Erste Group Bank upgrades Poland’s TDI firm Ciech to 'Buy'

06 December 2011 17:29  [Source: ICIS news]

LONDON (ICIS)--Erste Group Bank has upgraded Poland-based soda ash and toluene di-isocyanate (TDI) producer Ciech from 'Hold' to 'Buy' citing restructuring that should support the company during a downturn, the bank said on Tuesday.

“Despite the fact that Ciech’s core markets did not do well recently, we believe that internal restructuring will support the company during an economic slowdown,” said Erste analyst Tomasz Kasowicz.

Kasowicz also pointed out that Ciech had successfully renegotiated the contract for toluene diamine (TDA) main feedstock deliveries and was currently negotiating an agreement on decreasing costs for steam deliveries in the soda segment.

“Both contracts should improve Ciech’s profitability in future years. Thus, after a heavy drop in the company's stock market price since our last report (-32%), we issue a 'Buy' recommendation,” he added.

Ciech's organic segment was perceived as the weakest in the group due to overcapacity on the TDI market and high oil-linked input costs, according to Kasowicz.

“However, thanks to renegotiation of the contract for TDA deliveries, the organic segment should increase its earnings before interest, tax, depreciation and amortisation (EBITDA) from the zloty (Zl) 11m ($3.3m, €2.5m) expected for 2011 to Zl 34m in 2012,” he said.

Ciech's soda ash segment was set to gain around €5m on annual EBITDA due to new steam purchasing terms, added Kasowicz.

“The unfavourable agreement concerning steam supplies used in the soda ash production process at subsidiary Soda Deutschland Ciech (SDC) have made soda ash production in SDC the most expensive in the Ciech group,” said Kasowicz.

“To change the situation and improve profitability in the soda segment, Ciech management decided to change the cooperation agreement with its main steam supplier in SDC VASA Kraftwerke-Pool,” he added.

($1 = Zl 3.34, €1 = Zl 4.47)


By: Will Conroy
+44 20 8652 3214



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