.6 1.5 1.2 Dividends (36.9) (36.9) (44.0) (44.5) (55.2)New capital (debt) 24.3 33.7 140.7 (29.3) (29.3)Change in liquid funds (16.0) (4.7) 13.6 (103.3) 7.7



PLNm 2004 2005 2006E 2007E 2008EFixed assets 458.9 514.4 612.1 722.0 725.4 Working capital 188.3 219.1 299.5 331.9 357.8 Capital employed 647.2 733.6 911.6 1,053.9 1,083.2 Shareholders equity 561.7 612.7 657.7 723.6 788.0 Net debt/(cash) 53.7 96.9 223.3 296.6 258.8 Other liabilities 32.5 29.8 36.5 39.5 42.2 Total assets 752.8 859.1 1,085.7 1,138.8 1,187.1 Source: Kety, CA IB estimates


2004 2005 2006E 2007E 2008EEBITDA margin (%) 19.5 17.4 15.2 17.1 17.4 EBIT margin (%) 15.1 12.5 11.1 12.4 12.4 Net debt (cash)/equity (%) 9.6 15.8 33.9 41.0 32.8 Current ratio (x) 1.9 1.5 1.6 1.3 1.4 Debtors turnover (x) 5.6 4.5 4.7 4.3 4.2 ROE (%) 20.5 15.0 14.0 16.0 15.8 ROCE (%) 17.6 12.7 10.8 11.2 11.2



2003 2004 2005 2006E 2007E 2008ERevenue (PLNm) 1,280.4 1,306.8 1,282.5 1,432.5 1,660.1 1,774.2 EBIT (PLNm) 260.3 265.8 197.2 319.5 387.1 423.3 Net profit (PLNm) 147.6 289.8 135.4 255.4 312.5 344.9 EPS (PLN) 2.95 5.80 2.71 5.11 6.25 6.90 CEPS (PLN) 5.67 7.98 4.85 7.07 8.15 8.70 BVPS (PLN) 13.62 20.71 19.59 19.62 20.76 21.41 P/E (x) 33.5 17.1 36.6 19.4 15.8 14.4 P/CE (x) 17.5 12.4 20.4 14.0 12.1 11.4 P/BV (x) 7.3 4.8 5.1 5.0 4.8 4.6 EV/Sales (x) 3.8 3.8 3.8 3.4 3.0 2.8 EV/EBITDA (x) 12.4 13.1 16.1 11.8 10.2 9.6 Dividend yield (%) 5.1 4.0 4.9 5.2 6.3 7.0

Shareholder structure: Framondi 71.3%, NN Pension Fund 5.2%, The Treasury 5.0%

Investment case: Following a 27% increase in price of Kraftliner since a low in October 2005 (in euro-terms), we believe its upside potential to be exhausted. Additionally, appreciation of the zloty against the euro has partially muted the positive effect of the containerboard rally on Mondi’s earnings. Shall we then take profits in Mondi? Not yet, we believe. On a positive note, we expect a 115% increase in earnings to be reported for 4Q 2006, and a 22% rise in net profit in FY 2007. We also find the decent dividend yield (5.2%) supportive of the stock price. We reiterate our HOLD rating, raising our 12-month target price to PLN 103 from PLN 95.

Recent developments: According to FOEX, Kraftliner prices increased by 6% QoQ in 4Q 2006 in euro-terms and by 3% QoQ in zloty-terms. As the capacity closure cycle appears to be completed (approximately 6% of European containerboard capacity was closed in the last 18 months, but no further significant closures have been announced), we believe further increases in containerboard prices to be limited. Nevertheless, assuming flat containerboard prices from now forward, we forecast an 8% increase on average in 2007. On the forex front, with the recent appreciation of the zloty, we have decreased our PLN/EUR rate forecast to 3.85 from 3.99 for 2007 forward. Having applied the above assumptions, we only marginally reduced our earnings forecasts for Mondi for 2007 and 2008.

4Q 2006 Results and outlook: We forecast Mondi to report a 115% YoY increase in net profit to PLN 84.6m in 4Q 2006. We expect strong operating performance to be additionally supported by a capital gain of PLN 23m on the disposal of carbon dioxide emission certificates.

Valuation: Based on our revised DCF model (earnings revisions, RFR cut to 5.25% from 5.5% and ERP cut to 4.5% from 5.0%), we have increased our 12-month target price for Mondi to PLN 103 from PLN 95. We reiterate our HOLD rating on the stock, which trades at 2007E P/E of 15.8x while the next dividend payment offers a 5.2% yield.

Mondi (Frantschach Swiecie) Pulp & Paper Poland

PLN 99.0 Hold


WIG index 49,560 # of shares 50m MCAP PLN 4.9bn US$ 1.7bn Free float PLN 1.4bn US$ 478m CELA.WA / MPP PW

48

58

68

78

88

98

108


Mondi

90

110

130

150

170

190

210


Mondi WIG

(Rebased to 100)


Upside in containerboards exhausted?

11 January 2007

Company Update

Mondi (Frantschach Swiecie) January 2007

72

4Q 2006 Results preview We forecast Mondi’s 4Q 2006 sales to surge by 25% YoY to PLN 376.4m, driven by a 20% increase in selling prices (in zloty-terms). At the EBIT line we forecast a 139% YoY increase to PLN 103.6m. The latter we forecast to be boosted by a PLN 23m one-off gain on the disposal of carbon dioxide emissions certificates. We forecast Mondi’s 4Q 2006 net profit at PLN 84.6m, up 115% YoY.

Table 112: Mondi: 4Q 2006 Results preview

PLNm 4Q 2006E 4Q 2005YoY, % 2006E 2005 YoY, %Sales 376.4 300.8 25 1,432.5 1,282.5 12EBIT 103.6 43.3 139 319.5 197.2 62Net profit 84.6 39.2 115 255.4 135.4 89

Source: Mondi, CA IB estimates

Earnings Update We have incorporated a buoyant earnings outlook for 4Q 2006 and have increased our FY 2006 net profit forecast for Mondi by 4% to PLN 255m. We have cut our 2007 and 2008 earnings estimates by 1%, to PLN 312m and PLN 345m, respectively. We forecast an 8% increase in average containerboard prices in 2007 and flat prices in 2008, and a EUR/PLN rate of 3.85 from 2007 forward.

Table 113: Mondi: Earnings update

PLNm 2006E 2007E 2008E New Old Ch. % New Old Ch. % New Old Ch. %Sales 1,432 1,437 (0) 1,660 1,747 (5) 1,774 1,890 (6)EBIT 319 302 6 387 390 (1) 423 423 0 Net profit 255 245 4 312 317 (1) 345 347 (1)

Source: Mondi, CA IB estimates

Figure 7: Containerboard prices (EUR/t)

400

420

440

460

480

500

520

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

300

320

340

360

380

400

420

Kratfliner (lhs) Testliner (rhs)

Source: FOEX


PLNm 2004 2005 2006E 2007E 2008ENet revenues 1,306.8 1,282.5 1,432.5 1,660.1 1,774.2 COGS 794.7 839.4 882.2 977.8 1,033.3 Gross profit 512.0 443.1 550.3 682.3 740.9 SG&A 271.3 246.0 253.5 293.8 314.0 EBITDA 375.2 304.5 417.8 482.1 513.2 Depreciation 109.4 107.3 98.3 95.1 89.9 EBIT 265.8 197.2 319.5 387.1 423.3 Net financials (92.2) 30.6 4.2 1.3 (2.5)Pre-tax profit 357.9 166.6 315.2 385.8 425.8 Tax 68.1 33.2 59.9 73.3 80.9 Net profit 289.8 135.4 255.4 312.5 344.9 Source: Mondi, CA IB estimates


PLNm 2004 2005 2006E 2007E 2008ENet profit 289.8 135.4 255.4 312.5 344.9 Depreciation 109.4 107.3 98.3 95.1 89.9 Other non-cash (59.8) (8.6) 10.0 15.2 7.6 Cash earnings 339.5 234.1 363.6 422.7 442.5 Change in WC (39.6) 28.6 (14.3) (28.3) (18.4)Capex (58.1) (39.5) (153.6) (55.2) (61.0)Free cash flow 241.8 223.2 195.7 339.2 363.0 Change in LT investments 127.5 41.8 (1.0) (1.5) (0.7)Dividends (250.0) (200.0) (245.0) (255.4) (312.5)New capital (debt) (120.0) (31.4) 111.0 (70.0) (45.0)Change in liquid funds (0.7) 33.6 60.7 12.4 4.8 Source: Mondi, CA IB estimates


PLNm 2004 2005 2006E 2007E 2008EFixed assets 945.7 885.7 941.1 901.2 872.3 Working capital 150.7 122.1 136.4 164.7 183.1 Capital employed 1,096.4 1,007.8 1,077.4 1,065.9 1,055.4 Shareholders equity 1,035.4 979.7 981.0 1,038.2 1,070.6 Net debt/(cash) 27.6 (33.1) 26.2 (56.3) (106.1)Other liabilities 116.3 87.8 98.1 113.7 121.5 Total assets 1,339.8 1,268.0 1,422.0 1,455.4 1,463.9 Source: Mondi, CA IB estimates


2004 2005 2006E 2007E 2008EEBITDA margin (%) 28.7 23.7 29.2 29.0 28.9EBIT margin (%) 20.3 15.4 22.3 23.3 23.9Net debt (cash)/equity (%) 2.7 (3.4) 2.7 (5.4) (9.9)Current ratio (x) 1.8 1.8 1.6 2.0 2.1Debtors turnover (x) 5.5 5.4 5.7 5.7 5.5ROE (%) 33.8 13.4 26.0 31.0 32.7ROCE (%) 29.7 12.9 24.5 29.2 32.5 Source: Mondi, CA IB estimates


June 2003 June 2004 June 2005 June 2006 June 2007E June 2008E

Revenues (PLNm) 1,447.4 1,683.0 1,959.8 2,030.4 2,204.3 2,243.1EBIT (PLNm) 64.2 242.9 286.5 157.0 105.2 92.7Net profit (PLNm) 18.6 152.3 201.9 126.2 93.8 85.5EPS (PLN) 1.4 11.2 14.8 6.6 4.9 4.5CEPS (PLN) 8.6 18.2 23.6 12.7 10.8 10.4BVPS (PLN) 34.3 45.2 58.6 61.4 64.3 67.3P/E (x) 42.3 5.2 3.9 8.8 11.8 13.0P/CE (x) 6.8 3.2 2.5 4.6 5.4 5.6P/BV (x) 1.7 1.3 1.0 0.9 0.9 0.9EV/Sales (x) 0.5 0.5 0.4 0.4 0.4 0.4EV/EBITDA (x) 4.9 2.3 2.0 2.9 3.6 3.8Dividend yield (%) 0.1 1.3 3.8 3.4 2.6 2.3

Shareholder structure: The Treasury 71.2% Note: Pulawy’s financial year ends in June

Investment case: We downgrade our recommendation on Pulawy to HOLD from Buy, decreasing the 12-month target price to PLN 61 from PLN 64. There are two major reasons that prompted our downgrade. First, a 10% increase in natural gas prices effective from 1 January 2007 was a negative surprise to us, resulting in a 7% cut in our earnings forecasts for 06/2007. Second, the company decided to pay out in dividends only PLN 30m (dividend yield of 3.4%) from its over PLN 300m cash pile, wiping out any possible dividend story there.

Recent developments: While we had expected no increases in natural gas prices beginning in January 2007, the Energy Regulatory Office has approved a 10% rise. Natural gas is Pulawy’s major feedstock, accounting for approximately 39% of the company’s COGS. Due to the increase in natural gas tariffs, we have cut net profit forecasts by 7% to PLN 93.8m for the accounting year that ends in June 2007, and by 9% to PLN 85.5m for 06/2008. The recent reshuffle in Pulawy’s management board (a surprising dismissal of Ms. Malgorzata Iwanejko from the CEO post and the appointment of Mr. Krzysztof Lewicki) is also a factor that has raised our concern, given the company’s over PLN 300m cash pile and protracted lack of strategy with regards to new investments.

4Q 2006 Results and outlook: We expect a quarter of decent results, although with declines in earnings on a YoY basis. We forecast 4Q 2006 EBIT at PLN 46.0m, down 22% YoY and net profit of PLN 37m, down 17% YoY.

Valuation: We have updated our DCF model for Pulawy, incorporating downgraded earnings forecasts as well as new assumptions for RFR (down to 5.25% from 5.5%) and for ERP (down to 4.5% from 5.0%). Consequently we have decreased our 12-month target price to PLN 61 (from PLN 64) and downgraded our rating to HOLD from Buy. Pulawy’s inexpensive valuation (06/2007E EV/EBITDA of 3.6x) continues to be its major asset.

Zaklady Azotowe Pulawy Chemicals Poland

PLN 58.0 Hold (Downgrade from Buy)


WIG index 49,560 # of shares 19.1m MCAP PLN 1,1bn US$ 371m Free float PLN 319m US$ 107m PULW.WA / ZAP PW

50

60

70

80


Pulawy

90

100

110

120

130

140

150


Pulawy WIG

(Rebased to 100)


Hit by higher natural gas tariffs. Downgrade to Hold.

11 January 2007

Company Update

Zaklady Azotowe Pulawy January 2007

74

Table 118: Pulawy: 4Q 2006 Results preview PLNm 4Q 2006E 4Q 2005 YoY, % 3Q-4Q

2006E3Q-4Q

2005YoY, %

Sales 580.0 559.2 4 1040 981 6 EBIT 46.0 59.1 (22) 63 80 (22)Net profit 37.0 44.4 (17) 52 61 (15)

Note: Pulawy’s financial year ends in June Source: Pulawy, CA IB estimates

Table 119: Pulawy: Earnings upgrade PLNm June 2007E June 2008E New Old Ch. % New Old Ch. %Sales 2,204.3 2,177.8 1 2,243.1 2,216.5 1 EBITDA 218.5 227.4 (4) 206.4 216.3 (5)EBIT 105.2 114.1 (8) 92.7 102.6 (10)Net profit 93.8 101.2 (7) 85.5 94.0 (9)Natural gas price growth (%) 18 13 - 3 3 -

Note: Pulawy’s financial year ends in June Source: Pulawy, CA IB estimates


PLNm 06/2004 06/2005 06/2006 06/2007E 06/2008ENet revenues 1,683.0 1,959.8 2,030.4 2,204.3 2,243.1 COGS 1,237.1 1,448.3 1,634.1 1,871.1 1,918.4 Gross profit 446.0 511.5 396.4 333.2 324.7 SG&A 198.7 196.9 227.6 221.4 225.3 Other operating items (4.3) (28.1) (11.8) (6.6) (6.7)EBITDA 338.3 404.9 274.4 218.5 206.4 Depreciation 95.4 118.4 117.4 113.3 113.7 EBIT 242.9 286.5 157.0 105.2 92.7 Net financials 23.3 (10.4) (5.2) (10.7) (12.9)Pre-tax profit 219.6 296.9 162.1 115.9 105.6 Tax 67.3 95.0 36.0 22.0 20.1 Net profit 152.3 201.9 126.2 93.8 85.5 Note: Pulawy’s financial year ends in June Source: Pulawy, CA IB estimates


PLNm 06/2004 06/2005 06/2006 06/2007E 06/2008ENet profit 152.3 201.9 126.2 93.8 85.5 Depreciation 95.4 118.4 117.4 113.3 113.7 Other non-cash (3.4) (12.2) 9.8 5.3 1.2 Cash earnings 244.3 308.2 253.4 212.5 200.4 Change in WC (10.1) (135.7) 14.0 (25.3) (7.9)Capex (121.1) (34.2) (86.9) (126.4) (120.0)Free cash flow 113.1 138.2 180.5 60.7 72.5 Ch. in LT investments (29.4) 72.6 (46.3) 4.1 0.9 Dividends (0.5) (10.0) (30.0) (38.2) (28.4)New capital (debt) (83.5) (60.9) 227.0 (75.0) 0.0 Change in liquid funds (0.3) 140.0 331.2 (48.4) 45.0 Note: Pulawy’s financial year ends in June Source: Pulawy, CA IB estimates


PLNm 06/2004 06/2005 06/2006 06/2007E 06/2008EFixed assets 786.7 700.3 671.6 684.7 691.1 Working capital 173.6 309.3 295.3 320.6 328.5 Capital employed 960.3 1,009.6 967.0 1,005.4 1,019.6 Shareholders equity 614.8 796.7 1,173.7 1,229.3 1,286.4 Net debt/(cash) 259.2 68.4 (316.7) (343.2) (388.2)Other liabilities 133.7 193.8 160.3 174.0 177.0 Total assets 1,225.4 1,321.2 1,635.1 1,641.3 1,704.1 Note: Pulawy’s financial year ends in June Source: Pulawy, CA IB estimates


06/2004 06/2005 06/2006 06/2007E 06/2008EEBITDA margin (%) 20.1 20.7 13.5 9.9 9.2 EBIT margin (%) 14.4 14.6 7.7 4.8 4.1 Net debt (cash)/equity (%) 42.2 8.6 (27.0) (27.9) (30.2)Current ratio (x) 1.3 2.3 3.9 3.9 4.1 Debtors turnover (x) 5.9 6.8 6.9 7.4 7.1 ROE (%) 28.2 28.6 12.8 7.8 6.8 ROCE (%) 16.2 20.5 12.8 9.5 8.4 Note: Pulawy’s financial year ends in June Source: Pulawy, CA IB estimates


2004 2005 2006E 2007E 2008ERevenues (PLNm) 508.8 466.0 488.3 660.3 787.6EBITDA (PLNm) 64.5 32.3 33.5 49.8 60.5EBIT (PLNm) 50.9 18.4 17.9 31.7 41.5Net profit (PLNm) 42.7 12.3 12.7 25.2 33.8EPS (PLN) 7.77 2.24 2.30 4.59 6.14CEPS (PLN) 10.23 4.77 5.14 7.87 9.61BVPS (PLN) 38.5 41.6 43.9 47.3 51.1P/E (x) 6.0 20.7 20.2 10.1 7.5P/CE (x) 4.5 9.7 9.0 5.9 4.8P/BV (x) 1.2 1.1 1.1 1.0 0.9EV/Sales (x) 0.6 0.7 0.6 0.5 0.4EV/EBITDA (x) 4.9 9.8 9.4 6.3 5.2

Shareholder structure (shares): Z. Drzymala 53.61%

Investment case: The continued appreciation of the Polish currency (up 3.5% QoQ vs. the EUR in 4Q 2006) and the lack of positive newsflow drove Groclin’s share price again below PLN 50/share. Following the recent correction, Groclin is now trading at P/E of 10x for 2007 and 7x for 2008. In our worst case scenario, these multiples jump to a still reasonable 17x and 14x, respectively. We leave our DCF-derived, 12-month target price of PLN 60/share unchanged as the positive impact of the cuts in assumptions in the risk free rate (from 5.5% to 5.25%) and equity risk premium (from 5.0% to 4.5%) have been neutralised by a lowered earnings forecast due to the trimmed PLN/EUR exchange rate assumptions. However, following the recent weakness, the stock offers 29% upside potential yielding a BUY recommendation.

