Biomed-Lublin (BML PW): A Polish opportunity for short sellers?


Biomed-Lublin S.A. (Market cap PLN 1.16bn/EUR 253.4m) is a company with traditions: Its origins date back to 1944. With two production facilities in the city of Lublin (eastern part of Poland), it mainly produces drugs and serums/vaccines e.g. 1. BCG 10 – a vaccine against tuberculosis 2. Onko BCG – a drug used in the treatment of urinary bladder cancer 3. Blood plasma-derived immunoglobulin Histaglobulin – used in chronic asthma illnesses 4. Blood plasma-derived immunoglobulin GAMMA anti-hbs – used in prophylaxis of liver inflammation Hepatitis B 5. Blood plasma-derived immunoglobulin Gamma anti D – used in prevention of hemolitic illness of the newborn, and 6. Distreptaza – drug used in treatment of hemorrhoids and adnexitis. Through partners, the company also distributes its products abroad, especially in CEE/SEE and countries of the former Soviet Union (exports account for c. 33% of yearly revenues). BML’s strategy foresees investments in production capacity and a R&D center for further development of BCG 10 and Onko BCG in the coming years. 

Biomed-Lublin has been listed on the Warsaw Stock Exchange since 2011 (first in the NewConnect segment and from 2015 in the Main Market). While BML traded in a range of PLN 0.58-PLN 7.90 between 2011 and March 2020, since April 2020 massive demand from Polish retail investors has led to a significant increase of its market capitalization, which was a consequence of rumors that the company could introduce a COVID-19 treatment based on blood plasma of people, who recovered from the coronavirus, and use its vaccine against tuberculosis in the fight against COVID-19.

Members of BML’s management and supervisory board used the strong share price performance and sold in total 5.36m shares (c. 8.6% of BML’s shares outstanding) at PLN 4-33 per share in April-August 2020. As a planned capital increase failed, the insiders partially returned the cash to the company in the form of credit lines worth in total PLN 20m (duration of one year; interest rate is similar to current market rates) that are supposed to be used for the construction of a new R&D center and extension of production capacity for the product Onko BCG (total value of the project is PLN >48m, of which PLN 29m are supposed to be financed by EU grants).

Recent results

The publicly available results for Biomed-Lublin date back to 2009. In 2009-2019, its revenues increased from PLN 32.3m to PLN 39.1m (CAGR of 1.3%). Net income grew at a CAGR of 4.6% to PLN 2.5m over the same period, however in 2015, 2016 and 2018 the company reported very high write-downs relating to a failed investment in a new production facility for fractioning of blood plasma in Mielec. In early 2016, BML had to file for insolvency protection as it was not able to fulfill its financial obligations relating to this project (according to the most recent agreement with creditors, it has to pay all obligations that are worth PLN >15m in total by the end of 2024 in monthly installments). 

In H1/20, Biomed-Lublin generated revenues of PLN 19.7m (+7.3% y-o-y), EBITDA of PLN 5.2m (+6.2% y-o-y) and net income of PLN 719k (H1/19: PLN 609k). As of 30/06/2020, the company’s cash position equaled PLN 1.2m and it had net debt of PLN 13.2m (net gearing of 39.2%).

Summary & Conclusion

Based on median EV/EBITDA 2019 multiples of 11 Western and CEE-based pharma companies, the fair value of Biomed-Lublin’s existing business is PLN 2.13 per share (88.3% below its current share price). Thus, its current valuation seems to be solely based on its COVID-19-related projects (especially the COVID-19 treatment based on blood plasma-derived immunoglobulin), whose effectiveness still has to be proven in clinical trials and which have to go through a formal registration process before market introduction.

Currently, there are many Pharma/Biotech companies worldwide, which work on COVID-19 treatments and have much stronger financing capabilities than Biomed-Lublin (e.g. German BioNTech, which has a strategic partnership with Big Pharma company Pfizer; US-based Johnson & Johnson; or CureVac, which conducted a very successful IPO on NASDAQ in August 2020).  But this is not the only reason, why we have serious doubts whether Biomed-Lublin will be successful with its immunoglobulin COVID-19 treatment:

1) While Chinese officials stated that treatment with blood plasma of recovered coronavirus patients had helped COVID-19 patients and NHS Blood & Transplant is optimistic that its current large-scale clinical study with plasma that has high levels of neutralizing antibodies will show positive results, a recent study that was published on 16 October 2020 in the British Medical Journal concluded that blood plasma of recovered coronavirus patients fails to reduce deaths and stop progression to severe COVID-19. The study was conducted in Apr-July 2020 in dozens of public and private hospitals in India on 464 adult patients with an average age of 52 (however, with blood plasma that had relatively few antibodies).

2) Biomed-Lublin wants to conduct clinical trials of its COVID-19 treatments only in Poland and not in Western Europe or US, which would in our view make a successful registration and market introduction there a lot more likely.

