Investment idea: R22 S.A. – Another Polish long-term COVID-19 beneficiary?


Business description

R22 (Market cap PLN 482m/EUR 109.8m) is a Polish IT & Advertising group, which is owned by Mr Jacek Duch, a very experienced IT professional, who previously was CEO of Oracle Poland and now serves as Head of the Supervisory Board of the 6th largest European software company Asseco Poland; Jakub Dwernicki, the company’s CEO and founder; his father Robert Dwernicki; and Sebastian Gorecki. All four gentlemen, whose combined stake in R22 equals 62.9% of all shares, signed a shareholders’ agreement. Currently, R22 has >400 employees and offices in Poland, Romania and Croatia.  

R22 provides complex services, which support the clients’ online presence and the automation of their processes, especially those related to communication, marketing and sales. Among its customers, are companies of all sizes. Sales in the subscription or Software-as-a-Service model, which generate recurring revenues, make up c. 95% of R22’s total sales.

Currently, the company has the following brands:  1.  cyber_Folks – Services relating to hosting, sale of domains and SSL certificates, SEM/SEO as well as creating and managing web shops; 2. Appchance, EmailLabs, RedLink, ConversionLabs, EmailHeroes, CloudSender, SMSLabs, SerwerSMS –  Mobile App development, SMS and marketing automation; 3. Oxylion Group – provider of radio, cable and fibre internet services (has 1,300 receivers and 100 km of fibre networks in Poland); and 4. Profitroom – software, which allows hotels to sell rooms through their own website and automate the offering and payment processing.


In fiscal-year 2019/20, which ended on 30 June 2020, R22 generated revenues of PLN 194.6m (+33.6% y-o-y; 2y CAGR = 32.6%). While the Polish business accounted for 87.1% of total sales, Romanian and Croatian made up 10.9% and 2% respectively. Compared to last fiscal-year, revenues from Poland went up by 25% y-o-y and from Romania by 110.2% y-o-y (Croatia did not contribute in 2018/19). In terms of R22’s business segments, Omnichannel was the largest one in 2019/20 with a share in total revenues of 48.1%, while Hosting and Telco accounted for 45% and 6.9% respectively.

Between July 2019 and June 2020, R22’s EBIT increased by 44.5% y-o-y to PLN 36.7m (18.9% margin) and net income by 44.9% to PLN 16.8m (8.6% margin; 2y CAGR = 57%). In terms of business segments, Omnichannel generated an EBIT margin of 21.1%, Hosting 19.7% and Telco 21.1%. In 2019/20, R22’s operating cash flow reached PLN 54.8m (2018/19: PLN 37.5m) and free cash flow PLN -4.2m (PLN -4.6m). As of 30/06/2020, net debt equalled PLN 161.8m vs. PLN 76.6m in the previous fiscal-year, which stemmed from acquisitions e.g. of Romanian Top Level Hosting S.R.L for PLN 8m and Croatian provider of hosting and domain services Avalon d.o.o for PLN 8.4m. While it debuted on the Warsaw Stock Exchange in 2017, R22 paid out the first dividend for fiscal-year 2018/19 (PLN 0.30 per share). The company’s 5-year dividend policy, which was approved in September 2019, foresees the distribution of 30% of yearly net profit to shareholders.

With regard to R22’s results in the next 2-3 years, we expect a continuous improvement due to widely expected increased investments in digitalisation and process automation following the coronavirus pandemia. We also like the company’s strong market position especially in the  area of Hosting & Domain Services (No 3 in Poland, No 1 in Romania) as well as its strategy, which foresees acquisitions with the objective to create a leading player in the area of Hosting & Domain Services in CEE.


Based on EPS estimates from CapitalIQ of PLN 2.32 (+23.4% y-o-y) for 2020/21E, R22’s stock is currently trading at a P/E 2020/21E of 14.7x and PEG of 0.63x. We believe that there is potential for similar EPS growth beyond 2020/21E due (1) the favourable market demand, which the company is currently facing, and (2) management’s prudent growth strategy.

As main risks, we regard a negative impact of integration costs relating to M&A on results in the short term, a wrong choice of acquisition targets and relatively high financial debt (30/06/2020: PLN 176.4m, however thereof 89.9% long term).

