Polish firms set to prosper in IT bonanza
Polish IT companies are expected to be first in line for an estimated zl. 3.34 billion ($814.63 million) in upcoming information technology tenders that ministries, public sector companies and top banks are preparing to issue over the next year or so.
Some of the largest contracts in the works include a zl. 800 million ($195.12 million) tender from Poczta Polska, zl. 500 million ($122 million) from the Defense Ministry and zl. 250 million ($61 million) from the Finance Ministry. All told, more than 10 contracts are in the pipeline at various ministries, agencies and publicly owned banks.
In the banking sector, Bank Gospodarki Zywnosciowej (BGZ) is expected to put out a zl. 450 million ($109.76 million) tender for a fully integrated IT system, while the nation's savings bank, Polska Kasa Oszczednosci Bank Panstwowy's (PKO BP), is preparing to sign a contract worth as much as zl. 400 million ($97.56 million), according to a Jan. 18 equity report by Deutsche Bank Research that outlined upcoming contracts in the computer sector.
Softbank is expected to be favored in both banking contracts, analysts said. If the company is awarded the tenders, its revenue could expand 30% next year. Deutsche Bank said that the company's stock, which was trading at zl. 180 when the report was issued, could rise 16% to hit zl. 210 this year. Softbank closed Friday at zl. 191 a share.
"Our bet is that Softbank has the strongest position," said Jacek Radziwilski, an analyst at Deutsche Bank, which has a "buy" recommendation on the stock.
Softbank isn't the only Polish IT firm expected to mop up the contracts. Prokom, ComputerLand and Optimus are also strong contenders for the remaining more than $600 million in public sector work. "Certainly this will affect their (Polish IT) bottom lines dramatically," said Marcin Sadlej, an analyst at CDM Pekao Securities.
However, while many of the deals are predicted to be awarded in 2000, the majority of the projects have not yet set a deadline. At the same time, several have already been delayed for more than 12 months, Sadlej said.
The most lucrative tender expected to be issued in the next year or so is a zl. 800 million ($195.12 million) European Union (EU) financed project to computerize Poczta Polska, which will ultimately be split into several contracts.
Poczta Polska recently said that the tenders would be announced in a month's time, although the schedule has been shuffled about for a year and a half now due to differing opinions on what the agency wants to achieve. But a decision must come soon if Poland is to operate a modern post office, Radziwilski said.
Some progress has been made recently, with the U.S.'s Unisys awarded the contract to provide Poczta Polska with a backbone network that would connect all the post offices in a specific region. Radziwilski said that Prokom is best placed to install the agency's customer-service IT solutions as well as to provide some hardware, while Optimus is likely to provide a cash register system. However, foreign firms, such as Andersen Consulting and ICL, are likely to bid for such contracts, too, he said. ICL is currently involved in providing IT solutions to the U.K.'s Royal Mail.
Maciej Wantke, assistant to Prokom's CEO Ryszard Krauze, refused to say how much the Poczta Polska deal might affect Prokom's bottom line. He only said, "We are interested; we understand it might be an interesting project."
Prokom would probably receive around zl. 200 million-zl. 300 million ($48.8 million-$73.2 million) from the Poczta Polska deal, Radziwilski said.
Telekomunikacja Polska's (TPSA) mobile wing, Centertel, also is looking for providers to integrate its IT systems. Prokom, alongside software provider ComArch, heads the top of the list for that deal, too. While the tender, worth zl. 100 million ($24.4 million), is yet to be issued, analysts said that both companies were likely candidates due to previous IT work with TPSA. Last year TPSA selected Prokom in zl. 150 million ($38.5 million) worth of contracts, while ComArch won zl. 30 million ($7.7 million).
Taking those possible contracts into account, Deutsche Bank estimates that Prokom's net profit will hike 19% to zl. 105 million ($25.6 million) for 2000. The investment bank expects Prokom's net income to rise a further 14% to reach zl. 120 million ($29.27 million) in 2001. Deutsche Bank set a 2000 price target for the stock of zl. 191.3, xxx% higher than the zl. xxxx Prokom closed at on Friday. Deutsche Bank has a "buy" recommendation on the stock.
In many cases, tenders have not yet been announced for the upcoming IT work. State-owned bank BGZ, for example, has not yet put out notice of the computer work, which is being funded in part by the European Bank for Reconstruction and Development (EBRD). While nothing has been formally decided, Radziwilski said Softbank's existing cooperation agreement with BGZ, through which it has supplied systems and services for about half the bank's regional branches, gives it a distinct advantage.
Simultaneously, Softbank and its U.S. partner, Nasdaq-listed Alltel, were short listed alongside Andersen Consulting for the PKO BP deal. The bank is expected to make a final decision on the contract in the first half of 2000, Radziwilski said. If Alltel wins the contract, Softbank is highly likely to be the main subcontractor, he said.
"It would have a very, very positive impact," said Softbank spokesman Andrzej Grzelec. He would not comment further on the status of the tender.
However, domestic firms will not clean up in all the tenders. NATO is providing the Defense Ministry with around $500 million to pay for modernization, zl. 500 million ($122 million) of which will go to updating the army's computer systems.
Sadlej said that the deal would likely result in a joint venture between foreign firms with experience in providing systems for Western military and a Polish company to supply local know-how. He said that Optimus could likely hook up with U.S. company Lockheed Martin, while Prokom will possibly cooperate with French-British firm Cema Group.
For anything domestically spawned, however, Polish companies have a decisive edge. The Health Ministry, for example, is expected to put a further zl. 270 million ($65.9 million) of work out to tender, despite having already awarded ComputerLand, via its subsidiary PiK, and Komsoft a combined zl. 30 million ($7.3 million) in contracts last November, Radziwilski said. While those contracts involved hardware deliveries and initial work on IT systems, the Patients Funds still require very specific software as well as several upgrades, he said. ComputerLand is probably the only company that can provide these solutions, he said.
"We are interested, absolutely" in further contracts from the Health Ministry, said Witold Surowiak, head of public relations at ComputerLand.
Deutsche Bank estimates ComputerLand's net profit will jump 43% in 2000 to hit zl. 22 million ($5.37 million). The investment bank has a 2000 price target for the stock of zl. 101, 20.8% higher than the company's closing price of zl. 83.6 on Friday. Deutsche Bank rates the stock a "market perform," or hold.
Furthermore, the Finance Ministry's likely zl. 250 million ($61 million) contract to link its systems with the nation's tax offices will also go to a domestic company, analysts said. The ministry chose French firm Bull for the project eight years ago, but the work ended up half finished, and this time around the state wants local talent.
"It is highly likely it will be a Polish company with Polish knowledge," but able to provide up-to-date Western-style IT systems, Radziwilski said.
