Business description

Founded in 1998, Grupa Diagnostyka is the leading provider of diagnostic services in Poland, a country that still lags behind the OECD average in terms of health spending per inhabitant and its share in GDP.

Currently, Diagnostyka operates nationwide, with over 1,100 owned and more than 7,000 partner blood collection points, 156 diagnostic laboratories, and 19 diagnostic imaging centers. Each year, the company serves more than 20m customers and conducts over 140m exams. Its service offering includes laboratory exams such as analytical, microbiological (used to detect, identify, and study microorganisms), serological (used to detect and measure the presence of antibodies or antigens in a blood sample), histopathological (analysis of tissue samples), and genetic exams (DNA analysis); diagnostic imaging (ultrasound, computed tomography, magnetic resonance imaging, and remote analysis of diagnostic images for third-party clinics); as well as the collection, analysis, and transport of biological materials for B2B clients, including clinics, doctor’s offices, and research centers, both public and private.

In 2023, the B2C segment contributed approximately 40%, while the B2B segment accounted for around 60% of Diagnostyka’s total revenues, with a retention rate of over 95% in case of institutional clients.

Since 2011, Diagnostyka has grown both organically and through 128 acquisitions, including smaller independent laboratories and diagnostic imaging centers. In the near future, the company plans to focus its investments on further developing its proprietary software, particularly by adding AI functionality. Moreover, as the diagnostic imaging market in Poland remains highly fragmented, with the largest players controlling only around 55% of the market, management plans to focus its M&A activity on this area. The company expects to invest PLN 80m per year in the short term and PLN 70m per year in the medium term.

Financials

According to the company’s IPO prospectus, in 2011-2023 Grupa Diagnostyka has increased its revenues at a CAGR of c. 24% to PLN 1.6bn. In 2023, gross and EBITDA margin equalled 63.9% (2022: 63.8%) and 24% (25.7%) compared to 42.2% and 35.7% respectively at its main Polish peer Voxel, which offers diagnostic imaging services, produces radiopharmaceuticals and distributes software and equipment for radiologistics. Net income declined by 26.3% y-o-y to PLN 123.4m. Operating cash flow amounted to PLN 336m (2022: PLN 283.9m) and the free cash flow to PLN 164.5m (PLN 182.5m). 

In 9M/24, Diagnostyka generated revenues of PLN 1.44bn (+22.5% y-o-y), a gross margin of 64.4% (9M/23: 64%), an EBITDA of PLN 378m (+30.3% y-o-y, 26.2% margin) and net income of PLN 169.6m (+80.3%). While the volume of exams increased by 13.3% y-o-y, the average price improved by 8.5%. At the end of September 2024, the company’s net gearing equalled 209.3% and thus was high. However, of the total interest-bearing debt of PLN 869.7m only 14.8% was short-term. Moreover, the net debt-to-EBITDA ratio equalled only 1.8x and in 2021-2023 never surpassed 2x.

IPO & shareholder structure

Diagnostyka, which is owned by the CEE-focused private equity fund Mid Europa Partners, announced its IPO on January 13. As part of the transaction, Mid Europa that invested in the company in 2011 is offering 16,147,124 of its shares at the maximum price of PLN 105 per share (IPO value: PLN 1.7bn, implied equity value of 100% of Diagnostyka: PLN 3.5bn). According to Polish media, the order book in the retail tranche was already filled after 1 hour, indicating a strong performance of the stock on the first trading day on February 7th. 

Below is an overview over Diagnostyka’s shareholder structure before and after the Initial Public Offering (Source: Diagnostyka’s IPO prospectus). After the IPO, the CEO Jakub Swadzba and other founders will collectively own 47.2% of the company’s shares and 64.1% of its votes. 

