PKP Cargo Gains as Rail Company Seeks to Buy Competitors

PKP Cargo SA, the European Union’s largest listed rail freight company, climbed to a two-month high after announcing plans to take over competitors.

The shares advanced 2.6 percent to 76.95 zloty, closing at the highest level since July 3 and valuing the company at 3.45 billion zloty ($1.1 billion). The stock has lost 10 percent this year, compared with a 5.6 percent gain in the WIG30 Index.

PKP Cargo signed a letter of intent to purchase 100 percent in Warsaw-based CTL Logistics Sp. z o.o. as part of its expansion strategy in eastern and central Europe, the company said in a regulatory filing today, a day after saying it entered into exclusive talks to buy the Amsterdam-based Advanced World Transport BV, which had sales of 282 million euros ($371 million) last year.

“Investors are moderately optimistic about these takeovers as they will help boost its position and won’t dent dividend payouts,” Krzysztof Kuper, analyst at Ipopema Securities SA in Warsaw, said by phone today. “I estimate PKP Cargo may pay from 300 million zloty to 350 million zloty for CTL and as much as 600 million zloty for AWT.”

PKP Cargo, which had 339.4 million zloty of cash at the end of June, will finance the potential takeover mainly from its own cash and may sell Eurobonds as well, Chief Executive Officer Adam Purwin said in Krynica, Poland yesterday. Buying AWT won’t impact Cargo’s dividend policy aimed at returning 35 percent to 50 percent of the group’s profit to shareholders.

Debt Financing

“PKP Cargo will need to sell bonds to finance takeovers despite having a lot of cash,” Ipopema’s Kuper said. “However, I doubt it has to sell Eurobonds as its financial standing is sound enough to offer attractively priced bonds on the local market, for which it would certainly find buyers.”

Cargo’s net income rose 66 percent to 126.7 million zloty in the first half of 2014 from a year earlier, it said in a statement last week.

A majority stake in CTL, which had 726.6 million zloty of sales last year, was sold by its founder Jaroslaw Pawluk to the U.K. private-equity fund Bridgepoint in 2007 for an undisclosed sum. The fund is in talks with Cargo as well as other companies and plans to find a buyer “within a month,” Khai Tan, a Bridgepoint partner in Warsaw, said by phone today.

Before it's here, it's on the Bloomberg Terminal.