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Contents
Polish IT 1
Summary 2
Investment case 3
Valuation 8
Companies 19
Asseco Poland ........................................................................................................21
Asseco Slovakia ......................................................................................................53
Asseco Business Solutions .....................................................................................75
ABG.........................................................................................................................87
Comp Safe Support...............................................................................................103
ComArch ...............................................................................................................119
Sygnity...................................................................................................................133
Market overview 147
Disclosures Appendix 160
BUY Asseco Poland/ABG. Despite a positive consensus rating on
Asseco Poland, we believe the market is not pricing in the potential for cost
synergies from its completed merger with Prokom and upcoming merger with
ABG. Our 2008 and 2009 net earnings forecasts are 6.8% and 7.6% above
consensus, respectively. As well as a 2007-10F EPS CAGR of 20.4%,
Asseco Poland offers a healthy 1.9% dividend yield in 2009F, in our opinion.
BUY Comp. Trading at a 9.2% discount to domestic peers, we believe
Comp offers attractively priced exposure to the growing demand for security
solutions and outsourcing. We believe a lower discount is warranted, given
the company’s high profitability compared with peers. We recognise that
execution of long-delayed M&A actions could positively affect the price.
BUY Asseco Business Solutions. With its rigid cost discipline and
strong ERP product offer (both Microsoft- and Oracle-based) for SMEs,
strengthened by the Anica acquisition, we believe ABS is the company bestpositioned
to benefit from the high-growth-potential ERP market. Trading in
line with peers, we find ABS an attractive investment opportunity.
We rate Asseco Slovakia a HOLD given managerial problems with
selected subsidiaries, and we would advise caution on the new M&A targets
to be financed from the SPO. We believe the consensus is overestimating
ComArch’s earnings potential, yet after recent falls we find the stock fairly
valued and rate it a HOLD. Although we see several risks ahead, regarding
the cost-cutting process, we believe Sygnity is moving in the right direction;
we therefore rate it a BUY.
Summary
Recommendations
Based on our analysis and DCF valuations, our 12-month rolling valuations point to
BUY ratings for Asseco Poland (TP of PLN80.0), ABG (TP of PLN7.9, based on the
merger parity), ABS (TP of PLN15.1), Comp (TP of PLN96.7) and Sygnity (TP of
PLN30.8). Our models imply HOLD ratings for Asseco Slovakia (TP of PLN33.0) and
ComArch (TP of PLN92.0).
Key catalysts
The performance of the Polish IT companies is newsflow driven. In the short term, we
expect M&A details and share overhangs to be the price drivers. From mid-July, the
market will start looking at 2Q08 forecasts.
Market prospects
The Polish IT market is underdeveloped, with the annual rate of growth expected to be
at least 10% over the next few years, fuelled by EU subsidies, influencing public
administration and SMEs, and structural changes in industry (eg, deregulation). With
competition from international giants hotting up, we foresee further consolidation in the
industry, in order that players can broaden their product offer and cut costs.
Business model comparison
Proprietary software (standardised versus dedicated) and orientation towards the most
attractive segments are, in our opinion, the key to building a competitive advantage.
High-value-added products help players avoid price competition and margin erosion,
and build client dependency. Lower-value-added services should be hardest hit by
rising competition. We favour Asseco Poland, ABS and Comp over Sygnity. Although
we have BUY ratings on all of these companies, we believe investment in Sygnity
involves the biggest risk, due to its integration-oriented profile.
ING forecasts vs consensus estimates
In our view, positive alpha can be generated by playing against the consensus, which
we think fails to reflect recent developments. We are more optimistic than consensus
on Asseco Poland, where we would argue that consensus has not adjusted for
upgraded cost-synergy targets and the merger with ABG. Our forecasts for Asseco
Slovakia, ABS and ABG are in line with market expectations. We find the consensus
too optimistic on Comp, Sygnity and ComArch. Although for this last company we still
see some downgrades coming, we believe the market has overreacted to negative
newsflow from Comp and Sygnity.
Key risks
Polish IT companies face three big risks. The first is the risk of strengthening foreign
competition, from both international giants and Indian IT companies (Sygnity is the
most exposed). The second relates to HR and the ongoing problem of hiring and
retaining staff, which can require substantial salary increases, putting pressure on
margins (all the companies are exposed, with ComArch so far hurt the most). The third
risk relates to an economic downturn in Poland, which could result in cuts to IT
expenses, mostly in industry (ABS could be the hardest hit).
Investment case
Market prospects
The Polish IT market is underdeveloped, with IT expenditure amounting to
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