Končar has received an offer to purchase a 49% share in Advanced Energy Solutions, which has a 75.16% share in the joint-stock company Dalekovod, from Construction Line Limited. As a reminder, Končar has the remaining 51% share in Advanced Energy Solutions. The offer has been accepted by Končar, and as such, further details will be disclosed after regulatory approval.
On Tuesday, Končar published an announcement detailing an offer to purchase a 49% share in Advanced Energy Solutions. Advanced Energy Solutions holds a 75.16% share in Dalekovod. As Končar already has a 51% share in Advanced Energy Solutions, if the offer is accepted, it would have 100% in the Company, and thus full ownership in Dalekovod.
The offer was issued by Construction Line Limited (CL), which has the aforementioned share in Advanced Energy Solutions. Končar notes that this is in line with the strategy of consolidating ownership and acquiring control to fully integrate the Dalekovod Group into the Končar Group. Furthermore, Končar notes that this recognized Končar’s primary role as a strategic investor seeking to leverage the synergies between the two groups. As such, Končar has accepted the offer to purchase the share.
Upon meeting the obligations defined by the relevant legislation, which is a prerequisite for the completion of the transaction, including obtaining approvals for the transaction from the competent market competition authorities in all jurisdictions where such approval is required, CL and Končar Investments will proceed with the assignment and transfer of the business share. When the registration of the transfer is completed with the Court Register at the Commercial Court in Zagreb, the limited liability company Končar – Investments Ltd. will become the sole member of the limited liability company Advanced Energy Solutions Ltd.
As this announcement came on the day of Končar’s 9M 2023 results publishing, the trading of the Company’s share was stopped for a period of time, before resuming. In total, Končar’s share price surged by 10% on Tuesday, while on a YTD basis, it increased by 62%. Končar’s subsidiary, Končar D&ST also experienced a YTD price increase, with the regular share increasing by 122%, while the preferred share price grew by 124%.
Končar, Končar D&ST (regular, preferred) YTD share price performance (2023 YTD, %)
Source: Bloomberg, InterCapital Research
In 9M 2023, Končar D&ST reported sales revenue growth of 33.3% YoY, EBITDA growth of 2.7x, and a net profit of EUR 30.4m, an increase of 2.8x.
Yesterday, Končar D&ST, a Končar subsidiary published its 9M 2023 results. According to the report, in the 9M 2023, sales revenue increased by 33.3% and amounted to EUR 244.9m. Of this, the vast majority (90.5%), or EUR 220.5, is sold abroad, while the domestic market accounts for the remaining 10%, or EUR 24.8. The sales abroad increased by 35.4% YoY, while domestic sales increased by 25.3% YoY. The main driver of this sales growth was the sales in the transformer segment.
Moving on to costs, OPEX amounted to EUR 208.5m in 9M 2023, which represents an increase of 23.5% YoY. The main driver of this was the increase in material expenses, which increased by 26% YoY to EUR 192.7m (more than 90% of total OPEX). Staff expenses increased by 30% YoY to EUR 25.9m. This is the trend we have seen across many companies and sectors and is to be expected, given the increase in prices of commodities, energy, and of course, the overall inflation rate. In regards to staff costs, in 9M 2023, Končar D&ST employs 841 employees, which is an increase of 4.5% compared to the same period last year. As such, higher staff costs were both a combination of higher salaries offered, but also of the higher number of employees.
Given this situation, the EBITDA increased by as much as 2.7x to EUR 36.4m. This would imply an EBITDA margin of 15.4% during the first nine months, representing an increase of 7.7 p.p. YoY. However, we emphasized that EBITDA growth during 9M if mainly driven by the Q3 results. Group’s EBITDA amounted to EUR 17.3m (from EUR 4.5m in Q3 2022). In other words, Končar D&ST achieved almost half of its 9M EBITDA only during the last quarter.
