Latest / The Dutch Investors / #14 | Dino Polska | Fundamental Analysis

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#14 | Dino Polska | Fundamental Analysis · The Dutch Investors

• 0:00
  Speaker 1: Welcome back to a brand new episode by the Dutch investors.
• 0:03
  Speaker 1: In this episode, we are sharing our fundamental analysis of Dinopolska, researched by our analyst Matthijs, recorded by myself and Luc.
• 0:13
  Speaker 1: Dinopolska is a Polish supermarket chain with net margins of over 5%.
• 0:19
  Speaker 1: This is highly unusual compared to competitors that typically operate with margins closer to 1% and 2.5%.
• 0:26
  Speaker 1: Dynapolska has transformed from a single store in a small Polish town to a rapidly expanding supermarket chain with over 2,700 locations.
• 0:37
  Speaker 1: The company is known for its unique standardization model, which we will tell you all about.
• 0:45
  Speaker 1: We are sharing this free analysis because we want to bring you our unique insights on Dinopolska, its origins and why we like the company, but also to show you what our premium members receive every single Friday 52 different companies each year.
• 1:02
  Speaker 1: Just a heads up before we begin.
• 1:04
  Speaker 1: This audio analysis was released to premium members back in August 2024.
• 1:09
  Speaker 1: So, while most things haven't changed since then, when this analysis was recorded, dynapolska had around 2,500 locations.
• 1:17
  Speaker 1: This has now grown to around 2,700 locations, with 283 new store openings in 2024.
• 1:25
  Speaker 1: Also, the net margin has decreased a little bit since then because of the ongoing price war between retail chains in Poland.
• 1:33
  Speaker 1: Just be aware of these minor details Without further ado.
• 1:37
  Speaker 1: Please enjoy this audio analysis of Dino Polska of.
• 1:46
  Speaker 2: Dino Polska.
• 1:49
  Speaker 2: Hello and welcome back to a new TDI podcast.
• 1:51
  Speaker 2: I really look forward to this theme.
• 1:54
  Speaker 2: We're analyzing a Polish supermarket with a net margin of 5% and world's closest competitor only has a net margin of 2.5%.
• 2:04
  Speaker 2: Yeah, that's nuts, right?
• 2:06
  Speaker 2: Yes, exactly.
• 2:07
  Speaker 2: This difference doesn't seem so big, but in absolute terms, this means that the net profit of Dino Polska is twice as high.
• 2:15
  Speaker 1: Yeah, not only that Christopher Mayer also owns shares of Dino Polska.
• 2:20
  Speaker 2: so Exactly the writer of the book 100 Beggars.
• 2:24
  Speaker 2: Luke tell us a little bit about Dino Polska, so exactly the writer of the book 100 beggars, uh Luke, tell us a little bit about Dino Polska.
• 2:30
  Speaker 2: What is it?
• 2:31
  Speaker 2: Dino Polska is a Polish supermarket that has a focus on rural areas in Poland, and they currently have about 2500 locations.
• 2:40
  Speaker 2: But before we move into what makes them so special, it's good to have a look at the history of Dino Polska to understand them better.
• 2:48
  Speaker 1: All right, let's take us through the history of Dino.
• 2:52
  Speaker 2: First of all, it's good to know that Poland is a very young democracy.
• 2:57
  Speaker 2: They are only independent from the Soviet Union since 1989.
• 3:01
  Speaker 2: The first Dino supermarket was opened in 1999 by founder thomas biernacki.
• 3:09
  Speaker 2: Yeah, that's a special dude, right?
• 3:12
  Speaker 2: Yeah, definitely, we'll get into that later, but I think he's one of the most mysterious ceos I have ever seen of any company.
• 3:23
  Speaker 1: Yeah, I mean just Google his name and there's not a lot to be found.
• 3:27
  Speaker 2: No, he's so mysterious, but he also has a really peculiar way of building a business, and this also is a big part of the mode, the whole story of Dino Polska.
• 3:40
  Speaker 2: It all has to do with each other.
• 3:42
  Speaker 2: It's founder-led, which is one of the reasons they have a lot of standardization.
• 3:47
  Speaker 2: They are vertically integrated and one of the things they did in 2003 was buy the meat company Agro Ritziga, so they integrated this and they were experimenting a lot with their format until 2004 and since then they they made a decision to focus on rural areas and built all of their stores exactly the same way.
• 4:11
  Speaker 2: Well, after the the format was found, they built big distribution centers.
• 4:18
  Speaker 2: So a big focus on efficiency almost right from the start.
• 4:23
  Speaker 2: They only needed a couple years to figure that out.
• 4:26
  Speaker 2: Nowadays, every supermarket has big distribution centers, but tino was really focused on that early stage.
• 4:34
  Speaker 2: Yeah, and the growth has been amazing.
• 4:37
  Speaker 2: In 2010, there were only 100 supermarkets.
• 4:41
  Speaker 2: In 2010, in 2013, there were 300 supermarkets.
