Business description

The Krakow-based gaming studio Starward Industries S.A. was founded by former employees of the most famous Polish games developer CD Projekt S.A. The CEO Marek Makuszewski is the company’s largest shareholder with a stake of 18.2%, while members of the management and supervisory board and employees own in total 31.9% of the company.

Starward Industries owns the rights to the IP of Stanislaw Lem, the author of the world-famous science fiction novel “Solaris”. According to our research, the licensing contract, which was signed with the heir of Stanislaw Lem, comprises a single-digit percentage fee on future sales of the company’s products.

Based on Mr Lem’s IP, Starward Industries is currently working on the AA+ game “The Invincible”, which it expects to release in 2023E for PC, Google Stadia, and all next-gen consoles. The game, which is currently No 79 on Steam Global Wishlist, has so far cost PLN 12m/EUR 2.7m. The marketing of the game will be financed by Starward’s new publisher 11bit Studios S.A., which has developed the successful games “Frostpunk” and “This War of Mine” and is considered one of the best-managed Polish video game companies.

According to its representatives, Starward Industries currently employs 34 people, thereof 25 developers and 9 marketing, communication, legal and administration staff. Many of them have worked at the largest Polish video game studios Techland and CD Projekt in the past. As almost all employees are or will soon be the company’s shareholders, the fluctuation is very low. When it comes to software developers, Starward has all necessary skills on board and thus does not need to outsource much work. In our view, this gives it full control over the quality. 

Recent results

In 2021, Starward Industries had a net loss of PLN 2m with zero revenues from product sales. In H1/22, the net loss equalled PLN -878k and the free cash flow PLN -867k. We estimate the company’s current net cash at PLN 6.5m, which according to its representatives will be sufficient to finance operations until the release of “The Invincible”, which we expect in September 2023 at the latest (in Q4, usually all the largest game premieres take place).  

Summary & Conclusion

In our view, Starward Industries is one of the best gaming studios on the Warsaw Stock Exchange. We like the committed management team, the fact that insiders incl. employees hold >30% of the shares, the track record of the team and the publishing agreement with 11bit Studios, which also holds a stake of 5.1% in the company. 

Based on our estimates, we forecast that with 800,000 copies sold Starward Industries will generate revenues of PLN 134m and a net profit of PLN 45m in 2023E. This would imply a highly attractive P/E 2023E multiple of 2.6x at present. We expect that Starward Industries will pay out a significant share of its net profit as dividends. In our view, the payout ratio could reach 40%, which would correspond to a dividend yield of 15.5% at present.

The main risks, which investors should be aware of, are (1) delays with the production of the game, and (2) bad quality of the end-product, which would negatively affect its sales.

Apart from the Warsaw Stock Exchange, Starward Industries’ shares can also be traded in Germany.

Business description

The founder-managed MedTech company Genomtec (www.genomtec.com) was established in 2016 by scientists from the Wroclaw Medical University. It has developed a molecular diagnostic device, which compared to standard PCR devices costs 6 times less, is mobile, much faster and energy efficient. We believe that given its already announced distribution contract in Greece, Genomtec will likely generate first revenues of PLN >1m in 2022 upon receipt of CE/IVD certification in the EU for its molecular diagnostic device Genomtec ID within the next two months. The global PoC Molecular Diagnostics Market, which the company targets, is worth USD 2.8bn and growing at a CAGR of 8.2% (Source: MarketsandMarkets)

Genomtec, which already has international shareholders, is listed in the NewConnect segment of the Warsaw Stock Exchange but can also be traded in Frankfurt. Its founders own >33% of the total shares outstanding, while its largest shareholder is the major Polish VC fund Leonarto VC (www.leonarto.vc). The team includes Polish scientists, but also foreign experts incl. Charudutt Shah (Chief Business Officer), who previously worked in Business Development at the major global MedTech company biomerieux; and Jason Reece (Chief Technology Officer), who has previously been in charge of several IVD (In-Vitro Diagnostics) systems e.g. at Novartis and Perkin Elmer. In its UK-based facility, Genomtec employs several experienced production engineers.

Genomtec’s products

Genomtec ID is GMT’s flagship molecular diagnostic device for the analysis of DNA. Compared to stationary PCR devices, it is small, much more energy efficient and faster (it only needs 30-40 min to deliver results), but also offers 10-100 times higher reaction efficiency. It can be used everywhere and does not need to be handled by skilled personnel with laboratory training.

Genomtec ID includes an analyzer and a reaction card with integrated genetic tests and provides multiplexing capability of simultaneously up to five genetic targets. One of the diagnostic panels, which is supposed to cost c. EUR 45 and will generate recurring revenues for Genomtec in the future, is for respiratory diseases and includes SARS-CoV-2. Others, which are however still under development, cover e.g. Sexually-transmitted infections and SEPSIS.

Apart from Genomtec ID, the company also offers rapid genetic tests, including two-gene SARS-CoV-2 tests. In the future, it also plans to develop Genomtec Tumor, another SNAAT-based device that could be used to quickly identify neoplastic mutations.

