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On January 3rd, XTPL announced its long-awaited first industrial implementation with a multi-billion USD Chinese partner from the display sector. While the initial order for six printing modules (UPDS) is relatively small, the potential of the deal is significant (several dozen printing modules in 2025E alone, along with corresponding service revenues and substantial volumes of nanoink). More importantly, the first industrial implementation is likely to accelerate the three others that are very close to being signed. These include deals from the US and Taiwan, related to PCBs and semiconductors, which could generate higher revenues going forward than the Korean one, which is focused on the display industry.

In total, XTPL is in talks with 20 international partners regarding industrial implementation, with eight of these at an advanced stage of negotiations. Based on information from management, we estimate the total revenue potential of the 20 potential industrial projects at approximately PLN 890m per year, which is nearly three times XTPL’s current market capitalization. In terms of production capacity, XTPL plans to rely on third-party contract manufacturers.

In 9M/24, XTPL’s revenues (excluding grants) reached PLN 6.7m, which represents a 27.4% decline compared to last year. This decrease was mainly due to lower sales of Delta Printing Systems (-6.6% to PLN 5.7m). Additionally, in contrast to 9M/24 last year the company generated revenues from an R&D project with NASDAQ-listed Nano Dimension related to the development of a nanoink, which is why the segment “R&D services” only reported sales of PLN 421k (-84.4% y-o-y). The segment nanoinks increased its revenues by 40.4% y-o-y to PLN 584k.

The number of staff almost doubled year-on-year to approximately 90 (including 2 highly qualified and experienced employees in the US and 1 in Asia) and distribution, administration, and other expenses increased by 58.6% year-on-year to PLN 11.8m. Thus, these costs will likely significantly exceed our previous estimate of PLN 11.5m by the end of December 2024. Gross profit amounted to PLN -6m, compared to PLN 5m in 9M/23, primarily due to a 128.6% increase in R&D expenses year-on-year.

Nevertheless, we believe the heavy investments in staff, a sales and distribution center in Boston, and production capacity related to Delta Printing Systems (DPS)—which now allows XTPL to produce three times more DPS per year and deliver them in a few weeks instead of several months—should pay off in the long run. Furthermore, the company has developed an advanced version of the Delta Printing System, called DPS+, which enables more automated production of over 100,000 units per year with high flexibility and is supposed to be targeted at Tech corporations and producers of electronics.

In general, Delta Printing Systems are used by research and corporate clients for R&D on new application areas, which opens up more possibilities for XTPL regarding industrial implementations. By 2026E, management plans to open two more demonstration centers e.g. in South Korea and Taiwan.

At the beginning of December, XTPL completed an equity issue worth PLN 31m (300,000 shares at PLN 92 per share), which we believe was primarily subscribed by long-term institutional investors from Poland and Germany (as of 30/09/2024, the company’s cash reserves amounted to PLN 4.8m after PLN 27.3m at the end of 2023). With the first signed contract for industrial implementation, the company can now apply for debt financing from banks. Therefore, XTPL’s financing until cash break-even—expected in 2026E at the latest—is now secured.

Our revised forecasts

After 9M/24, we have lowered our assumption for the number of Delta Printing Systems in 2024 from 12 to 10. For 2025E, we are more conservative than management (20 devices sold vs. guidance of 30). In our new forecasts, we have also accounted for the new DPS+, of which XTPL should sell 2 devices in 2026E.