• 4:45
  Speaker 2: Only two years later, there were 200 more and three years after that.
• 4:51
  Speaker 2: So in 2017, they had their IPO and, like I said already, today they have about 2500 stores all in Poland.
• 5:01
  Speaker 2: So this is really, really impressive and another fun fact in 2021 and in 2022, a new supermarket was opened every day yeah, that's.
• 5:13
  Speaker 1: That's crazy to think about.
• 5:14
  Speaker 1: Just thinking about the fact that a new supermarket is done every single day of the year, that's a lot of growth you wouldn't expect that in poland.
• 5:24
  Speaker 2: Well, growth.
• 5:25
  Speaker 2: You wouldn't expect that in Poland.
• 5:26
  Speaker 2: Well, at first you wouldn't expect that, but when you think about it it's quite logical.
• 5:32
  Speaker 2: Like in Poland, there are a lot more mom and pop stores.
• 5:35
  Speaker 2: And what I learned when studying retail businesses every business that has low margins moves eventually to a couple players that dominate the market.
• 5:47
  Speaker 2: Like skill efficiencies, sometimes it doesn't have much use, but when margins are low, the focus on skill and efficiency becomes so important.
• 5:59
  Speaker 2: Yeah, that's also what we said in the opening.
• 6:02
  Speaker 2: When your net margin is 1%, when, when your net margin is one percent versus when your net margin is two percent, that means a double, double as big net profit yeah, it doesn't look like much on paper, but if you can invest a hundred million extra compared to your competitor, that's quite a lot of uh numbers you can.
• 6:25
  Speaker 1: You can use yes, exactly.
• 6:28
  Speaker 2: And what's also fun to take into account into this analysis is that he said one of our researchers, matthijs, went to poland and visited a lot of dino polska stores well, a lot.
• 6:40
  Speaker 1: He visited three of them and also went to their biggest competitor, the bitronka yeah and that's uh, one of the parts that makes investing a lot of fun making it practical.
• 6:52
  Speaker 1: But it's also very useful seeing what types of customers there are, seeing how many people that are in the stores checking out the competitors.
• 7:00
  Speaker 1: I mean, we live in the netherlands.
• 7:02
  Speaker 1: We don't have Dina Polska stores here, so it's very good to just go over there, look around, maybe ask a few questions to the customers, maybe even the manager.
• 7:12
  Speaker 1: Yeah, this way you can make your investment case even stronger.
• 7:16
  Speaker 2: Yes, especially when investing in foreign countries you don't know so well.
• 7:20
  Speaker 2: Yeah, like a lot of companies are very good at telling you a story, a lot of companies also know what you would like to hear, so they adjust their story to that.
• 7:30
  Speaker 2: So sometimes it's good to to check it out yourself and be certain.
• 7:36
  Speaker 2: So this is one of the reasons why we even got more confident in you know polska and what.
• 7:43
  Speaker 2: What we're about to tell you.
• 7:44
  Speaker 2: We checked it for ourselves.
• 7:46
  Speaker 1: Yeah, maybe let's start with what makes them so special.
• 7:55
  Speaker 2: Yes, a great idea.
• 7:56
  Speaker 2: And this also gets into their mode, because the case with Dino Polska is that they don't really have a traditional mode, like almost is the case with almost all big retailers.
• 8:10
  Speaker 2: Their mode is really in the skill they have.
• 8:13
  Speaker 2: But the funny story of the great story with Dino Polska is that there are a lot of little things that make up their mode.
• 8:24
  Speaker 1: Yeah, one of the first and probably one of the most important elements for dino polska is the fact that they are very standardized.
• 8:32
  Speaker 1: They build their buildings themselves, they all have the same layout, the same kind of products and it doesn't really seem like much from the outside, but this allows them to, you know, raise that profit margin by a few percentage points, which doesn't like we talked about.
• 8:51
  Speaker 1: It doesn't seem like much, but if you can increase your margins by a few cents on every single thing you do standardization of the solar panels and the standardization of the, the layout of the stores and you can increase your efficiency and all of that comes together which allows them to, you know, have the higher profit margins compared to their strongest competitor, be dronka yeah, but is this not the case with every supermarket?
• 9:21
  Speaker 2: doesn't every supermarket chain look the same?
• 9:25
  Speaker 1: well, you probably know the answer yourself as well.
• 9:28
  Speaker 1: I mean, if you go to a little, every store is different.
• 9:31
  Speaker 1: If you go to, uh, we have a very big store in the netherlands called albert heijn they're all different.
• 9:37
  Speaker 1: In the us you have walmart, which is, uh, different in every single store.
• 9:43
  Speaker 1: Well, walmart is actually quite a good comparison in some ways, some of the times, because they also operate on the outsides of the city.
• 9:52
  Speaker 1: So, no, it's not the case for every single supermarket out there.
• 9:59
  Speaker 1: And Dino Polska is quite extreme.
• 10:02
  Speaker 1: I mean, like Matthijs found out when he went to Poland, every single store is almost a replica of all the other stores.
