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

Allegro & Canal+ Polska: Two interesting Polish IPOs in 2020


After a strong underperformance in 2010-2019 vs. main Western markets due to the pension fund reform of the Civic Platform government as well as several scandals e.g. Getback, the Polish capital market has experienced a huge recovery so far this year, with stock market turnover in Jan-Jun 2020 reaching a 34.7% higher level than over the same period last year. In our view, the main reasons for this are (1) historically very attractive valuations (2) record-low interest rates, which in May 2020 were lowered to 0.1% for the first time ever (3) introduction of a QE by the Polish Central Bank NBP in 03/2020, and (4) first stock purchases by the newly created Employee Pension Plans (PPK).

As always, the good condition of the Warsaw Stock Exchange has also reinvigorated the IPO activity in Poland. In our view, the two most interesting companies, which have so far announced their plans for an Initial Public Offering in 2020, are Allegro Group and Canal+ Polska. Below we provide a short description of both:

Allegro Group: Allegro, whose business model is comparable to Ebay, is by far the largest player on the PLN 70bn/EUR 15.7bn Polish E-Commerce market (2019: PLN 50bn/EUR 11.2bn, exp. CAGR >10%), with a history dating back to 1999. The company, which was acquired from South-African technology group Naspers by the private equity funds Permira, Cinven and Mid Europa Partners in 2016 for USD 3.25bn, has more than >21m registered clients and displays 130m offers of 140,000 professional sellers. According to, the website is the 5th most popular one in Poland with 214.5m total visits in May 2020. Apart from, the group also consists of (the most popular price comparison portal in Poland with 55.1m total visits in May 2020) and (No 1 web portal in Poland where users can purchase tickets for different kinds of events; 310k total visits in May 2020 but 1.95m in Feb 2020).

According to financial data from 2018, the most recent which is publicly available, Allegro Group had revenues of PLN 1.75bn/EUR 391.5m, EBIT of PLN 621.5m/EUR 139m and net income of PLN 230.1m/EUR 51.5m. Based on consensus estimates from CapitalIQ, Ebay, Allegro’s closest peer, is currently trading at an EV/Sales 2020E of 4.1x and EV/EBITDA 2020E of 10.9x. According to Bloomberg, the Allegro Group could also conduct a secondary IPO on a Western European stock exchange e.g. Euronext or LSE. 

Canal+ Polska: Canal+ Polska (previously: nc+) is the first Polish provider of Pay-TV and has been present on the market since 1995. Its >170 channels, which broadcast movies, series, documentaries and sport events, are available through the Hot Bird satellite and as VoD. The offering is complemented by super-fast mobile LTE telephony. Canal+ Polska also acts as co-producer of Polish movies and sponsors the Polish soccer league. With currently c. 2.2m subscribers, it is the No 2 Pay-TV satellite platform on the Polish market. Canal+ Polska’s shareholders are French Canal+ (51%), Discovery Channel/owner of Polish TV station TVN (32%) and Liberty Global (17%).

Canal+ Polska’s closest listed peer is the Media/Telco group Cyfrowy Polsat, which is its largest competitor with currently 5m subscribers. Cyfrowy Polsat is currently trading at an EV/Sales 2020E of 2.3x, an EV/EBITDA 2020E of 7.8x and P/E 2020E of 13.5x. In 2019, Canal+ Polska had revenues of PLN 2.29bn/EUR 512.3m and net income of PLN 88.1m/EUR 19.7m.

Two investment ideas from the Polish MedTech/Biotech sector


Due to the coronavirus pandemia Health- and Biotech companies have been put into the focus of many international investors. Most market participants expect that the sector will become increasingly important in the future. Below are two companies from the Warsaw Stock Exchange, which are interesting in our view:

OncoArendi Therapeutics S.A. (Market cap PLN 223m/EUR 50.2m): OncoArendi Therapeutics is a Polish biotech company, which focuses on studying the therapeutic potential of chitinases and chitinase-like-proteins (CLPs). The company develops small-molecule drugs in two areas:  (1) inflammatory diseases, and (2) cancer. Its most advanced projects are the inhibitor of chitinases OATD-01 (therapy for multiple lung diseases including asthma, idiopathic pulmonary fibrosis and sarcoidosis, as well as other fibrotic diseases such as NASH), which is expected to start Phase IIa of research at the end of 2020 (Phase I was completed in April 2020); and the inhibitor of arginases OATD-02 (is supposed to be applied in immunotherapy related to various types of cancer), which is currently in the final stage of pre-clinical studies. OATD-01 received the Orphan Drug Designation by the Federal Drug Administration in Q1/20, which among others can shorten the registration process required for market introduction in the US and thus lower respective costs.  