3) The large-volume sales of shares by BML’s key staff on the stock exchange since April 2020 make us skeptical whether management/supervisory board members, whose track record at the company does not convince us, really believe in the future prospects of their business.

Investors, who believe that BML’s share price performance in 2020 does not reflect the company’s fundamentals, have the possibility to use futures that the Warsaw Stock Exchange introduced on 24 September 2020. BML’s average 3-month daily turnover is PLN 71m/EUR 15.5m and 59.7% of its shares are in the free float. According to publicly available information, no institutional investor has a stake of >5% in the company.

Are two of Polish COVID-19 winners, Mercator Medical and X-Trade Brokers, still attractive investments?


The worldwide active producer of one-time medical gloves and distributor of medical supplies Mercator Medical S.A. (Market cap PLN 5.5bn/EUR 1.2bn) and the broker X-Trade Brokers S.A. (Market cap PLN 1.9bn/EUR 424.8m) have been two of the best-performing stocks so far in 2020 in Poland, with a YTD performance of 5154.1% and 324% respectively. Mercator Medical, which apart from Poland has factories in Thailand, has massively benefitted from a strong increase of demand for hygienical products worldwide after the outbreak of the coronavirus pandemia, which given a relatively stiff supply resulted in much higher market prices. At the same time, XTB, which is one of the largest listed CFD & Forex brokers worldwide with operations in 13 countries and has the famous soccer coach Jose Mourinho as brand ambassador, has reported a very strong improvement of results so far in 2020 due to high volatility of global stock markets and strong growth of its client base (52,434 new clients in H1/20 vs. 16,089 in H1/19; average number of active clients reached 52,084 vs. 23,688 last year; total number of clients of >140,000).

Recent results

With Poland, the US and UK being its three largest markets in terms of sales, in H1/20 Mercator Medical generated total revenues of PLN 577.9m, which corresponded to a y-o-y growth of 124.4%. In Q2/20 alone, the company’s sales amounted to PLN 375.2m (Q2/19: PLN 137.7m). A massive sales growth plus a relatively high share of fixed costs resulted in a strong increase of operating margin y-o-y (44.9% vs. 0.1% in H1/19). Between January and June 2020, net income reached PLN 230.1m (H1/19: PLN -1m), of which PLN 208.8m stemmed from Q2/20. The very good profitability was reflected in the cash position at the end of June 2020, which reached PLN 153.8m (31/12/2019: PLN 14.8m). Consequently, net gearing went down from 99.5% at the end of 2019 to -10.2%.

In case of XTB, H1/20 results were also at record level. Revenues amounted to PLN 518.2m (thereof: PLN 211.5m in Q2/20), which corresponded to a y-o-y growth of 483.6%. EBIT equalled PLN 379.9m (H1/19: PLN 5.2m) and the operating margin reached 73.3% (H1/19: 5.8%). Net income came in at PLN 293.5m (Q2/20: PLN 117.5m) vs. PLN 5.2m in H1/19. As of 30/06/2020, net cash amounted to PLN 1.7bn (31/12/2019: PLN 1.1bn), or 87.3% of XTB’s current market cap.

Summary & Conclusion

In our view, the current environment continues to benefit both Mercator Medical and XTB. During a recent online conference Mercator’s management stated that they expected the positive trends from H1/20 to remain unchanged in the coming quarters. Apart from the increasing number of daily coronavirus infections, which is especially worrying in countries such as France, UK or the US, we believe that the current pandemia will increase the global demand for hygienics products in the long run. In case of XTB, the continuous market volatility, which is mainly caused by the pandemia, results in higher trading activity of the company’s clients and thus positively impacts income from commissions. While XTB offers in total c. 4,000 financial instruments, CFD (e.g. on stock indexes and commodities) and Forex trading are especially profitable for the broker.  

If we assumed that in both Q3 and Q4 2020 Mercator Medical generates a net profit of PLN 200m (thus similar to Q2/20), in full-year 2020 it would equal PLN 630m, which would imply a P/E of 8.8x at current level (historically, the stock had a P/E of >14x). In case of XTB, a net profit of in total PLN 100m in H2/20 (much lower than in Q2/20 due to seasonally lower activity of clients during the summer holidays, among others) would imply a net profit in full-year 2020 of PLN 393m and a P/E of 4.9x (in 2016-19, the average P/E was c. 7.3x). In addition, due to XTB’s low CAPEX requirements we see a chance of a significant dividend payout in 2021 and a double-digit dividend yield at current level.

While both Mercator Medical and XTB seem to be a good hedge against the worldwide uncertainty resulting from the coronavirus and their results for H2/20 and full-year 2020 will likely be very good, it remains to be seen how their businesses will perform after the world has returned to normality (after the market introduction of a vaccine against the coronavirus).