• 10:11
  Speaker 1: They're all rectangle shaped, they're the same size, they have the same products.
• 10:16
  Speaker 2: Every store is even built by the same construction company owned by Dino Polska yes, it was a bit of a rhetorical question for me, but when I thought about it, when you buy, for example, apples in a supermarket, when you are within a chain like the Lidl, one store can maybe store, one store can maybe shelf like a thousand apples, another one only 500.
• 10:43
  Speaker 2: This creates a lot of complexity that dino polska, yeah, simply does not have.
• 10:50
  Speaker 1: Yeah you could just ship your uh 500 apples to every single dino store.
• 10:55
  Speaker 1: It's much easier.
• 10:56
  Speaker 1: You know how much is going to fit.
• 10:57
  Speaker 1: It's much more efficient.
• 10:58
  Speaker 1: You don't have to throw away as much.
• 11:00
  Speaker 2: Yeah, it's all about efficiency and um, and one thing you mentioned already is that they own their own construction company.
• 11:08
  Speaker 2: Another thing that, when you first heard, you think like why?
• 11:12
  Speaker 2: But it fits perfectly within this story of within this business model.
• 11:19
  Speaker 2: Yeah, that's, if every store is exactly the same, why not just own a construction company?
• 11:26
  Speaker 2: You don't have to spend any money on architects, you don't have to make a very big plan of how the store will look like, and they save money on not hiring the contractor, of course.
• 11:40
  Speaker 1: Yeah, this is something we see in very, very good businesses.
• 11:45
  Speaker 1: Vertical integration we see this in amazon right now.
• 11:49
  Speaker 1: They are becoming much more vertically integrated from, you know, delivery to e-commerce, to watching movies anything that enhances the experience of the customer but also, like we talked about in a few of our other fundamental analyses of Essilor Luxottica being vertically integrated from the frames to the lenses.
• 12:13
  Speaker 1: And by being vertically integrated, you can just save a lot of costs.
• 12:18
  Speaker 1: You don't have a lot of unnecessary costs and you might be wondering why doesn't every single business do this?
• 12:27
  Speaker 1: Well, it is a very big investment up front.
• 12:30
  Speaker 1: Before amazon was vertically integrated, they had to spend billions of dollars to build warehouses and think of a distribution system, hire workers, so it's very expensive at first, but once you're standardized, vertically integrated, it becomes such a money saver.
• 12:49
  Speaker 2: Yes, it's very hard to get there.
• 12:51
  Speaker 2: For example, ups and FedEx, they are businesses that are multiple decades old and Amazon just had to invest all of that money within.
• 13:03
  Speaker 2: Yeah, it's basically nothing and they are already bigger than FedEx and UPS.
• 13:07
  Speaker 2: So a big achievement of them, but also very hard to duplicate.
• 13:12
  Speaker 2: Yeah, definitely.
• 13:14
  Speaker 1: And that's not all.
• 13:15
  Speaker 1: Dino Polska also owns their own stores, their own plot, and they even bought a meat processing facility, which also integrates them even more, cut costs even more on, on the long term as well.
• 13:30
  Speaker 1: Thinking about all of this, look, is there anything more?
• 13:33
  Speaker 1: What makes them unique?
• 13:35
  Speaker 2: uh, yes, well, like you already said, they bought their own meat company and that's because dino polska has a meat department in every store and this doesn't sound really special, but within the Polish culture this is really important, like meat is an important aspect of that culture.
• 13:57
  Speaker 2: When a store has a meat department that sells fresh meat, this is something that makes them unique, and it's not like the Biedronka or other competitors do not have that, but the Dinopolska, their stores are a lot smaller, so this makes them unique that even in the smaller stores they do sell fresh meat.
• 14:20
  Speaker 1: Yeah, we should have asked Matthijs to check out the vegetarian section.
• 14:23
  Speaker 1: That would be interesting to see in Poland.
• 14:27
  Speaker 2: Yes, yeah, well, he checked.
• 14:28
  Speaker 2: He checked that, of course, on the meat department and, yeah, this looked good and he also confirmed that it was busy there.
• 14:36
  Speaker 2: Yeah, but the vegetarian segment, I think he maybe didn't even found it that's gonna be a fun one.
• 14:44
  Speaker 1: I, I, I.
• 14:45
  Speaker 1: This should be some vegetarian products, but uh, um, yes, yeah and well, the meat section definitely is a very strong addition to the business.
• 14:54
  Speaker 1: I would argue it's definitely I mean it.
• 14:57
  Speaker 1: It strengthens their, their mode overall, but it is quite easy to copy.
• 15:02
  Speaker 1: I mean, if a a little Lidl I don't know how to pronounce it in English, I think Lidl or a Bidronka wants to add a meat section as well, I mean they have the money to do so, but it just means that they are, you know, more vertically integrated and it lowers the costs overall.
• 15:23
  Speaker 2: Yes, it's hard to make the distinction with if this is a part of their business model or part of their mode.
