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
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 Metacritic.com 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
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.