Disclaimer:  The author of this article owns shares of R22 himself

Investment idea: LiveChat Software S.A. – Current cons. EPS growth from 2021/22E seems too low


Business description

LiveChat Software S.A. (; Market cap PLN 2.4bn/EUR 553m) is a Software-as-a-Service company that is based in Wroclaw/Poland. It is controlled by the founders & management (incl. CEO Mariusz Cieply), who own 47.1% of the company’s shares. Among  LiveChat’s (LVC) clients are companies from >150 countries, thereof >25 from the Fortune 500 list e.g. McDonalds’, Adobe, CBS, Comcast, PPG, PayPal.

The company’s by far most important product is Live Chat, which according to is No 3 worldwide (market share of 11%). It is a chat window for online communication between a customer and company’s representative with many additional functionalities incl. monitoring of website traffic and users’ actions, possibility to conduct and analyse transactions in the window, which is serviced by c. 30 LVC’s customer representatives. As of 5 June 2020, the number of clients of the Live Chat product reached >30,000 compared to 28,784 as of 31/03/2020 (end of fiscal-year 2019/20) and 26,379 at the end of March 2019. The ARPU of new clients has massively increased since the beginning of 2020 as customers have been choosing more expensive subscription models (currently, there are four different plans, which are payable monthly or yearly in USD).

While it has several other software products (Helpdesk, Knowledgebase etc.), the only one, which is currently generating meaningful results apart from Live Chat, is Chatbot. Chatbot allows AI-based text communication between a customer and a machine in various business scenarios (the machine has to be “trained” first). The product, which already has >1,100 clients (March 2019: 480), generated sales of PLN 2.3m in fiscal-year 2019/20 (2018/19: PLN 664k).


In 2019/20, which ended at the end of March 2020, LiveChat generated revenues of PLN 130.9m (+19.7% y-o-y), thereof 98% abroad and c. 47% in North America. The Live Chat product accounted for 98.2% of total sales. In 2017/18-2019/20, LVC’s revenues grew at a CAGR of 21%.

Compared to 2018/19, EBIT increased by 15.7% to PLN 81.9m (62.6% margin) and net income by 33% to PLN 76.1m (58.2% margin; CAGR 17/18-19/20 = 25.5%). As of 31/03/20, Free Cash Flow equaled PLN 58.3m (2018/19: PLN 50.6m) and net cash PLN 35.6m.

In Q1 2020/21 (ended in June 2020), LiveChat’s results were likely also very solid (full Q1 2020/21 report is due on August 28). Preliminary sales grew by 31.3% to USD 10.4m due to higher ARPU (both month-on-month and year-on-year) and number of users of Live Chat and Chatbot as well as a lower churn (in April 2020, customer churn temporarily went up to c. 4% vs. 3% previously).

Given its strong cash generation, LVC is able to pay a generous dividend to its shareholders. Between 2017/18 and 2019/20, DPS equaled PLN 1.77-PLN 2.48. In the last two years, the company paid out the dividend in three installments.


In our view, LiveChat will be among the main beneficiaries of the coronavirus pandemia, which increases the pressure at companies around the world to digitalize business processes and move them online. Moreover, due to the pandemia a significantly higher share of employees will likely work remotely most of the time in the future. In terms of products, for Chatbot the company assumes a similar (strong) growth trajectory than Live Chat had in the past. In addition, the weaker PLN vs. USD should support LVC’s results in the short term.

Because of the above, we believe that the current consensus EPS CAGR in 2020/21E-2022/23E of just 16.6% is too low, especially given the fact that in 2017/18-2019/20 (thus, before the pandemia and when LVC basically only had one product) it equaled 25.5%. For EPS 2020/21E, current CapitalIQ consensus implies a y-o-y growth of 36.3% vs. current P/E 2020/21E of 23.5x (Price-Earnings-Growth ratio of 0.65x).

The main risks, which we see, are an already strong performance of the stock YTD of 120.7% and LVC’s focus on text-based communication (in our view, speech-based bots are becoming increasingly important).