4Q Results preview and outlook: We expect Groclin to report flat YoY revenues of PLN 117m. However, due to the lack of one-off costs that drove 4Q 2005 profits into the red, we forecast a recovery in EBIT to PLN 5.2m (up from negative PLN 12.4m) and in earnings to PLN 6.5m (up from negative PLN 11.4m).

Valuation: Following the recent correction, Groclin is trading at P/E of 10.1x and 7.5x for 2007 and 2008, 36.5% and 44.1% below its multinational peers’ median, respectively. We have left our 12-month target price for the company at PLN 60/share, as the cuts in assumptions in the risk free rate (from 5.5% to 5.25%) and equity risk premium (from 5.0% to 4.5%) have been neutralised by a lowered earnings forecast (down 16.9% in 2006, 0.1% in 2007 and 3.5% in 2008) due to the trimmed PLN/EUR exchange rate assumptions. Following the recent weakness, our target price offers 29% upside potential and yields a BUY recommendation. However, we note that further delays in the implementation of the long-term strategy may create a downside risk to our forecasts and valuation.

Inter Groclin Auto (IGA) Automotive Poland



WIG index 49,560 # of shares 5.5m MCAP PLN 255m US$ 86m Free float PLN 118m US$ 40m IGAU.WA / GCN PW

35

45

55

65

75


Groclin

50

70

90

110

130


Groclin WIG

(Rebased to 100)

Analyst Łukasz Wachełko Tel. +48 22 520 9965 [email protected] http://research.ca-ib.com

Up to BUY on price performance

11 January 2007

Company Update

Inter Groclin Auto (IGA) January 2007

76

Table 124: IGA: 4Q 2006 Results preview

4Q 2006E 4Q 2005 Ch. % FY 2006E FY 2005 Ch. %Revenues 117.4 116.8 0 488.3 466.0 4.8EBIT 5.2 (12.4) n.m. 17.9 18.4 (3.1)Net profit 6.5 (11.4) n.m. 12.7 12.3 2.5

Source: IGA, CA IB estimates

Table 125: IGA: Earnings statement

PLNm 2004 2005 2006E 2007E 2008ERevenues 508.8 466.0 488.3 660.3 787.6COGS 441.6 429.3 444.4 587.6 694.0Gross profit 67.2 36.7 43.9 72.7 93.6SG&A 33.5 37.2 39.0 52.8 62.9EBITDA 64.5 32.3 33.5 49.8 60.5Depreciation 13.6 13.9 15.6 18.1 19.0One-off gains* 4.5 4.9 0.0 0.0 1.0EBIT 50.9 18.4 17.9 31.7 41.5Net financials (1.2) 2.5 2.2 0.6 (0.3)Pre-tax profit 51.3 15.9 15.6 31.2 41.7Tax 8.5 3.6 3.0 5.9 7.9Net profit 42.7 12.3 12.7 25.2 33.8

* sale of Football players’ contracts Source: IGA, CA IB estimates

Table 126: IGA: Cash flow statement

PLNm 2004 2005 2006E 2007E 2008ECash flow from operations (0.1) 38.5 24.9 17.3 33.6Cash flow from investment (44.6) (21.6) (19.9) (23.9) (6.9)Cash flow from financing 11.7 (1.1) 0.0 (26.3) (12.6)Net change in cash (33.0) 15.8 5.0 (32.9) 14.1Beginning cash 45.6 12.6 27.1 32.1 (0.8)Ending cash 12.6 27.1 32.1 (0.8) 13.3


Table 127: IGA: Balance sheet

PLNm 2004 2005 2006E 2007E 2008ECurrent assets 213.7 184.9 196.9 218.3 272.6Fixed assets 190.8 217.9 220.1 228.5 218.2Long-term deferred charges 1.2 1.2 1.2 1.6 2.0Total assets 405.7 403.9 418.2 448.4 492.8Current liabilities 167.0 152.4 155.6 160.2 178.4Deferred income 11.4 13.3 14.0 18.9 22.5Long-term liabilities 11.6 4.5 2.1 2.1 2.1Provisions 3.8 4.8 5.0 6.8 8.1Equity 211.5 228.6 241.2 260.1 281.3Minority Interest 0.4 0.4 0.4 0.4 0.4Total liabilities and equity 405.7 403.9 418.2 448.4 492.8Net debt (cash) 77.3 60.7 55.7 68.6 54.4


Table 128: IGA: Key ratios

PLNm 2004 2005 2006E 2007E 2008EEBITDA margin (%) 12.7 6.9 6.9 7.5 7.7EBIT margin (%) 10.0 4.0 3.7 4.8 5.3Net margin (%) 8.4 2.6 2.6 3.8 4.3Net debt (cash)/equity (%) 36.5 26.6 23.1 26.4 19.3ROE (%) 21.9 5.6 5.4 10.1 12.5



2005 2006E 2007E 2008E 2009ERevenues (PLNm) 139.9 206.7 402.7 531.6 778.7EBITDA (PLNm) 13.9 21.8 44.5 69.6 103.9EBIT (PLNm) 11.0 17.0 39.2 61.2 92.7Net profit (PLNm) 7.1 9.3 29.4 46.0 73.8EPS (PLN) 0.16 0.18 0.57 0.89 1.43CEPS (PLN) 0.23 0.27 0.67 1.05 1.64BVPS (PLN) 2.01 3.70 4.66 5.87 7.83P/E (x) 82.3 73.8 23.4 15.0 9.3P/CE (x) 58.1 48.4 19.8 12.6 8.1P/BV (x) 6.6 3.6 2.9 2.3 1.7EV/Sales (x) 4.4 3.5 1.8 1.4 0.9EV/EBITDA (x) 44.2 33.0 16.2 10.4 6.9

Shareholder structure: S. Rosnowski 50.9%, PZU AM SA 7.95%, BPH TFI SA 5.07%

Investment case: On 22 December 2006, Polish authorities modified legislation in respect of the biofuel market: relatively high excise tax relief (up to PLN 2.2/l) was replaced by low tax advantage (PLN 1.0/l) and the threat of financial charges, which would come into force after 15 June 2007, once the National Indicatory Target of the percentage share of biocomponent in total fuel turnover has been set. Consequently, already without a carrot, and still without a stick, the market has been frozen for another six months. To avoid further delaying the implementation of its strategy, the management of Elstar Oils has decided to sell its biocomponent production of 1H 2007 abroad, even at the expense of potentially lower margins due to high transportation costs. Therefore, we have cut our 2007 earnings forecast by PLN 6.3m and left further estimates unchanged. Following recent underperformance, Elstar is trading at P/E of 23x for 2007 and 15x for 2008, a respective 13% below and 15% above its European peer average. We are trimming our 12-month target price for Elstar from PLN 17.8/share to PLN 17.5/share and upgrading the stock from Hold to BUY.

Recent developments: Following the material reduction of tax incentives, newsflow from representatives of the biofuel industry has been uninspiring. In fact, many players have left the battlefield: Skotan decided to remodel its strategy and PKN’s Trzebinia reported the cessation of biofuel production. However, according to the management of Elstar Oils, barring another delay in the market launch, the fundamentals of the company have not changed materially. In other words, the demand for their products should be in place, either lured by tax incentives or the threat of a financial penalty (50% of the value of the difference between the National Indicatory Target and actual biocomponent sales).

4Q Results preview and outlook: We expect Elstar to report 4Q 2006 sales of PLN 56m, implying decent YoY growth of 31%. Below the top line, we are looking for PLN 5m in EBIT (up 42% YoY) and PLN 1m in earnings (down 53% YoY).

Valuation: Elstar Oils is trading at a P/E of 23.4x and 15.0x for 2007 and 2008, implying discount of 13% and a premium of 15% to European peers’ average, respectively. We are trimming our 12-month target price for Elstar Oils from PLN 17.8/share to PLN 17.5//share. With 31.9% upside potential, we are upgrading the stock to BUY from Hold. However, we note that any further delay of a Polish market launch would result in ca. 50% downside to our earnings forecasts for the affected period.

Elstar Oils Food Products Poland



WIG index 49,560 # of shares 51.7m MCAP PLN 687m US$ 230m Free float PLN 337m US$ 113m ELSA.WA / ELS PW

7.0

9.0

11.0

13.0

15.0

17.0

19.0


Elstar

90

120

150

180

210

240

270


Elstar WIG

(Rebased to 100)


Bad newsflow, but fundamentals untouched

11 January 2007

Company Update

Elstar Oils January 2007

78

Table 129: Elstar: 4Q 2006 Results preview

4Q 2006E 4Q 2005 Ch. % FY 2006E FY 2005 Ch. %Revenues 56.3 42.8 31.5 206.7 139.9 47.8EBIT 5.1 3.6 42.4 17.0 11.0 54.1Net profit 1.1 2.3 (53.4) 9.3 7.1 31.5

Source: Elstar, CA IB estimates

Table 130: Elstar: Earnings statement

PLNm 2005 2006E 2007E 2008E 2009ERevenues 139.9 206.7 402.7 531.6 778.7COGS 121.1 179.5 341.0 440.8 642.5Gross profit 18.7 27.2 61.7 90.9 136.2SG&A 8.5 11.5 22.5 29.7 43.5EBITDA 13.9 21.8 44.5 69.6 103.9Depreciation 3.0 4.9 5.3 8.4 11.1EBIT 11.0 17.0 39.2 61.2 92.7Net financials (2.3) (5.4) (4.9) (7.9) (8.5)Pre-tax profit 8.7 11.5 34.3 53.3 84.3Tax 1.6 2.2 4.9 7.3 10.5Net profit 7.1 9.3 29.4 46.0 73.8


Table 131: Elstar: Cash flow statement

PLNm 2005 2006E 2007E 2008E 2009ECash flow from operations (10.2) 27.5 (30.9) 11.3 2.2Cash flow from investment (27.7) (9.3) (52.9) (47.4) (56.1)Cash flow from financing 39.8 94.0 90.1 74.3 (42.2)Net change in cash 1.8 112.2 6.3 38.2 (96.2)Beginning cash 19.8 21.6 133.8 140.0 178.2Ending cash 21.6 133.8 140.0 178.2 82.1


Table 132: Elstar: Balance sheet

PLNm 2005 2006E 2007E 2008E 2009ECurrent assets 117.7 222.8 312.8 406.0 415.4Fixed assets 102.9 108.1 157.7 198.1 245.7Long-term deferred charges 0.1 0.1 0.2 0.2 0.3Total assets 220.7 330.9 470.7 604.3 661.4Current liabilities 89.3 94.8 180.8 191.3 141.5Deferred income 0.8 1.2 2.4 3.2 4.6Long-term liabilities 40.1 40.1 40.1 97.9 97.9Provisions 2.2 3.3 6.3 8.4 12.3Equity 88.2 191.5 241.0 303.6 405.1Total liabilities and equity 220.7 330.9 470.7 604.3 661.4Net debt (cash) 90.0 (22.2) 41.5 61.1 87.2


Table 133: Elstar: Key ratios

PLNm 2005 2006E 2007E 2008E 2009EEBITDA margin (%) 10.0 10.6 11.1 13.1 13.3EBIT margin (%) 7.9 8.2 9.7 11.5 11.9Net margin (%) 5.1 4.5 7.3 8.7 9.5Net debt (cash)/equity (%) 102.0 (11.6) 17.2 20.1 21.5ROE (%) 8.4 6.7 13.6 16.9 20.8



2003 2004 2005E 2006E 2007E 2008ERevenues (PLNm) 2,147.0 2,150.7 2,702.9 3,033.6 3,297.3 3,730.4 EBIT (PLNm) 70.9 4.5 2.0 13.7 62.3 110.4 Net profit (PLNm) 45.4 8.4 2.0 4.5 50.0 90.5 EPS (PLN) 1.78 0.33 0.08 0.18 1.96 3.54 CEPS (PLN) 3.05 1.34 0.89 1.04 2.81 4.46 BVPS (PLN) 19.97 20.38 20.36 20.53 22.58 27.59 P/E (x) 41.9 227.5 936.9 420.0 38.1 21.0 P/CE (x) 24.4 55.4 83.7 71.8 26.5 16.7 P/BV (x) 3.7 3.7 3.7 3.6 3.3 2.7 EV/Sales (x) 0.7 0.7 0.6 0.5 0.5 0.4 EV/EBITDA (x) 14.8 50.2 67.7 43.0 18.2 11.5 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 0.0

Shareholder structure: Ferrovial 59.1%

We upgraded Budimex to BUY from Hold in our in our 5 January 2007 research report, raising our 12-month target price to PLN 93 from PLN 82. We believe Budimex’s housing business to be undervalued, given the company’s pipeline of 4,000 residential units. Earnings in that business line (booked only after the transfer of the property), as well as an expected pick-up in margins in road construction (spending on roads in Poland is set to double from 2007 forward vs. 2005) are the major drivers of the 252% CAGR in EPS we forecast Budimex to post in 2006-2008E.

• The current pipeline of 4,000 residential units will be fully visible in Budimex’s P&L only from 2008 forward, as the company books earnings only after the transfer of legal ownership of the property. We estimate the Inflancka project alone (10% of total pipeline by units) will generate EBIT of PLN 82m to be booked between 2008 and 2010.

• Finally a pick-up in road construction margins? Spending on road construction in Poland is set to double to almost PLN 13bn annually between 2007 and 2013 (vs. 2005) fuelled by the inflow of EU funds. We expect road construction margins to pick up as road builders demand higher prices while the government is determined to launch new projects (otherwise some EU funds may be forfeited).

• Earnings forecasts: We expect 4Q results to still show some weakness (net profit of just PLN 1.6m) but to begin recovering already from 1Q 2007. For this reason we have recently cut our 2006 net profit forecast by 81% to PLN 4.5m. We forecast 2006-2008E EPS CAGR of 252%.

• Valuation: Budimex is trading at 2007E P/E of 38.1x but 2007E PEG of just 0.2x. Based on our updated DCF model (earnings revisions, and cuts in ERP to 4.5% and RFR to 5.25%), on 5 January we increased our target price to PLN 93 from PLN 82. With the expected 25% upside on a 12-month horizon, we rate Budimex as a BUY.

Budimex Construction Poland

PLN 74.5 Buy


WIG index 49,560 # of shares 25.5m MCAP PLN 1.9bn US$ 639m Free float PLN 0.8bn US$ 261m BMEX.WA / BDX PW

30

40

50

60

70

80


Budimex

80

100

120

140

160

180

200


Budimex WIG

(Rebased to 100)


Housing business undervalued

11 January 2007

Company Update

Budimex January 2007

80

4Q 2006 Results preview We forecast Budimex to post yet another quarter of relatively weak results. We forecast revenues of PLN 901m, up 15% YoY, EBIT of just PLN 2.6m (vs. a loss of PLN 5.2m in the corresponding period a year ago) and net profit of PLN 1.6m, up 230% YoY.

Table 134: Budimex 4Q Results preview

PLNm 4Q 2006E 4Q 2005 %, YoY 2006E 2005 %, YoYSales 901.2 783.2 15.1 3,033.6 2,702.9 12.2 EBIT 2.6 (5.2) n.m. 13.7 2.0 598.6 Net profit 1.6 0.5 230.4 4.5 2.0 123.1

Source: Budimex, CA IB estimates


PLNm 2004 2005 2006E 2007E 2008ENet revenues 2,150.7 2,702.9 3,033.6 3,297.3 3,730.4 COGS 2,144.3 2,597.0 2,880.2 3,074.5 3,437.2 Gross profit 6.4 105.9 153.5 222.8 293.2 SG&A 136.5 135.2 142.6 155.0 175.3 Other operating items 134.6 31.3 2.8 (5.6) (7.5)EBITDA 30.5 22.7 35.7 84.1 133.8 Depreciation 26.0 20.7 21.9 21.9 23.4 EBIT 4.5 2.0 13.7 62.3 110.4 Net financials (3.4) (4.2) 3.5 3.6 2.1 Pre-tax profit 8.0 6.2 10.2 58.7 108.3 Tax 0.7 6.1 7.9 11.2 20.6 Minorities/associates 1.1 2.0 2.2 2.4 2.7 Net profit 8.4 2.0 4.5 50.0 90.5



PLNm 2004 2005 2006E 2007E 2008ENet profit 8.4 2.0 4.5 50.0 90.5 Depreciation 26.0 20.7 21.9 21.9 23.4 Other non-cash (266.1) (1.0) 7.7 6.1 10.0 Cash earnings (231.8) 21.7 34.1 77.9 123.9 Change in WC 174.6 (60.2) (46.3) (11.9) (19.5)Capex (27.2) (14.1) (48.8) (31.2) (35.1)Free cash flow (84.4) (52.6) (60.9) 34.8 69.3 Ch. in investment 228.2 137.7 32.9 26.3 43.1 Dividends 0.0 0.0 0.0 2.3 37.5 New capital/(debt) (0.1) 65.1 (0.0) 0.0 0.0 Change in liquid funds 143.7 150.2 (28.0) 63.4 149.9



PLNm 2004 2005 2006E 2007E 2008EFixed assets 371.0 292.5 319.3 328.6 340.4 Working capital 30.2 90.3 136.6 148.5 168.0Capital employed 401.1 382.8 455.9 477.1 508.4 Shareholders equity 520.2 519.7 524.3 576.5 704.4 Net debt/(cash) (288.8) (369.3) (341.3) (404.7) (554.6)Other liabilities 396.0 478.5 526.4 564.6 627.3 Total assets 1,754.4 1,942.5 2,095.2 2,265.7 2,587.8



2004 2005 2006E 2007E 2008EEBITDA margin (%) 1.4 0.8 1.2 2.6 3.6 EBIT margin (%) 0.2 0.1 0.5 1.9 3.0 Net debt/equity (%) (55.5) (71.1) (65.1) (70.2) (78.7)Current ratio (x) 1.3 1.3 1.2 1.3 1.3 Debtors turnover (x) 3.6 4.1 4.3 4.2 4.2 ROE (%) 1.6 0.4 0.9 9.1 14.1 ROCE (%) 1.8 0.5 1.1 10.7 18.4



2003 2004 2005 2006E 2007E 2008ERevenue (PLNm) 564.9 1,701.0 1,841.9 2,312.7 3,033.9 3,629.2EBIT (PLNm) 35.8 79.8 75.4 99.4 141.8 201.0Net profit (PLNm) 12.2 37.3 43.2 60.0 97.1 144.4EPS (PLN) 1.27 3.43 2.94 4.08 5.23 7.67CEPS (PLN) 2.98 6.03 4.82 6.27 7.69 10.42BVPS (PLN) 11.53 16.18 19.08 22.30 36.50 42.87P/E (x) 118.6 44.1 51.4 37.0 28.9 19.7P/CE (x) 50.6 25.0 31.3 24.1 19.6 14.5P/BV (x) 13.1 9.3 7.9 6.8 4.1 3.5EV/Sales (x) 5.1 1.7 1.6 1.2 0.9 0.8EV/EBITDA (x) 54.9 26.5 27.8 21.8 15.3 11.3Dividend yield (%) 0.0 0.0 0.3 0.4 0.5 0.8

Shareholder structure: CU pension fund 9.7%, PZU pension fund 8.5%, ING NN Pension Find 6.3%, Amplico Life 6.1%, Pioneer Pekao IM 5.2%, BGK 5.1%, treasury shares 3.5%

Investment case: We are upgrading our recommendation on Polimex to BUY from Hold, raising our 12-month target price to PLN 168 from PLN 160. The comparative valuation (2007E P/E of 28.9x implying a 25% discount to Budimex and PBG) and persistently implemented M&A strategy are the major arguments for buying the stock, in our view.