Summary & conclusion

We believe that Diagnostyka is a company with an excellent track record and growth prospects. According to the OECD, in 2023 Poland only spent USD 2,682.10 per inhabitant on public & private healthcare, which is significantly less than e.g. Germany (USD 5,971.30) or even the Czech Republic (USD 3,227.80). By 2027E, the government plans to increase the share of public health spending in GDP from 6.2% in 2024 to 7% (Source: money.pl). For private health spending, which include e.g. out-of-pocket spending on health, latest forecasts foresee a CAGR 2023-2028E of 10% for the respective value to PLN 54bn (Source: PwC). While in the area of laboratory diagnostics, the market in Poland was valued at EUR 1.6bn in 2023 and its CAGR by 2030E is estimated at 7-9% (Source: Business Insider), the Polish diagnostic imaging market is expected to grow at 7% on average by 2030E from a value of EUR 1.6bn in 2023 (Source: Diagnostyka). 

In our view at the max. price of PLN 105 Diagnostyka’s valuation is compelling compared to its main Polish peer Voxel. With 33,756,500 shares outstanding, net debt of PLN 834.3m and trailing EBITDA after 9M/24 of PLN 378m, Diagnostyka would be valued at a trail. EV/EBITDA of 11.6x compared to 12.5x for Voxel, whose current market capitalisation equals PLN 1.5bn.

Based on our analysis, we recommend investors to BUY Diagnostyka S.A.’s shares, which in our opinion represent an attractive long term investment opportunity. We would also like to emphasize that the company’s dividend policy includes a payout ratio of at least 50% of annual net profit going forward.

Business description

PKP Cargo is the leading railway cargo company in Poland and the second largest in Europe, serving clients across various sectors including mining, metallurgy, construction, chemicals, food, timber, and automotive. With the largest rolling stock fleet in CEE, including over 1,500 locomotives and more than 52,000 wagons, the company provides stand-alone freight transport in Poland, the Czech Republic, Slovakia, Germany, Austria, the Netherlands, Hungary, Lithuania, and Slovenia. Additionally, PKP Cargo offers forwarding, customs services, transshipment, and delivery to final recipients. The company operates 4 own modernisation facilities and 25 transshipment terminals – 12 of which are intermodal or combine intermodal and conventional functions – with an annual capacity of 1.2m TEU containers. PKP Cargo’s largest shareholder is the Polish state, which holds 33.01% of the shares and effectively controls the company.

Since its IPO on the Warsaw Stock Exchange in 2013, PKP Cargo’s market position — at that time holding a market share of 48.6% in Poland — has significantly weakened to 27.9% after November 2024. In our view, this decline results from both increasing competition, particularly from cargo companies in neighbouring countries, and mismanagement by previous leaders, who were appointed based on political loyalties rather than merit. While Poland’s and the EU’s GDP (in USD) grew at a CAGR of 4.6% and 1.9%, respectively, from 2013 to 2023, PKP Cargo’s revenues increased at an average annual rate of just 1.5% over the same period.

In 2024, PKP Cargo faced a severe liquidity crisis, which forced management to submit an application to the court for the initiation of restructuring proceedings and reduce the Group’s workforce by approximately 18.4% (a total of 3,665 employees). The market consensus is that this was primarily due to a politically motivated decision by former Polish Prime Minister Morawiecki in 2022, combined with excessive and unnecessary expenses (e.g. sponsorships and legal services) incurred by PKP Cargo’s management. In 2022, during the energy crisis, the Polish Prime Minister instructed PKP Cargo to transport coal from abroad to address shortages in Poland. To free up capacity, the company was forced to terminate existing contracts with clients, resulting in substantial contractual penalties and the loss of customer relationships, as many clients excluded PKP Cargo from new tenders.

However, PKP Cargo’s new management, appointed by the Civic Coalition government in Q1/24, appears to be more competent and experienced. While the management board in place temporarily since January 2024 has reduced operating expenses and CAPEX and carried out the necessary layoffs, the newly appointed CEO, Agnieszka Wasilewska-Semail, who will officially take over on January 20, brings a wealth of experience. She has had a long and successful career in banking in both Poland and Belgium, as well as experience as the CEO of an industrial company undergoing restructuring.

