KGHM (KGH PW) has announced guidance for unitary results in the current year: revenues are pegged at PLN 18.93bn (down 7.8% y/y), EBITDA at PLN 5.34bn (down 25.1% y/y) and net profit at PLN 3.2bn (down 35.2% y/y) in full-year 2013. The guidance estimates are 1.6%, 18.0% and 9.6% respectively above our forecasts. The company expects the average copper price at US$ 7,800/t (down 19.5% y/y) in full-year 2013 while silver is seen at US$ 32.0/troz (up 2.7% y/y) this year. KGHM sees capital investment expenditures at PLN 523m and guides for total capital expenditures at PLN 2.47bn in full-year 2013.
The company’s budget for full-year 2013 exceeds our expectations on the operating level and the bottom line. However, the net profit guidance is pegged 10.8% below the market consensus of PLN 3.59bn, which may put a lid on the share price performance today. We believe the market might have underestimated the influence of the new copper tax on this year’s results, which may largely explain the difference between the consensus and KGHM's actual forecast. On the other hand, our higher estimates for copper and silver prices mean that in our calculations the mining tax eats up bigger part of operating profit, and this explains part of the difference between our expectations and the company's budget. Our higher forecasts for copper and silver prices also suggest the company might have to book a loss on its hedging policy this year: we assume a negative PLN 250m impact from hedging in 2013. The forecast regarding production volumes is almost in line with our forecast, although we believe the company may draw down part of its inventories throughout the year. We have also added an additional PLN 300m to the firm’s HR costs in our model, as we believe the company may not be able to avoid wage increases this year: we expect macroeconomic growth to be more pronounced, especially in 2H13, sparking expectations among employees for additional bonuses. Last but not least we assume the company will draw debt of PLN 1.5bn in 1H13, which will add more than PLN 100m of interest costs. The company’s capital investments of PLN 523m may be devoted to shale gas investment or one of the energy projects (e.g. Blachownia SPV). All in all we appear to have factored in a more bearish scenario for KGHM than the management. We reiterate our Hold recommendation on the stock.