• 15:31
  Speaker 2: Uh, I would go more to business model, but it's just a.
• 15:36
  Speaker 2: It's good to know they are focused on that this is also one of the examples that of course, maybe a little will only learn this after a couple of years, but when you have a founder that is from Poland and started the company, he thought about things like this from the start and that really pays off.
• 16:00
  Speaker 1: Yeah, that helps.
• 16:01
  Speaker 1: So we talked about Dina Polska's competitive advantage for now.
• 16:06
  Speaker 1: Do you want to add anything before we head over to the management?
• 16:12
  Speaker 2: A couple of small things.
• 16:13
  Speaker 2: Dino offers the lowest price on 500 products.
• 16:17
  Speaker 2: That's some kind of mode Not to say they are always the cheapest, but it helps.
• 16:23
  Speaker 2: And when you look at the financials, there are a couple things that indicate the most at dino polska, like, for example, the like for like.
• 16:34
  Speaker 2: Sales are way higher than inflation and the return on invested capital is staggering.
• 16:41
  Speaker 2: 26 crazy for a supermarket chain.
• 16:45
  Speaker 2: Yes, it is well, chains often have a high return on investment capital, but within retail it's it's more difficult, I believe, than, for example, for a restaurant yeah, that's a good, uh good add-on.
• 17:01
  Speaker 1: Uh, on that note, I think it's good to head on over to the management team behind Dino Polska.
• 17:07
  Speaker 1: All right, probably.
• 17:15
  Speaker 1: I quite like the management team.
• 17:18
  Speaker 1: Most people do not really enjoy the management team, but there's some fun management teams out there, especially CEOs, and I believe this ceo to be quite special.
• 17:30
  Speaker 1: Uh, you probably will tell a little bit quite is an understatement, I believe.
• 17:34
  Speaker 1: Yeah, it's quite the understatement.
• 17:36
  Speaker 2: So let's talk about their founder for a second yes, you already mentioned his name, thomas biernacki, and he is like a sort, some kind of mysterious figure within poland.
• 17:48
  Speaker 2: There are no pictures of him, he doesn't give interviews.
• 17:52
  Speaker 2: It's also not clear what his role is now.
• 17:56
  Speaker 2: Like he, he stepped down from dino polska a couple years ago, but they also did not replace him, so basically there is no CEO at the moment.
• 18:08
  Speaker 2: Dino Posca is being run by basically by the management team, just by a combination of the CFO, the director of operations and the director of the control department.
• 18:22
  Speaker 2: So that is a bit peculiar, yeah, and there are rumors that Thomasomas bernacki is still active behind the scenes but that he just does not want to have the ceo role of, does not want to have the publicity.
• 18:36
  Speaker 2: But, yeah, yeah, weird, we don't know.
• 18:41
  Speaker 2: Basically no one knows one.
• 18:44
  Speaker 2: One thing Matthijs, our researcher, did find was that there was an article about him crashing a Ferrari somewhere in Poland.
• 18:53
  Speaker 2: So that was, yeah, peculiar and it also made me think, like, apparently he doesn't give anything about status, but he does drive a Ferrari.
• 19:08
  Speaker 2: So he's really an example of quiet luxury.
• 19:13
  Speaker 2: He enjoys good products, apparently, but he doesn't want to show it off.
• 19:21
  Speaker 1: I mean, if you drive in a red Ferrari, Luke, you're showing off.
• 19:26
  Speaker 2: Definitely, definitely.
• 19:27
  Speaker 2: I would imagine someone driving a Ferrari to also be the proud CEO of one of the biggest retail chains in Poland and let everybody know that he's the richest man.
• 19:42
  Speaker 1: Yeah, it's very mysterious and it makes for a good story.
• 19:45
  Speaker 1: Can you tell us a little bit about the management that is currently driving Dino Polska?
• 19:52
  Speaker 1: Well, we just discussed the mysterious behind the scenes.
• 19:57
  Speaker 1: Ceo and founder.
• 19:59
  Speaker 2: Yes, the current management, like I said, consists of three persons.
• 20:04
  Speaker 2: It's Isabella Piadala, the director of operations.
• 20:09
  Speaker 2: She works with Dino from 2002, so already more than 20 years.
• 20:14
  Speaker 2: The second member of the management team is Michel Krause, the CFO.
• 20:19
  Speaker 2: He's a part of Dino since 2002 as well, and then we have the newest addition to the management team piotr, come on work on your uh polish a little bit yeah I'm really trying.
• 20:35
  Speaker 2: I'm really trying.
• 20:36
  Speaker 2: Okay, a retry.
• 20:38
  Speaker 1: Piotr skigala, yeah, and he's the director of the control department and he's been active at dino polska since 2003, so the newest edition yeah, the management team is active quite long at dino and they've all moved from different management positions within dino polska, so they are quite experienced and I also believe this is the reason they did not appoint a new ceo.