Latest results

In its most recent full fiscal year 2023 (with the new Polish government in place since December 2023), PKP Cargo generated revenues of PLN 5.49bn (+1.9% y-o-y), with 75.8% from Poland, 10.7% from the Czech Republic, and 4.5% from Germany. The gross margin was 63% (compared to 58.7% in 2022), while the operating margin equalled 5.3% (down from 6.2%). Personnel expenses, at PLN 1.96bn, were by far the largest cost item. Net income amounted to PLN 82.1m (-44.5% y-o-y). Operating cash flow increased by 18.9% to PLN 1.21bn, but free cash flow declined from PLN 245.5m in 2022 to PLN 223.9m.

The first nine months of 2024 were very challenging for the company. A relatively weak economic environment in Europe and fewer orders from clients led to a 19.1% decline in revenues, which amounted to PLN 3.37bn. Germany was the only regional market where revenues saw a significant y-o-y increase (+29.1% to PLN 253m). Meanwhile, the gross margin improved slightly from 62.7% in 9M/23 to 63.4%, but the EBIT margin worsened from 6.2% to -23.5%, primarily due to a 53.2% increase in depreciation and amortisation expenses (including write-downs of rolling stock and other fixed assets). With a net interest result of PLN -142.2m (9M/23: PLN -133.3m), net income dropped from PLN 101.9m to PLN -795.7m.

As of the end of September 2024, PKP Cargo’s interest-bearing debt stood at PLN 2.85bn (compared to PLN 2.89bn on 31 December 2023), with 32.3% (up from 27.8%) of it being short-term. Net gearing rose to 99.7% (from 82.1%). Due to staff reductions, the PKP Cargo Group likely employed 16,268 people (down from 19,933 as of 31 December 2023). Following the signing of 17 letters of intent, subsidiaries of Polish State Railways (PKP S.A.) and other Polish companies have expressed their intention to hire around 2,500 of PKP Cargo’s former employees. 

Summary & conclusion

Last year was challenging for PKP Cargo’s shareholders and employees. However, the company now has a CEO with a strong reputation, and forecasts for the European rail freight sector are promising. By 2028E, TechNavio expects the market value to grow at a CAGR of 4.5% from c. USD 87.7bn in 2024, driven by the following factors:

1. Rail freight is the most cost-effective and eco-friendly way to transport goods over long distances (one train can carry as much cargo as 64 trucks).

2. The European economy — particularly in Central and Eastern Europe (CEE) — continues to grow, driving demand for building materials, coal, fuels, and other goods.

3. Growth in the intermodal segment, which combines rail and road transport.

4. Technological advancements, such as GSM-R and GPS, enabling real-time tracking and monitoring of cargo from the point of loading to unloading.

Moreover, with significantly lower personnel costs expected this year and a disciplined approach to CAPEX spending, PKP Cargo’s current valuation of PLN 637m (compared to PLN 4.2bn at its peak in 2014) looks very attractive. We believe the company could generate an EBITDA of PLN 800m in 2025E (Sell-side estimate for 2024E: PLN 277m), which would imply an EV/EBITDA ratio of just 3.7x. The current P/BVPS stands at 0.27x, thus the company’s equity is almost 4 times higher than its current market capitalisation.

In terms of future investments, we consider the intermodal segment particularly promising and worthy of attention. Additionally, we expect PKP Cargo will need to invest in modernising its rolling stock and furthering its digitalisation efforts.

Current trading

On January 3rd, XTPL announced its long-awaited first industrial implementation with a multi-billion USD Chinese partner from the display sector. While the initial order for six printing modules (UPDS) is relatively small, the potential of the deal is significant (several dozen printing modules in 2025E alone, along with corresponding service revenues and substantial volumes of nanoink). More importantly, the first industrial implementation is likely to accelerate the three others that are very close to being signed. These include deals from the US and Taiwan, related to PCBs and semiconductors, which could generate higher revenues going forward than the Korean one, which is focused on the display industry.

