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

Published 25/08/2020

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

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