Recent developments: Polimex’s EGM accepted the company’s merger with ZREW and its acquisition of EPN. In both transactions, which are planned to be completed in 1Q 2007, Polimex is set to issue 3.3m new shares (22% dilution). In addition, the company continues to work on another M&A deal, as it plans to acquire a PLN 100m-revenue general construction company. We have updated our earnings forecast for Polimex, incorporating the recent M&As, and consequently, we have increased our net profit forecasts by 12% to PLN 97.1m for 2007 and by 10% to PLN 144.4m for 2008. Nevertheless, the acquisition of EPN appears to be dilutive for 2007 and 2008, and, accordingly, we have trimmed our EPS estimates for Polimex by 2% and 3%, respectively.

4Q 2006 Results and outlook: We expect another quarter of solid results, with revenues of PLN 713m, up 38% YoY, EBIT of PLN 16.1m, up 516% YoY and net profit of PLN 7.7m, up 1% YoY.

Valuation: Based on our updated earnings forecasts and revised assumptions for RFR (down to 5.25% from 5.5%) and ERP (down to 4.5% from 5.0%), we have increased our target price for Polimex to PLN 168 from PLN 160. With an 11% upside on a 12-month horizon, we upgrade Polimex to BUY from Hold. The company is trading 2007E P/E ratio of 28.9% versus 2006E-2008E EPS CAGR of 38%.

Polimex Mostostal

Upgrade to Buy

Polimex Mostostal Construction Poland



WIG index 49,560 # of shares 15.2m MCAP PLN 2,295m US$ 770m Free float PLN 2,295m US$ 770m MOSD.WA / PXM PW

50

70

90

110

130

150

170


Polimex

90

140

190

240

290


Polimex WIG

(Rebased to 100)


11 January 2007

Company Update

Polimex Mostostal January 2007

82

Table 139: Polimex: 4Q 2006 Results preview

PLNm 4Q 2006E 4Q 2005 YoY (%) 2006E 2005 YoY (%)Sales 713.1 516.8 38.0 2,313.0 1,841.9 25.6EBIT 16.1 2.6 515.8 99.4 75.4 31.8Net profit 7.7 7.6 0.6 60.0 43.2 38.9

Source: Polimex, CA IB estimates

Table 140: Polimex: Earnings revision

2006E 2007E 2008E PLNm New Ch.% New Ch.% New Ch.%Sales 2,312.7 0 3,033.9 11 3,629.2 12 EBIT 99.4 0 141.8 15 201.0 14 Net profit 60.0 0 97.1 12 144.4 10 EPS (PLN) 4.08 0 5.23 (2) 7.67 (3)

Source: Polimex, CA IB estimates

Table 141: Income statement forecasts

PLNm 2004 2005 2006E 2007E 2008ENet revenues 1,701.0 1,841.9 2,312.7 3,033.9 3,629.2 COGS 1,498.6 1,640.6 2,051.4 2,679.7 3,174.1 Gross profit 202.3 201.3 261.3 354.2 455.1 SG&A 133.3 122.6 157.3 206.3 246.8 Other operating items 10.8 (3.3) (4.6) (6.1) (7.3)EBITDA 108.2 103.1 131.7 187.4 252.7 Depreciation 28.4 27.7 32.3 45.6 51.6 EBIT 79.8 75.4 99.4 141.8 201.0 Net financials 20.3 7.5 7.6 4.5 0.8 Pre-tax profit 59.5 67.9 91.8 137.3 200.2 Tax 11.9 15.7 18.3 27.2 39.4 Minorities and associates (10.3) (9.0) (13.4) (13.0) (16.5)Net profit 37.3 43.2 60.0 97.1 144.4 Source: Polimex, CA IB estimates

Table 142: Cash flow statement forecasts

PLNm 2004 2005 2006E 2007E 2008ENet profit 37.3 43.2 60.0 97.1 144.4 Depreciation 28.4 27.7 32.3 45.6 51.6 Other non-cash 34.0 14.7 45.8 36.8 30.4 Cash earnings 99.6 85.7 138.2 179.4 226.4 Change in WC (199.7) (64.1) (41.6) (127.0) (97.9)Capex (166.1) (18.7) (92.0) (124.0) (63.8)Free cash flow (266.2) 2.9 4.6 (71.5) 64.7 Change in LT investments 78.1 35.8 37.7 (111.3) 56.7 Dividends 0.0 0.0 (6.9) (9.5) (15.4)New capital (debt) 226.9 (4.0) (13.4) 289.0 (16.5)Change in liquid funds 38.8 34.7 22.0 96.7 89.5 Source: Polimex, CA IB estimates


PLNm 2004 2005 2006E 2007E 2008EFixed assets 283.4 256.3 315.9 574.4 586.5 Working capital 340.4 404.4 446.1 573.0 671.0 Capital employed 623.8 660.7 762.0 1,147.4 1,257.5 Shareholders equity 238.3 280.8 334.0 677.4 806.3 Net debt/(cash) 94.2 64.3 42.4 (54.3) (143.8)Other liabilities 341.1 334.8 411.8 558.7 636.1 Total assets 1,042.8 1,105.9 1,332.6 1,971.8 2,309.6 Source: Polimex, CA IB estimates


2004 2005 2006E 2007E 2008EEBITDA margin (%) 6.4 5.6 5.7 6.2 7.0 EBIT margin (%) 4.7 4.1 4.3 4.7 5.5 Net debt (cash)/equity (%) 39.5 22.9 12.7 (8.0) (17.8)Current ratio (x) 1.3 1.3 1.3 1.4 1.5 Debtors turnover (x) 5.5 3.3 3.6 3.9 3.7 ROE (%) 21.4 16.7 19.5 19.2 19.5 ROCE (%) 8.6 6.7 8.4 10.2 12.0 Source: Polimex, CA IB estimates


2003 2004 2005 2006E 2007E 2008ERevenue (PLNm) 180.7 216.1 409.0 840.8 1,419.4 2,019.0EBIT (PLNm) 14.3 21.8 40.1 71.7 116.6 166.9Net profit (PLNm) 11.1 13.9 36.0 53.6 88.7 128.5EPS (PLN) 1.55 1.57 3.42 4.45 6.60 9.57CEPS (PLN) 2.48 2.33 4.43 5.80 8.44 12.06BVPS (PLN) 4.52 13.54 16.79 30.62 54.88 64.45P/E (x) 165.6 162.7 74.8 57.5 38.8 26.7P/CE (x) 103.3 110.0 57.8 44.1 30.3 21.2P/BV (x) 56.7 18.9 15.3 8.4 4.7 4.0EV/Sales (x) 19.8 16.5 8.7 4.3 2.5 1.8EV/EBITDA (x) 170.2 125.3 70.4 40.6 25.3 17.8Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 0.0

Shareholder structure: Mr. Jerzy Wisniewski 36.4%, BZ WBK AIB Asset Management 7.4%, ING Mutual Fund 7.0%

Investment case: We reiterate our HOLD recommendation on PBG, raising our 12-month target price to PLN 267 from PLN 230. PBG shares offer a seemingly unique in Poland exposure to the combination of the booming markets of hydro-construction and oil & gas construction. The company’s expansion plans, both geographical (Norway, Bulgaria, Romania) and segmental (entrance into road construction), may further enhance its growth profile.

Recent developments: PBG announced its earnings guidance for 2007, with revenues of PLN 1.2bn and net profit at PLN 82m, 15% and 8% below our own forecasts, respectively. We note, however, that PBG’s sales projections are already 80% covered by its order book, while the outcome of a few, sizable tenders are expected in 2007. This will include a PLN 0.6bn contract for the construction of an oil & gas plant for PGNiG as well as a more than PLN 1bn contract for the construction a sewage treatment plant in Warsaw. To finance the working capital requirements associated with these projects, as well as the acquisitions in the road construction segment, PBG is currently in the process of conducting a rights issue (11.7% dilution) worth approximately PLN 350m.

4Q 2006 Results and outlook: In the past, 4Q has been PBG’s strongest quarter due to seasonal considerations, and this year we expect it to be no exception from that rule. We forecast a 147% rise in revenues to PLN 418m, a 31% rise in EBIT to PLN 24.3m and an 88% rise in net profit to PLN 23.5m.

Valuation: We have updated our DCF model with new assumptions for RFR (down to 5.25% from 5.5%) and ERP (down to 4.5% from 5.0%), and consequently increase our 12-month target price for PBG to PLN 267 from PLN 230. The stock is trading at 2007E P/E ratio of 38.8x, but offers a 3-year EPS CAGR of 41%. We reiterate our HOLD rating.

PBG Construction Poland

PLN 256 Hold


WIG index 49,560 # of shares 12m MCAP PLN 3,1bn US$ 1bn Free float PLN 2,0bn US$ 656m PBGG.WA / PBG PW

50

100

150

200

250


PBG

80

130

180

230

280

330


PBG WIG

(Rebased to 100)


Growth continues

11 January 2007

Company Update

PBG January 2007

84

4Q 2006 Results preview

Table 145: PBG: 4Q 2006 Results preview

PLNm 4Q 2006E 4Q 2005 YoY (%) 2006E 2005 YoY (%)Sales 418.0 169.5 146.7 840.0 409.0 105.4EBIT 24.3 18.5 30.8 71.7 40.1 78.8Net profit 23.5 12.5 87.7 53.6 36.0 48.9

Source: PBG, CA IB estimates


PLNm 2004 2005 2006E 2007E 2008ENet revenues 216.1 409.0 840.8 1,419.4 2,019.0 COGS 172.1 338.5 701.9 1,189.1 1,689.7 Gross profit 44.0 70.5 138.9 230.3 329.2 SG&A 24.1 33.9 65.7 110.9 157.7 Other operating incomes, net 1.9 3.5 (1.5) (2.8) (4.6)EBITDA 28.5 50.7 87.9 141.2 200.3 Depreciation 6.7 10.6 16.2 24.7 33.4 EBIT 21.8 40.1 71.7 116.6 166.9 Net financials 2.7 (4.7) 6.3 7.4 6.4 Pre-tax profit 19.1 44.8 65.4 109.2 160.5 Tax 5.1 7.9 10.8 15.6 19.3 Minorities/associates (0.0) (0.9) (1.0) (5.0) (12.7)Net profit 13.9 36.0 53.6 88.7 128.5 Source: PBG, CA IB estimates


PLNm 2004 2005 2006E 2007E 2008ENet profit 13.9 36.0 53.6 88.7 128.5 Depreciation 6.7 10.6 16.2 24.7 33.4 Other non-cash (10.2) (117.7) (85.7) (143.9) (149.1)Cash earnings 10.4 (71.1) (15.9) (30.6) 12.9 Change in WC (65.9) (23.7) 42.7 (45.5) (47.2)Capex (14.1) (143.3) (60.0) (100.0) (40.4)Free cash flow (69.6) (238.1) (33.2) (176.1) (74.7)Change in LT investments (5.6) 128.2 (68.4) (32.5) 18.1 Dividends 0.0 0.0 0.0 0.0 0.0 New capital (debt) 108.3 147.6 141.4 285.5 13.3 Change in liquid funds 33.1 37.8 39.9 76.9 (43.3) Source: PBG, CA IB estimates


PLNm 2004 2005 2006E 2007E 2008EFixed Assets 68.0 192.9 318.2 443.5 450.4 Working Capital 111.9 232.8 276.3 466.5 663.5 Capital employed 179.9 425.7 594.5 910.0 1,114.0 Shareholders equity 142.6 176.7 368.3 737.0 865.5 Net debt/(cash) 29.7 135.3 95.4 18.5 61.8 Other liabilities 14.7 142.0 159.1 182.9 215.0 Total assets 305.8 662.2 954.5 1,491.6 1,802.2 Source: PBG, CA IB estimates


2004 2005 2006E 2007E 2008EEBITDA margin (%) 13.2 12.4 10.5 10.0 9.9 EBIT margin (%) 10.1 9.8 8.5 8.2 8.3 Net debt (cash)/equity (%) 20.9 76.6 25.9 2.5 7.1 Current ratio (x) 1.9 1.7 1.7 2.0 1.9 Debtors turnover (x) 2.0 2.2 3.5 4.2 3.9 ROE (%) 15.9 22.6 19.7 16.0 16.0 ROCE (%) 9.8 11.9 10.5 11.8 12.7 Source: PBG, CA IB estimates


2004 2005 2006E 2007E 2008ERevenues (PLNm) 463.2 499.8 629.4 733.6 851.5EBITDA (PLNm) 49.9 54.4 86.5 100.4 120.4Adj. EBITDA 49.9 54.4 84.3 100.4 120.4EBIT (PLNm) 19.7 22.8 49.4 58.8 70.1Adj. EBIT 19.7 22.8 47.2 58.8 70.1Net profit (PLNm) 11.7 22.2 43.2 47.3 57.0Adj. Net profit 11.7 22.2 37.2 47.3 57.0EPS (PLN) 1.17 1.64 3.20 3.50 4.22Adj. EPS 1.17 1.64 2.76 3.50 4.22P/E (x) 61.3 43.8 22.5 20.5 17.0Adj. P/E 61.3 43.8 26.1 20.5 17.0EV/Sales (x) 1.7 2.1 1.6 1.4 1.2Adj. EV/EBITDA 20.7 19.0 12.3 10.3 8.6EV/EBITDA (x) 15.7 19.0 12.0 10.3 8.6

Shareholder structure: IRI 37.5%, BZ WBK AIB AM 10.34%, ING NN OFE 6.21%, AIG OFE 5.17%, BZ WBK AIB TFI 5.10%

Investment case: Facing obstacles in its Ukrainian expansion, AmRest management has decided to focus its growth activities on its “old” territories. In our view, the major growth driver may be the potential relaunch of the Burger King (BK) chain in Poland. According to the company’s management, AmRest intends to challenge the leading position of McDonald’s, which operates ca. 360 outlets in our region, 83% more than AmRest. Conservatively assuming AmRest will add 10 BK outlets per annum in the coming years and based on strong 4Q 2006 sales data, we have increased our earnings forecasts for the company by 3% in 2006, 1% in 2007 and 3% in 2008. On our updated forecasts, AmRest is trading at P/E of 20x for 2007 and 17x for 2008, 14.4% and 13.8% above its multinational peers, respectively. Incorporating the BK project into our DCF model and cutting ERP and risk free rate assumptions, we have upped our target price for the stock from PLN 63/share to PLN 76/share. We reiterate our HOLD recommendation for the stock.

Recent developments: On 7 December 2006, AmRest reported it had signed a letter of intent with Burger King Europe regarding the relaunch of the BK restaurant chain in the region. In our talks with the company, we have learned that a final agreement should be reached in late January 2007, after which, we expect the company to publish its development strategy for the coming years.

4Q Results preview and outlook: AmRest reported 4Q 2006 sales of PLN 182.1m, implying decent YoY growth of 28.9%. Below the top line, we are looking for PLN 18m in EBIT (up 250% YoY) and PLN 15m in earnings (up 110% YoY).

Valuation: AmRest is trading at 2006E and 2007E P/E of 20.5x and 17.0x, respectively, 14.4% and 13.8% above its multinational peers’ median. We have upped our target price for the stock from PLN 63/share to PLN 76/share due to 1) inclusion of the BK project into our forecasts and 2) reductions in ERP and risk free rate assumptions. Interestingly, the 2006 P/E of the company’s closest peer Sfinks implies AmRest’s fair value at PLN 83/share. We reiterate our HOLD recommendation on AmRest.

AmRest Food & Beverages Poland

PLN 71.9 Hold


WIG index 49,560 # of shares 13.5m MCAP PLN 971m US$ 326m Free float PLN 607m US$ 204m AMMR.WA / EAT PW

35

45

55

65

75

85


AmRest

80

100

120

140

160

180

200

220


AmRest WIG

(Rebased to 100)


King of Burgers?

