Meat Industry in Poland

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To proof the Polish meat industry is attractive for portfolio investment.
1. Current macroeconomic situation in Poland
2. Institutional overview
3. Market overview (SWOT analysis of sector, BCG matrix)
4. Corporate analysis of Indykpol and "ZM Henryk Kania"
5. The comparative ratio analysis of Slovakian, German, Hungarian, Czech and Ukrainian, meat companies with Polish representatives on the market.
6. Regression model ( Determining significant production factors that have impact on the production. We assume the higher production, the more attractive the market is. )

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Meat Industry in Poland

  1. 1. Meat Industry in Poland
  2. 2. To proof the Polish meat industry is attractive for portfolio investment Where?  Poland In what?  Meat Industry To whom?  Portfolio investors, who are interested in long term investment.
  3. 3. Why Poland? 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% 580000 600000 620000 640000 660000 680000 700000 720000 740000 GDP of Poland, 2009-2013 Poland Growth rate -1.00% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% Relationship between interest rates and inflation, 2009-2014 Inflation Long-term interest rate Short-term interest rate • World’s 14th most attractive country for investments 2013-2015; • 24th GDP in the world; • Cheap labor cost (7.1 €/hour); • Low taxation (19%); • Stable S&P A-; Moody’s A2.
  4. 4. -0.04 -0.03 -0.02 -0.01 0 0.01 0.02 0.03 0.04 0.05 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% Volatility of exchange rate, 2008-2014 Change of EUR-PLN Volatility of EUR-PLN -0.06 -0.04 -0.02 0 0.02 0.04 0.06 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% Volatility of exchange rate, 2008-2014 Change of RU-PLN Volatility of RU-PLN Why Poland? • 4th biggest meat producer within EU; • Main trading partners – countries of EU. Germany 15% UK 9% Czech Republic 6%France 4% Russia 3% Italy 8% Netherlands 7% China 4% Others 44% Structure of meat export to main trading partners, 2013
  5. 5. Domestic Polish meat market in 2013  27,9 % of the food sector sales  2 344 thousand tons  47 248 zl billion  71,7 kg per capita Capabilities Threats The market has been stable for the past 5 years A strong downward trend of pork and beef meat The increasing tendency of production of poultry Animal diseases and infections Price of Polish meat is about 30% lower than in EU Growth of average market prices of beef and pork meat Per capita consumption of meat can reach 80 kg by 2015 Strong dependence of animal feeding costs, weather, climatic conditions and possible environmental pollutions Expected growth of demand of more quality meat products Embargo from countries-members of Commonwealth of States The growing import of meat products to China and other Asian countries The strong strong concentration of the market
  6. 6. The BCG matrix Low Market Share High LowThegrowthofsalesHigh 1% 2% 8% 19,5% 20% 21% 24% 50% 2%6%7%10%11%34%118% The growth of sales Market Share Indykpol 2% 19,5 % Henryk Kania 34% 8%
  7. 7. KANvsIND
  8. 8. KANvsIND Financial Ratios 2008-2013 IND year P/E bv/share p/b ratio 2008 46,09 0,54 2009 17,49 50,25 0,93 2010 54,99 50,57 1,29 2011 20,00 52,81 0,86 2012 51,21 0,73 2013 3,14 52,58 0,69 KAN year P/E bv/share p/b ratio 2008 7,82 0,93 0,92 2009 16,14 1,40 2,94 2010 8,64 1,47 2,30 2011 2,99 7,07 0,22 2012 34,47 1,09 1,65 2013 32,66 1,22 3,21
  9. 9. KAN&IND vs WIG20 Er(WIG20) = CAGR = (P1/P0)^(1/y) -1 = 10,07% Source: ft.com
  10. 10. INDvsWIG20 E(r) 14% SML ß rf=3,7% 1.78 Er(market) = CAPM= 15,03% Er(IND) = CAGR = 14, 09% OVERpriced! IND *Corr coef highly positive = 0,6 E(r) 12.5% SML ß rf=3,7% 0.9 Er(market) = CAPM= 9,43% Er(IND) = CAGR = 12,53% UNDERpriced! + 3,1% *Corr coef low positive = 0,22 KAN
  11. 11. Impact of external factors on the volatility of Kania and Indykpol Volatility of Indykpol = 0.015768 + 0.071756*RESID(-1)^2 + 0.915586*GARCH(-1) + + 0.672698*EUR + 54.59582*RUB - 0.000104*FTSEFOOD + 0.004149*CACFOOD - 0.000296*WIG20 - 0.000630*MICEXCPG Volatility of ZM Henryk Kania = 0.000683 + 0.151850*RESID(-1)^2 + 0.757839*GARCH(-1) + 1.37E-05*CACFOOD - 1.17E-05*WIG20 -0.015299*EUR Indykpol Henryk Kania MICEX CPG -0.000630 EUR -0.015299 EUR 0.672698 CAC FOOD 1.37E-05 RUB 54.59582 WIG 20 -1.17E-05 WIG 20 --0.000296 FTSE FOOD 0.000104 CAC FOOD 0.004149