• 21:08
  Speaker 2: I think all these people, of all these three people, have been through the whole, basically been with you know polska from the start, since they found their format that they're currently exploiting.
• 21:20
  Speaker 2: They are active at you know polska, so they probably know all the ins and outs and I just, I think none of them wants to be CEO.
• 21:32
  Speaker 2: They're all just happy in their current role.
• 21:34
  Speaker 2: So, yeah, I do not really worry about this, to be honest.
• 21:40
  Speaker 1: No, I think the management team looks very capable, very experienced.
• 21:44
  Speaker 1: So we just talked about the management team, the founder as well.
• 21:48
  Speaker 1: What are they incentivized by?
• 21:51
  Speaker 1: How do they get their bonuses and there are a couple of things.
• 21:57
  Speaker 2: What decides their bonus?
• 21:58
  Speaker 2: First of all, organic expansion, like for like sales, the EBITDA and the net profit.
• 22:08
  Speaker 2: There are also quite a, quite a lot variable incentives.
• 22:12
  Speaker 2: They don't say much about it, so we have to do it with little information, but the things they do, uh, they do incentivize on, I think they are good, good incentives all right, thank you very much, and I think it's time to go over to the financials, unless you have to add something else no, uh, nothing more to add about this mysterious management team all right, let's head over to the numbers.
• 22:48
  Speaker 1: All right, so far we've discussed quite a bit about dina polska already.
• 22:51
  Speaker 1: I feel like the listeners are starting to get a grasp of what the business does and how it operates and what makes them special.
• 22:58
  Speaker 1: But everything comes together during the financial.
• 23:03
  Speaker 1: So, luke, can you tell us a little bit about what do the numbers look like?
• 23:07
  Speaker 1: What's important to look at?
• 23:09
  Speaker 2: yeah, you can have a good story, but you need the numbers to prove it.
• 23:12
  Speaker 2: Of course, one of the things that's very impressive is their 30 percent revenue growth over the past 10 years.
• 23:20
  Speaker 2: So this already, this already kind of confirms, uh confirms, that it's successful.
• 23:26
  Speaker 2: Eps of earnings per share grew even faster, with 38% over the past 10 years.
• 23:35
  Speaker 2: And then we get into the margins.
• 23:38
  Speaker 2: So how much is left over for Dinopolska?
• 23:41
  Speaker 2: Their gross margin is 23 percent.
• 23:47
  Speaker 2: This is the best of all their competitors, and their competitors are carivou, geronimo martins is the owner of the bitronka and tesco, and also when we look at the net profit margin, dino polska just beats their competitors.
• 24:03
  Speaker 2: The closest that a competitor can get is the Bitronka, just Geronimo Martins, with 2.5% net margin, tesco has to do it with only 1% and the Carrefour with 2%.
• 24:19
  Speaker 2: And just really impressive for Dino Polska to have such high margins.
• 24:25
  Speaker 1: Yeah, and this is Something that is under Estimated sometimes, because these margins Allow Dino Polska To stay alive.
• 24:35
  Speaker 1: I mean, we can call it a Christ war, I guess, going on in Poland and it's about Staying alive as long as possible.
• 24:45
  Speaker 1: It will consolidate Over the over the coming decades, uh, and the strongest retail chain will survive.
• 24:52
  Speaker 1: Maybe probably a few uh, maybe the uh, let's say, two, three or four Uh, but so far Dino Polska is looking very good, especially with the high inflation going on, uh, increasing food prices, the battle against each other as a competition, dino polska still has higher margins and this, like we just talked about this, is not because they're they, they sell their items with a bigger margin.
• 25:18
  Speaker 1: No, they just operate more efficiently and over time, this, I would argue this, might be the reason they can win over time.
• 25:27
  Speaker 2: I believe it's not a fight to the death, but it's who can last the longest.
• 25:32
  Speaker 2: Take, for example, bidronka.
• 25:34
  Speaker 2: If they present losses three years in a row, they will stop with the prize war.
• 25:40
  Speaker 2: And once Bidronka stops with the prize war, dino Polka can stop as well and return to their high margin.
• 25:50
  Speaker 2: So you have to find peace somewhere and these margins, like you said, they give them a lifeline.
• 25:55
  Speaker 2: They they are not the ones who who have to give up or surrender the first yeah, yeah, definitely, yeah.
• 26:03
  Speaker 1: Lifeline is a.
• 26:04
  Speaker 1: It's a perfect word here.
• 26:05
  Speaker 1: Uh, so what about the capital allocation?
• 26:09
  Speaker 1: What does it look like?
• 26:11
  Speaker 2: the very impressive issue here asked me like dino posca can invest almost 100 of their profits into capital expenditure.
• 26:21
  Speaker 2: They already they did that in the the past 10 years.
• 26:25
  Speaker 2: There's still enough growth left to to continue doing this and, like we, we saw with the return on invested capital.
• 26:34
  Speaker 2: This is 26 percent, so that investments are very profitable.
• 26:40
  Speaker 2: So I think it's a good, it's very good that they invest in growth.