11 January 2007

Company Update

AmRest January 2007

86

Table 150: AmRest: 4Q Results preview

4Q 2006E 4Q 2005 Ch. % FY 2006E FY 2005 Ch. %Revenues 182.1 141.3 28.9 629.4 499.8 25.9EBIT 18.4 5.2 252.9 49.4 22.8 116.8Net profit 14.7 7.0 110.1 43.2 22.2 94.9

Source: AmRest, CA IB estimates

Table 151: AmRest: Earnings statement

PLNm 2004 2005 2006E 2007E 2008ENet revenue 463.2 499.8 629.4 733.6 851.5COGS 404.7 434.4 544.7 635.8 736.1Gross profit 58.5 65.4 84.7 97.8 115.3G&A 42.4 40.6 41.1 47.9 55.6EBITDA 49.9 54.4 86.5 100.4 120.4Depreciation 30.2 31.6 37.1 41.6 50.3EBIT 19.7 22.8 49.4 58.8 70.1Net financials (6.2) (5.7) 4.1 (0.2) 0.5Pre-tax profit 13.5 17.1 53.5 58.6 70.6Tax 1.8 (5.1) 10.2 11.1 13.4Net profit 11.7 22.2 43.2 47.3 57.0


Table 152: AmRest: Cash flow statement

PLNm 2004 2005 2006E 2007E 2008ECash flow from operations 29.1 39.5 83.8 88.4 105.3Cash flow from investment (26.0) (56.1) (49.6) (91.8) (92.1)Cash flow from financing 0.1 36.7 1.0 (5.9) (0.3)Net change in cash 3.2 20.0 35.2 (9.4) 12.8Beginning cash 7.7 11.5 31.5 66.7 57.4Ending cash 11.5 31.5 66.7 57.4 70.2


Table 153: AmRest: Balance sheet

PLNm 2004 2005 2006E 2007E 2008ECurrent assets 33.6 61.9 102.7 97.9 115.9Fixed assets 176.8 212.7 222.2 270.1 309.2Long-term deferred charges 3.9 11.5 14.5 16.9 19.6Total assets 214.4 286.1 339.5 384.9 444.7Current liabilities 171.4 73.2 81.2 84.2 86.3Long-term liabilities 22.5 84.7 64.7 54.7 44.7Provisions 1.5 4.7 5.9 6.9 8.0Equity 18.6 123.6 187.7 239.1 305.8Total liabilities and equity 214.0 286.1 339.5 384.9 444.7Net debt (cash) 128.3 67.2 12.0 11.3 (11.5)


Table 154: AmRest: Key ratios

PLNm 2004 2005 2006E 2007E 2008EEBITDA margin (%) 10.8 10.9 13.7 13.7 14.1EBIT margin (%) 4.3 4.6 7.9 8.0 8.2Net margin (%) n.m. 4.4 6.9 6.4 6.7Net debt (cash)/equity (%) 687.9 54.4 6.4 4.7 (3.8)ROE (%) n.m. 31.2 27.7 22.2 20.9



2004 2005 2006E 2007E 2008ERevenues (PLNm) 278.0 330.9 400.5 613.7 871.2EBIT (PLNm) 29.7 54.9 69.4 111.2 152.5Net profit (PLNm) 20.7 43.8 57.2 90.3 123.8EPS (PLN) 0.54 1.14 1.49 2.35 3.22CEPS (PLN) 0.69 1.23 1.63 2.53 3.49BVPS (PLN) 3.3 4.4 5.9 8.2 11.4P/E (x) 85.8 40.6 31.1 19.7 14.4P/CE (x) 67.4 37.5 28.5 18.3 13.3P/BV (x) 14.2 10.6 7.9 5.6 4.1ROE (%) 26.0 29.8 29.1 33.4 32.8EV/EBITDA (x) 55.6 30.3 23.9 15.1 11.0Dividend yield (%) 0.0 2.2 2.8 4.4 6.1

Shareholder structure: D. Milek 60.89%, L. Gaczorek 14.06%

Investment case: We believe the warm winter has negatively affected CCC’s FY 2006 results. As already reported by the company, in December 2006 the revenues dynamics slowed to 12%. Consequently, we have cut our FY 2006 earnings forecasts by 10% to PLN 57m, 6% below management forecasts. However, we believe that such a one-off, weather-related factor will have no lasting impact in the ensuing years. CCC is currently trading at P/E of 20x for 2007, 7% below LPP and 21% lower than Geox. As the reduction of ERP and risk free rate assumptions have outweighed the negative impact of the 2006 forecast cut, we are inching up our 12-month target price for CCC from PLN 53/share to PLN 54/share. We would advise using the likely correction to accumulate the stock.

Recent developments: In recent weeks CCC has opened its first franchise outlets under the new super-economy brand Boti. Interestingly, in line with previous statements, CCC has decided to change its company name to NG2.

4Q Results preview and outlook: We expect CCC to deliver disappointing 4Q 2006 results. As already reported by the company, the unfavourable weather resulted in uninspiring revenues dynamics of 22% in 4Q 2006. Below the top line, we are looking for PLN 25m in EBIT (up 36% YoY) and PLN 20m in earnings (up 18% YoY). For the FY 2006, we have cut our overall forecasts by 3% in revenues (to PLN 400.5m), 10% in EBIT (to PLN 69.4m) and 10% in earnings (to PLN 57.2m).

Valuation: CCC is currently trading at P/E of 19.7x for 2007 and 14.4x for 2008, a respective 6.8% and 2.4% below its closest peer LPP, and already 20.6% and 31.8% below the respective multiples of Geox. Due to the cuts in ERP and risk free rate assumptions, which outweighed the negative impact of FY 2006, we have upped our 12-month target price for CCC from PLN 53/share to PLN 54/share. With 16.5% upside potential we reiterate our BUY recommendation for the stock. However, we note that weak 4Q numbers may affect market sentiment towards the stock.

CCC Retail Poland

PLN 46.35 Buy


WIG index 49,560 # of shares 38.4m MCAP PLN 1,780m US$ 597m Free float PLN 446m US$ 150m CCCC.WA / CCC PW

30

35

40

45

50


CCC

90

100

110

120

130

140

150

160


CCC WIG

(Rebased to 100)


Buy on weakness opportunity?

11 January 2007

Company Update

CCC January 2007

88

Table 155: CCC: 4Q 2006 Results preview


Source: CCC, CA IB estimates

Table 156: CCC: Earnings statement

PLNm - pro forma 2004 2005 2006E 2007E 2008ENet revenue 278.0 330.9 400.5 613.7 871.2COGS (193.6) (185.3) (221.9) (331.0) (473.1)SG&A (52.8) (91.2) (109.1) (171.5) (245.5)Other operating income/cost (6.0) (3.4) (0.1) (0.1) (0.1)EBITDA 32.1 58.8 74.6 118.2 162.5Depreciation (2.4) (3.9) (5.2) (7.0) (10.0)EBIT 29.7 54.9 69.4 111.2 152.5Net financials (4.4) (0.2) 1.3 0.3 0.4Pre-tax profit 25.3 54.7 70.7 111.5 152.9Tax (4.6) (10.8) (13.4) (21.2) (29.0)Net profit 20.7 43.8 57.2 90.3 123.8


Table 157: CCC: Cash flow statement

PLNm 2004 2005 2006E 2007E 2008ENet profit 20.7 43.5 57.2 90.3 123.8Depreciation 2.4 3.9 5.2 7.0 10.0Cash earnings 26.4 47.4 62.4 97.3 133.9Change in WC (26.5) (23.5) 0.6 (48.3) (60.2)Operations 0.5 24.4 63.1 49.0 73.7Investments (6.3) (33.8) (62.2) (48.5) (73.5)Financing 33.4 (13.5) (0.5) 3.6 4.7Dividends 0.0 38.4 50.1 79.1 108.5Change in cash 27.6 (22.9) 0.3 4.1 4.9


Table 158: CCC: Balance sheet

PLNm 2004 2005 2006E 2007E 2008EFixed assets 70.6 76.3 132.9 174.4 237.8Net working capital 75.5 99.7 99.9 152.2 217.3Capital employed 146.1 176.0 232.8 326.6 455.1Shareholders equity 125.8 168.7 225.1 315.4 439.3Debt 21.2 8.2 7.6 11.2 15.9Marketable securities & cash 24.6 13.2 49.3 55.3 92.3Total assets 180.6 203.6 258.6 364.5 508.5


Table 159: CCC: Key ratios

PLNm 2004 2005 2006E 2007E 2008EEBITDA margin (%) 11.5 17.8 18.6 19.3 18.7EBIT margin (%) 10.7 16.6 17.3 18.1 17.5Interest cover (x) 5.9 35.6 69.8 175.6 170.6Net debt/equity (%) (2.7) (3.0) (18.5) (14.0) (17.4)Current ratio (x) 3.9 5.1 6.8 6.5 6.8Sales/receivables (x) 7.0 6.5 7.3 7.3 7.3ROE (%) 26.0 29.8 29.1 33.4 32.8ROCE (%) 25.3 34.1 33.9 39.8 39.0



2004 2005 2006E 2007E 2008ERevenues (PLNm) 546.3 685.8 813.7 1,030.6 1,236.1EBITDA (PLNm) 71.8 86.1 99.5 136.0 170.5EBIT (PLNm) 52.7 59.2 64.0 92.5 117.3Net profit (PLNm) 42.2 40.6 45.1 69.1 90.4EPS (PLN) 24.75 23.84 26.48 40.56 53.09CEPS (PLN) 35.99 39.61 47.33 66.07 84.30BVPS (PLN) 112.02 136.45 165.91 200.27 239.35P/E (x) 30.1 31.3 28.1 18.4 14.0P/CE (x) 20.7 18.8 15.7 11.3 8.8P/BV (x) 6.7 5.5 4.5 3.7 3.1EV/Sales (x) 2.5 2.0 1.7 1.3 1.1EV/EBITDA (x) 19.2 16.0 13.9 10.1 8.1

Shareholder structure (shares): M. Piechocki (CEO) 16.55%, J. Lubianec (Chairman of the Supervisory Board) 14.46%, Grangefont Limited 20.55%, Commercial Union OFE BPH CU WBK 9.17%

Investment case: Despite unfavourable weather conditions, LPP managed to deliver strong December sales of PLN 116m, up 35% YoY. Importantly, a solid top line was accompanied by a record-high gross margin of 61%. Consequently, we see upside potential to management’s earnings forecast for FY 2006 and believe the probability of growth dynamics and margin recovery in the coming quarters has improved. LPP is currently trading at P/E of 18x and 14x for 2006 and 2007, respectively, in line with CCC and its European peers. On the back of the minor forecast upgrade and cuts in the risk free rate from 5.5% to 5.25% and ERP from 5.0% to 4.5%, we are increasing our target price for LPP by 10% to PLN 770/share and upgrading the stock from Sell to HOLD.

Recent developments: LPP recorded strong December sales data of PLN 116m, implying 35% YoY growth dynamics. Importantly, unlike the previous year, strong sales were not made at the expense of profitability. Therefore, we believe that the probability of growth dynamics and margins recovery in the coming quarters has improved. Consequently, we have upped our revenues forecasts by 6.9% to PLN 1,030.6m in 2007 and 7.5% to PLN 1.236.1m in 2008. At the bottom line, our upgrade was smaller – we raised our forecasts by 0.9% to PLN 69.1m in 2007 and 2.3% to PLN 90.4m in 2008.

4Q Results preview and outlook: After a disappointing year, we believe, LPP results picked up in 4Q. The company has already reported sales of PLN 286m (up 35% YoY) and gross profit of PLN 175m (up 52% YoY). On operating profit and bottom line levels, we expect LPP to report PLN 68m (up 181% YoY) and PLN 49m (up 183% YoY), respectively. Consequently, we expect LPP to beat management’s FY 2006 earnings forecast of PLN 42m.

Valuation: Since we downgraded LPP to Sell on 27 October the stock has dropped by 9%, underperforming the WIG index by 9%. LPP is currently trading at P/E of 18.4x for 2007 and 14.0x for 2008, in line with CCC and the European peers’ median. Following a minor forecast upgrade and cuts in the risk free rate from 5.5% to 5.25% and ERP from 5.0% to 4.5%, we are increasing our target price for LPP by 10% to PLN 770/share and upgrading the stock from Sell to HOLD.

LPP Retail Poland

PLN 745 Hold (Upgrade from Sell)


WIG index 49,560 # of shares 1.7m MCAP PLN 1,269m US$ 426m Free float PLN 876m US$ 294m LPPP.WA / LPP PW

450

550

650

750

850


LPP

50

70

90

110

130

150


LPP WIG

(Rebased to 100)


There’s light in the tunnel. Up to HOLD.

11 January 2007

Company Update

LPP January 2007

90

Table 160: LPP: 4Q 2006 Results preview


Source: LPP, CA IB estimates

Table 161: LPP: Earnings statement

PLNm 2005 2006E 2007E 2008ERevenues 685.8 813.7 1,030.6 1,236.1COGS 311.7 368.7 473.1 561.0Gross profit 374.2 445.0 557.5 675.0SG&A 313.2 381.0 465.0 557.7EBITDA 86.1 99.5 136.0 170.5Depreciation 26.9 35.5 43.5 53.2EBIT 59.2 64.0 92.5 117.3Net financials (6.7) (8.3) (7.2) (5.6)Pre-tax profit 52.6 55.7 85.3 111.7Tax 11.9 10.6 16.2 21.2Net profit 40.6 45.1 69.1 90.4


Table 162: LPP: Cash flow statement

PLNm 2005 2006E 2007E 2008ECash flow from operations 47.5 65.2 49.3 147.9Cash flow from investment (93.8) (58.0) (80.9) (49.7)Cash flow from financing 58.2 5.1 (10.6) (93.9)Net change in cash 11.9 12.2 (42.1) 4.3Beginning cash 15.5 27.4 39.6 (2.5)Ending cash 27.4 39.6 (2.5) 1.8


Table 163: LPP: Balance sheet

PLNm 2005 2006E 2007E 2008ECurrent assets 239.3 257.1 317.4 305.4Fixed assets 190.6 224.0 263.7 262.4Long-term deferred charges 4.8 7.8 9.9 11.8Total assets 434.7 488.9 590.9 579.6Current liabilities 185.2 190.5 232.7 153.7Deferred income 0.1 0.6 0.8 1.0Long-term liabilities 11.0 11.0 11.0 11.0Provisions 6.0 4.1 5.2 6.2Equity 232.5 282.6 341.2 407.7Total liabilities and equity 434.7 488.9 590.9 579.6Net debt (cash) 110.2 98.0 140.1 65.8


Table 164: LPP: Key ratios

PLNm 2005 2006E 2007E 2008EEBITDA margin (%) 12.6 12.2 13.2 13.8EBIT margin (%) 8.6 7.9 9.0 9.5Net margin (%) 5.9 5.5 6.7 7.3Net debt (cash)/equity (%) 47.4 34.7 41.1 16.1ROE (%) 19.2 17.5 22.2 24.2



2004 2005 2006E* 2007E 2008ERevenues (PLNm) 1,527 1,687 3,637 4,179 4,399EBIT (PLNm) 31.2 44.7 57.8 73.2 84.3EBITDA (PLNm) 48.8 70.2 92.7 112.5 125.6Net profit (PLNm) 22.1 32.6 45.1 58.8 69.8EPS (PLN) 0.18 0.26 0.35 0.46 0.54CEPS (PLN) 0.33 0.49 0.63 0.77 0.87BVPS (PLN) 1.1 1.4 1.3 1.6 1.9P/E (x) 41.4 28.8 20.8 16.0 13.5P/CE (x) 22.0 14.9 11.7 9.6 8.5P/BV (x) 6.6 5.3 5.7 4.7 3.9EV/Sales (x) 0.58 0.52 0.24 0.21 0.20EV/EBITDA (x) 18.1 12.5 9.5 7.8 7.1Dividend yield (%) 0.0 5.9 2.4 3.1 3.7

Shareholder structure: Politra 55.0%, Charlemagne Capital 5.08%, ING NN OFE 5.17% * Note: KDWT pro forma consolidation for FY 2006; Carment consolidation in 2H 2006

Investment case: Despite a strong M&A pipeline, the recent months saw no acquisitions for Eurocash. Moreover, 3Q 2006 results came in below our expectations. Consequently, we have cut our earnings forecasts for the company by 8% in 2006, 8% in 2007 and 7% in 2008. On our updated estimates, Eurocash is trading at P/E of 16x for 2007 and 14x for 2008, 4% and 12% below its multinational peers’ average, respectively. We are rolling our 12-month target price for Eurocash upward, from PLN 7.95/share to PLN 8.0/share. Following the recent correction, our updated target price offers moderate 9% upside potential. We maintain our HOLD recommendation on the stock.

4Q 2006 Results and outlook: On the back of the consolidation of KDWT and Carment, we expect Eurocash to have more than doubled revenues to ca. PLN 1.1bn in 4Q 2006. Below the top line, we are looking for 45% growth in EBIT to PLN 20m and a 73% increase in earnings dynamics to PLN 16m.

Valuation: Eurocash is trading at P/E of 16.0x and 13.5x for 2007 and 2008, implying discounts of 3.8% and 11.8% to its multinational peers’ average, respectively. We are rolling our 12-month target price for the stock up, from PLN 7.95/share to PLN 8.0/share. Our updated target price offers moderate 8.8% upside potential and yields a HOLD recommendation. Our optimism towards the stock would be revived were the company to announce a sizable and value accretive acquisition.

Eurocash Wholesale Poland

PLN 7.35 Hold


WIG index 49,560 # of shares 127.7m MCAP PLN 939m US$ 315m Free float PLN 423m US$ 142m ERCS.WA / EUR PW

5.0

6.0

7.0

8.0

9.0

10.0


Eurocash

80

100

120

140

160


Eurocash WIG

(Rebased to 100)


All’s quiet on the M&A front

11 January 2007

Company Update

Eurocash January 2007

92

Table 165: Eurocash: 4Q 2006 Results preview

4Q 2006E 4Q 2005 Ch. %FY 2006E FY 2005 Ch. %Revenues 1,068.3 420.4 154.1 3,636.5 1,687.1 115.5EBIT 19.6 13.5 44.6 57.8 44.7 29.4Net profit 15.6 9.0 73.2 45.1 32.6 38.2

Source: Eurocash, CA IB estimates

Table 166: Eurocash: Earnings statement

PLNm 2004 2005 2006E 2007E 2008ENet revenue 1,526.5 1,687.1 3,636.5 4,179.2 4,398.7COGS 1,328.5 1,456.7 3,307.6 3,796.7 3,995.2Gross profit 198.0 230.5 328.9 382.4 403.5SG&A 154.6 179.3 259.7 297.1 306.7EBITDA 48.8 70.2 92.7 112.5 125.6Depreciation 17.6 25.6 35.0 39.4 41.4EBIT 31.2 44.7 57.8 73.2 84.3Net financials (3.7) (3.0) (2.1) (0.5) 1.9Pre-tax profit 27.5 41.7 55.7 72.6 86.1Tax 5.4 9.1 10.6 13.8 16.4Net profit 22.1 32.6 45.1 58.8 69.8


Table 167: Eurocash: Cash flow statement

PLNm 2004 2005 2006E 2007E 2008ECash flow from operations 29.1 90.6 106.5 114.1 117.6Cash flow from investment (78.8) (29.5) (91.7) (19.0) (17.0)Cash flow from financing (18.2) 1.7 (55.4) (22.5) (29.4)Net change in cash (69.8) 65.1 (40.7) 72.5 71.2Beginning cash 103.7 33.9 99.0 58.4 130.9Ending cash 33.9 99.0 58.4 130.9 202.0


Table 168: Eurocash: Balance sheet

PLNm 2004 2005 2006E 2007E 2008ECurrent assets 187.0 259.9 451.3 581.9 676.5 Fixed assets 178.6 180.6 236.8 216.4 192.0 Long-term deferred charges 1.6 1.5 1.5 1.5 1.5 Total assets 367.1 442.0 689.6 799.8 870.0 Current liabilities 211.0 246.8 505.3 579.2 609.1 Long-term liabilities 13.5 19.1 18.5 18.5 18.5 Provisions 0.0 0.4 0.4 0.4 0.4 Equity 142.7 175.8 165.5 201.8 242.1 Total liabilities and equity 367.1 442.0 689.6 799.8 870.0 Net debt (cash) (29.5) (93.0) (52.3) (124.8) (196.0)


Table 169: Eurocash: Key ratios

PLNm 2004 2005 2006E 2007E 2008EEBITDA margin (%) 3.2 4.2 2.6 2.7 2.9EBIT margin (%) 2.0 2.6 1.6 1.8 1.9Net margin (%) n.m. 1.9 1.2 1.4 1.6Net debt (cash)/equity (%) (20.7) (52.9) (31.6) (61.9) (80.9)ROE (%) 17.1 20.5 26.4 32.0 31.4



2004 2005 2006E 2007E 2008ERevenues 1,112.6 1,169.3 1,313.1 1,434.0 1,786.1Adj. Revenues 813.6 915.5 1,104.0 1,434.0 1,786.1EBITDA 72.4 132.8 121.8 123.6 150.7Adj. EBITDA 60.6 69.6 96.8 119.9 145.2EBIT 44.8 75.5 81.4 76.3 95.6Adj. EBIT 33.1 37.2 57.1 73.8 91.9Net profit 26.3 60.8 63.0 59.8 76.2Adj. Net profit 13.4 25.4 40.1 55.1 70.2EPS (PLN) 0.24 0.56 0.62 0.59 0.75Adj. EPS (PLN) 0.12 0.23 0.39 0.54 0.69P/E (x) 54.4 23.5 22.7 23.9 18.8Adj. P/E (x) 103.2 54.5 32.2 23.4 18.4EV/EBITDA (x) 19.5 10.6 11.6 11.4 9.4Adj. EV/EBITDA (x) 21.0 18.3 13.1 10.6 8.8

Shareholder structure: Eastbridge 68.5%

Investment case: Empik Media and Fashion (EM&F) is the unquestioned leader on the Polish lifestyle retail market with exposure to Germany and Ukraine. As such, we find EM&F to be one of the best plays on the strength of the Polish economy and booming consumption. Based on the company’s strategy to double its shop floor space by 2008, we expect EM&F to achieve 2006E-2008E CAGR of 25% in adjusted sales and 44% in adjusted EPS. EM&F is currently trading at adjusted 2007E P/E of 23x, 24% above its Polish peers’ average and 31% above its foreign peers’ median. However, we find these premiums partially justified by the company’s superior growth potential. With our 12-month target price for EM&F of PLN 14.5/share, the stock offers 3.6% upside potential, thus yielding a HOLD recommendation.

