Business description

PKP Cargo is the leading railway cargo company in Poland and the second largest in Europe, serving clients across various sectors including mining, metallurgy, construction, chemicals, food, timber, and automotive. With the largest rolling stock fleet in CEE, including over 1,500 locomotives and more than 52,000 wagons, the company provides stand-alone freight transport in Poland, the Czech Republic, Slovakia, Germany, Austria, the Netherlands, Hungary, Lithuania, and Slovenia. Additionally, PKP Cargo offers forwarding, customs services, transshipment, and delivery to final recipients. The company operates 4 own modernisation facilities and 25 transshipment terminals – 12 of which are intermodal or combine intermodal and conventional functions – with an annual capacity of 1.2m TEU containers. PKP Cargo’s largest shareholder is the Polish state, which holds 33.01% of the shares and effectively controls the company.

Since its IPO on the Warsaw Stock Exchange in 2013, PKP Cargo’s market position — at that time holding a market share of 48.6% in Poland — has significantly weakened to 27.9% after November 2024. In our view, this decline results from both increasing competition, particularly from cargo companies in neighbouring countries, and mismanagement by previous leaders, who were appointed based on political loyalties rather than merit. While Poland’s and the EU’s GDP (in USD) grew at a CAGR of 4.6% and 1.9%, respectively, from 2013 to 2023, PKP Cargo’s revenues increased at an average annual rate of just 1.5% over the same period.

In 2024, PKP Cargo faced a severe liquidity crisis, which forced management to submit an application to the court for the initiation of restructuring proceedings and reduce the Group’s workforce by approximately 18.4% (a total of 3,665 employees). The market consensus is that this was primarily due to a politically motivated decision by former Polish Prime Minister Morawiecki in 2022, combined with excessive and unnecessary expenses (e.g. sponsorships and legal services) incurred by PKP Cargo’s management. In 2022, during the energy crisis, the Polish Prime Minister instructed PKP Cargo to transport coal from abroad to address shortages in Poland. To free up capacity, the company was forced to terminate existing contracts with clients, resulting in substantial contractual penalties and the loss of customer relationships, as many clients excluded PKP Cargo from new tenders.

However, PKP Cargo’s new management, appointed by the Civic Coalition government in Q1/24, appears to be more competent and experienced. While the management board in place temporarily since January 2024 has reduced operating expenses and CAPEX and carried out the necessary layoffs, the newly appointed CEO, Agnieszka Wasilewska-Semail, who will officially take over on January 20, brings a wealth of experience. She has had a long and successful career in banking in both Poland and Belgium, as well as experience as the CEO of an industrial company undergoing restructuring.

Latest results

In its most recent full fiscal year 2023 (with the new Polish government in place since December 2023), PKP Cargo generated revenues of PLN 5.49bn (+1.9% y-o-y), with 75.8% from Poland, 10.7% from the Czech Republic, and 4.5% from Germany. The gross margin was 63% (compared to 58.7% in 2022), while the operating margin equalled 5.3% (down from 6.2%). Personnel expenses, at PLN 1.96bn, were by far the largest cost item. Net income amounted to PLN 82.1m (-44.5% y-o-y). Operating cash flow increased by 18.9% to PLN 1.21bn, but free cash flow declined from PLN 245.5m in 2022 to PLN 223.9m.

The first nine months of 2024 were very challenging for the company. A relatively weak economic environment in Europe and fewer orders from clients led to a 19.1% decline in revenues, which amounted to PLN 3.37bn. Germany was the only regional market where revenues saw a significant y-o-y increase (+29.1% to PLN 253m). Meanwhile, the gross margin improved slightly from 62.7% in 9M/23 to 63.4%, but the EBIT margin worsened from 6.2% to -23.5%, primarily due to a 53.2% increase in depreciation and amortisation expenses (including write-downs of rolling stock and other fixed assets). With a net interest result of PLN -142.2m (9M/23: PLN -133.3m), net income dropped from PLN 101.9m to PLN -795.7m.

As of the end of September 2024, PKP Cargo’s interest-bearing debt stood at PLN 2.85bn (compared to PLN 2.89bn on 31 December 2023), with 32.3% (up from 27.8%) of it being short-term. Net gearing rose to 99.7% (from 82.1%). Due to staff reductions, the PKP Cargo Group likely employed 16,268 people (down from 19,933 as of 31 December 2023). Following the signing of 17 letters of intent, subsidiaries of Polish State Railways (PKP S.A.) and other Polish companies have expressed their intention to hire around 2,500 of PKP Cargo’s former employees. 

Summary & conclusion

Last year was challenging for PKP Cargo’s shareholders and employees. However, the company now has a CEO with a strong reputation, and forecasts for the European rail freight sector are promising. By 2028E, TechNavio expects the market value to grow at a CAGR of 4.5% from c. USD 87.7bn in 2024, driven by the following factors:

1. Rail freight is the most cost-effective and eco-friendly way to transport goods over long distances (one train can carry as much cargo as 64 trucks).

2. The European economy — particularly in Central and Eastern Europe (CEE) — continues to grow, driving demand for building materials, coal, fuels, and other goods.

3. Growth in the intermodal segment, which combines rail and road transport.

4. Technological advancements, such as GSM-R and GPS, enabling real-time tracking and monitoring of cargo from the point of loading to unloading.

Moreover, with significantly lower personnel costs expected this year and a disciplined approach to CAPEX spending, PKP Cargo’s current valuation of PLN 637m (compared to PLN 4.2bn at its peak in 2014) looks very attractive. We believe the company could generate an EBITDA of PLN 800m in 2025E (Sell-side estimate for 2024E: PLN 277m), which would imply an EV/EBITDA ratio of just 3.7x. The current P/BVPS stands at 0.27x, thus the company’s equity is almost 4 times higher than its current market capitalisation.

In terms of future investments, we consider the intermodal segment particularly promising and worthy of attention. Additionally, we expect PKP Cargo will need to invest in modernising its rolling stock and furthering its digitalisation efforts.