• 26:47
  Speaker 2: That's also one of the reasons they pay no dividends and there are also no share buybacks.
• 26:54
  Speaker 1: But as an investor.
• 26:55
  Speaker 2: the best thing that can happen to you is when a company compounds internally, and that's exactly what Dino Polska is doing, if you ask me.
• 27:05
  Speaker 1: Yeah, I would be very worried if they started paying a dividend today Probably a reason to sell instantly, because they are reinvesting their capital at such a high rate of return that it's probably better to keep reinvesting in the business as long as they can.
• 27:22
  Speaker 1: So it's a very good capital allocation.
• 27:26
  Speaker 2: Yeah, definitely, and one thing that's always important with basically every company business as long as they can, so it's a good, very good capital allocation.
• 27:28
  Speaker 2: Yeah, definitely, and one thing that's always important with basically every company is the depth, and the depth can be paid off within one year yeah.
• 27:36
  Speaker 1: What about the return on invested capital?
• 27:38
  Speaker 1: Anything to add there?
• 27:39
  Speaker 2: no, not really.
• 27:40
  Speaker 2: Just like I mentioned already, and when you look at the competitors, there's a difference.
• 27:45
  Speaker 2: For example, the Bittronka has a return on invested capital of 19% and they can reinvest nearly as much as Dino Posca can.
• 27:55
  Speaker 1: All right Interesting.
• 27:55
  Speaker 1: I think it's time to head on over to the risks and opportunities.
• 28:06
  Speaker 2: Will you do some opportunities, sim, and then I will do some risks and maybe you can.
• 28:11
  Speaker 2: I can be critical about the opportunities you give and you can value the risks that I mentioned okay, let me start off with some of the opportunities.
• 28:20
  Speaker 1: Then I would say there are quite a few opportunities for dino polska, first of all.
• 28:27
  Speaker 1: There's still a lot opportunities for Dynapolska.
• 28:29
  Speaker 1: First of all, there's still a lot of growth in Poland.
• 28:31
  Speaker 1: They're very saturated in the east part of Poland, but Poland is so big there's a lot of space left, I would argue.
• 28:37
  Speaker 1: So international expansion can definitely be pursued, and even neighboring countries that have a very similar demographic or culture the czech republic, slovakia, maybe Eastern Germany could be interesting.
• 28:56
  Speaker 1: Second opportunity would be online delivery.
• 28:59
  Speaker 1: They've acquired a kind of a delivery company, e-zebra, and perhaps they can start expanding with online delivery and might be interesting.
• 29:13
  Speaker 1: It's not a very high margin online delivery, especially as we found out with all the other delivery companies, but perhaps they they can figure it out.
• 29:23
  Speaker 1: Another opportunity would be once they have achieved real scale, once they're done growing in poland, for example, they might be able to roll out a profitable urban model like, uh, like walmart is doing today.
• 29:40
  Speaker 1: They are operating on the outskirts of the cities right now, but after they they are full within poland, they might be able to expand with their scale into, you know, more dense, into more densely populated areas and lastly, tapping into different revenue models.
• 30:02
  Speaker 1: Maybe parcel lockers, gas stations, maybe charging stations, perhaps even a subscription model as Costco.
• 30:10
  Speaker 1: I don't know, I'm just speculating.
• 30:12
  Speaker 1: Once you're done growing, there is still quite a few different routes they can take in the future to increase revenue.
• 30:23
  Speaker 2: Yeah, when you say all of this, I believe that opening new locations is the biggest opportunity.
• 30:29
  Speaker 2: This is already proven, of course, with the high return on investment.
• 30:33
  Speaker 2: High return on investment and all the things surrounding that, like an additional revenue models I I don't really count on this, but I hope I think they are doing the same as they did in their past.
• 30:48
  Speaker 2: They are just, they're just experimenting, and when they find a business model of a revenue source that is profitable, they will continue doing that, and once they found it, they really roll it out fast, just like with the solar panels on their locations.
• 31:07
  Speaker 2: I believe more than 50% now has solar panels.
• 31:10
  Speaker 2: They are just tapping the water tapping the water, and when they find something that works, they have the guts to dive in deep.
• 31:20
  Speaker 1: Yeah, good, add-on.
• 31:21
  Speaker 1: Nothing to add there.
• 31:22
  Speaker 1: I think you're right.
• 31:23
  Speaker 2: International expansion.
• 31:24
  Speaker 2: It always is an opportunity that sounds easy, but also if you look at what made Dino Polska big, is they really focused on sort of cultural aspects that really work well in poland and of course, czech czech republic, slovakia and eastern germany are kind of similar, but on the other hand there the little differences in culture can make a big difference for dino polska definitely.
• 31:51
  Speaker 1: Dino polska is not going into china anytime soon.
• 31:54
  Speaker 2: No, definitely not I do have one thing to add on the expansion strategy, just to give you some more insights.
• 32:01
  Speaker 2: The the strategy they use is a cluster strategy.