Recent developments: In December 2006, in line with earlier announcements, the company finalised two acquisitions. EM&F already operates a Smyk store in Berlin; it has now purchased a 65% stake in Bukva, one of the largest chains of bookstores in Ukraine (for US$ 6.38m) and a 65% stake in Ukrainian Paritet Servis Retail, which operates two children’s stores under the Kinderland brand (for US$ 5.0m).

4Q Results preview and outlook: We expect EM&F to report strong 4Q 2006 results. We forecast the company will deliver 15.2% YoY revenues growth to PLN 608.9m. On the operating and bottom lines, we expect EM&F to report PLN 60.5m, up 63.3% YoY, and PLN 53.1m, up 1.6% YoY, respectively.

Valuation: EM&F is currently trading at adjusted P/E of 32.2x for 2006 and 23.4x for 2007, 18.8% and 23.7% above the average of its Polish retail peers, respectively. The stock looks cheaper on an adjusted EV/EBITDA basis, trading at 13.1x for 2006 and 10.6x for 2007 with modest discounts of 2-3%. We reiterate our HOLD rating and our target price of PLN 14.50 for the stock.

NFI EMPiK Media & Fashion Retail Poland

PLN 14.00 Hold


WIG index 49,560 # of shares 102.1m MCAP PLN 1,430m US$ 480m Free float PLN 450m US$ 151m NFIWo.WA / EMF PW

6.0

8.0

10.0

12.0

14.0

16.0

18.0


NFI Empik

80

120

160

200

240


NFI Empik WIG

(Rebased to 100)


Keep up the style

11 January 2007

Company Update

NFI EMPiK Media & Fashion January 2007

94

Table 170: EM&F: 4Q 2006 Results preview

PLNm 4Q 2006E 4Q 2005 Ch. % FY 2006E FY 2005 Ch. %Revenues 608.9 528.7 15.2 1,313.1 1,169.3 12.3EBIT 60.5 37.1 63.3 81.4 75.5 7.8Net profit 53.1 52.2 1.6 63.0 60.8 3.5

Source: EM&F, CA IB estimates

Table 171: EM&F: Earnings statement

PLNm 2004 2005 2006E 2007E 2008ERevenues 1,112.6 1,169.3 1,313.1 1,434.0 1,786.1COGS 676.2 695.2 779.0 839.4 1,033.1Gross profit 436.4 474.1 534.1 594.6 753.0SG&A 379.8 360.4 430.3 518.3 657.3EBITDA 72.4 132.8 121.8 123.6 150.7Depreciation 27.6 57.4 40.4 47.4 55.1EBIT 44.8 75.5 81.4 76.3 95.6Net financials (1.6) (0.8) (4.7) (5.3) (5.1)Pre-tax profit 43.1 76.8 80.7 76.7 98.0Tax 12.2 15.8 17.1 15.9 20.0Net profit 26.3 60.8 63.0 59.8 76.2


Table 172: EM&F: Cash flow statement

PLNm 2004 2005 2006E 2007E 2008ECash flow from operations 55.1 79.0 86.4 89.0 109.9Cash flow from investment 12.4 (35.0) (94.1) (90.2) (68.2)Cash flow from financing (32.2) (0.6) 0.7 1.0 1.7Net change in cash 33.2 42.9 (6.9) (0.3) 43.4Beginning cash 53.2 86.4 129.3 122.4 122.1Ending cash 86.4 129.3 122.4 122.1 165.5


Table 173: EM&F: Balance sheet

PLNm 2004 2005 2006E 2007E 2008ECurrent assets 355.3 438.1 468.3 496.3 627.3Fixed assets 259.0 325.1 394.3 450.3 501.7Long-term deferred charges 3.0 5.7 6.4 7.0 8.7Total assets 617.3 768.9 869.0 953.6 1,137.7Current liabilities 290.6 425.1 460.3 482.9 585.7Deferred income 4.6 11.2 12.6 13.8 17.2Long-term liabilities 79.4 75.9 75.9 75.9 75.9Equity 242.7 256.6 320.3 381.1 459.0Total liabilities and equity 617.3 768.9 869.0 953.6 1,137.7Net debt (cash) (3.2) (18.3) (11.4) (11.1) (54.6)


Table 174: EM&F: Key ratios

PLNm 2004 2005 2006E 2007E 2008EEBITDA margin (%) 6.5 11.4 9.3 8.6 8.4EBIT margin (%) 4.0 6.5 6.2 5.3 5.4Net margin (%) n.m. 5.2 4.8 4.2 4.3Net debt (cash)/equity (%) (1.3) (7.1) (3.6) (2.9) (11.9)ROE (%) n.m. 24.4 21.8 17.0 18.1



2004 2005 2006E 2007E 2008ERevenues (US$m) 580.7 749.4 957.5 1,015.1 1,070.0EBITDA (US$m) 31.8 55.9 109.1 121.5 132.6EBIT (US$m) 28.4 51.6 99.5 108.8 119.0Net profit (US$m) 21.8 20.3 49.8 61.7 71.8EPS (US$) 1.31 0.77 1.40 1.61 1.88CEPS (US$) 1.51 0.94 1.66 1.95 2.23BVPS (US$) 7.20 14.32 12.24 15.77 18.23P/E (x) 23.2 39.1 21.7 18.8 16.1P/CE (x) 20.1 32.3 18.2 15.6 13.5P/BV (x) 4.2 2.1 2.5 1.9 1.7EV/Sales (x) 2.6 2.0 1.6 1.5 1.4EV/EBITDA (x) 48.2 27.4 14.1 12.6 11.6

Shareholder structure: W. V. Carey 11.0%, CEDC 7.1%, Remy Cointreau 7.1%, MSIM 6.2%, Charlemagne Capital 7.0%, Perry Corp. 6.2%

Investment case: CEDC debuted on the Warsaw Stock Exchange offering 2.55m shares at US$ 30 each (total value of US$ 76.5m). However, as CEDC managed to buy a mere 2.8% stake in Polmos Bialystok (of the 34.0% tendered), the management decided to use the raised capital mainly to redeem US$ 55.9m of its high-yield bonds. In line with our expectations, together with a WSE listing, CEDC re-rated to multiples of Polish peers. CEDC is currently trading at 2007 P/E of 18.8x, in line with the domestic industry average. We roll our 12-month target price for CEDC up from US$ 31.8/share to US$ 33.0/share. However, following a recent rally, the company has exhausted its upside potential, in our view. Consequently, we downgrade the stock from Buy to HOLD.

Recent developments: Under pressure from minority shareholders, CEDC increased its tender price for Polmos Bialystok from PLN 85.25/share to PLN 91/share. However, even at the boosted price, CEDC managed to purchase only a 2.8% stake of the 34.0% tendered. Interestingly, despite holding only a 68.8% stake in the vodka maker, CEDC intends to call an EGM to decide on Polmos Bialystok’s delisting from the stock market. Given the 80% threshold requirement, we believe that the probability of success of this attempt is relatively slim.

4Q 2006 Results and outlook: We believe 4Q 2006 should bring another decent set of quarterly results. On the back of the consolidation of Polmos Lublin and Bols, we expect the company’s top line to expand 26% YoY to ca. US$ 310m. Below the top line, we expect CEDC to deliver EBIT of US$ 39m (up 38% YoY) and earnings of US$ 26m (up 120% YoY).

Valuation: CEDC is trading at P/E of 18.8x for 2007, in line with Polish peers’ average. We have rolled our DCF SOTP 12-month target price for CEDC up from US$ 31.8/share to US$ 33.0/share, implying moderate upside potential of 9.0%. As we believe the re-rating has already taken place, we downgrade CEDC from Buy to HOLD.

CEDC Food & Beverages Poland

US$ 30.28 Hold (Downgrade from Buy)

Target price: US$ 33.0 (Previously: US$ 31.8)

NASDAQ index 2,434 # of shares 35.7m MCAP US$ 1,080m PLN 3,218m Free float US$ 808m PLN 2,407m CEDC.O / CEDC US

20

22

24

26

28

30

32


CEDC

80

90

100

110

120


CEDC Nasdaq

(Rebased to 100)


Re-rating delivered

11 January 2007

Company Update

CEDC January 2007

96

Table 175: CEDC: 4Q 2006 Results preview

US$m 4Q 2006E 4Q 2005 Ch. % FY 2006E FY 2005 Ch. %Revenues 311.4 247.6 25.8 957.5 749.4 27.8EBIT 38.9 28.2 37.9 99.5 51.6 92.7Net profit 26.4 12.1 119.0 49.8 20.3 145.7

Source: CEDC, CA IB estimates

Table 176: CEDC: Earnings statement

US$m 2004 2005 2006E 2007E 2008ENet revenue 580.7 749.4 957.5 1,015.1 1,070.0COGS 506.4 627.4 723.5 763.8 805.2Gross profit 74.3 122.0 234.0 251.3 264.9SG&A 41.8 70.4 122.6 127.4 129.7EBITDA 31.8 55.9 109.1 121.5 132.6Depreciation 3.4 4.3 9.6 12.7 13.6EBIT 28.4 51.6 99.5 108.8 119.0Net financials (1.9) (23.8) (29.1) (22.9) (20.1)Pre-tax profit 26.4 27.9 70.4 85.9 98.9Tax 4.6 5.3 13.4 16.3 18.8Minority interest 0.0 2.3 7.2 7.9 8.4Net profit 21.8 20.3 49.8 61.7 71.8


Table 177: CEDC: Cash flow statement

US$m 2004 2005 2006E 2007E 2008ECash flow from operations 8.9 34.1 106.7 99.7 111.2Cash flow from investment (9.3) (460.1) (27.8) (12.5) (18.1)Cash flow from financing 0.6 476.4 (3.7) 43.3 8.9Net change in cash 0.2 50.4 75.2 130.5 102.0Beginning cash 6.2 10.5 60.9 136.1 266.6Ending cash 10.5 60.9 136.1 266.6 368.6


Table 178: CEDC: Balance sheet

US$m 2004 2005 2006E 2007E 2008ECurrent assets 218.3 351.5 472.0 620.5 731.6Fixed assets 71.7 673.1 703.1 706.2 713.1Long-term deferred charges 1.7 2.3 2.7 1.1 1.1Total assets 291.7 1,024.7 1,175.1 1,326.7 1,444.7Current liabilities 166.0 252.6 330.4 346.3 359.2Deferred income 0.0 3.0 3.3 3.3 3.4Long-term liabilities 4.0 369.0 369.1 326.5 326.5Provisions 1.4 12.9 22.7 33.6 44.1Equity 120.3 374.9 436.4 602.5 696.5Total liabilities and equity 291.7 1,024.7 1,175.1 1,326.7 1,444.7Net debt (cash) 32.0 330.8 260.7 91.7 (2.0)


Table 179: CEDC: Key ratios

US$m 2004 2005 2006E 2007E 2008EEBITDA margin (%) 5.5 7.5 11.4 12.0 12.4EBIT margin (%) 4.9 6.9 10.4 10.7 11.1Net margin (%) 3.8 2.7 5.2 6.1 6.7Net debt (cash)/equity (%) 26.6 88.2 59.7 15.2 (0.3)ROE (%) 8.8 5.3 9.6 9.5 9.6



2004 2005 2006E 2007E 2008ERevenues (PLNm) 568.5 625.0 721.3 749.6 779.2EBITDA (PLNm) 18.4 38.0 41.4 45.0 46.1EBIT (PLNm) 2.7 21.8 24.3 27.1 27.5Net profit (PLNm) (1.5) 20.4 20.3 22.0 22.4EPS (PLN) (0.10) 1.36 1.35 1.46 1.49CEPS (PLN) 0.94 2.43 2.49 2.65 2.72BVPS (PLN) 13.38 14.79 15.45 16.06 16.58DPS (PLN) 0.34 0.68 0.67 0.98 0.99P/E (x) n.m. 17.0 17.1 15.7 15.5P/CE (x) 24.4 9.4 9.3 8.7 8.4P/BV (x) 1.7 1.6 1.5 1.4 1.4EV/Sales (x) 0.5 0.4 0.4 0.4 0.4EV/EBITDA (x) 15.2 7.3 6.7 6.2 6.1Dividend yield (%) 1.5 2.9 2.9 4.2 4.3

Shareholder structure: Grzegorz Dzik (CEO Impel Cleaning) 33.50%, Jozef Biegaj (CEO of Impel Security) 25.27%, ML IM 7.79%, Pioneer IM 7.14%

Investment case: Our investment story of Impel as a real estate play appears to be materialising. On 12 December 2006 Impel entered into a joint venture with developer BNM 3 to construct 350 flats on a 0.5ha plot in the centre of Wroclaw. Importantly, the remaining Impel landbank of 6.2ha allows for the construction of an additional 4,300 flats. Were their developing activity a going concern, and aggressively assuming Dom Development’s valuation per flat as a benchmark, we would arrive at a valuation of PLN 1bn for Impel, triple the current level. However, given that Impel has no experience in the real estate business, we conservatively continue to base the valuation of the company on the plot value estimate. Following the recent rally, our updated 12-month target price of PLN 24.9/share offers only 8% upside potential. We downgrade the stock from Buy to HOLD.

Recent developments: On a positive note, in late December 2006, the Polish government drafted new legislation on protected labour enterprises, which maintains the existing subsidies for disabled employees at current levels. Moreover, in the past three months, Impel has intensified its M&A activity, acquiring two companies and setting up three enterprises. On the corporate front, management board member Mr. Slawomir Borkowski left the company on 15 December citing personal reasons.

4Q Results preview and outlook: We expect Impel to show strong reported results after 4Q 2006. We expect the company to deliver 14% YoY growth in revenues to PLN 145m. Below the top line we anticipate profitability expansion driven by the one-off real estate disposal contributing ca. PLN 5m to the bottom line. Consequently, at the reported level we are looking for 290% EBIT growth to PLN 12.6m and a net profit jump of 140% to PLN 9.9m. On a one-off adjusted level, the dynamics decline to ca. 100% and 20%, respectively.

Valuation: Impel trades at reasonable earnings multiple of 15.7x and EV/EBITDA of 6.2x for 2007. In light of continued pressure on the profitability of Impel’s core business, we have cut our earnings forecast for the company by 8.4% in 2006 and 6.4% in 2007. However, the reduction in ERP and risk free rate assumptions outweighed this negative impact on our target price, which inched upwards from PLN 24.5/share to PLN 24.9/share. With only 8.5% upside potential left, we downgrade the stock from Buy to HOLD. However, any continued real estate rally in Poland and the successful completion of the company’s development projects may create ample upside to our valuation.