OncoArendi’s team consists of experienced and highly-competent managers and scientists from Poland and abroad. Its CEO Marcin Szumowski completed a Bachelor’s and Master’s degree in the US and is a serial entrepreneur in the area of Life Sciences. Members of the company’s scientific board include among others Bart Lambrecht, MD, PhD, a world-class expert in the area of immunology and inflammatory diseases; and Reynold A. Panettieri, Jr, MD, PhD, a Director of the Airways Biology Initiative and Comprehensive Asthma Program and Vice-Director of the Center of Excellence in Environmental Toxicology at the University of Pennsylvania Perelman School of Medicine. The largest shareholder of OncoArendi, which has so far gained PLN >100m in EU funds and filed >50 patent applications (3 patents granted in the US, 5 in Poland), is Mr Michal Solowow, the richest Pole.

Medinice S.A. (Market cap PLN 73.7m/EUR 16.8m): Medinice specialises in the creation, development and commercialisation of medical solutions in the fields of interventional cardiology and cardiac surgery. The company’s products, which are developed in-house or acquired from external scientists, include for example PacePress, an innovative pressure controlled device applied after implantation of electrophysiological devices to reduce the risk of hemorrhagic complications; CoolCryo, a unique medical device to perform minimally invasive cryoablation procedure; MiniMax, an innovative catheter for transcatheter ablations; and CathAIO, an electrode with universal diagnostic, electrophysiological, hemodynamic and biochemic functions that can be used for radiofrequency (RF) ablation. Regarding PacePress, in January 2020 Medinice announced the signing of a licensing agreement with a partner in India worth USD 360k plus fees (at least 10%) based on the products’ sales.

Medinice, which has c. 40 patents and patent applications worldwide, has a very competent team. Mr Sanjeev Choudhary, its CEO, is an experienced business leader and previously worked among others at the Norwegian Orkla Media Group. Members of the Supervisory and Advisory Board include among others Tadeusz Wesolowski, a successful Polish entrepreneur in the area of Healthcare; Paul Grundeman, a world renowned experimental cardiac surgeon and professor at University Medical Center Utrecht; and Piotr Suwalski, who is Professor of cardiac surgery, Manager of The Central Clinical Hospital of MSWiA in Warsaw and President of the International Society for Minimally Invasive Cardiothoracic Surgery.

Why we believe the Polish stock market is ready for a re-valuation


  1. Over the last 10 years, the broad Polish WIG index has only increased by 22.4% vs. 74.2% for the Hungarian BUX and 80.7% for the Romanian BET stock index.
  2. BUT: Between 1989 and 2018, the Polish GDP exhibited the fastest growth by far of all European nations (+827% vs. for example +783.8% for Slovakia and +549.5% for the Czech Republic) and as the only one in Europe Poland did not slip into recession in 2008-2009.
  3. The reference rate of the Polish central bank NBP has recently been lowered to an all-time low of 0.1% (in CEE, only Hungary has a lower interest rate of 0.05%). At the same time, NBP launched the first Polish QE program worth an estimated EUR 15-20bn (Romanian and Hungarian central banks have also started buying government bonds due to the COVID-19 crisis).
  4. Poles‘ bank deposits and cash reached a record value of PLN 1.13tr/EUR 260bn at the end of 2019. Due to extremely low interest rates and a relatively high inflation of 2.9% (data from 01/05/2020) this money will likely be invested in more risky/profitable assets such as stocks in the near future.
  5. The Employee Capital Plans (PPK), the new pension scheme that was launched in 2019, have already accumulated PLN 610m/EUR 150m, most of which have to be invested on the Warsaw Stock Exchange.