Although one industrial implementation will likely lead to orders of 10-several hundred printing heads, which we assume cost EUR 80,000 each on average, and discussions with new potential partners are much faster than with previous ones, from today’s perspective we believe that XTPL will only reach the EBITDA break-even in 2026E. We now expect a negative gross margin of -15% in 2024E (previously: 56%) and higher OPEX than before (PLN 19.2m/year compared to PLN 12m before). Below are the updated estimates for 2024E-2026E. While XTPL’s stock remains highly promising in the long run, investors must be patient and prepared for significant volatility in the share price. In our view, the first industrial implementation has demonstrated that the global Tech industry places a high value on XTPL’s technology and that the Polish company provides substantial added value to its commercial clients. As more industrial implementations are expected to be signed in 2025-26E – with management anticipating at least one additional implementation this year – we believe XTPL will ultimately be acquired by a major global player in the Tech, display, or semiconductor sectors. It is also worth emphasizing that, with 40 international patents already granted and at least 40 more pending, the company’s IP portfolio holds significant value.

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%).

Company description

XTPL, whose founder and CEO Dr. Filip Granek made his PhD in the German city of Freiburg and previously worked for Fraunhofer Institute, has developed an additive printing technology, which allows to print ultra-fine (up to 1 micrometer thin) transparent conductive and non-conductive lines. This technology has the potential to revolutionize various multi-billion USD industries e.g. Printed Electronics, Smart Glass, Displays, Semiconductors, Photovoltaics, Biosensors in terms of cost and resource efficiency, miniaturization and flexibility, among others. So far, XTPL has filed 24 international patent applications, which cover e.g. the formulations of its nanoinks, its printing heads and a method of printing conductive structures for the Electronics sector. Since its IPO in 2017, the company has been supported by German ACATIS Investment and Deutsche Balaton, which hold 9.6% and 11.8% respectively of its shares. However, its largest shareholder is CEO Granek with a stake of 15.6%.

While in the first two years after IPO it did not meet investors’ expectations, in 2020 XTPL changed its commercialization strategy and started to search for international distribution partners. Since then, it has signed contracts with Bandi Consortia in South Korea, Yi Xin Technology in China, Semitronics Sales in UK & Ireland and most recently with merconics in the DACH region & France. Moreover, the company has initiated sales of proprietary nanoinks (e.g. based on silver) and own Delta Printing Systems (highly precise system for printing microelectronic systems), which have so far been sold to research facilities in Stuttgart, Karlsruhe, Glasgow, Wroclaw and Brescia. XTPL’s strategy foresees the implementation of its technology into industrial scale applications and serial production in a licensing or strategic partnership model.

Financials

In 9M/21, XTPL had revenues from sales of products of PLN 213k (9M/20: PLN 44k), thereof PLN 45k from nanoinks and PLN 161k from Delta Printing Systems (require nanoinks). Operating and net loss remained at a similar level y-o-y of PLN 6.4m each (PLN 2.1m/c. EUR 470k per quarter on average). At the end of September 2021, XTPL had cash of PLN 4.8m and (long-term) interest-bearing debt of PLN 3.3m.

New contract with Nano Dimension & Valuation

On January 10, 2022, XTPL announced the signing of a contract with the Israeli provider of additive electronics Nano Dimension Ltd. Both parties agreed that XTPL would develop a conductive nanoink based on metallic nanoparticles for use in the devices of Nano Dimension that target the PCB segment. While details of the contract have not been revealed, we believe that the yearly revenues from this contract will cover XTPL’s current operating expenses and thus allow the company to reach the break-even already in 2022E.

A comparison with Nano Dimension, which currently has a market capitalization of USD 977m, indicates a significant undervaluation of XTPL, despite the recent share price rally. Based on marketscreener.com data, Nano Dimension is expected to generated revenues of USD 30m in 2022E, which implies a P/Sales 2022E of 32.6x. If we multiply this P/Sales multiple with a conservative revenue estimate for 2022E of USD 2.5m/PLN 10m, we arrive at a fair equity value of XTPL of PLN 326.5m or PLN 160.90 per share. Thus, our calculation derives an upside for XTPL’s shares of 140.2% at current level.

Apart from the Main Market of the Warsaw Stock Exchange, interested investors can buy XTPL’s shares on the stock exchanges in Frankfurt, München and Stuttgart.

* The author of this blog post owns shares of XTPL S.A.