Disclaimer:  The author of this article owns shares of LiveChat himself

Investment idea: MakoLab S.A. – Fast-growing family-owned Polish software company


Business description

MakoLab (Market cap PLN 56.2m/EUR 12.5m) is a Polish software company, which is owned by Vice President of the Board Dr. Miroslaw Sopek (Master’s degree in Technical Physics, Information Technology and Applied Mathematics, PhD in Theoretical Chemistry) and his wife (they both control 73.6% of the shares). The company describes itself as a Digital Project House and has been on the market since the mid-1990s. It is headquartered in Lodz, but also has offices in Warsaw, Lublin, Paris, London and Tampa (USA). MakoLab currently employs more than 188 full-time employees (thereof: 3 in UK and 2 in US) from 9 countries and has so far conducted >500 projects.

The company’s client portfolio comprises well-known names such as for example Renault, Maspex, Toyota, Pfizer, PZU, Amcor, International Paper, BASF and Europcar, who mostly have been with the company for the last 10-15 years. MakoLab’s services include Content Management Systems (incl. for example semantic search), dedicated business solutions (e.g. IT body leasing, financial simulators, lease/cost/facility management tools), Customer Relationship Management tools, e-shops, mobile apps (e.g. 3D Car/Interior Visualizer, Virtual Reality/Augmented Reality solutions), online marketing (e.g SEM/SEO, content marketing), graphic/multimedia design & user experience, Web Analytics, solutions for the Connected Car, and Data Center Services. The company is official software partner of e.g. Microsoft, IBM Sitecore, Adobe, Magento and Google.


In 2019, MakoLab generated revenues of PLN 43.4m (+36.4% y-o-y), thereof 74% abroad. International sales grew by 32% y-o-y, while domestic ones advanced by 52%. The main growth drivers were software projects for the “Connected Car” as well as outsourcing of IT services. Most sales stemmed from clients from the Automotive and Financial sectors. In 2016-2019, MakoLabs sales grew at a CAGR of 28.7%. In Jan-Dec 2019, EBIT increased by 99.1% to PLN 6.3m (14.6% margin) and net income by 93.4% to PLN 4.8m (11% margin; CAGR 16-19 = 58.6%). While Free Cash Flow equaled PLN 5.3m (2018: PLN 1.8m), net cash as of 31/12/2019 amounted to PLN 7.8m.

In 2020, growth slowed down due to COVID-19. Sales grew by 11.9% y-o-y to PLN 48.6m (thereof: +19% y-o-y abroad following robust sales of “Connected Car”, “Data Center” and on-demand digital services, -9% in Poland mainly due to weaker sales from IT outsourcing), EBIT declined by 10.6% (11.6% margin) to PLN 5.7m and net income advanced by 0.5% to PLN 4.8m (9.9% margin). While profitability was negatively affected by higher personnel costs and expenses relating to the new German subsidiary MakoLab Deutschland GmbH, there was a positive impact from FX changes and lower tax y-o-y. Between January and December 2020, operating cash flow reached PLN 9.8m compared to PLN 5.7m in the previous year. Free cash flow amounted to PLN 9m, while net cash reached PLN 15.8m.

Currently, management see price pressure by MakoLab’s clients, which could negatively affect results in 2021E. However, given the demand for digitalisation solutions worldwide, which will likely become even stronger following the pandemic, the company’s long relationships to international clients and its cost advantage vs. foreign peers, we believe that MakoLab could even accelerate its growth in the next 2-3 years. An additional growth trigger are the company’s EU-funded R&D projects such as Blockchain-based systems for sophisticated databases.

For 2021E, we expect that MakoLab’s net income will reach PLN 5.7m (+19% y-o-y), while in the following years it should grow at >20%.


Based on our estimated net income and growth rate, the stock is currently valued at a P/E 2021E of just 9.9x and PEG ratio of 0.51x vs. P/E 2021E 14.6x of another Polish software company, PGS Software S.A. We expect that in 2021E MakoLab will again pay out a dividend, which in 2016-2019 equaled PLN 0.02-PLN 0.06 per share. In our view, there is a chance that the payout ratio, which in 2019 equaled just 8.8%, will significantly increase in the coming years.

Disclaimer:  The author of this article owns shares of MakoLab himself