Three Polish startups to watch


Triggo (Micro Electric Vehicle):  Triggo ( , whose intellectual property is secured worldwide, is an electric vehicle, which combines the advantages of a car and a two-wheeler. It is able to reduce its width from 146 cm to 88 cm during driving and is thus able to navigate easily through traffic jams and to find a parking space quickly. Triggo has several batteries, which can be exchanged in 5 min and have a reach of 120-140 km each. The vehicle, which is able to significantly reduce the operating costs of providers of New Urban Mobility, can be registered much easier and faster than cars as it is not treated as such.

The market for micro electric vehicles is set to grow at a CAGR of 33.9% to 947,000 units in 2025E. The number of car sharing users is supposed to reach 227.1m in 2023E after 50.4m in 2018.

Genomtec (Diagnostics device)Genomtec‘s ( SNAAT technology allows to detect DNA or RNA in biological material in less than 15 minutes. The handy mobile device is significantly cheaper than competition (it is produced in Poland) and allows multiplexing (up to 5 diagnostic targets on a single card). Due to its user-friendliness it can be used by doctors, nurses and scientists alike.

Genomtec and its team, which consists of Polish and British scientists, has already won several international awards e.g. AMGEN – 1st Place Next Health Investment Pitch, 1st Place Non-US startup at BostonHUBWeek, 1st Place MIT Enterprise Forum Poland and CVC Capital Partners Award.

Polska Liga Esportowa (E-Sports): PLE is a spin-off of the successful Gaming & E-Sports Agency, which in 2019 generated sales of EUR >3m. Its channel ESportNow ( already has >110,000 Twitch.TV followers and >37,000 Facebook Likes. PLE currently organises competitions in following video games:  (1) Counter Strike Global Offensive (2) Valorant (3) League of Legends (4) Simracing (5) FIFA (6) Hearstone (7) Starcraft2 (8) Fortnite (9) Assetto Corsa. So far, PLE/ESportNow has conducted 6 seasons, which were watched by 4.3m viewers on average and were sponsored by well-known brands. While it is free-of-charge for viewers, PLE/ESportNow makes money on sponsoring and transmission rights.

The market for E-Sports is rapidly growing worldwide and in the recent past has grown at a CAGR of 25% to a volume of USD 1.7bn. The number of viewers is expected to reach 307m in 2021E after 160m in 2016.

Investment ideas – CEE blue chips


The decline of stock indices has created many opportunities, especially in Emerging Europe, where the performance of stock markets significantly lagged the one in EU and USA in 2009-2019. Below we present some CEE-based blue chips, which could thrive in a post-coronavirus environment.

PZU S.A. (PZU PW, Market cap PLN 26.6bn):  PZU, whose ROE in 2019 of 21.2% was the highest among all European peers, is the largest insurer in CEE with operations in Poland, the Baltic states and the Ukraine. The company is also one of the largest providers of private health services in Poland, with 175 own medical and diagnostic centers, 49 hospitals and 8,000 pharmacies. In addition, it owns the 4th largest asset manager in Poland (PZU AM with AuM of PLN 12.4bn), the third-largest pension fund (PZU OFE with AuM of PLN 18.6bn) and is the largest shareholder of the 2nd Polish bank Pekao and 5th largest bank Alior Bank. However, negative is the fact that PZU is controlled by the Polish state.

Although following a recommendation for financial institutions by Polish Financial Supervisory there will likely be no dividend for 2019 due to the coronavirus pandemia, in the past PZU has paid dividends on a regular basis and we expect this to continue from 2021E. Currently, the stock is trading at a cons. P/E 2020E (8.1x), which is 30.2% below its 3-year average (11.6x).

PKO S.A. (PKO PW; Market cap PLN 27.4bn): PKO is the largest Polish bank with assets of c. PLN 348bn, 1,121 branches and 23,800 employees. In 2019, it generated a ROE of 10% and had a cost/income ratio of 41.9%. Its asset manager PKO TFI is the largest in Poland with AuM of PLN 28.1bn, while its pension fund PKO OFE currently manages PLN 6.1bn.