In total, XTPL is in talks with 20 international partners regarding industrial implementation, with eight of these at an advanced stage of negotiations. Based on information from management, we estimate the total revenue potential of the 20 potential industrial projects at approximately PLN 890m per year, which is nearly three times XTPL’s current market capitalization. In terms of production capacity, XTPL plans to rely on third-party contract manufacturers.

In 9M/24, XTPL’s revenues (excluding grants) reached PLN 6.7m, which represents a 27.4% decline compared to last year. This decrease was mainly due to lower sales of Delta Printing Systems (-6.6% to PLN 5.7m). Additionally, in contrast to 9M/24 last year the company generated revenues from an R&D project with NASDAQ-listed Nano Dimension related to the development of a nanoink, which is why the segment “R&D services” only reported sales of PLN 421k (-84.4% y-o-y). The segment nanoinks increased its revenues by 40.4% y-o-y to PLN 584k.

The number of staff almost doubled year-on-year to approximately 90 (including 2 highly qualified and experienced employees in the US and 1 in Asia) and distribution, administration, and other expenses increased by 58.6% year-on-year to PLN 11.8m. Thus, these costs will likely significantly exceed our previous estimate of PLN 11.5m by the end of December 2024. Gross profit amounted to PLN -6m, compared to PLN 5m in 9M/23, primarily due to a 128.6% increase in R&D expenses year-on-year.

Nevertheless, we believe the heavy investments in staff, a sales and distribution center in Boston, and production capacity related to Delta Printing Systems (DPS)—which now allows XTPL to produce three times more DPS per year and deliver them in a few weeks instead of several months—should pay off in the long run. Furthermore, the company has developed an advanced version of the Delta Printing System, called DPS+, which enables more automated production of over 100,000 units per year with high flexibility and is supposed to be targeted at Tech corporations and producers of electronics.

In general, Delta Printing Systems are used by research and corporate clients for R&D on new application areas, which opens up more possibilities for XTPL regarding industrial implementations. By 2026E, management plans to open two more demonstration centers e.g. in South Korea and Taiwan.

At the beginning of December, XTPL completed an equity issue worth PLN 31m (300,000 shares at PLN 92 per share), which we believe was primarily subscribed by long-term institutional investors from Poland and Germany (as of 30/09/2024, the company’s cash reserves amounted to PLN 4.8m after PLN 27.3m at the end of 2023). With the first signed contract for industrial implementation, the company can now apply for debt financing from banks. Therefore, XTPL’s financing until cash break-even—expected in 2026E at the latest—is now secured.

Our revised forecasts

After 9M/24, we have lowered our assumption for the number of Delta Printing Systems in 2024 from 12 to 10. For 2025E, we are more conservative than management (20 devices sold vs. guidance of 30). In our new forecasts, we have also accounted for the new DPS+, of which XTPL should sell 2 devices in 2026E.

Although one industrial implementation will likely lead to orders of 10-several hundred printing heads, which we assume cost EUR 80,000 each on average, and discussions with new potential partners are much faster than with previous ones, from today’s perspective we believe that XTPL will only reach the EBITDA break-even in 2026E. We now expect a negative gross margin of -15% in 2024E (previously: 56%) and higher OPEX than before (PLN 19.2m/year compared to PLN 12m before). Below are the updated estimates for 2024E-2026E. While XTPL’s stock remains highly promising in the long run, investors must be patient and prepared for significant volatility in the share price. In our view, the first industrial implementation has demonstrated that the global Tech industry places a high value on XTPL’s technology and that the Polish company provides substantial added value to its commercial clients. As more industrial implementations are expected to be signed in 2025-26E – with management anticipating at least one additional implementation this year – we believe XTPL will ultimately be acquired by a major global player in the Tech, display, or semiconductor sectors. It is also worth emphasizing that, with 40 international patents already granted and at least 40 more pending, the company’s IP portfolio holds significant value.