Impel Support Services Poland

PLN 23.0 Hold (Downgrade from Buy)


WIG index 49,560 # of shares 15m MCAP PLN 346m US$ 116m Free float PLN 143m US$ 48m IMPL.WA / IPL PW

11

13

15

17

19

21

23

25


Impel

80

100

120

140

160


Impel WIG

(Rebased to 100)


Down to HOLD on price performance

11 January 2007

Company Update

Impel January 2007

98

Table 180: Impel: 4Q 4006 Results preview

4Q 2006E 4Q 2005 Ch. %FY 2006E FY 2005 Ch. %Revenues 145.4 127.3 14.2 721.3 625.0 15.4EBIT 12.6 3.2 289.2 24.3 21.8 11.5Net profit 9.9 4.1 141.0 20.3 20.4 (0.5)

Source: Impel, CA IB estimates

Table 181: Impel: Earnings statement

PLNm 2004 2005 2006E 2007E 2008ENet revenue 568.5 625.0 721.3 749.6 779.2Subsidiaries 67.0 54.1 50.0 40.0 33.0COGS 544.2 576.1 655.1 676.8 702.0Gross profit 24.3 48.9 66.2 72.8 77.3SG&A 77.4 85.4 98.2 102.1 106.1EBITDA 18.4 38.0 41.4 45.0 46.1Depreciation 15.7 16.2 17.1 17.9 18.6EBIT 2.7 21.8 24.3 27.1 27.5Net financials 2.7 2.0 0.7 1.1 1.1Pre-tax profit 5.4 23.8 25.0 28.2 28.6Minorities (1.0) (0.7) (0.7) (0.8) (0.8)Tax 5.9 2.7 4.0 5.4 5.4Net profit (1.5) 20.4 20.3 22.0 22.4


Table 182: Impel: Cash flow statement

PLNm 2004 2005 2006E 2007E 2008ECash flow from operations 8.4 18.7 23.0 36.3 37.1Cash flow from investment (38.5) (17.8) 4.7 (21.0) (19.5)Cash flow from financing (53.7) (2.0) (13.3) (12.9) (14.6)Net change in cash (83.8) (1.1) 14.4 2.3 3.1Beginning cash 156.6 72.8 71.7 86.1 88.4Ending cash 72.8 71.7 86.1 88.4 91.5


Table 183: Impel: Balance sheet

PLNm 2004 2005 2006E 2007E 2008ECurrent assets 226.8 232.4 268.6 277.3 287.1Fixed assets 98.9 105.9 94.3 100.4 104.4Long-term deferred charges 11.1 12.7 14.7 15.3 15.9Total assets 336.8 351.0 377.6 393.0 407.4Current liabilities 113.0 111.3 124.9 129.8 134.9Deferred income 14.5 12.0 13.8 14.4 15.0Long-term liabilities 3.6 2.7 2.7 2.7 2.7Provisions 3.5 2.3 2.6 2.7 2.8Equity 201.2 222.4 232.4 241.5 249.3Minority Interest 0.9 0.4 1.1 1.9 2.7Total liabilities and equity 336.8 351.0 377.6 393.0 407.4Net debt (cash) (62.2) (66.8) (84.2) (86.5) (89.6)


Table 184: Impel: Key ratios

PLNm 2004 2005 2006E 2007E 2008EEBIT margin (%) 0.5 3.5 3.4 3.6 3.5Net margin (%) n.m. 3.3 2.8 2.9 2.9Subsidies/net sales (%) 11.8 8.7 6.9 5.3 4.2Net debt (cash)/equity (%) (30.9) (30.1) (36.2) (35.8) (36.0)ROE (%) n.m. 9.6 8.9 9.3 9.1



2004 2005 2006E 2007E 2008ERevenues (PLNm) 943.0 996.4 1,076.3 1,262.3 1,394.9EBITDA (PLNm) 205.3 265.9 257.5 318.9 368.4EBIT (PLNm) 76.4 135.7 119.7 180.8 239.2Net profit (PLNm) 60.2 97.8 94.3 145.4 197.0EPS (PLN) 1.31 2.12 2.05 3.16 4.28BVPS (PLN) 34.32 36.09 37.73 41.49 46.20Adj. P/E (x) 120.6 188.2 43.9 28.1 19.7P/CE (x) 15.8 13.1 12.9 10.6 9.2P/BV (x) 1.9 1.8 1.7 1.6 1.4EV/Sales (x) 3.4 3.2 3.0 2.6 2.3Adj. EV/EBITDA (x) 20.0 19.6 14.3 11.9 10.3Dividend yield (%) 0.5 0.5 0.5 0.8 1.1

Shareholder Structure: Accor 40.6^%, BZ WBK AIB 14.2%, ING OFE 5.9%, CU OFE 5.1%

Investment case: Orbis shares have risen 36.5% in 4Q 2006 driven by a solid improvement in operating performance revealed in 3Q 2006 figures (RevPar up 12.4% YoY) as well as by property disposal (Hotel Monopol) which partially exposed the hidden value in Orbis’ premises. With the fundamentals of the hotel industry improving (i.e. increased domestic and business traffic in Orbis’ hotels) and the Polish market now experiencing the beginning of an upswing in the RevPar cycle, we’re upgrading our recommendation for Orbis to PLN 67, and reiterating our HOLD recommendation.

Recent developments: In December 2006, the company sold Hotel Monopol, a 62-room hotel in Wroclaw. While the value of the transaction has not been made public, following the sale, the company increased its FY 2006 hotel segment EBITDA forecast to PLN 223m from PLN 191m, implying PLN 32m in profit on the disposal.

4Q 2006 Preview and outlook: We expect these favourable trends to continue in 4Q 2006, leading to a 15% increase in revenues to PLN 251.2m. Furthermore, the reported EBITDA is likely to be boosted by the PLN 32m in profits on the disposal of the aforementioned Monopol Hotel. While we are expecting reported EBITDA of PLN 73m, excluding the effect of the property disposal, this figure would be PLN 41.6m (up 36% YoY). On the bottom line, we are expecting PLN 34.3m in net profit. The outlook for 2007 looks encouraging. With Poland enjoying the upswing of the RevPar cycle according to Jones Lang LaSalle and with the support of the introduction of yield management policies in Orbis’ hotels, we are now expecting an on average 11% increase in Orbis’ RevPar in the next three years.

Valuation: We are increasing our target price to PLN 67 per share, based on three factors: 1) forecast upgrade following the upside presented by the recent property disposal and an improvement in operating performance, 2) the change in risk free rate and ERP, 3) as well as the rolling upwards of our target price. Orbis is trading at 2007E adjusted for disposals EV/EBITDA of 11.9x, broadly in line with Western European hotel operators.

Orbis Hotel and Leisure Poland

PLN 65.05 Hold

Target price: PLN 67 (Previously: PLN 51.6)

WIG index 49,560 # of shares 46.1m MCAP PLN 3.0bn US$ 1.8bn Free float PLN 1.0bn US$ 0.6bn ORB PW / ORBS.WA

33

38

43

48

53

58

63

68


Orbis

90

110

130

150

170

190


Orbis WIG

(Rebased to 100)

Analysts Marcin Szortyka Tel. +48 22 520 9972 [email protected] Łukasz Wachełko Tel. +48 22 520 9965 [email protected] http://research.ca-ib.com

Riding the RevPar cycle

11 January 2007

Company Update

Orbis January 2007

100

Table 185: Orbis: 4Q 2006 Results preview

PLNm 4Q 2006E 4Q 2005 Ch. YoYRevenues 251.2 218.5 15 EBIT 38.6 3.0 n.m.EBITDA 73.6 30.6 141 Adj. EBITDA 41.6 30.6 36 Net profit 34.3 (0.6) n.a.

Source: Orbis, CA IB estimates

We are expecting a 15% increase in revenues to PLN 251.2m in 4Q 2006. Furthermore, the reported EBITDA is likely to be boosted by the PLN 32m in profits on the disposal of the aforementioned Monopol Hotel. We are expecting reported EBITDA of PLN 73m, while excluding the effect of the property disposal, we would be looking at PLN 41.6m in EBITDA (up 36% YoY). On the bottom line, we are expecting PLN 34.3m in net profit.

Figure 8: Orbis: RevPar growth on the rise

-10.1

-0.9

2.86.7

9.4

1.5

-0.3

-7.6

-0.3

4.42.3

9.6 9.2

4.0

12.6

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

1Q 20

03

2Q 20

03

3Q 20

03

4Q 20

03

1Q 20

04

2Q 20

04

3Q 20

04

4Q 20

04

1Q 20

05

2Q 20

05

3Q 20

05

4Q 20

05

1Q 20

06

2Q 20

06

3Q 20

06

Source: Orbis

Table 186: Orbis: Forecast upgrade

2007E 2008E New Old Ch. (%) New Old Ch. (%)Sales 1,262.3 1,156.7 9.1 1,394.9 1,260.5 10.7EBITDA 318.9 260.5 22.4 368.4 295.4 24.7EBIT 180.8 122.5 47.6 239.2 166.1 44.0Net profit 145.4 95.4 52.4 197.0 133.5 47.6


We are upgrading our 2007-2008 revenue forecast for Orbis by 10% based on favourable trends in the Polish hospitality industry (increasing RevPar, growing number of business and domestic traffic). Following the PLN 32m increase in Orbis’ forecast after the Hotel Monopol disposal, we are increasing our EBITDA estimates to reflect potential upcoming property divestures. In 2007, Orbis intends to sell, among others, Hotel Beskid in Nowy Sacz, Hotel Silesia in Katowice and a 10,000m2 plot in Warsaw.

Table 187: Orbis: Profit & loss account PLNm 2005E 2006E 2007E 2008ERevenues 996.4 1,076.3 1,262.3 1,394.9COGS 755.8 739.8 792.6 835.1Gross profit 240.6 336.6 469.7 559.8SG&A 205.9 216.9 241.2 265.6EBITDA 265.9 257.5 318.9 368.4Personnel 287.4 285.7 276.8 302.9Depreciation 130.2 137.8 138.1 129.3EBIT 135.7 119.7 180.8 239.2Net financials (9.7) (3.1) (1.0) 4.5Pre-tax profit 126.0 116.6 179.8 243.7Minorities (0.2) (0.2) (0.3) (0.4)Tax 28.0 22.1 34.2 46.3Net profit 97.8 94.3 145.4 197.0


Table 188: Orbis: Balance sheet summary

PLNm 2005E 2006E 2007E 2008ECurrent assets 216.9 275.7 449.3 778.3Fixed assets 1,939.1 2,007.7 2,115.3 2,093.2Long-term deferred charges 21.4 23.1 27.1 29.9Total assets 2,177.9 2,307.0 2,592.2 2,901.9Current liabilities 171.6 181.9 205.9 223.0Deferred income 0.2 0.2 0.2 0.2Long-term liabilities 273.2 310.7 385.7 451.7Provisions 68.2 73.7 86.4 95.5Equity 1,662.7 1,738.4 1,911.6 2,128.7Minority interest 2.0 2.2 2.4 2.8Total liabilities and equity 2,177.9 2,307.0 2,592.2 2,902.0Net debt (cash) 228.6 212.2 124.9 (130.0)


Table 189: Orbis: Cash flow summary

PLNm 2005E 2006E 2007E 2008ECash flow from operations 100.3 238.9 299.3 337.7Cash flow from investment (34.8) (203.9) (239.8) (102.9)Cash flow from financing (24.1) 18.9 102.8 86.1Net change in cash 41.4 53.9 162.3 320.9



2004 2005 2006E 2007E 2008ERevenues (US$m) 56.4 95.6 102.8 183.8 355.9 Operating profit (US$m) 49.5 195.8 295.0 281.9 734.3 Net profit (US$m) 36.0 140.1 233.2 194.2 524.5 BV per share (US$) 2.15 2.73 4.25 5.13 7.51NAV per share (US$) n.a. n.a. 4.34 5.31 8.57EPS (US$) 0.18 0.70 1.06 0.88 2.38DPS (US$) 0.00 0.00 0.00 0.00 0.00ROE (%) 10.5 29.2 31.5 18.8 37.7P/BV (x) 6.7 5.3 3.4 2.8 1.9P/NAV (x) n.a. n.a. 3.3 2.7 1.7P/E (x) 79.9 20.7 13.7 16.4 6.1EV/Sales (x) 55.9 32.9 30.6 17.1 8.9EV/EBIT (x) 63.6 16.1 10.7 11.2 4.3 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0

Shareholder structure: GTC RE 46.4%, ING OFE 5.0%, CU OFE 6.0%

Investment case: GTC has been acquiring land for new developments at a rate that has exceeded our expectations. In 4Q 2006 alone, the company has acquired sufficient sites to allow for the development of 105,000m2 (economic ownership of GTC) in Poland, the Czech Republic and Romania, representing ca. 15% of GTC’s total end-2009E leaseable area. We have moved our cut-off date for projects one year forward from 2008 to include 2009 in our valuation, which was the main reason for the increase of our target price to PLN 43. We are upgrading our recommendation for GTC to a HOLD.

Recent developments: In 4Q 2006 GTC acquired two sites in Katowice, the seventh Polish city in which the company has operations, which will allow it to develop 50,000m2 of combined office and residential space. In addition, GTC’s Czech subsidiary (in which GTC holds a 30% stake) purchased a plot of land in Prague for the development of a 120,000m2 shopping and office complex. Furthermore, in Romania, GTC has purchased land for the development of a 25,000m2 shopping mall (a project in which GTC will hold a 75% stake).

4Q 2006 Preview and outlook: We are expecting a softer quarter for GTC in terms of reported earnings, given the disposal of MBP and the lack of new project openings that could boost the bottom line via revaluation gains. We are expecting US$ 26.7m in revenues and US$ 2m in net profit. In 2007 the project that is likely to have the greatest impact on the company’s financials will be Avenue Mall, a 26,000m2 large shopping mall in Zagreb. However, since the revenue from the sale of MBP has been recognised in 2006, we are expecting a decline in GTC’s earnings in 2007 ahead of their explosion in 2008.

Valuation: We have moved our cut-off date for new projects forward by one year to 2009, which – combined with the recently announced projects – was the primary justification for our increase in GTC’s target price to PLN 43. We have also increased our residual capex assumption to US$ 200m (up from US$ 130m), representing the potential for annual development of ca. 100,000m2.

GTC Real estate Poland


Target price: PLN 43 (Previously: PLN 35.5)

WIG index 49,560 # of shares 42.0m MCAP PLN 9.3bn US$ 3.2bn Free float PLN 5.0bn US$ 1.7bn GTC PW / GTCA.WA

15

20

25

30

35

40

45

50


GTC

80

130

180

230


GTC WIG

(Rebased to 100)

Analyst Marcin Szortyka Tel. +48 22 520 9972 [email protected] http://research.ca-ib.com

Developing above expectations. Upgrade to HOLD.

11 January 2007

Company Update

GTC January 2007

102

Table 190: GTC: 4Q 2006 Results preview

US$m 4Q 2006E 4Q 2005 Ch. YoYRevenues 26.7 27.9 (4.5)Operating profit excluding revaluation

8.5 11.5 (25.7)

Operating profit including revaluation

8.5 76.1 (88.8)

Net profit 2.3 60.2 (96.2)

Source: GTC, CA IB estimates

We are expecting a softer quarter for GTC in terms of reported earnings, given the disposal of MBP and the lack of new project openings that could boost the bottom line via revaluation gains. We are expecting US$ 26.7m in revenues and US$ 2m in net profit.

Table 191: GTC: Forecast change

US$m 2007 2008 New Old Ch. New Old Ch.Revenues 183.8 258.9 (29.0) 355.9 347.6 2.4 Rental 64.4 98.3 (34.5) 131.3 175.8 (25.3) Development 119.4 160.6 (25.7) 224.5 171.8 30.7 Profit excluding. revaluation

83.8 41.1 103.7 122.9 76.7 60.1

Profit including revaluation

281.9 258.7 9.0 734.3 411.8 78.3

Net profit (equity holders)

223.9 191.7 16.8 574.0 299.3 91.8


We are amending our 2007-2008 financial forecasts for GTC. The main changes for the year 2007 are the removal of one quarter of the consolidation of MBP, as well as the incorporation of delays into GTC’s original schedule of completed projects. These revisions result in a 29% decrease in our expected revenues. Our operating profit increase stems mainly from the increased profitability of the residential segment. Having moved part of the projects from 2007 to 2008, as well as having applied lower yields for GTC’s premises, we are upgrading our net profit for GTC 92% to US$ 574m.

Table 192: GTC: Profit & loss account

US$m 2005 2006E 2007E 2008ERevenues from operations 95.6 102.8 183.8 355.9 Rental 70.4 81.1 64.4 131.3 Development 25.2 21.7 119.4 224.5Cost of operations (38.6) (39.2) (119.2) (219.5) Rental (19.4) (23.2) (19.3) (39.4) Development (19.2) (16.0) (99.9) (180.1)Gross margin 57.1 63.6 109.0 166.0Selling expenses (3.5) (3.3) (5.5) (10.7)Administration expenses (7.1) (17.3) (14.7) (28.5)Share based payment (1.9) (3.1) (5.0) (4.0)Revaluation gains 150.9 252.5 198.2 611.4Other income, net 0.3 2.5 0.0 0.0Profit before revaluation 44.9 42.5 83.8 122.9Profit from cont. operations 195.8 295.0 281.9 734.3Foreign currency gain, net (2.5) 7.4 0.0 0.0Financial income, net (15.5) (19.0) (6.4) (21.9)Share of associates 0.5 2.0 4.3 5.2Profit before taxation 178.3 290.5 279.8 717.5Taxation (34.2) (53.7) (56.0) (143.5)Profit for the period 144.1 236.8 223.9 574.0 Equity holders 140.1 233.2 194.2 524.5 Minority interest 3.9 3.7 29.7 49.5


Table 193: GTC: Balance sheet

US$m 2005 2006E 2007E 2008EInvestment property 683 702 1,075 2,420PPE 150 201 409 48Investment in associates 20 21 26 31Other non-current assets 28 19 20 20Non-current assets 881 944 1,529 2,519Inventory 37 93 53 81Other current assets 67 51 51 51Cash and cash equivalents 73 444 285 246Current assets 178 588 389 377Total assets 1,058 1,532 1,919 2,896Total equity 546 936 1,130 1,655Long-term loans 402 422 543 776Deposits from tenants 4 4 3 7Long term payable 1 1 1 1Deferred tax liability 41 86 132 297Long-term liabilities 447 513 679 1,080Trade and other payables 24 43 54 82Short-term loans 20 25 36 52Accruals 5 5 9 18Other 16 10 10 10Current Liabilities 65 83 109 161Total equity and liabilities 1,058 1,532 1,919 2,896



2004 2005 2006E 2007E 2008ERevenues (PLNm) 332.1 257.9 339.7 450.0 773.5 Operating profit (PLNm) (24.1) 292.0 400.4 506.5 464.2 Net profit (PLNm) 26.4 194.4 271.5 361.5 303.8 BV per share (PLN) 17.2 22.3 28.8 37.4 44.6NAV per share (PLN) n.a. n.a. 41.2 56.6 80.4EPS (PLN) 0.63 4.63 6.46 8.61 7.23DPS (PLN) 0.00 0.00 0.00 0.00 0.00ROE (%) 3.6 23.4 25.3 26.0 17.6P/BV (x) 5.3 4.1 3.2 2.4 2.0P/NAV (x) n.a. n.a. 2.2 1.6 1.1P/E (x) 144.8 19.7 14.1 10.6 12.6EV/Sales (x) 13.5 17.4 13.2 10.0 5.8EV/EBIT (x) (186.1) 15.4 11.2 8.9 9.7Dividend yield (%) 0.0 0.0 0.0 0.0 0.0

Shareholder structure: Michał Sołowow 41.0%, ING NN OFE 9.9%, PZU OFE 8.8%, CU OFE 7.7%, BZ WBK AIB 5.0%

Investment case: Echo has outperformed the WIG index by 13% in 4Q 2006, supported by strong 3Q 2006 revaluation gains which revealed faster than anticipated property price appreciation. While we’re positive about the long-term fundamentals of the real estate developer, we’re downgrading Echo to a HOLD, mainly due to the recent price performance.

Recent developments: Echo has recently announced it plans to redevelop a currently held shopping centre in Piotrkow Trybunalski. The project with gross leaseable area of 37,000m2 will – in addition to 120 retail shops – contain a multiplex as well as recreational space. Construction works are expected to commence in 2007 while the completion of the project is scheduled for 2009.

4Q 2006 Preview and outlook: We are expecting Echo to post revenues of PLN 79.2m in 4Q 2006. In addition, Echo’s bottom line is likely to be boosted by the revaluation gains related to the opening of the 13,200m2 Pasaz Swietokrzyski shopping centre in Kielce. We estimate Echo’s revaluation gains at PLN 25.8m. We are expecting operating profit before revaluation gains of PLN 31.6m, and PLN 55.3m including the profit from revaluation. On the bottom line, we are expecting PLN 32.1m. Next year’s results should be boosted mainly by the opening of Echo’s flagship shopping mall project Pasaz Grunwaldzki in Wroclaw (47,900m2).