PKO has paid a very generous dividend in the past, but due to the economic consequences of the coronavirus pandemia it will not pay one for 2019. Given a decision of the European Court of Justice in 2019 favoring CHF debtors, a risk factor is also PKO’s portfolio of CHF mortgages, which equals 11.2% of all granted loans.

Currently, PKO’s shares are trading at a cons. P/E 2020E of 7.2x, which is 48.2% below its 3-year historical average of 13.9x. Its P/BVPS is 0.6x.

Gedeon Richter Nyrt. (RICHTER HB; Market cap HUF 1.2tr):  Gedeon Richter is a Hungarian Specialty Pharma and Biotech company, which puts a particular focus on Women’s Health, Biosimilars (especially in the area of osteoporosis and rheumatology treatments) and Generic Drugs. While in 2019 it generated 30% of its yearly sales in the CIS region, 31% in EU and 17% in the US, in the future an increasing share of revenues is supposed to stem from Latin America and China.

Currently, Gedeon Richter, which as of 31/12/2019 had net cash of HUF 130.5bn, is trading at a cons. P/E 2020E of 12.7x vs. an average 3-year historical P/E of 27.1x. The company has regularly paid out dividends in the past.

Cyfrowy Polsat S.A. (CPS PW; Market cap PLN 15.9bn: Cyfrowy Polsat is the leading Polish provider of fixed-line broadband and mobile telecommunication services and pay-TV. Its mobile operator Polkomtel is currently the 3rd largest and its pay-TV platform Cyfrowy Polsat the largest in Poland. Both businesses are complemented by the broadband/fiber network operator Netia, the VOD provider ipla and the TV broadcaster and producer Telewizja Polsat. Since December 2019, Cyfrowy Polsat has also owned a minority stake of 23% in the largest Polish IT company Asseco Poland, which is its main technological partner.

Cyfrowy Polsat, which pays out dividends on a regular basis, is currently trading at a cons. 2020E P/E of 11.8x compared to a 3-year average P/E of 16.8x. While free cash flow has always been PLN >1bn in the last five years, a negative is the relatively high net gearing of 88.4%.

The coronavirus pandemia – Which CEE-based companies might benefit in the long run?


The coronavirus pandemia has shaken the financial markets worldwide, with the S&P 500 and German DAX 30 falling by c. 20% since the end of February 2020. Given significantly lower liquidity, the decline in Emerging Europe has been even steeper: Currently, Polish WIG is c. 21% lower than at the end of February, Hungarian BUX 26% and Romanian BET 22%. The lockdowns due to the pandemia, which Poland introduced as the first EU country, are already having very serious consequences on economies and companies. According to McKinsey, the negative impact will be strongest on the Travel/Airlines/Hospitality sector as people, who have to stay/work at home due to the lockdowns, cannot travel or go to restaurants. On the other hand, we believe that companies (especially those with low or zero debt) from the Pharma, Telemedicine, Video Games and Software sectors should be the main beneficiaries of the current turmoil. The corona crisis has finally made people aware of the fact that they also can conduct certain exams or consult a doctor from their home. As telehealth allows to diagnose a larger number of people faster and cheaper, at the same time freeing hospital capacity for really sick patients, US Medicare has started reimbursing respective exams and health insurances in other countries are expected to follow suit soon. Moreover, as people cannot go out to cinemas, theatres or cafes home entertainment such as video games has become more popular. Finally, software development firms of all kinds should also benefit in the long run as the current crisis and the need to work from home have emphasized the need for effective software-based processes.

In our view, there are also companies in Emerging Europe, which should be able to benefit from the above-mentioned trends. Especially, on the Warsaw Stock Exchange there are several listed providers of Software, Telehealth Services and Video Games. Below we present some examples, which seem particularly attractively valued:

PGS Software S.A. (PSW PW, market cap PLN 237m):  The owner-managed company (Messrs Gurgul hold 63.8% of the shares), whose share price has increased by 137% over the last 5 years, offers on-demand software development for smaller clients, especially from the DACH region, UK and Scandinavia. The company, which since 2014 has increased its sales at a CAGR of >30% and generated EBIT margins of up to 28%, has been a regular dividend payer. Also, it plans to buy back up to 10% of its shares outstanding by year-end 2021.