Business Description

Founded in 1990, Comp is currently the No. 1 provider of fiscal devices and IT security solutions in Poland. The company, which generates c. 7% of its total revenues abroad, operates two business units:

1. Retail Segment

-> Production and distribution of proprietary cash registers (including online and virtual versions), payment terminals, and add-on services such as M/Platform (an online big data platform for smaller shops for managing promotions, e-payments and e-invoices in cooperation with Eurocash, a leading wholesaler/retailer in Poland). Approximately 900,000 (thereof: c. 550k online ones that can be equipped with add-on services) of the total 1.8m (c. 1.1m) cash registers in Poland were produced by Comp.

-> Contributed 35% of total revenues in 2023

-> EBITDA margin of 12.9% in 2023

2. IT Segment

-> Provides IT security software and equipment for large enterprises and public administration. Comp holds all necessary certifications to conduct business with the Polish Ministry of Defence and the Armed Forces, which are difficult to obtain. Over the last 30 years, the company has built strong relationships with both public and private clients, as well as with international IT security solution providers such as Cisco Systems, Check Point Software, HP, IBM, Juniper, McAfee, and Symantec.

-> Contributed 65.1% of total revenues in 2023

-> EBITDA margin of 13.9% in 2023

Historically, Comp has been heavily dependent on third-party providers of IT security software and equipment, as well as on investment cycles related to cash registers and budgets for IT security projects. However, in our view the company now already generates over PLN 40m in monthly recurring revenues from proprietary add-on services for cash registers and from its own products (e.g. encryptors, identification tools). We believe that these high-margin categories are growing at >25% year-over-year and are expected to help Comp 1) reduce the seasonality of its business, which has historically been skewed towards H2, and 2) increase its EBITDA margin to 15-20% in the near future.

Comp’s shareholder structure is stable and long-term oriented. Polish pension funds own over 43% of the shares, the US-based fund Perea Capital Partners owns 6.7%, and CEO Robert Tomaszewski holds 6.3%. Since 2021, Comp has distributed PLN >70m to shareholders through dividends and share buybacks.

Latest Results

Over the past five years, Comp has increased its revenues and EBITDA at a CAGR of 8% and 9%, respectively. ROCE has historically ranged between 3% and 7%, but improved significantly to 9.9% in 2023, with further growth expected due to a focus on service revenues. For Q1/24, the company reported revenues of PLN 153.1 million (-28.8% y-o-y), including PLN 83.7m (-2.2%) from the Retail segment and PLN 69.6m (-46.4%) from the IT segment. In Q1/23, sales were positively impacted by several large but low-margin IT projects such as E-Health in the Pomorskie province and the Electronic Surveillance System. At the Group level, the EBITDA margin in Q1/24 increased to 18.4%, up from 11.6% in the previous year. In the Retail segment, the margin was 18.9% (Q1/23: 13.3%), and in IT, it equalled 24.9% (Q1/23: 14.3%). Between January and March 2024, Comp’s net income amounted to PLN 9.6m (+53.4%). The only negative was the decline in operating and free cash flow, which fell from PLN 38.2m in Q1/23 to PLN -86.1m, and from PLN 30.4m to PLN -94m, respectively. As of March 31, 2024, the company’s net debt stood at PLN 163m (net gearing of 36.6%), a reasonable level. 

Summary & Conclusion

We appreciate that Comp is the market leader in its segments in Poland and that it has successfully introduced proprietary products and services with recurring revenues in recent years, which should positively impact operating profitability, cash flow generation, and ROCE going forward. It is also a positive sign that the company’s management team, holding over 6% of its shares, has been stable over time. Given its track record, Comp is well-positioned to benefit from the upcoming replacement cycle of older fiscal registers, potential extensions of the fiscalisation in Poland, increasing investments in IT security by large private enterprises (funded, for example, by the EU Reconstruction and Resilience Funds, which foresees EUR 4.6bn for digital transformation & cybersecurity until 2026E), and defense and security investments (with Poland’s defence budget at >4% of GDP).

Current sell-side forecasts for Comp project EBITDA of PLN 135m (+22.2% y-o-y) in 2024E and PLN 148m (+9.6% y-o-y) in 2025E, translating to an attractive EV/EBITDA multiple of 4.8x and 4.4x, respectively. Additionally, Comp plans to continue its distribution policy, with expected dividends and share buybacks for both 2024E and 2025E valued at PLN 8/share (yield of 7.9%).

Business description

LPP, founded in 1991 by Messrs Jerzy Lubianiec and Marek Piechocki, has become a leading player in the Central and Eastern European clothing market. Currently, LPP operates in 39 countries across three continents, with over 2,000 stores and approximately 33,000 employees. The company is the ninth largest in Poland by market capitalisation. LPP made its debut on the Warsaw Stock Exchange in 2001 and is currently included in the WIG20 and MSCI Poland indices. LPP’s majority shareholder is the Semper Simul Foundation, established by one of the company’s founders. 

The Group’s sales are primarily derived from five fashion brands: Reserved, Cropp, House, Mohito and Sinsay. The company has no production facilities of its own and sources over 90% of its goods from Asia. Clothing is designed in Spain and Poland, with distribution centres in Poland, Slovakia and Romania. Management is looking to expand further, with plans to increase retail space by 25% in 2024E and c. 20% per annum in 2025E and 2026E. CAPEX for 2024E is forecast at PLN 1.5bn, of which PLN 1.2bn is for new stores as LPP plans to open over 700 new shops.

Revenues of business lines of LPP for 2023 and 2022 

Source: LPP S.A., East Value Research GmbH

Over the years, LPP’s affordable prices and new designs have earned the Group a loyal customer base. Sales are primarily generated through offline stores, with e-commerce accounting for only 24.6% of total sales (-3% y-o-y pp). Despite being the youngest brand in the group, Sinsay generated more than 43.1% of total sales in 2023. Furthermore, Sinsay is the group’s fastest-growing brand, having tripled its number of offline stores in just four years.         This promising brand not only offers clothing but also home accessories, competing with Pepco, KiK or Primark in the offline segment, and is also a leading player in e-commerce, where it competes with Chinese online shops Shein and Temu. 