  12. 12. 0 50 100 150 200 250 300 350 Agroton (Ukraine) Bonafarm (Hungary) AGROFERT HOLDING AS (CZ) Penta (Slovakia) Tönnies ( Germany) Vion Food (Germany) Henryk Kania (Poland) IndykPol (Poland) Total Assets, million USD 0 20 40 60 80 100 120 140 160 180 Agroton (Ukraine) Bonafarm (Hungary) AGROFERT HOLDING AS (CZ) Penta (Slovakia) Tönnies ( Germany) Vion Food (Germany) Henryk Kania (Poland) IndykPol (Poland) Market Capitalization, million USD 0 1 2 3 4 5 6 7 Agroton (Ukraine) Bonafarm (Hungary) AGROFERT HOLDING AS (CZ) Penta (Slovakia) Tönnies (Germany) Vion Food (Germany) Henryk Kania (Poland) IndykPol (Poland) Net Income, million USD 0 50 100 150 200 250 300 350 Agroton (Ukraine) Bonafarm (Hungary) AGROFERT HOLDING AS (CZ) Penta (Slovakia) Tönnies (Germany) Vion Food (Germany) Henryk Kania (Poland) IndykPol (Poland) Revenue, million USD
  13. 13. 0.000 0.500 1.000 1.500 2.000 2.500 3.000 3.500 4.000 4.500 2007 2008 2009 2010 2011 2012 2013 Current ratio Henryk Kania (Poland) IndykPol (Poland) 0.000 0.200 0.400 0.600 0.800 1.000 1.200 1.400 1.600 1.800 2.000 Current Ratio 2013 -0.5000 -0.4000 -0.3000 -0.2000 -0.1000 0.0000 0.1000 0.2000 0.3000 2007 2008 2009 2010 2011 2012 2013 Operating Profit Margin Henryk Kania (Poland) IndykPol (Poland) 0.0000 0.0500 0.1000 0.1500 0.2000 0.2500 0.3000 0.3500 Operating Profit Margin 2013 -0.1000 -0.0500 0.0000 0.0500 0.1000 0.1500 0.2000 0.2500 0.3000 2007 2008 2009 2010 2011 2012 2013 Net Profit Margin Henryk Kania (Poland) IndykPol (Poland) 0.0000 0.0500 0.1000 0.1500 0.2000 0.2500 0.3000 0.3500 Net Profit Margin 2013
  14. 14. 0.0000 0.0200 0.0400 0.0600 0.0800 0.1000 0.1200 0.1400 Agroton (Ukraine) Bonafarm (Hungary) AGROFERT HOLDING AS (CZ) Penta (Slovakia) Tönnies (Germany) Vion Food (Germany) Henryk Kania (Poland) IndykPol (Poland) Return on Assets 2013 0.0000 0.5000 1.0000 1.5000 2.0000 2.5000 3.0000 3.5000 4.0000 2007 2008 2009 2010 2011 2012 2013 Debt to Equity Henryk Kania (Poland) IndykPol (Poland) 0.0000 0.5000 1.0000 1.5000 2.0000 2.5000 3.0000 3.5000 Agroton (Ukraine) Bonafarm (Hungary) AGROFERT HOLDING AS (CZ) Penta (Slovakia) Tönnies (Germany) Vion Food (Germany) Henryk Kania (Poland) IndykPol (Poland) Debt to Equity 2013 -0.2000 -0.1500 -0.1000 -0.0500 0.0000 0.0500 0.1000 0.1500 0.2000 0.2500 2007 2008 2009 2010 2011 2012 2013 Return on Assets Henryk Kania (Poland) IndykPol (Poland)
  15. 15. 0 1 2 3 4 5 6 7 8 Indyk Pol (Poland) Henryk Kania (Poland) Agroton (Ukraine) Bonafarm (Hungary) AGROFERT HOLDING AS (CZ) Penta (Slovakia) Tönnies (Germany) Vion Food (Germany) WACC Indyk Pol (Poland) Henryk Kania (Poland) Agroton (Ukraine) Bonafarm (Hungary) AGROFERT HOLDING AS (CZ) Penta (Slovakia) Tönnies (Germany) Vion Food (Germany) WACC 5,42 5,82 7,95 3,60 3,28 2,34 2,71 1,49 E, thousands USD 53652 45385,33333 62604 14815 35453 37781 123644,46 42167,574 D, thousands USD 99508 75271,33333 63625 30698 78800 112424 219887,68 140475,36 D+E, thousands USD 153160 120656,6667 126229 45513 114253 150205 343532,14 182642,934 Return on equity 14 12,5 15,970 11,000 10,500 9,200 7,500 6,350 Return on debt 0,0478624 0,06179422 0,072 0,035 0,044 0,044 0,032 0,037 % debt 0,64969966 0,62384728 0,504044237 0,674488608 0,689697426 0,748470424 0,640078917 0,769125621 % equity 0,35030034 0,37615272 0,495955763 0,325511392 0,310302574 0,251529576 0,359921083 0,230874379 Tax,% 19 19 16 19 19 23 30,175 30,175
  16. 16. Why it is worth to invest: What are the risk factors: • Polish meat industry has potential to growth, especially in area of poultry • It is due to the increasing trend of meat consumption • In comparison to European firms, financial performance of Indykpol and Henryk Kania is competitive • Better than companies from Hungary, Czech Republic, Slovakia and Ukraine • Slightly worse than German representatives • Portfolio Investment in Polish meat industry could be profitable, hence, some firms (such as Henryk Kania) are underpriced • It offers a higher return than market with the same level of risk • According to ratio analysis, Indykpol is more attractive than Henryk Kania, which can be explained by Kania’s recent split of shares • However, split of shares is a sign of Henryk Kania’s long term growth strategy • Prices of shares are influenced by external factors • Especially stocks of Indykpol • It could be caused by the fact that this firm is more exposed to the foreign markets • Polish meat industry has to face the problem with current embargo in Russia and CIS countries • It could have negative impact on financial performance of Polish firms • Polish firms have to find new markets • Law regulations and provisions increase the operating costs of meat industry • Management of Polish companies should increase return on assets and decrease debt

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