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