Hindenburg Research Report on LPP

In 2022, following the invasion of Ukraine by Russia, LPP’s management decided to sell its Russian business to a Chinese consortium and Anna Pilyugina (former CEO of LPP Russia). The purchase agreement foresees the payment for stores and inventories in instalments, with the final payment scheduled for 2026E. The company opted for the least costly option for exiting the Russian market, which benefits LPP investors. Nevertheless, from a long-term perspective, it was a misguided decision to continue expanding into the Russian market and increasing inventory for this market. 

In March 2024, Hindenburg Research wrote a lengthy report on LPP’s exit from the Russian market. The report had a significant negative impact on the company’s share price, which fell by approximately 35% shortly after publication. The report’s title, “A Fake Russia ‘Sell-Off'”, suggests that LPP is willing to return to the Russian market after the war. The primary concern is the option for LPP to buy back the Russian part of the business. However, in the lengthy report, this option is mentioned in just one sentence. In an attempt to justify its title statement, Hindenburg presents other arguments, such as a change of auditor and encrypted barcodes. However, LPP has debunked these arguments. After several weeks of clarification and the dismissal of the allegations by LPP, the share price has almost returned to its pre-scandal peak

In our view, LPP Group has successfully defended its position against the majority of Hindenburg Research’s arguments. Regarding the main concern, the option to buy back the business, LPP has stated that the option was requested by the buyer and that exercising the option is not feasible due to the need for approval from a Russian government body. Russia has designated Poland as a hostile nation and a significant portion of LPP’s shares are held by Polish investors.

We believe that the consequence of the Hindenburg Report will be a stronger focus of LPP on expansion in Western and South-Eastern Europe than previously predicted.  

Financials

Over the past decade, LPP has experienced rapid growth, with a CAGR of 15.5% in sales and the addition of almost 1,000 stores. In 2023, the Polish clothing company generated revenues of PLN 17.4bn (+9.3% y-o-y), EBIT of PLN 2.28bn (+92.8%; margin 13.1%), and a net income of PLN 1.6bn (+232.3%; margin 9.3%). The sales performance has been enhanced by the Sinsay brand, which has reported a 24.7% y-o-y growth. The profitability improvement has been achieved through cost optimisation in the following areas: Slower increase in CoGS in the amount of PLN 8.4bn (+6.7% y-o-y), that mostly consists of valuation of inventories at purchase price from suppliers. Operating costs decreased by 2.1% y-o-y to 6.6bn, with advertisement costs PLN 432.5m (-44.5%) declining the most. Operating cash flow improved significantly from PLN 622m to PLN 4.34bn, free cash flow improved as well from PLN -534.6m to PLN 3.3bn, with net debt/EBITDA ratio dropping from 1.9x to 1.0x. 

Geographically, LPP’s home market Poland accounted for 42.4% of total sales or PLN 7.38bn (+7.6% y-o-y). However, international markets have seen even faster growth (sales of PLN 10bn, or +10.5% y-o-y). The largest foreign market is Romania, with sales of PLN 1.45bn (+8.9% y-o-y; 8.3% sales share). Ukraine is the second largest foreign market, with sales of PLN 1.18bn (+70.7%; 6.8%). The fastest growing foreign markets that LPP recently entered are Greece (+462.5% y-o-y; sales) and Italy (+409.2%).

LPP S.A.: Revenue, EBIT margin, Net Income and Number of stores (2017-2023/24)*

The most recent results for Q1/2024 indicate that the company is set for a very successful year in 2024E. In Jan-Mar 2024, LPP generated revenues of PLN 4.3bn (+18.3% y-o-y), with the Sinsay brand showing the strongest growth (+54.1%). There has been a significant improvement in profitability, with an EBIT of PLN 411m (+78.2% y-o-y; margin 9.5%; +3.2% pp), resulting in a net income of PLN 277m (+147.8%; margin 6.4%; +3.4% pp). Western Europe has been the fastest growing region, with sales growth of 31% y-o-y (6% of total sales) and retail space growth of 59.7%.  

Conclusion

We like LPP due to its successful track record spanning over 30 years and the fact that, thanks to its excellent logistics, it still has plenty of opportunities for international growth. For 2024E, the company predicts revenues amounting to PLN 21bn, and the current consensus EV/EBITDA 2024E is 7.9x. This valuation seems attractive both compared to its 3-year average (9.6x) and its peers (e.g., Abercrombie & Fitch Company -> EV/EBITDA 2024E of 9.4x, Inditex -> 12.6x, H&M -> 8.2x; Source: marketscreener.com).

In our opinion, LPP is a superb stock for investors looking for a company with characteristics of both growth and value stocks. LPP generously rewards its investors: the current dividend policy for 2023-2025E foresees the payment of a minimum of 50% of non-consolidated net profit.

The main risks we have identified are as follows:

1. Supply chain disruptions

2. New country performance risk

3. Changes in consumption trends

Business description

Founded in 2000 by the Canadian James van Bergh, who directly and indirectly is still its largest shareholder, Benefit Systems (www.benefitsystems.pl) is today the No 1 provider of non-payroll work benefits incl. discounts for fitness, culture, restaurants, health in CEE. At the end of March 2024, the company worked with >41,000 employers (2011: 2,850) in all its regional markets. The number of its primary product, the MultiSport card, equalled 1,996,600 (2011: 235,000), thereof 1,508,800 in Poland, 231,800 in the Czech Republic (BFT has been active there since 2010), 62,000 in Slovakia, 142,200 in Bulgaria (both since 2015), 44,600 in Croatia (since 2018) and 7,200 in Turkey (since 2021). In addition to its bonus card business, for the last few years Benefit Systems has also built a chain of own fitness centers (Q1/24: in total 255 centers, thereof 224 in Poland under 14 different brands e.g. Zdrofit, Good Luck and Fit Fabric as well as 31 abroad). According to management, it currently operates the largest such chain in Poland.