• 32:05
  Speaker 2: So we really already talked about how efficient dino polska wants to be.
• 32:11
  Speaker 2: So this means there needs to be a distribution center close in order to efficiently roll out a model with multiple Dynapolskas close together.
• 32:23
  Speaker 2: So it's not like when they move potentially into Eastern Germany, they spread out locations all through the East of Germany.
• 32:33
  Speaker 2: They probably will build one distribution center, yeah, somewhere, and surrounding that they will open multiple you know polska stores, so it will spread out eventually yeah, it's.
• 32:51
  Speaker 1: It's quite similar to basic fit, like the, like the, the fitness chain, where they employ quite a few chains within a single city and then they, just, you know, beat competitors with their lower prices and their better services, and all the mom and pop gyms and, in dino polska's example, all the mom and pop supermarkets, the smaller chains that can't compete, will go out of business, which means more customers for Dynapolska and eventually there is only a few chains left and they, you know, I wouldn't want to use the word dominate, but they have, like a local moat in a city or a village.
• 33:32
  Speaker 1: Yes, great addition.
• 33:33
  Speaker 1: So what are the biggest threats to the Napolska?
• 33:39
  Speaker 2: Well, there are a couple.
• 33:40
  Speaker 2: The one that worries me the most is that the population in Poland will decline in the upcoming decades At least that's expected which could lead to a decline in purchasing power.
• 33:54
  Speaker 2: And besides that, they do have multiple competitors, like the Bittronka.
• 34:00
  Speaker 2: We talked about the cluster strategy, but it's also the case that the Bittronka is really close to a Dynapolska.
• 34:08
  Speaker 2: Sometimes they are even within 50 meters or of each other, or the distance between the stores is not that big.
• 34:15
  Speaker 2: And we already talked about the ongoing price war.
• 34:18
  Speaker 2: Dina Polska has higher margins, but when you look at the size of the company, bittronka is still bigger, so they might have deeper pockets to rest on.
• 34:29
  Speaker 2: So, even though we both believe Dina Polska can win a price war, it's not like the Btronka is not a serious competitor.
• 34:38
  Speaker 2: No, it's quite a big competitor.
• 34:40
  Speaker 2: Yeah, and you could view the mysterious founder, thomas bernacchi, as a.
• 34:46
  Speaker 2: Yeah, as a risk, because he's mysterious, but I don't worry about that too much.
• 34:52
  Speaker 2: No, he's.
• 34:53
  Speaker 1: He's done a great job so far, so why would he change things now?
• 34:56
  Speaker 1: And perhaps currency, I guess?
• 35:01
  Speaker 2: it's something you could worry about, but when you look at the past, it has been a really stable currency, so if that continues, there won't be a problem, but it's something to keep in mind yeah I would focus on a competition mostly and internal threats, things Dino Polska can control and they can't control the currency, and we can't either.
• 35:24
  Speaker 2: And one big external threat is of course the war that's going on in Russia.
• 35:29
  Speaker 2: If it really expands which we of course do not hope this could affect the whole of Poland.
• 35:37
  Speaker 1: Yeah, definitely.
• 35:38
  Speaker 1: Let's hope not.
• 35:39
  Speaker 1: I think it's time to go to my favorite part of the analysis, because I love the valuation.
• 35:47
  Speaker 1: Let's go to valuing Dino Polska, all right, so everything comes together in this last part of the fundamental analysis.
• 36:01
  Speaker 1: We've talked about the threats, the risks, the management team, the capital allocation and a lot more.
• 36:07
  Speaker 1: It all comes together in the valuation we've chosen for the scenario analysis.
• 36:13
  Speaker 1: Look, please explain what the scenario analysis is in in a few sentences, just so that the listener knows what it is.
• 36:22
  Speaker 1: And, uh, please tell us about the assumptions we've made to arrive at a evaluation for dino polska yes, based on our research, we do predictions in revenue growth there.
• 36:34
  Speaker 2: We take a profit margin from, and so we get a profit, and then we put an exit multiple on that to come up with a valuation that we estimate 10 years from now.
• 36:47
  Speaker 2: And since Dino Polska is a long way of growth ahead, we use 10 years instead of of five.
• 36:55
  Speaker 2: So when it comes to growth for dino polska, we assumed that seven and a half percent will be organic and seven and a half percent will be because of new openings, and when this actually happens, the total store count will be more than 5 000 stores.
• 37:15
  Speaker 2: Uh, dinopolska itself even believe dinopolska themselves even believe they could go to 10 000 stores.
• 37:24
  Speaker 2: Well, when we put this into a scenario analysis where we have been, even have been conservative for the first five years, we estimated the growth of 15.
• 37:36
  Speaker 2: Then we lowered the growth to 10%.
• 37:40
  Speaker 2: Because the future is always uncertain, we want to be conservative.
• 37:44
  Speaker 2: This would mean an estimated revenue 10 years from now of almost 90 billion zloty, so not billion dollars, but zloty.