Valuation: We have moved our cut-off date one year forward, i.e. from 2008 to 2009, which was the primary justification for increasing our target price by 10% to PLN 96. We are upgrading our 2007 and 2008 profit forecasts based on faster than expected yield compression, as well as inclusion of the profits from the disposal of the Polkomtel building in 2007 (previously we assumed the disposal of the property in 2006). Echo is trading at a 2007E P/NAV of 1.6x, which diminishes to 1.1x in 2008E.

Echo Investment Real estate Poland

PLN 91 Hold (Downgrade from Buy)


WIG index 49,560 # of shares 42.0m MCAP PLN 3.8bn US$ 1.3bn Free float PLN 2.3bn US$ 0.8bn ECH PW / EPRS.WA

40

50

60

70

80

90

100


Echo

90

140

190

240


Echo WIG

(Rebased to 100)

Analyst Marcin Szortyka Tel. +48 22 520 9972 [email protected] http://research.ca-ib.com

Waiting for the trigger. Downgrade to HOLD.

11 January 2007

Company Update

Echo Investment January 2007

104

Table 194: Echo: 4Q 2006 Results preview

PLNm 4Q 2006E 4Q 2005 Ch. YoYRevenues 79.2 59.8 32.5 Operating profit excluding revaluation

31.6 29.7 6.4

Operating profit including revaluation

55.3 29.8 85.9

Net profit 32.1 15.8 103.8

Source: Echo, CA IB estimates

We are expecting Echo to post revenues of PLN 79.2m in 4Q 2006. In addition, Echo’s bottom line is likely to be boosted by the revaluation gains related to the opening of the 13,200m2 Pasaz Swietokrzyski shopping centre in Kielce. We estimate revaluation gains in Echo at PLN 25.8m. We are expecting operating profit before revaluation gains of PLN 31.6m, and PLN 55.3m including the profit from revaluation. On the bottom line, we are expecting PLN 32.1m.

Table 195: Echo: Forecast revision

2007 2008 New Old Ch.

YoYNew Old Ch.

YoYRevenues 450.0 447.7 0.5 773.5 770.9 0.3Revaluation gains 336.2 288.6 16.5 211.5 175.2 20.7Operating profit 506.5 457.5 10.7 464.2 411.9 12.7Net income 361.5 355.3 1.7 303.8 290.2 4.7


We are upgrading our 2007 and 2008 forecasts based on faster than expected yield compression revealed in 3Q 2006 results, as well as inclusion of the profits from the disposal of the Polkomtel building in 2007 (previously we assumed the disposal of the property in 2006).

Table 196: Echo: Profit & loss account

2005 2006E 2007E 2008EOperating income 257.9 339.7 450.0 773.5Operating expenses (108.1) (151.7) (211.2) (438.5)Gross profit (loss) on sales 149.8 188.0 238.8 334.9Profit on real estate sales 63.7 11.6 0.0 0.0Real estate revaluation 101.3 258.6 336.2 211.5Selling expenses (8.5) (8.8) (12.3) (21.1)G&A expenses (28.8) (42.8) (48.3) (53.1)Other operating income 14.4 (6.2) (8.0) (8.0)Operating profit 292.0 400.4 506.5 464.2Financial income 8.2 6.6 3.5 1.7Financial expenses (43.0) (61.9) (63.7) (90.8)Exchange gains 16.1 (6.6) 0.0 0.0Revaluation of goodwill (6.4) (0.0) 0.0 0.0Pre-tax profit 266.8 338.6 446.3 375.0Income tax (55.8) (64.5) (84.8) (71.3)Net profit (loss) 211.0 274.2 361.5 303.8 Minority shareholders 16.6 2.7 0.0 0.0 Parent company 194.4 271.5 361.5 303.8


Table 197: Echo: Balance sheet summary

2005 2006E 2007E 2008EFixed asses, of which: 1,678.9 1,968.6 2,900.1 3,834.7 Tangible fixed assets 245.1 285.4 488.7 129.0 Investment real estate 1,400.4 1,649.8 2,377.9 3,672.2Current assets, of which 470.8 462.2 399.7 334.2 Inventories 170.6 237.8 292.5 193.4 Tax receivables 35.2 35.2 35.2 35.2 Trade receivables 13.8 18.2 24.1 41.4 Cash 242.5 162.3 39.2 55.5Total assets 2,149.7 2,430.8 3,299.8 4,168.8Total equity 935.2 1,209.4 1,570.9 1,874.7Provisions 156.8 179.2 221.0 287.9Long-term liabilities, of which: 714.3 714.3 1,161.6 1,618.2 Financial liabilities 685.0 685.0 1,132.4 1,588.9Short-term liabilities, of which: 343.4 328.0 346.2 388.1 Financial liabilities 153.0 153.0 153.0 153.0 Tax liabilities 57.5 63.2 69.6 76.5 Trade liabilities 27.9 36.7 48.6 83.6 Other liabilities 105.0 75.0 75.0 75.0Total liabilities and equity 2,149.7 2,430.8 3,299.8 4,168.8



2003 2004 2005E 2006E 2007E 2008ERevenues (PLNm) 306.9 371.2 537.2 722.3 853.7 1,229.3EBIT (PLNm) 17.8 23.6 71.5 166.9 236.9 294.0Net profit (PLNm) 7.0 10.6 52.2 127.7 190.7 236.4EPS (PLN) 0.32 0.48 2.39 5.73 7.76 9.63CEPS (PLN) 0.38 0.55 2.47 5.80 7.85 9.75BVPS (PLN) 3.23 3.50 6.10 19.49 27.25 35.71P/E (x) 460.8 304.0 61.6 25.7 18.9 15.3P/CE (x) 389.4 266.6 59.6 25.3 18.7 15.1P/BV (x) 45.5 42.0 24.1 7.5 5.4 4.1EV/Sales (x) 11.5 9.5 6.6 4.9 4.1 2.9EV/EBITDA (x) 186.0 140.9 48.3 21.0 14.8 11.9Dividend yield (%) 0.0 0.0 0.0 0.0 0.8 1.0

Shareholder structure: Dom Development B.V. 63.1%

We initiated coverage of Dom Development with our research report on 15 December 2006. Dom Development is a leading residential property developer in Warsaw, with an approximate 10% market share. Benefiting from the rebound in the residential market in Poland, the company nearly doubled revenues and increased its net profit seven-fold between 2003 and 2005. Dom Development is trading at 2007E and 2008E P/E ratios of 18.9x and 15.3x, respectively. Although these multiples represent premiums to its international peers, we note that the company boasts a 3-year EPS CAGR of 59% versus the average in our peer group of negative 2%. We rate Dom Development as a HOLD with a DCF-based 12-month target price of PLN 150.

• The rebound in the residential development market in Poland is continuing, fuelled by the solid fundamentals of the Polish economy (we expect GDP growth of 5.3% in 2006) and seemingly boundless mortgage lending (the cumulative value of mortgages has increased by 36% YTD). Warsaw, accounting for 30% of the Polish residential development market, is especially attractive as its above-average wages and below-average unemployment constantly attract new inhabitants.

• Dom Development’s land bank secures the majority of anticipated earnings for 2006-2008. On the plots of land the company already owns, Dom Development plans to build almost 8,500 residential units within the next five years, of which 3,000 units are currently under construction. The historical cost of land (i.e. far below current levels) on these projects cannot help but bolster margins. We forecast Dom Development to report growth of 145% in net profit to PLN 127.7m in 2006, and 49% to PLN 190.7m in 2007.

• Valuation: Dom Development is trading at our 2007E P/E ratio of 18.9x versus a 3-year EPS CAGR of 59%. Using our DCF-model, we have set a 12-month target price for Dom Development of PLN 150, which offers a 2% upside to the current price. We rate the company as a HOLD.

Dom Development Real Estate Poland

PLN 146.9 Hold


WIG index 49,560 # of shares 24.6m MCAP PLN 3.6bn US$ 1.2bn Free float PLN 756m US$ 254m DOMD.WA / DOM PW

80.0

90.0

100.0

110.0

120.0

130.0

140.0

150.0

160.0

Oct-06 Nov-06 Dec-06

Dom Development

80

100

120

140

160

180

Oct-06 Nov-06 Dec-06

Dom Development WIG

(Rebased to 100)

Analysts Tomasz Krukowski, CFA Tel. +48 22 520 9859 [email protected] Marcin Szortyka Tel. +48 22 520 9972 [email protected] http://research.ca-ib.com

House-hunting

11 January 2007

Company Update

Dom Development January 2007

106

Table 198: Dom Development 4Q Results preview

PLNm 4Q 2006E 4Q 2005 %, YoY 2006E 2005 %, YoYRevenues 200.0 199.8 0.1 722.3 537.2 34.5 EBIT 53.5 43.8 22.0 166.9 71.5 133.4 Net profit 36.3 33.7 7.8 127.7 52.2 144.9

Source: Dom Development, CA IB estimates


PLNm 2004 2005 2006E 2007E 2008ENet revenues 371.2 537.2 722.3 853.7 1,229.3COGS 298.0 407.7 494.5 546.6 846.2Gross profit 73.2 129.5 227.8 307.1 383.2SG&A 48.4 53.5 56.9 65.9 83.0Other operating items (1.1) (4.5) (4.0) (4.3) (6.1)EBITDA 25.1 73.3 168.6 238.9 297.0Depreciation 1.5 1.8 1.7 2.0 2.9EBIT 23.6 71.5 166.9 236.9 294.0Net financials 10.8 6.8 9.2 1.4 2.2Pre-tax profit 12.9 64.7 157.7 235.4 291.9Tax 2.3 12.5 30.0 44.7 55.5Minorities/associates 0.0 0.0 0.0 0.0 0.0Net profit 10.6 52.2 127.7 190.7 236.4



PLNm 2004 2005 2006E 2007E 2008ENet profit 10.6 52.2 127.7 190.7 236.4 Depreciation 1.5 1.8 1.7 2.0 2.9 Other non-cash (20.9) 1.3 1.8 1.3 3.6 Cash earnings (8.9) 55.2 131.2 194.0 243.0 Change in WC (23.7) (90.5) (85.5) (258.9) (230.2)Capex (3.4) (2.2) (2.2) (2.6) (3.7)Free cash flow (35.9) (37.6) 43.6 (67.4) 9.0 Ch. in investment (8.4) 9.2 (0.7) (0.5) (1.4)Dividends 0.0 0.0 0.0 0.0 (28.6)New capital/(debt) 66.3 23.5 217.5 (50.0) (50.0)Change in liquid funds 21.9 (4.8) 260.4 (117.9) (70.9)



PLNm 2004 2005 2006E 2007E 2008EFixed assets 9.3 9.1 9.6 10.1 10.8 Working capital 203.6 294.1 379.6 638.5 868.8 Capital employed 212.8 303.3 389.2 648.6 879.6 Shareholders equity 76.5 133.4 478.6 669.3 877.1 Net debt/(cash) 136.7 163.1 (97.3) (29.4) (8.5)Other liabilities 49.3 68.5 90.8 106.7 152.1 Total assets 419.8 573.7 987.8 1,177.3 1,474.8



2004 2005 2006E 2007E 2008EEBITDA margin (%) 6.8 13.6 23.3 28.0 24.2 EBIT margin (%) 6.4 13.3 23.1 27.7 23.9 Net debt/equity (%) 178.6 122.2 (20.3) (4.4) (1.0)Current ratio (x) 2.9 2.2 3.3 3.5 3.4 Debtors turnover (x) 12.4 9.4 9.4 9.4 9.4 ROE (%) 14.4 49.7 41.7 33.2 30.6 ROCE (%) 5.3 20.2 36.9 36.8 30.9



PLNm 2004 2005 2006E 2007E 2008E 2009ERevenues 128.8 151.6 237.5 489.7 694.0 839.7EBITDA (adjusted) 33.1 35.1 73.2 168.8 248.8 308.1EBITDA (reported)* 33.1 35.1 108.2 168.8 248.8 308.1EBIT 19.7 25.8 94.8 141.8 219.0 278.1Net profit (adjusted) 8.4 19.4 55.1 108.3 159.3 203.0Net profit (reported)* 8.4 19.4 90.1 108.3 159.3 203.0EPS (PLN) 0.08 0.11 0.04 0.04 0.06 0.08CEPS (PLN) 0.20 0.16 0.07 0.05 0.07 0.09BVPS (PLN) 1.65 1.36 0.31 0.35 0.41 0.48P/E adjusted (x) 695.4 299.8 105.4 53.6 36.5 28.6P/CE (x) 11.2 13.4 30.0 42.9 30.7 24.9P/BV (x) 1.3 1.6 7.2 6.3 5.4 4.5EV/Sales (x) 41.7 35.4 22.6 11.0 7.7 6.4EV/EBITDA adjusted (x) 162.1 153.0 73.3 31.8 21.6 17.4

Shareholder structure: Mr. Jerzy Wisniewski 36.4%, BZ WBK AIB Asset Management 7.4%, ING Mutual Fund 7.0%

As 2007 progresses, delivery on management’s high-growth expectations should be key to Bioton’s share price appreciation. Upside opportunities abound with the entrance of Bioton’s insulin and hepatitis B vaccine into new markets underway, the R&D pipeline packed with the human growth hormone, interferon and EPO, and the promising venture into blood serum fractionation (LFO) services. Nevertheless, stiffening domestic competition, still only partial entry into the Russian and Ukrainian insulin markets and less favourable foreign exchange rates pose risks of a bit slower than anticipated earnings growth (our estimated 2006-2009E CAGR recently reduced to 54% vs. 62% – prior to LFO impact). We maintain our HOLD recommendation and 12-month target of PLN 2.48/share. Our valuation incorporates our estimated PLN 0.12 per share impact from the blood serum fractionation services project.

Recent developments: While advantageous in the long run, the regulatory cuts to the maximum prices permitted on imported insulin in Poland narrowed Bioton’s price advantage and, we estimate, slowed the pace of its domestic insulin market share expansion. We have recently lowered our year-end 2006 market share target to 26% (from 28% but with FY 2006 sales volumes close to our original expectations) and 2009 to 39% (from 40%). Intensified price competition from international players has put pressure on domestic insulin profit margins, as indicated by the company’s CEO. We have recently reduced our model gross profit margin on domestic insulin to 70% (from 75%). In Ukraine, delayed acquisition of the majority stake in Indar (ca. 70% Ukrainian insulin market share) rendered our full-year consolidation of this subsidiary premature. We have recently cut our Ukrainian insulin sales estimates 50% to PLN 30m in 2007.

4Q 2006 Outlook: We are expecting net profit of PLN 24m, up four-fold YoY on sales of PLN 86m, and up 76% YoY, driven primarily by market share gains in Poland and the first substantial insulin shipments to Russia (management’s target US$ 15m). The PLN/US$ exchange rate presents the most significant risk to our forecasts.

Valuation: Bioton is trading at our estimated 2006-2009 PEG of 1.98x, a 17% premium to the biotech peer group median (the premium is justified, in our view, by Bioton’s outstanding growth prospects). Comparable peer group analysis implies Bioton’s valuation at PLN 2.05, fairly close to our DCF-based valuation of PLN 2.11, which translates into a 12-month target price of PLN 2.48 per share (including the LFO project). We maintain our HOLD recommendation.

Bioton Biopharmaceuticals Poland

PLN 2.25* Hold


*Pricing as of 9 Jan 2007

WIG index 49,769 # of shares 2,640m MCAP PLN 5,941m US$ 1,994m Free float PLN 2,736m US$ 918m BOTN.WA / BIO PW

0.6

1.0

1.4

1.8

2.2

2.6

3.0


Bioton

70

120

170

220

270

320

370


Bioton WIG

(Rebased to 100)


2007. Time to deliver.

11 January 2007

Company Update

Bioton January 2007

108

Table 203: 4Q Results preview

PLNm 4Q 2006E

4Q 2005

YoY (%)

2006E 2005 YoY (%)

Revenues 85.6 48.7 75.7 237.5 151.6 56.7EBITDA 30.1 13.5 122.6 108.2 35.1 208.7EBIT 26.0 11.0 135.7 94.8 25.8 267.6Net profit 24.1 6.3 283.8 55.1 19.4 184.4- SciGen intangibles revaluation n.a. n.a. n.a. 35.0 n.a. n.a.Net profit (including SciGen's revaluation) 24.1 6.3 283.8 90.1 19.4 365.1EBITDA margin (%) 35.2 27.8 45.6 23.1 EBIT margin (%) 30.3 22.6 39.9 17.0Net margin (%) adj. 28.2 12.9 37.9 12.8

Source: Bioton, CA IB estimates


PLNm 2004 2005 2006E 2007E 2008E 2009ENet revenue 128.8 151.6 237.5 489.7 694.0 839.7COGS (68.7) (70.4) (95.9) (229.0) (324.5) (392.6)Gross profit 60.1 81.2 141.6 260.7 369.5 447.0SG&A (37.6) (54.2) (81.5) (120.4) (151.7) (169.6)Other operating, net (2.8) (1.2) 34.7 1.5 1.1 0.7EBITDA 33.1 35.1 108.2 168.8 248.8 308.1Depreciation (13.4) (9.3) (13.5) (27.0) (29.8) (29.9)EBIT 19.7 25.8 94.8 141.8 219.0 278.1Net financials (8.6) 1.6 7.6 (3.1) (7.2) (6.4)Share in profits of affiliates 0.0 (2.9) 1.1 4.1 5.2 6.3Pre-tax profit 11.1 24.5 103.5 142.8 217.0 278.0Tax (2.7) (5.1) (13.9) (32.3) (52.6) (69.1)Minority interest 0.0 0.0 0.5 (2.2) (5.1) (5.9)Net profit 8.4 19.4 90.1 108.3 159.3 203.0



PLNm 2004 2005 2006E 2007E 2008E 2009ENet profit 8.4 19.4 90.1 108.3 159.3 203.0Depreciation 13.4 9.3 13.5 27.0 29.8 29.9Cash earnings 21.7 28.7 103.6 135.4 189.1 233.0Change in NWC (31.2) (26.2) (31.5) (140.2) (115.6) (82.5)Operations (9.4) 2.4 72.1 (4.8) 73.4 150.5Investments (29.5) (68.9) (433.6) (116.0) (84.6) (32.8)Financing 68.9 48.6 469.0 101.9 37.2 (23.4)Dividends 0.0 0.0 0.0 0.0 0.0 0.0Change in cash 30.0 (17.9) 107.6 (18.9) 26.0 94.3



PLNm 2004 2005 2006E 2007E 2008E 2009EFixed assets 140.4 181.0 704.4 761.8 832.4 922.3Net working capital 76.4 103.8 139.6 292.4 418.2 508.0Capital employed 216.8 284.8 843.91,054.21,250.61,430.2Shareholders equity 183.3 241.6 806.6 914.91,074.21,277.2Debt 33.5 43.2 37.4 139.3 176.5 153.0Marketable securities & cash 25.4 6.3 109.6 78.1 93.9 180.9Total assets 258.0 333.8 939.01,250.51,519.61,751.1


Table 207: Ratios

2004 2005 2006E 2007E 2008E 2009EGross margin (%) 46.7 53.6 59.6 53.2 53.2 53.2EBITDA margin (%) 25.7 23.1 45.6 34.5 35.8 36.7EBIT margin (%) 15.3 17.0 39.9 28.9 31.6 33.1Interest cover (x) 5.7 4.9 29.3 26.7 23.1 28.1Net debt/equity (%) 4.4 15.2 (9.0) 6.7 7.7 (2.2)Current ratio (x) 3.5 3.2 3.6 2.9 2.9 3.1Sales/receivables (x) 1.7 1.6 1.6 1.6 1.6 1.6ROE (%) 6.1 9.1 17.2 12.6 16.0 17.3ROCE (%) 11.1 10.3 16.8 14.9 19.0 20.7



2004 2005 2006E 2007E 2008ERevenue (CZKm) 102,670 125,083 140,647 164,399 176,939EBITDA (CZKm) 39,627 50,157 63,110 73,078 79,850Net profit (CZKm) 13,213 21,452 27,319 31,956 37,742EPS (CZK) 22.3 36.2 46.1 54.0 63.7CEPS (CZK) 61.5 76.4 91.5 102.3 112.9DPS (CZK) 9.0 15.0 23.1 27.0 31.9P/E (x) 41.0 25.3 19.8 17.0 14.4P/CE (x) 14.9 12.0 10.0 8.9 8.1EV/revenue (x) 5.9 4.8 4.5 3.7 3.4EV/EBITDA (x) 15.2 12.0 10.0 8.4 7.5Dividend yield (%) 1.0 1.6 2.5 2.9 3.5FCF yield (%) -0.9 2.3 3.0 6.9 6.8

Shareholder structure: Finance Ministry (67%), free float (33%)

We maintain our BUY recommendation for CEZ with a target price of CZK 1,006/share as CEZ still offers investors exposure to the price convergence story and continuing M&A activity in the sector.

