Update of recommendation Dr Kalliwoda Research

On 16 September 2014 analysts from Dr. Kalliwoda Research increased 12-months PT (80% DCF, 20% peer-group-based fair value) from previously PLN 5.20 to PLN 5.70

- LUG S.A. is a family-owned manufacturer of high-quality lighting fittings, which are developed in-house. More than 50% of the company’s sales are generated abroad, among others in Germany, UK, France, UAE, North Africa, Brasil and the Ukraine. The company is about to construct a new production plant for electronic components for LED.
 
- LUG’s market is mainly driven by two factors: first, economic growth, which some researchers estimate will reach more than 4% in Poland in 2015 (after +3.2-3.5% in 2014). Second, the LED segment, which is expected to reach c. USD 50bn by 2020, up from USD 1.4bn in 2011. The demand for LUG’s products is also affected by EU subsidies for infrastructure projects.
 
- In H1/14, LUG’s revenues increased by 11.2% y-o-y to PLN 53.9m. In the same time, EBIT and net margins improved from 2.5% to 3.6% and from 1.8% to 2.8% respectively. At the end of June 2014, the company had a net gearing of 48.1%.
 
- While we remain optimistic when it comes to LUG’s long-term growth prospects, in the short run its results could be negatively affected by higher-than-expected costs associated with the new production facility in Nowy Kisielin (is expected to be completed by the end of 2015; net costs of PLN 5m) and the extension of Russian sanctions on EU companies from production-related sectors.

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