Benefit Systems’ business model is comparable to an insurance in the sense that its corporate clients (sometimes also their employees to 50%) pay the company a monthly flat fee for each bonus card and the company will only have costs if the employee uses the card. Employees gain access to >9,300 facilities within a single product and can use a wide range of services, including various online add-ons/courses, for a relatively small amount of money. When users want to try out a new place to work out, they do not have to worry about filling out paperwork on site – all they need to do is show their BFT bonus card with proof of identity or the BFT app. 

When it comes to employers, the bonus card makes them more attractive on the labour market, promotes employee retention and improves employee’ fitness and health, which can translate into lower costs. Moreover, Benefit Systems’ corporate clients receive one invoice rather than dozens from different facilities, which reduces their administrative work significantly.

Financials

Since 2011, when it was listed on the Warsaw Stock Exchange at a price of PLN 107/share, Benefit Systems has increased its revenues and net income at a CAGR of 22.4% and 22.9% respectively. For 2023, the company paid a dividend of PLN 41/share (DYield = 1.3% at present), but between 2016 and 2022 it re-invested all its profits. In 2023, it generated a ROCE of 22.3% compared to 10.6% in 2022.

For the Jan-Mar 2024 period, Benefit Systems reported revenues of PLN 801.1m (+28.1%). While the number of bonus cards went up by 12.7% y-o-y, ARPU in all markets increased by low double-digit percentage points. The Polish business contributed 72.6% to total revenues and generated an EBIT margin of 17.7% (Q1/23: 11.6%). The international business (thereof Czech Republic: +14.1% y-o-y to PLN 124.3m, Bulgaria: +11.6% to PLN 53.2m) reported an EBIT margin of 11.6% (8.6%). With PLN -3.6m, Turkey was the only geographical market that reported an operating loss in Q1/24.

At 29.7% (Q1/23: 23.3%), BFT’s Q1/24 gross margin was strong. In Q1/24, the company’s EBIT increased to PLN 123m (+87.2% y-o-y, 15.4% margin vs. 10.5% in Q1/23, EBIT ex ESOP: PLN 130.6m) and net income to PLN 92.1m (+75.9%, 11.5% margin). Consequently, operating and free cash flow improved from PLN 177.1m in Q1/23 to PLN 244.8 and from PLN 137.5m to PLN 194.8m respectively. As of 31/03/2024, Benefit Systems’ net cash (excl. IFRS 16 leasing) amounted to PLN 505.6m compared to PLN 373.5m at the end of 2023 and PLN 7.8m as of 31 March 2022. 

Conclusion

We like Benefit Systems’ attractive and highly profitable business model, which given the strong competition for employees and the popularity of non-monetary employee’ benefits in CEE/SEE has excellent growth prospects. Given its long track record and clever strategy (-> combination of bonus cards and own fitness clubs), we believe that other players such as Medicover will not threaten the company’s market leadership in the foreseeable future. In our view, there is especially strong growth potential in Turkey, a country with 85m inhabitants, 9 cities with 1m+ inhabitants and a highly dispersed fitness market.

We believe that Benefit Systems is a great stock to hold for the long term. While in 2024E management guides for max. 230k new cards (150k in Poland, max. 80k on foreign markets), a high single-digit ARPU growth and a similar unadjusted EBIT margin y-o-y (without the costs of the employee incentive scheme that management estimates at PLN 68m), we see the possibility for an increase of the guidance especially in Q4/24E, which is typically the best period of the year for the company (>30% of its annual net profit).

Benefit Systems also has an attractive dividend policy. For the years 2023-2025, it foresees the payout of at least 60% of the consolidated net profit.

Regarding risks, we believe the main ones are: 1. The outbreak of another pandemic, 2. Overinvestment in new fitness centers (in 2024E, BFT plans to open 15 new centers in Poland and min. 20 abroad).

Recently, we had a call with XTPL’s management. We have once again confirmed our conviction that the company has chosen the right commercialisation strategy and the business is moving in the right direction.

In the US and Asia, XTPL has been able to hire experienced sales managers from its main competitor Optomec, which confirms the results of our research that the company’s technology is considered superior to all comparable international providers. In addition to its local sales teams, XTPL works with currently 12 distributors. So far, the company has sold its products to clients from 21 countries worldwide.

In terms of staff size, in 2023 XTPL increased its team by 25 people to 70. Since January 2024, it has hired 20 more employees, which are necessary for reducing production times and growing sales, but we believe will negatively affect profitability this year. Further, larger hirings are only planned in 2026E. Currently, XTPL employs 11 own sales & marketing staff. 

Regarding the sales pipeline and products, the most important area of activity is of course industrial implementation, which will allow XTPL to significantly ramp up its revenues and generate a high share of recurring revenues. According to the CEO, there are currently 20+ industrial projects in the company’s pipeline, of which 9 are at least in the 2nd evaluation phase (out of 5 in total), and 4 in the 4th stage. We believe that at one of XTPL’s industrial partners a machine that uses the company’s technology is already ready and undergoing final tests, which makes a first industrial implementation in 2024E likely.

When it comes to other products, apparently 80 Delta Printing Systems are currently in the sales pipeline and due to investments in 2023 the company has reduced their production time by half. Moreover, XTPL has extended its offer by gold nanoinks and plans to introduce copper-based ones soon. 

With a cash level of c. PLN 20m, we estimate XTPL’s current monthly cash burn at PLN 2-2.5m. In our view, additional funding – if at all necessary in the future – will be debt.

Below are our updated estimates for XTPL in 2024E-2026E. While our assumptions for 2025E-2026E remain unchanged, we now believe that growth this year will be weaker and the company will still not be at EBITDA break-even . We expect higher sales of Delta Printing Systems y-o-y, the majority of which will be generated in H2/24E. By 2026E, XTPL is supposed to sell up to 100 (2023: 3) industrial modules – the production of which is very scalable and will also be conducted by contract manufacturers, according to management – and max. 40 Delta Printing Systems. 50% of sales then should stem from industrial implementations. 

This blog post marks the beginning of a series of analyses focused on Polish companies and their listed direct German counterparts.