Recent developments: CEZ signed a contract with the government of Republika Srpska to build new and modernise existing power plants in the Gacko area in a JV with local Elektroprivreda Republika Srpska. The total costs of the project are estimated at EUR 1.4bn and CEZ should control 51% of the JV. The contract should be completed by 2015. On a related note, CEZ has progressed to the next round in a tender to build a new 2,100MW power plant in Kosovo. Unfortunately, CEZ failed to agree on a price in the potential acquisition of package of eight electricity distributors in Ukraine. The government formation talks are also important for CEZ primarily due to the presence of the Greens Party. The government-proposed agenda calls for maintenance of the current mining limits and no decision on the construction of new nuclear power plants. However, as we consider it to be highly unlikely that this government will win the vote of confidence, the market should view these pre-agreements neutrally.

Valuation. CEZ currently trades at 2007E EV/EBITDA of 8.4x, which is an approximately 17% premium over West European utilities, but we continue to advocate that the CEZ premium is deserved given its faster growth, higher margins, free cash flow yield and ROE.

CEZ Utilities Czech Republic

CZK 936.6 Buy

Target price: CZK 1,006

PX index 1,600 # of shares 592m MCAP CZK 541.9bn US$ 25.5bn Free float CZK 175.6bn US$ 8.3bn CEZPsp.PR / CEZP CD

560

660

760

860

960

1,060

Jan-06 May-06 Aug-06 Dec-06

CEZ

75

85

95

105

115

125

135

Jan-06 May-06 Aug-06 Dec-06

CEZ PX-D

(Rebased to 100)

Analyst Dan Karpisek, CFA Tel. +420 22111 2570 [email protected] http://research.ca-ib.com

Investment story remains untouched

11 January 2007

Company Update

Cez January 2007

110

Figure 9: Germany 2008 baseload forward (EUR/MWh)

47

49

51

53

55

57

59

61

Jan-0

6

Feb-06

Mar-06

Apr-06

May-06

Jun-0

6Ju

l-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

Jan-0

7

Source: Bloomberg

Figure 10: CO2 vouchers 2008 forward (EUR)

14161820222426283032

Jan-0

6

Feb-06

Mar-06

Apr-06

May-06

Jun-0

6Ju

l-06

Aug-06

Sep-06

Oct-06

Nov-06

Dec-06

Jan-0

7

Source: Bloomberg

Table 208: Income statement

CZKm 2004 2005 2006E 2007E 2008ERevenue 102,670 125,083 140,647 164,399 176,939EBITDA 39,627 50,157 63,110 73,078 79,850Depreciation (19,842) (20,737) (23,904) (25,667) (25,806)EBIT 19,785 29,420 39,206 47,411 54,044Pre-tax profit 18,501 27,323 37,423 43,916 51,406Net profit (loss) 13,213 21,452 27,319 31,956 37,742

Source: CEZ, CA IB estimates


Assets (CZKm) 2004 2005 2006E 2007E 2008EFixed assets 239,196 259,091 293,696 294,976 301,986Intangible assets 3,379 6,057 6,057 6,057 6,057Financial investment 28,437 14,740 15,050 15,050 15,050Inventory 4,057 4,427 5,820 6,570 7,293Receivables 9,189 14,792 15,413 18,016 19,391Other assets 6,050 8,189 8,324 8,324 8,324Cash & equivalent 8,942 16,791 13,389 31,876 46,870CO2 emission rights 0 134 0 0 0Total assets 299,250 324,221 357,750 380,870 404,971Share capital 59,218 58,237 58,237 58,237 58,237Retained earnings 99,666 96,998 109,567 123,226 139,204Net profit 13,213 21,452 27,319 31,956 37,742Total equity 172,097 176,687 195,122 213,419 235,183Provisions 29,441 35,864 43,246 43,529 43,755Payables 12,587 16,243 17,340 20,268 21,814Debt 41,819 38,739 61,515 62,497 62,546Other liabilities 36,956 42,070 31,161 31,161 31,161Minority interests 6,350 14,618 9,367 9,997 10,512Total liabilities & equity 299,250 324,221 357,750 380,870 404,971


Table 210: Cash flow statement

CZKm 2004 2005 2006E 2007E 2008EOperating cash flow 28,445 57,404 41,525 58,111 63,739Investing cash flow (32,620) (29,613) (58,820) (26,947) (32,816)Financing cash flow 9,103 (19,942) 13,893 (12,677) (15,929)Net change in cash 4,928 7,849 (3,402) 18,487 14,994


Table 211: Ratio summary

2004 2005 2006E 2007E 2008EROIC (%) 2.4 3.6 4.8 5.8 6.7ROE (%) 8.1 12.3 14.7 15.6 16.8EBITDA margin (%) 38.6 40.1 44.9 44.5 45.1EBIT margin (%) 19.3 23.5 27.9 28.8 30.5Revenue (Ch. % YoY) 40.5 71.2 92.5 16.9 7.6EBITDA (Ch. % YoY) 38.2 75.0 120.2 15.8 9.3EBIT (Ch. % YoY) 30.8 94.4 159.1 20.9 14.0Net profit (Ch. % YoY) 29.5 110.2 167.7 17.0 18.1Payout ratio (%) 40.3 41.4 50.0 50.0 50.0



111

Notes


112

Notes


113

Notes


114

Distribution of CA IB’s current stock ratings

Coverage Universe

Buy Hold Sell Coverage In Transition Restricted

Count 39 53 17 9 3

% of total 32.2 43.8 14.0 7.4 2.5 Investment Banking Clients*

Buy Hold Sell Coverage In Transition Restricted

Count 1 6 2 1 1

% of total 9.1 54.5 18.2 9.1 9.1 * Investment Banking Clients are companies from whom CA IB International Markets Ltd. or CA IB Corporate Finance Ltd. or an

affiliate has received investment banking compensation within the last 12 months. Please note that CA IB’s stock ratings have to be interpreted individually by each investor in the context of their investment policy, the existing portfolio and risk considerations.

History of CA IB's rating of Agora History of CA IB's rating of AmRest

25

35

45

55

65

75

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Agora STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

1525354555657585

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Amrest STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

Source: Datastream, CA IB


History of CA IB's rating of Bank Handlowy History of CA IB's rating of Bank Millennium

50

60

70

80

90

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Bank Handlowy STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

2

3

4

5

6

7

8

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Bank Millennium STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price




115

History of CA IB's rating of Bioton History of CA IB's rating of BRE

0.1

0.61.11.6

2.12.6

3.1

Jan-

04

Apr-04

Jul-0

4

Oct-04

Jan-

05

Apr-05

Jul-0

5

Oct-05

Jan-

06

Apr-06

Jul-0

6

Oct-06

Jan-

07

Bioton STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

50100150200250300350400

Jan-

04

Apr-04

Jul-0

4

Oct-04

Jan-

05

Apr-05

Jul-0

5

Oct-05

Jan-

06

Apr-06

Jul-0

6

Oct-06

Jan-

07

BRE STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price



History of CA IB's rating of Budimex History of CA IB's rating of BZWBK

2535455565758595

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Budimex STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

50

100

150

200

250

Jan-

04

Apr-0

4Ju

l-04

Oct-04

Jan-

05

Apr-0

5Ju

l-05

Oct-05

Jan-

06

Apr-0

6Ju

l-06

Oct-06

Jan-

07

BZWBK STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price



History of CA IB's rating of CCC History of CA IB's rating of CEDC

51525354555

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

CCC STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

101520253035

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

CEDC STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price



History of CA IB's rating of CEZ History of CA IB's rating of ComArch

100300500700900

1,100

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

CEZ STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

25

75

125

175

225

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

ComArch STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price




116

History of CA IB's rating of ComputerLand History of CA IB's rating of Dom Development

8090

100110120130

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

ComputerLand STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

100

120

140

160

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Dom Development STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price



History of CA IB's rating of Echo Investment History of CA IB's rating of Elstar Oils

1030507090

110

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Echo Investment STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

0

5

10

15

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Elstar Oils STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price



History of CA IB's rating of EMAX History of CA IB's rating of Eurocash

70

90

110

130

150

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

EMAX STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

2

4

6

8

10

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Eurocash STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price



History of CA IB's rating of Grajewo History of CA IB's rating of GTC

102030405060

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Grajewo STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

5

15

25

35

45

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

GTC STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price




117

History of CA IB's rating of IGA History of CA IB's rating of IMPEL

255075

100125150

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

IGA STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

5

15

25

35

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Impel STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price



History of CA IB's rating of ING BSK History of CA IB's rating of Kety

300

400

500

600

700

800

Jan-

04

Apr-0

4Ju

l-04

Oct-04

Jan-

05

Apr-0

5Ju

l-05

Oct-05

Jan-

06

Apr-0

6Ju

l-06

Oct-06

Jan-

07

ING Bank Slaski STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

100

125

150

175

200

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Kety STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price



History of CA IB's rating of KGHM History of CA IB's rating of Kredyt Bank

1030507090

110130150

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

KGHM STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

5

10

15

20

25

Jan-

04

Apr-0

4Ju

l-04

Oct-04

Jan-

05

Apr-0

5Ju

l-05

Oct-05

Jan-

06

Apr-0

6Ju

l-06

Oct-06

Jan-

07

Kredyt Bank STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price



History of CA IB's rating of Lotos Group History of CA IB's rating of LPP

20

30

40

50

60

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Lotos Group STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

400

600

800

1,000

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

LPP STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price




118

History of CA IB's rating of MOL History of CA IB's rating of Mondi Packaging

5,00010,00015,00020,00025,00030,000

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

MOL STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

30

50

70

90

110

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Mondi Packaging STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price



History of CA IB's rating of Netia History of CA IB's rating of NFI EMPiK Media & Fashion

3

4

5

6

7

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Netia STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

468

10121416

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

NFI EMPiK Media & Fashion STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price



History of CA IB's rating of Orbis History of CA IB's rating of PBG

203040506070

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Orbis STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

1060

110160210260

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

PBG STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price



History of CA IB's rating of PGNiG History of CA IB's rating of PKN

2

3

4

5

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

PGNiG STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

203040506070

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

PKN STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price




119

History of CA IB's rating of PKO BP History of CA IB's rating of Polimex

15

25

35

45

55

Jan-

04

Apr-0

4Ju

l-04

Oct-04

Jan-

05

Apr-0

5Ju

l-05

Oct-05

Jan-

06

Apr-0

6Ju

l-06

Oct-06

Jan-

07

PKO BP STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

10

60

110

160

210

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Polimex STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price



History of CA IB's rating of Prokom History of CA IB's rating of TPSA

50

100

150

200

250

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Prokom STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

10

15

20

25

30

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

TPSA STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price



History of CA IB's rating of TVN History of CA IB's rating of Zaklady Azotowe Pulawy

51015202530

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

TVN STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price

40

50

60

70

80

Jan-0

4

Apr-04

Jul-0

4

Oct-04

Jan-0

5

Apr-05

Jul-0

5

Oct-05

Jan-0

6

Apr-06

Jul-0

6

Oct-06

Jan-0

7

Zaklady Azotowe Pulawy STRONG BUYBUY HOLDREDUCE SELLRESTRICTED UNDER REVIEWCOVERAGE IN TRANSITION Target Price




120

Other regulatory disclosures

1 2 3 4 5 6

Agora No No No No No No

AmRest No Yes Yes No No No

Bank Handlowy No No Yes No No No

Bank Millennium No No No No No No

Bioton Yes Yes Yes No No No

BRE No No No No No No

Budimex No No No No No No

BZWBK No No No No No No

CCC No No No No No No

CEDC No No No No No No

CEZ No Yes Yes No No No

ComArch No No No No No No

ComputerLand No No No No No No

Dom Development Yes No No No No No

Echo Investment No No No No No No

Elstar Oils Yes No No No No No

EMAX No No No No No No

Eurocash No No Yes No Yes No

Grajewo No Yes No No No No

GTC Yes No No No No No

IGA No No No No No No

IMPEL No No No No No No

ING BSK No No No No No No

Kety No No No No No No

KGHM No No Yes No No No

Kredyt Bank No No No No No No

Lotos Group No No Yes No No No

LPP No No No No No No

MOL Yes Yes No No No No

Mondi Packaging No No No No No No

Netia No No No No No No

NFI EMPiK Media &

Fashion

Yes Yes Yes No No No

Orbis No No No No No No

PBG No No No No No No

PGNiG No No Yes No No No

PKN No No Yes No No No

PKO BP No No Yes No No No

Polimex No No No No No No

Prokom No Yes Yes No No No

TPSA No No Yes No No No

TVN No No No No No No

Zaklady Azotowe Pulawy No No Yes No No No

Legend: 1) CA IB International Markets Ltd. or an affiliate was a manager or co-manager of a public offering of securities of this company

within the past 12 months. 2) CA IB International Markets Ltd. or an affiliate has received compensation for investment-banking services within the past 12

months. 3) CA IB International Markets Ltd. or an affiliate acts as a stabilising manager, market maker or designated sponsor of the

analysed securities on the stock exchange. 4) CA IB International Markets Ltd. and/or an affiliate together own at least 5% of the equity securities of the company. 5) The analyst owns securities in the company they cover in this report. The analyst is on the supervisory/management board of the company they cover.

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The prices or values of the securities and any income generated therefrom may go down as well as up and can fluctuate and fall against the investor. There may be no income at all or it may be paid from capital. The securities or investments may cause the investor to lose the amount invested, as in addition past performance is not necessarily a guide to future performance. Changes in exchange rates may have an adverse effect on the value, price or income of the securities or investments. If taxation is referenced, the levels, basis for and relief from taxation may change. Any investment or security referred to in this document may not be suitable for every investor who receives it, and if in doubt the investor must seek advice from their investment adviser. Investors should be aware of the additional and special risks associated with securities and investments in emerging or developing markets. The securities or investments referred to in this document may be difficult to sell or realise, and information about them or the risks to which they are exposed may be unreliable or difficult to obtain. Investors should make themselves aware of any local laws governing such securities or investments.

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Recommendations and Stock Ratings

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Equity Research Sector Analysts Strategists

Head of Equity Research Mark Robinson +44 20 7309 7873

Deputy Head of Research Tomasz Bardziłowski +48 22 520 9979

Banks Marcin Jabłczyński +48 22 520 9962Katalin Dani +36 1 374 7930Adriana Marin +40 21 206 4698Paul Wessely +43 50505 82331Selim Yazici +44 20 7309 6512

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IT Przemysław Sawała-Uryasz +48 22 520 9960

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Telecoms Anna Bossong +44 20 7309 7840

Equity Mark Robinson +44 20 7309 7873Roger Monson +44 20 7309 7844Ruben Zakharian +44 20 7309 7857Patrick Berger +44 20 7309 7843Piotr Dzieciolowski +44 20 7309 7855

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Head of Sales Regional Research

Europe Fritz Schweiger +44 20 7972 0208

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Croatia Goran Šaravanja +385 1 4897 809

Czech Republic Dan Karpisek +420 22 111 2570Pavel Sobíšek +420 22 111 2504

Hungary Katalin Dani +36 1 374 7930Róbert Réthy +36 1 374 7934Gyula Toth +43 50505 82362

Poland Tomasz Bardziłowski+48 22 520 9979 Marcin Jabłczyński +48 22 520 9962 Tomasz Krukowski + 48 22 520 9859 Przemysław Sawała-Uryasz 520 9960 Marcin Szortyka +48 22 520 9972 Łukasz Wachełko + 48 22 520 9965 Piotr Chwiejczak +43 50505 82361

Romania Adriana Marin +40 21 206 4698 Carmen Arsene +40 21 206 4697 Simon Quijano-Evans+43 50505 82364

Russia Roger Monson +44 20 7309 7844

Slovenia Katalin Dani +36 1 374 7930Piotr Dzieciolowski +44 20 7309 7855Goran Šaravanja +385 1 489 7809

Turkey Hanzade Kılıçkıran +44 20 7309 7854Selim Yazici +44 20 7309 6512Simon Quijano-Evans +43 50505 82364

Quantitative Analysis Ruben Zakharian +44 20 7309 7857

Head of Sales – Trading Sales – Europe Sales – US

Michel Danechi + 44 20 7309 7810

+44 20 7972 0208

+1 212 672 6140

Documents

Polish Equity Quarterly: 1Q 2007 - PBG SA · Polish Equity Quarterly: 1Q 2007 January 2007 1 Executive summary 2 Investment case 3 Poland strategy 6 Company Updates Oil & Gas/Metals