Financials

We estimate Genomtec current cash position at c. PLN 5m. This should allow the company to launch production of the Genomtec ID device after certification in Q3/22. However, in order to grow its sales team and ramp up production it will likely have to conduct another capital increase soon. We estimate Genomtec’s current monthly cash burn at c. PLN 1m.

Valuation

We have strong faith in Genomtec’s management and its technology, which in our view offers significant advantages compared to the current PCR standard. In particular, we believe that the track record of Charudutt Shah and Jason Reece significantly increases the probability of a successful commercialization of Genomtec ID.

Given the sales potential of its Genomtec ID device, the company is currently very attractively valued, in our view. Its current market capitalization equals USD 12.8m, while similar companies have been sold for at least 15 times higher valuations in the last years. For example, in 2014 Swiss Roche acquired US-based company iQuum (provided the Liat Analyzer and the Liat Influenza A/B Assay) for USD 450m including milestone payments. In another M&A deal in 2018, German Qiagen bought Spanish STAT-Dx (offered the DiagCORE system, an easy-to-use platform that consolidates molecular and immunoassay techniques in a single PCR device) for in total USD 191m.

Disclaimer: The author of this blog post may own shares of Genomtec

Business description

Mo-Bruk (Market cap PLN 1.36bn / EUR 302.2m) is the market leader of the Polish waste management sector, which is highly promising as Poland is still far behind other EU countries when it comes to waste processing (e.g. 42% of Polish waste is dumped on waste landfills vs. 1% in Germany) and has to comply with the EU “Green Deal”. In order to increase the share of processed & recycled waste, the government is increasing the Marshall Fee, which is the price per tonne of dumped waste (the higher it is, the more waste management companies can charge for their services). The Marshall Fee currently equals PLN 301.84/tonne and since 2018 has increased at a CAGR of 29.2%.

Compared to its listed peers Geotrans, Krynicki Recycling and Grupa RECYKL, Mo-Bruk is able to process c. 95% kinds of waste. Also, as the only listed company in Poland it provides waste incineration, solidification and stabilisation in own facilities and sells alternative fuels and construction material. Mo-Bruk, whose roots go back to 1985 and which is controlled by the Mokrzycki family, has grown its sales and net income at a CAGR of 35.2% and 164.8% respectively since 2016. After investments of c. PLN 200m in the last few years, it operates own facilities in 5 locations in Southern Poland, where most of Polish industry is based.

In 2019, Mo-Bruk’s segments had the following share in the company’s total sales:  (1) Solidification and stabilisation of inorganic waste (mainly from chemical and construction companies) – 45.4% (2) Production of alternative fuels (mainly from car manufacturers) – 22.2% (3) Incineration of toxic waste (mainly from hospitals, drug producers and refineries) – 32.3%. The end products of waste incineration/solidification/stabilisation – heat, alternative fuels and cement granules – are sold e.g. to cement producers, utilities, construction companies and mines. Thus, the company’s business model perfectly fits into the concept of the so-called “circular economy”, which is the main objective of the EU “Green Deal”.

Financials

In 2019, Mo-Bruk generated revenues of PLN 130.6m (+41% y-o-y), an EBITDA of PLN 58.7m (44.9% margin) and net income of PLN 40.1m (30.7% margin). 7.5% of sales stemmed from abroad compared to 6.3% in 2018. In 2019, the company employed 233 people on average.

Between January and September 2020, the company’s sales reached PLN 122.6m (+40.9%). EBITDA equalled PLN 69.8m (+102.2% y-o-y; 56.9% margin) and net income PLN 52.9m (+122.2%; 43.2% margin). Operating and free cash flow reached PLN 41.5m and PLN 47.7m respectively. As of 30/09/2020, Mo-Bruk had net cash of PLN 11.9m.

Summary & Conclusion

Mo-Bruk is a market leader in a sector, which requires high initial investments. Moreover, as the shadow economy still accounts for 30-40% of the waste management sector in Poland, companies, which want to provide respective services, need government permissions. In addition, public clients usually prefer to work together with companies, which have a good track record. Thus, we believe that in Poland Mo-Bruk will remain the undisputed market leader at least in the next 3 years.  

Another reasons, which make Mo-Bruk an attractive investment, are the low capacity utilisation of its facilities (c. 40% currently); the increasing Marshall Fee in Poland, which in our view will continue to increase by 5-10% over the next 2-3 years; and its prices, which are >2x below those in Western Europe. All of the above should allow Mo-Bruk to grow its revenues significantly in the near future and to maintain a very high profitability and cash generation. The volume of waste, which is produced in Poland every year, equals 114.1m tons and grows roughly in-line with GDP.

Our expectation for net profit in 2020 is PLN 79m (+197.1% y-o-y), which implies a P/E of 17.1x at present and PEG ratio of 0.09. While in our view the current broker estimates for 2021E (Revenues: PLN 240m; Net income: PLN 92.9m) are realistic, we believe that the market forecasts for 2022E (Revenues: PLN 273m, Net income: PLN 101m) are too conservative. We expect that Mo-Bruk will pay out a dividend both for 2020 (exp. DYield = 3.6%) and the following years. The company’s dividend policy foresees the pay out of 50-100% of its yearly net profit.

Disclaimer: The author of this analysis owns shares of Mo-Bruk himself