In this installment, we will delve into the examination of Oponeo.pl S.A., a company listed on the main market of the Warsaw Stock Exchange since 2007, and Delticom AG, headquartered in Hannover. Delticom AG holds the position of a European leader and has been listed on the Frankfurt Stock Exchange since 2006.

History & current business 

Oponeo.pl was founded in 1999 by university friends Dariusz Topolewski and Ryszard Zawieruszynski, who continue to own and manage the company today. It is headquartered in Bydgoszcz, Poland. Over the years, the company has grown to become the largest online retailer of tires and rims in Poland, holding a market share of over 75%. In recent years, Oponeo has expanded its operations to 12 foreign markets, primarily in EU countries but also in Turkey. The company has successfully established or acquired other e-commerce businesses, including Dadelo, an online shop for bikes and sports accessories that is also listed on the Warsaw Stock Exchange, and Rotopino.pl, an online retailer of tools. Oponeo Group currently operates 25 online shops, employs 348 individuals, and owns a modern, automated warehouse in Poland spanning 72,000 square meters. Additionally, Oponeo has formed partnerships with over 1,000 fitting service providers in Poland and more than 3,000 in its other markets. The company relies on wholesalers and producers for distribution to foreign clients.

Delticom, also founded in 1999, has become the largest online retailer of tires and rims not only in Germany but also across Europe. While Delticom faces strong competition from Oponeo in countries like the Netherlands and Belgium, it held a presence in the United States until 2022, when Delticom North America was sold (the transaction generated a one-off gain of EUR 3.8m). In 2016, Delticom’s founders, Andreas Prüfer, Rainer Binder, Philip von Grolman, and Timon Samusch, attempted to diversify their business by acquiring an online distributor of used cars in France and online shops for gourmet and regular food in Germany. However, due to liquidity issues, these diversification efforts were ultimately discontinued in 2019-2020. Presently, Delticom has refocused its efforts on its core activity of selling tires and rims. The company operates approximately 300 online shops in nearly 50 countries, employing 168 individuals. Delticom runs warehouses in Sehnde, Germany (over 60,000 square meters), and Ensisheim, France (around 50,000 square meters).

Historical & current financials

Oponeo boasts an impressive track record when it comes to its financial performance. Between 2012 and 2022, the company managed to increase its revenues from PLN 207.1m to PLN 1.7bn, achieving a CAGR of 23.4%. Concurrently, its EBITDA also saw a substantial rise, climbing from PLN 6.7m to PLN 82.5m (CAGR of 28.5%). Over the past five years, Oponeo has maintained EBITDA and ROCE figures within the range of 3.5% to 6.2% and 9.8% to 16.5%, respectively.

Since 2008, Oponeo has consistently been distributing dividends to its shareholders and has also regularly engaged in stock buyback initiatives. Despite the challenging situation prevailing in the retail sector at present, the company displayed notable resilience. In the first half of 2023 (H1/23), Oponeo achieved a year-on-year revenue growth of 14.1%, amounting to PLN 789.4m. However, there was a decline of 9.6% in EBITDA, reaching PLN 18.9m during the same period. The company has managed to maintain a reasonably low net gearing level of 11.3%.

Oponeo.pl S.A.:  Gross & EBITDA margins and ROCE in 2018-2022

Oponeo.pl S.A.: Cash Conversion Cycle, Operating and Free Cash Flow in 2018-2022

Source: Company information, East Value Research GmbH

An examination of Delticom’s historical performance presents a mixed overview. Between 2012 and 2018, the company experienced a consistent growth in sales, averaging a 6.5% increase annually, accompanied by a clearly positive EBITDA margin. However, due to an unsuccessful expansion into the online food business, the company’s profitability suffered a steep decline in 2019. During that year, Delticom reported an EBITDA of EUR -6.6m and an EBIT of EUR -42.1m. Consequently, the company’s net debt escalated to EUR 87.8m, causing a substantial drop in Delticom’s share price from its peak of around EUR 80 in 2011 to below EUR 3.

Nonetheless, following a restructuring effort, the company managed to restore a positive operating profit trajectory. Presently, Delticom is poised to achieve an estimated EBITDA of approximately EUR 14m this year. In the first half of 2023, the company’s revenues experienced a year-on-year decline of 10%, amounting to EUR 197.7m. This contraction was primarily attributed to a redirection of revenues towards Delticom’s newly established marketplace, Reifen.com. Within this platform, the company sells car accessories from third-party retailers, earning commissions.

The net gearing ratio stood at 200.5%, but this included an estimated EUR 50m of IFRS 16 related leasing debt, thus the actual net debt figure was not EUR 82.8m but EUR 32.8m (equity equalled EUR 41.3m). At the end of 2021 and 2022, the respective net gearing amounted to 138.5% and 178% respectively. In H1/23, the increase was driven by the accumulation of inventories in preparation for the crucial winter season, a common practice in Delticom’s sector. However, it is anticipated that by the end of 2023, the net gearing ratio will once again substantially decrease compared to the value recorded as of June 30, 2023.

Delticom AG:  Gross & EBITDA margins and ROCE in 2018-2022

Source: Company information, East Value Research GmbH

Delticom AG:  Cash Conversion Cycle, Operating and Free Cash Flow in 2018-2022

Source: Company information, East Value Research GmbH

Current valuation & conclusion

Compared to Delticom, Oponeo has a more favorable track record, and we possess greater confidence in its management. Nevertheless, we believe that much of this positivity is already factored into the company’s current valuation metrics. For instance, Oponeo’s estimated enterprise value to sales ratio (EV/Sales) for 2023E is 0.3x, which is in line with the 5-year average of 0.4x. Similarly, its EV/EBITDA ratio for 2023E is 7.7x compared to the 5-year average of 6.7x.

On the other hand, Delticom presents an intriguing restructuring narrative, particularly due to its current historically low valuation. The projected EV/Sales ratio for 2023E is 0.2x, consistent with the 5-year average. Likewise, the projected EV/EBITDA ratio for 2023E is 6.9x as opposed to the 5-year average of 9.9x. Notably, Delticom exhibits a notably higher revenue per employee compared to Oponeo, amounting to EUR 1.18m versus EUR 507.5k.