Both financial income & financial expenses for the period amounted to c. EUR 2m, driven by FX differences in this period. As such, the net financial result amounted to just a slight non-material loss. This would mean that the EBT amounted to EUR 36.3m. Given the higher EBT, the tax also increased to EUR 5.9m (from EUR 2.5m). Finally, the net income amounted to EUR 30.4m, an increase of as much as 2.8x! This would imply a net profit margin of 12.9%, an increase of 6.7 p.p. YoY.
Končar D&ST key financials (9M 2023 vs. 9M 2022, EURm)
Company data, InterCapital Research
Končar D&ST also commented on the main risks to the business. During the first three quarters of this year, next to the obvious higher interest rates affecting borrowing effect, company emphasize the instability of supply chains. This resulted in longer procurement period in terms of some components.
Končar D&ST key financials (Q3 2023 vs. Q3 2022, EURm)
Company data, InterCapital Research
Consequently, we decided to present you KODT (pref.) share price YTD development, compared to CROBEX itself, where a company is included. Share price developed outperformed CROBEX on the back strong results achieved both in FY 2022 and in 9M this year, so far.
KOTD (pref.) share price & CROBEX YTD development
Company data, InterCapital Research
According to the flash estimate released by the Croatian Bureau of Statistics, the Croatian CPI increased by 5.8% YoY, and 0.4% MoM in October 2023.
The first flash estimate of Croatian CPI by the Croatian Bureau of Statistics (DZS) has been released, for the month of October 2023. According to the estimate, the Croatian CPI increased by 5.8% YoY, and 0.4% MoM.
Croatian CPI YoY growth (February 2013 – October 2023, %)
Source: Croatian Bureau of Statistics, InterCapital Research
Breaking the CPI down by main components, on a YoY basis, the largest increase was recorded by Food, beverages, and tobacco, which increased by 8.1%, followed by Services at 7.3%, and Non-food industrial goods with energy at 5.6%. On the other hand, prices in Energy decreased by 0.2% YoY. Meanwhile, on a MoM basis, the largest increase was recorded in Non-food industrial goods without energy, at 2.4%, followed by Services at 0.4%. All other components recorded a decrease, with the largest one being Energy at 1.1% MoM, followed by Food, beverages, and tobacco at 0.5%.
It should be noted that the final data for the October 2023 CPI will be released on 16 November 2023. Thus far in 2023 (since the start of the flash estimate releases), the changes between the flash estimate and the final data were minimal, either being the same or increasing/decreasing by 0.1 p.p. compared to the estimate. The harmonized index of consumer prices, HICP has also been released, for select European countries. The HICP would allow us to compare the Croatian inflation rates with those countries.
Comparison of HICP change with available European countries (October 2023, YoY, %)
Source: Eurostat, InterCapital Research
Overall, in the Euro area on an annual basis, the inflation rate slowed down to 2.9%, with some countries even recording a decrease in inflation. However, Croatia still ranks as the country with the 2nd highest HICP, at 6.7%, only behind Slovakia’s 7.8%. Slovenia is following Croatia closely in this regard, at 6.6%. On the other hand, Belgium and Netherlands recorded decreases in HICP, of 1.7% and 1%, respectively.
Comparison of HICP change with available European countries (October 2023, MoM, %)
Source: Eurostat, InterCapital Research
Meanwhile, on a MoM basis, Croatia recorded a 0.2% HICP increase, which is in line with most of the other countries. However, it should be noted that even more countries recorded negative HICP in October, with 7 countries in total. Malta leads this leads, with a 1.2% decline, followed by Estonia at 0.5%, as well as Portugal and Cyprus at 0.4%, respectively.
As we can see from this data, the inflation increase did somewhat subside, which could be explained by the growth in food and beverages, as well as services due to the tourist season. However, it also has to be noted that inflation data is somewhat skewed on a YoY level, as the inflation rate was already high in the same period last year, leading to a higher base, and thus “lower” relative growth. However, it still stands to reason that the inflation rate remains elevated and sticky. Given that the winter is also coming, the current geopolitical uncertainty also leaves room open for more inflationary pressures, mainly coming from higher energy prices. As such, it would be too early and naïve to conclude that inflation rates are actually coming down in Croatia, even if the YoY growth implies such a statement.