• 37:56
  Speaker 2: This is a lot less in in dollars.
• 37:59
  Speaker 2: And when we put a profit margin of five percent, similar to what they have now, on that estimated revenue and multiply that estimated revenue with 15 times, so an exit multiple of 15.
• 38:16
  Speaker 1: That would mean compounded annual growth rate of eight percent per year yeah, and I think I mean in the revenue growth, where I wouldn't say we're conservative but we're very realistic.
• 38:31
  Speaker 1: But on the exit multiple, we are very conservative because if a company can grow for 10 years over 10% and even 15% in the coming years, I mean it deserves a multiple of probably 20, maybe even 25, especially for a retail chain to grow this fast.
• 38:52
  Speaker 1: So I believe we are quite conservative.
• 38:54
  Speaker 1: Even the profit margin is lower than it has been and I mean, if they keep operating even more efficiently once poland becomes even more consolidated, I mean I don't see why it couldn't increase to like six percent maybe.
• 39:11
  Speaker 2: So, uh, it feels very, very realistic yeah, I believe it's very realistic as well.
• 39:16
  Speaker 2: This should be possible for dino posca, especially since we have quite a lot of trust in the management team.
• 39:24
  Speaker 2: They, they really seem to get it.
• 39:26
  Speaker 2: Of course, you have to be careful not to over yeah, overestimate the management team or the company.
• 39:33
  Speaker 2: But yeah, it's, I can't say anything else.
• 39:36
  Speaker 2: That is a company with a lot of potential that is pretty attractively valued.
• 39:42
  Speaker 2: Full disclosure.
• 39:44
  Speaker 2: I also have them in my own portfolio.
• 39:46
  Speaker 2: Matthijs, the researcher that did a lot of the research, has as well.
• 39:53
  Speaker 2: If we think this company wouldn't be attractively valued, we wouldn't own it, of course, especially since I'm now down 20 percent of my position.
• 40:03
  Speaker 2: So we are recording this in September 2024.
• 40:09
  Speaker 1: Right now, it's even more attractively valued that's a very good of you to tell and be honest about your position, especially being down.
• 40:19
  Speaker 1: Not many investors out there are so open and honest about that nothing to be ashamed for no, definitely not, especially if you're right in the long term.
• 40:29
  Speaker 1: That's what it's all about in the end.
• 40:31
  Speaker 1: Yeah, we'll have to see.
• 40:33
  Speaker 1: Yeah, let me try to summarize our analysis and perhaps you can have, uh you can end with some closing thoughts on dinopolska and let's finish this, uh, this fundamental analysis.
• 40:46
  Speaker 1: So um, so far, we've learned that dinopolska is a fast-growing supermarket chain from Poland and it distinguishes itself from the competition in a few different areas.
• 41:06
  Speaker 1: It has its own meat processing company.
• 41:10
  Speaker 1: It's vertically integrated.
• 41:12
  Speaker 1: It's very standardized Every supermarket is almost identical, very standardized.
• 41:21
  Speaker 1: Every supermarket is almost identical.
• 41:21
  Speaker 1: The ceo, or founder it's probably a better word is very secretive, maybe even mysterious, but still owns quite a big part of dinopolska, and we think he's still behind the scenes, is a is an important voice for dinopolska.
• 41:33
  Speaker 1: The management team seems very capable, very, very experienced.
• 41:37
  Speaker 1: It's been working there for over 20 years.
• 41:39
  Speaker 1: The capital allocation is very strong.
• 41:42
  Speaker 1: They reinvest into the business almost all of their free cash flow.
• 41:46
  Speaker 1: That's very impressive for a company like Dino Polska.
• 41:52
  Speaker 1: They appear to be valued pretty I wouldn say cheap, but attractively, and I mean their.
• 42:00
  Speaker 1: Their margins are very impressive if you compare them to competitors.
• 42:03
  Speaker 1: So the opportunities outweigh the risks, in my opinion for now, and I do find dino posca very attractive as well.
• 42:13
  Speaker 1: Anything to add here?
• 42:16
  Speaker 2: yeah, I think you said it correct when you say the opportunities outweigh the risks.
• 42:21
  Speaker 2: That's the best conclusion I can give for dinopolska.
• 42:25
  Speaker 1: I, uh, I agree with you, and so I believe dinopolska is one of those companies and we are very happy we could tell you about it that wraps up our fundamental analysis of dinino Polska, a seemingly boring yet fast-growing supermarket chain with pretty impressive margins, a mysterious founder and a unique standardization model.
• 42:46
  Speaker 1: With over 2700 stores, there is still plenty of room to scale.
• 42:52
  Speaker 1: It's a business worth keeping an eye on.
• 42:54
  Speaker 1: If you're still curious about Dino Polska, our analyst Matthijs actually visited a few Dino stores when he went to Poland.
• 43:02
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• 43:06
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• 43:13
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• 43:25
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• 43:27
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• 43:37
  Speaker 1: Until next time, stay curious, keep learning and happy investing.