Assuming that inflationary pressures ease, which we anticipate occurring in Q4/23E, and if online sales rebound, Delticom’s financial performance and market valuation are likely to follow suit. A scenario reminiscent of 2020-21 could emerge, wherein Delticom experienced a significant improvement in EBITDA compared to 2019, leading to a substantial increase in its stock price. During the period between mid-2020 and mid-2021, the stock price surged from a low of approximately EUR 2.50 to EUR 9.70. Although we believe the potential return currently exceeds 100%, it’s important to acknowledge key risks such as elevated net gearing and concerns surrounding Delticom’s founder and CEO, a figure who generates controversy among institutional investors. Nevertheless, we hold the view that the company’s prevailing trading multiples already adequately account for these factors.

New orders & financials so far in 2023

In Q1/23, XTPL generated revenues of PLN 3 million from sales of products and services, representing a significant year-on-year growth of 219.9%. Revenues from grants amounted to PLN 605k (compared to PLN 689k in Q1/22). The gross margin stood at 60.4% (compared to -29.4% in Q1/22). After accounting for operating expenses of PLN 2.2 million, XTPL achieved an EBITDA of PLN 78k (compared to a loss of PLN -2.4 million). Net income improved from a loss of PLN -2.7 million in Q1/22 to a loss of PLN -301k.

During this year, XTPL announced five contracts for the sale of Delta Printing Systems, all of which were sold to Chinese clients. Additionally, two contracts were signed for printing modules, with buyers including HB Technologies, a supplier of machines for testing and repair of displays for companies like Samsung Display and Beijing BOE Display. Furthermore, a large US-based NASDAQ-listed producer of machines for the semiconductor industry (likely Lam Research Corp., with a market cap of USD 82.3bn and yearly sales exceeding USD 17bn) also purchased printing modules. According to sources such as Pocket-lint and 4kfilme, Samsung Display delivers 80 million OLED displays solely for the iPhone 14 and produces over 100,000 Quantum Dot (QD)-OLED displays for TVs each month. In our view, considering that more than 10% of these displays typically have defects, this demonstrates the significant commercial potential for XTPL.

Issuance of new equity and debt for capacity expansion and building of local sales teams

XTPL announced its intention to issue up to 275,000 new shares on May 12th, which will finance approximately 50% of the planned investments amounting to PLN 60 million from 2023E-26E. The remaining funding will come from own funds, grants, and new debt. The equity issue, in which the CEO and founder also intends to participate, is expected to be completed this week. Our research indicates that debt financing has already been secured.

According to discussions with management, the PLN 60 million will be allocated towards several initiatives, including:

1. Expanding the production capacity of printing modules from the current level of less than 10 per year to 100 per annum (which would correspond to yearly sales of EUR 7.5 million/PLN 33.75 million).
2. Increasing the production capacity of prototyping machines, specifically the Delta Printing System, from currently more than 10 units to more than 20 units per year (e.g., 20 units would equal yearly sales of EUR 3.5 million/PLN 15.75 million).
3. Quadrupling the yearly production of nanoinks.
4. Establishing local sales offices with demonstration labs primarily in the US and Asia, a strategic move to accelerate the acquisition of new clients.
5. Hiring additional staff and continuing research and development activities.

Expected boost for XTPL’s business from Intel’s new factory near Wroclaw 

Moreover, XTPL is expected to benefit from Intel’s new factory near Wroclaw, announced on June 16th. The US semiconductor giant’s investment of USD 4.6 billion/PLN 18.4 billion in a new factory for semiconductor integration and repair in Miekina, approximately 30 km from Wroclaw, is the largest foreign investment in Poland to date. Given that semiconductor and display repairs align with XTPL’s technology applications, Intel could become a potential client for XTPL.

Our forecasts for 2023E-26E imply a revenue CAGR 2022-26E of 60.2% and a target EBITDA margin of c. 40%

We have constructed a financial model for XTPL that extends until 2026E and takes into account the latest information provided by the company’s management. Our projections are slightly more optimistic than the company’s own guidance, which anticipates sales of PLN 100 million in 2026E.

What sets XTPL’s business model apart is the increasing number of Delta Printing Systems and Printing Modules being sold, which will drive recurring revenues from consumables and inks. This will ultimately result in substantial double-digit EBITDA margins.

While we initially anticipated a net profit for the current fiscal year (2023E), we now believe that planned investments, such as the establishment of local sales teams in the US and Asia, will likely lead to a negative net income. However, we are highly optimistic that 2024E will mark XTPL’s first profitable year.

Conclusion

In conclusion, XTPL’s technology commercialization appears to be on track, as promised by CEO and founder Filip Granek. The demand for the company’s products is evident from major international research facilities and industry players. Furthermore, with a significant share of high-margin recurring revenues expected to exceed 48% by 2026E, XTPL’s commercialization model holds significant appeal.

We have confidence in our estimates, projecting a sales CAGR of 60.2% from 2022 to 2026E, along with target EBITDA margins of approximately 40%. For only one of their projects, industrial clients such as HB Technologies or Lam Research could potentially purchase up to 100 printing modules, which will need to be replaced after 5 years. As production volumes increase, these modules will generate a rapidly growing stream of recurring revenues from consumables and nanoinks, resulting in a significant operating cash flow for XTPL.

Business description

CIECH, which is based in Warsaw, is an international chemical group with factories in Poland, Germany, Spain and Romania, >3,000 employees and a worldwide customer base. It is the 2^nd largest manufacturer of sodium carbonate and sodium bicarbonate in the EU, the no 1 manufacturer of evaporated salt in Poland, the no 1 supplier of sodium silicates in Europe, the largest Polish manufacturer of plant protection products, and a leading Polish producer of polyurethane foams in Poland. CIECH’s products are crucial elements in different industries incl. Construction, Automotive, Agriculture, Chemical, Food and Pharma. They are used in the production of articles necessary in everyday life.