According to German IT industry association Bitkom, the current coronavirus pandemia will lead to increased investments in digitalisation in the future.

11bit Studios S.A. (11B PW, market cap PLN 817m):  11bit Studios is a Polish video games developer, whose share price has increased by 408.8% in the last 5 years. The company develops own games for PCs, consoles and mobiles. Moreover, it publishes third-party games. Its main titles are “This War of Mine” (Average score: 78-90/100), “Frostpunk” (79-84/100),  “Moonlighter” (74-84/100) and “Children of Morta” (79-82/100), which all have above-average customer and player ratings. While 2019 sales reached PLN 71.7m (5y CAGR = 35.3%) and net income PLN 21.7m (5y CAGR = 18.8%), current consensus for 2021E, when the next bigger title “Project 8” is supposed to be released, equals PLN 178m for sales and PLN 89.3m for net income (implied P/E 2021E = 9.1x).  

According to Newzoo, the global video games market was worth USD 152.1bn in 2019 and is growing at a CAGR of c. 10%.

QuarticOn S.A. (QON PW, market cap PLN 17.4m):  QuarticOn provides cloud-based software, which allows online shops and VOD services to deliver customised product and content recommendations. A major shareholder is German ACATIS Investment with AuM of EUR 6bn. In 2019, QON’s sales reached PLN 4.3m (of which >30% were international ones), with SaaS sales on E-Commerce platforms e.g. Shoplo or Shoptet showing particularly strong growth. QON already was at break-even on EBITDA level in December 2019 and will likely also report a profit in 2020.

With Amazon planning to hire 100,000 additional staff in order to handle increasing order volumes, E-Commerce is regarded as one of the main beneficiaries of the current coronavirus crisis as customers are not allowed or are too scared to go out for shopping. With its software, which allows a more targeted customer approach, QON seems well positioned to benefit from this trend.    

Nestmedic S.A. (NST PW, market cap PLN 10.2m) & INFOscan S.A. (IST PW, market cap PLN 9m):  Nestmedic has developed a patented telehealth device for CTG exams of pregnant women. The device is already available in Poland, Finland, Bulgaria and Nigeria. In Q1/20, the company conducted 1,313 exams (+75% y-o-y). While NST’ monthly cash burn is PLN <300k, its financing is secured due to an investment agreement with German family office Deutsche Balaton. In 2019, NST’ sales reached PLN 428k, or +259.7% y-o-y.

INFOscan is another listed Polish telehealth company. It has developed a device for sleep apnea diagnostics, which is already available in Poland, French-speaking countries, Spain, Bulgaria, Iran and East Asia (incl. for example Philippines). While the company’s monthly cash burn is just c. PLN 130k, its sales went up from PLN 68k in 2018 to PLN 795k in 2019.

According to e.g. Marketwatch, the relevant market for NST and IST is set to grow at a CAGR of 18.2% to USD 103.9bn by 2024E.

Four investment ideas from Emerging Europe for volatile markets


In the current environment with continuous low interest rates (in the Euro zone interest rates will likely remain at 0% until 2025), but growing economic uncertainty due to the unresolved Brexit and the trade conflict between the US and China, capital markets remain volatile. In the current phase, we recommend to take a look at stocks from CEE, where many offer a combination of low P/Es, net cash and high dividend yields. Nowadays, such an attractive risk-return-profile is difficult to find in Western Europe and North America due to the excellent performance of the respective stock markets since 2009. Below are four companies from Emerging Europe, which are interesting in our view:

Stalexport S.A. / DYield 11.4% / Net gearing -28.6% / PE 2019E 6.5x

Krka d.d. / DYield 5.2% / Net gearing -12.3% / PE 2019E 9.4x

SNGN Romgaz SA / DYield 16.6% / Net gearing -12.2% / PE 2019E 9.1x

OMV Petrom SA / DYield 6.4% / Net gearing -13.9% / PE 2019E 7x