In 2021, Poland was CIECH’s largest geographical market with a share of 51%, followed by other EU countries (45%), other Europe (2%) and Asia/Africa/Other (2%). The Soda segment was the company’s largest one by far and accounted for 66% of total sales and c. 81% of adjusted EBITDA. Its products soda ash, sodium bicarbonates and salt are used in the production of flat glass, glass packaging, silicates, detergents, animal feed, food, and water treatment solutions, among others. Other segments include: 

Agro (crop protection products, herbicides) – 14% of total sales in 2021 and c. 16% of adj. EBITDA

Foams (Polyurethane foams that are mainly used in the production of furniture and matrasses) – 11% of revenues and >16% of adj. EBITDA

Silicates (sodium and potassium silicates used e.g. in the production of precipitated silica, paper and welding electrodes) – 7% of 2021 sales and >4% of adj. EBITDA and 

Packaging (lanterns for vigil lights, jars) – 2% of total sales and >2% of adj. EBITDA

CIECH S.A. has been listed on the Warsaw Stock Exchange since 2005. It can also be traded in Frankfurt. Since 2014, the company has been owned by Kulczyk Investments, which belongs to the 6^th richest Pole Mr Sebastian Kulczyk. Kulczyk Investments (through KI Chemistry) bought a control stake of 51.1% in CIECH from its previous owner, the Polish state, at PLN 31 per share.

Financials

In 2021 – the last fiscal-year, for which results are available – the CIECH Group generated revenues of PLN 3.5bn (+16.3% y-o-y, 5y CAGR of 0.03%), an EBITDA of PLN 730.4m (+24.1%, 21.1% margin, 5y CAGR of -3.9%) and a net income of PLN 292.4m (+126.2%, 8.5% margin). Operating and free cash flow equalled PLN 1.3bn (2020: PLN 767.2m) and PLN 571.5m (PLN     -66.8m) respectively. Between January and December 2021, CIECH’s ROCE equalled 5.8%, while we estimate its current WACC at 14.2%, implying that the company is not generating a sufficient return on the capital employed to offset its costs of capital.

In 9M/22, the company generated revenues of PLN 3.9bn (+57.4% y-o-y), an adj. EBITDA of PLN 661.2m (+19.3%) and net income of PLN 234.5m (+0.2%). At the end of September, its net gearing equalled 56.1%.

In the last years, CIECH has paid out dividends, but not regularly. For 2022, the company paid out PLN 1.50 per share, which corresponds to a DYield of 2.9% at present.

Comment on the tender offer

On March 9, Kulczyk Investments through its subsidiary KI Chemistry Sarl announced a tender offer for all the remaining 48.86% shares of CIECH Group at PLN 49 per share, which starts on March 10 and is supposed to end on April 12. After reaching a threshold of at least 95% of the shares outstanding, Kulczyk Investments plans to delist CIECH as it believes that as a listed company it cannot “react in a fast and flexible manner to rapidly changing economic, geopolitical and regulatory environments, and turbulences on global financial and raw material markets”. 

In our view, the tender price is far too low and does not reflect CIECH’s fair value. The current share price of PLN 52.35, which is 6.8% above the tender price, implies an EV/EBITDA 2023E and P/E 2023E of 3.9x and 6.8x respectively. The 5-year hist. average EV/EBITDA and P/E multiples of 5.1x and 11.5x respectively are 31.3% and 69.8% higher. 

We expect that especially the Polish investment and pension funds, which hold approx. 27% of CIECH’s shares at present, will urge Kulczyk Investments to increase the tender price. Consequently, we advise current investors not to sell their shares in the tender and to increase their stake in the company.

KRUK S.A., which is based in Wroclaw and has been listed on the Warsaw Stock Exchange since 2011, is the Polish market leader in the area of debt servicing and one of the leading players in its segment in Europe. With sophisticated software tools, the company’s staff analyses the financial situation of each customer and spreads his debt into manageable instalments. 

Since its foundation in 2004 by its current CEO and second-largest shareholder Piotr Krupa, the company has developed from a small firm with less than 20 employees to an international financial group with a focus on complex and integrated service offerings related to receivables management in Poland (50.1% of total sales in 2021), Romania (23.7%), Italy (16%), Spain (6.5%) and other markets incl. Germany, Czechia and Slovakia (together 3.5%). KRUK manages debt, which it has bought itself, or for which it has been commissioned by institutional clients – e.g. banks, credit intermediaries, insurances, leasing companies, telecommunication and cable & satellite operators and FMCG companies – in three segments: uninsured consumer debt, mortgage debt and corporate debt. This approach has many advantages as statistical information from the servicing business allows the company to lower the risk of the debt portfolios that it acquires.   

The KRUK Group comprises 25 fully consolidated subsidiaries incl. subsidiaries in all countries, in which it operates, RAVEN (a legal office), RD ERIF BIG (provides credit information) and NOVUM (provides loans to KRUK’s clients, who have already paid back their debt). 

Recent results

With a revenue and net income CAGR of 8.8% and 22.8% respectively, KRUK has grown rapidly on both top- and bottom-line in the last 5 years. In 2021, which followed the difficult pandemic year 2020, the company increased its revenues by 50.5% y-o-y to PLN 1.7bn, EBITDA by 139.7% to PLN 908m (52.1% margin vs. 32.7% in 2020) and net income by 757.9% to PLN 694.9m. All of its regional markets were profitable on EBITDA level. ROCE and ROE were very strong and reached 17.6% and 29.9% respectively. The company’s main peers Intrum (15.5%) and Hoist (negative ROE) from Sweden and Banca IFIS (6.4%) from Italy generated a lower ROE.

In 9M/22, KRUK continued its strong development as debt repayments by customers remained at a good level due to low unemployment and high salary increases. Between January and September 2022, the company’s revenues equalled PLN 1.6bn (+20.1% y-o-y), EBITDA PLN 874.8m (+17.5%; 54.3% margin) and net income PLN 676.9m (+19.7%). At the end of September, it had a net debt of PLN 3.2bn, which corresponds to a net gearing of 103.5%. This was less than Intrum (254.4%), Hoist (123.7%) and Banca Banca IFIS (290.4%).

Summary & Conclusion

We like KRUK as it is No 1 in Poland and a leader in Europe in its market, has grown strongly over the last years and since its IPO has been considered one of the best companies on the Warsaw Stock Exchange. Most of its shareholders are long-term oriented Polish pension funds and international institutional investors, while its insiders own 10.5% of its shares. Moreover, KRUK’s stock is currently pretty cheap – cons. P/E 2022E equals 7.7x compared to a 5y historical average of 16.1x – and this week the company passed a share buyback until 2026E of up to PLN 1bn at max. PLN 400 per share (40.5% above current market price). This corresponds to 20% of its current shares outstanding. 

Since 2014, KRUK has paid a dividend for all fiscal years except 2019. For 2022E, the sell-side consensus assumes a DPS of PLN 12.50, which implies a dividend yield of 4.3% at present. The company’s dividend policy for 2021-2024 foresees the payout of 30% of its annual net profit to shareholders.

In terms risks, we see two main ones: (1) change of government regulations and (2) the significant increase of interest rates e.g. in Poland as it makes refinancing more difficult. Nevertheless, we expect that the debt repayment ratios of KRUK’s clients will remain solid due to high salary increases. Also, the share buyback should support the company’s share price in the coming months. 

KRUK is part of the Polish bluechip index WIG20, but its shares can also be traded in Germany.

Business description

Kino Polska TV S.A. (KPL PW), which is based in Warsaw, is a leading producer and broadcaster of thematic TV channels with operations in 68 countries worldwide and a 36% share of international sales in total revenues. The company owns one of the largest catalogues with Polish content (movies, series, documentaries etc.) and through its owner SPI International, which since March 2022 has been part of the leading European media company Canal+ Group, has access to high-quality international movie content on an exclusive basis in Poland. Of the sales related to TV channels, which last year accounted for 88.1% of the total, 56.9% stem from recurring transmission/subscription fees, which makes KPL less dependent on very profitable but cyclical advertising sales.

KPL broadcasts channels under the six main brands Telewizja Kino Polska, Kino Polska Muzyka, Kino TV, FilmBox, Zoom TV and Stopklatka TV. All are wholly-owned and, except Zoom TV, profitable. Telewizja Kino Polska and Kino Polska Muzyka are focused on high-quality Polish movies and related music videos and FilmBox, Kino TV and Stopklatka on international movies. Zoom TV, which is supposed to become profitable in 2023E according to management, broadcasts series, documentaries and shows. All KPL’s channels can be watched on multiple platforms including digital terrestrial TV (DVB-T), satellite & cable, online and on mobile devices. The FilmBox channel family, which KPL produces, is already available in 68 countries in the CEE & SEE region, North- and South America and Asia. 

According to wirtualnemedia.pl, there is a trend towards consolidation of thematic channels because many broadcast the same content that is often repeated. In the future the remaining TV channels will be well-profiled to certain operators and advertisers and available not just on digital terrestrial TV, satellite and cable platforms but also via streaming services such as Netflix or HBO. Moreover, with improving internet speed video content will increasingly be consumed on mobile devices. According to We Are Social, movies and videos are by far the most popular type of paid content worldwide. 

Recent results

KPL is a fast-growing and highly profitable company with a revenue CAGR in 2015-2021 of 15.7% and double-digit EBIT margins in each of the last seven years. In 2021, revenues came in PLN 257.2m (+21.4% y-o-y), EBITDA at PLN 117.3m (+32.5%; 45.6% margin) and net income at PLN 48.6m (+78.6%). Operating and free cash flow amounted to PLN 57.3m (2020: PLN 28.4m) and PLN 50.9m (PLN 24.6m) respectively. At 24.9%, ROCE was very strong. Despite the Ukraine conflict, in H1/22 the company’s sales advanced by 17.1% y-o-y to PLN 139.3m, EBITDA by 4.9% to PLN 57.3m (41.1% margin vs. 45.9% in H1/21) and net income by 5.8% to PLN 21.2m (15.2% margin). At the end of June 2022, Kino Polska TV had a net gearing of -12.5% and thus was net cash. 

On November 9^th, KPL issued preliminary results for Q3 and 9M/22. Between June and September, consolidated revenues equalled PLN 65m (+2.3% y-o-y), while in Jan-Sep they amounted to PLN 204.3m (+12%). However, in Q3/22 net income declined by 39% y-o-y to PLN 6.7m due to exchange rate differences and higher expenses related to ZOOM TV. This year, the PLN reached the weakest level ever compared to the USD and EUR. 

After paying dividends in each year after its IPO in 2011 until 2018, the company resumed its dividend payouts in 2022. For fiscal-year 2021, it paid out a DPS of PLN 0.50, which corresponds to a payout ratio of 20.5% and a dividend yield of 4% at present.

Summary & Conclusion

We like Kino Polska TV due to its competent management, the strong anchor shareholder Canal+ (is wholly owned by Vivendi Group), a cash-generating and fast-growing TV business, which is based on high-quality content, and very attractive valuation (currently, its trailing EV/EBITDA after H1/22 results equals just 4.1x and trailing P/E after prel. 9M/22 figures 8.8x). We also believe that in the next 3-4 years Canal+ will buy all outstanding shares of the company and de-list it, which will likely be conducted at a significant premium to the current share price. Regarding dividend payouts, we expect that Kino Polska TV will distribute at least 20% of its annual net income to shareholders in the coming years.

When it comes to risks, investors should be aware of the following: (1) An economic slowdown would negatively affect KPL’s advertising sales, which are highly profitable, (2) KPL’s content costs are in EUR and USD, but >60% of revenues in PLN, (3) Competition by streaming platforms such as Netflix, which nowadays invest billions of USD in own content, (4) Inability to renew co-operation agreements with cable operators and satellite platforms, and (5) Kino Polska TV’s stock can only be traded in Warsaw, which reduces the number of potential new investors