Latest / The Dutch Investors / #107 | What Happened to Dino Polska?

Transcript

#107 | What Happened to Dino Polska? · The Dutch Investors

• 0:00
  SPEAKER_00: Hey everybody, welcome back to the Dutch Investors Podcast.
• 0:03
  SPEAKER_00: It's been a while since I was here.
• 0:06
  SPEAKER_00: I've been on a lovely honeymoon with my wife, and now we're back.
• 0:11
  SPEAKER_00: We went on a road trip, 6,000 kilometers through Europe.
• 0:16
  SPEAKER_00: So it was lovely.
• 0:18
  SPEAKER_00: Saw a lot of things and uh yeah, took some time off.
• 0:22
  SPEAKER_00: I only had a few episodes, so uh apologize for the lower frequency, but we're back, and I've been getting uh lots of questions about the company.
• 0:32
  SPEAKER_00: And what I want to do this episode is revisit the company that many of you follow and perhaps even own, the Polish supermarket chain Dino Polska.
• 0:44
  SPEAKER_00: And if you've been holding the stock for over the last year or two, you know it's been a bumpy ride.
• 0:51
  SPEAKER_00: In fact, right after Dino dropped its full year 2025 results, the stock tanked over 18% in a single day, and it's down over 20% over the last year, and up just 4% over the last five years.
• 1:08
  SPEAKER_00: So clearly there's something going on, and when you see a stock drop like Dinopolska is, it's it's natural to feel a bit uneasy and ask yourself: did I make a mistake?
• 1:21
  SPEAKER_00: Has the fundamental thesis broken down, or is it just temporary noise?
• 1:27
  SPEAKER_00: So today I want to take you back to our original deep dive, review why we loved this business in the first place, and then look at what actually happened and what is changing, and we'll compare our original expectations with reality.
• 1:44
  SPEAKER_00: We'll check in how Dino is doing against its main rival, Bidronka, but also competitors like Little, and run through a updated valuation and see what kind of returns we can expect from here.
• 1:56
  SPEAKER_00: Lots to talk about, so welcome back and let's dive in.
• 2:32
  SPEAKER_00: But back then, many Finfluencers, many people on Substack, found Dino Polska's business model interesting.
• 2:42
  SPEAKER_00: It was unique.
• 2:43
  SPEAKER_00: First, instead of squeezing into big expensive city, which many other supermarkets do, Dino focused exclusively on rural villages and small towns.
• 2:54
  SPEAKER_00: Places with under 5,000 residents, preferably.
• 2:58
  SPEAKER_00: And in many of these small communities, Dino was the only modern supermarket in town.
• 3:04
  SPEAKER_00: Second, they standardized everything.
• 3:07
  SPEAKER_00: Every store was built to the exact same layout, and the founder, Tomas Birnac, created his own dedicated construction company to build these Dino stores, and that allowed them to buy materials in bulk, avoid contractor spats, and build stores much faster and cheaper than most others.
• 3:29
  SPEAKER_00: Third, they owned the land.
• 3:31
  SPEAKER_00: And while other grocery retailers leased commercial space, Dino bought the plots outright, and that meant no rising rent costs for full long-term stability.
• 3:44
  SPEAKER_00: Fourth, they were vertically integrated where it matters most.
• 3:48
  SPEAKER_00: Polish shoppers care deep about fresh meat, for example, so Dino bought 100% of a meat processing company.
• 3:56
  SPEAKER_00: Every store has a butcher, supplied directly by the meat processing firm, which is driving consistent daily food traffic and still is.
• 4:07
  SPEAKER_00: And finally, capital allocation was relentless.
• 4:11
  SPEAKER_00: Dino pays zero dividends and bought back zero shares.
• 4:16
  SPEAKER_00: They took virtually all their operating cash flow, over 90% of it anyway, and poured it straight back into building new stores at a supposed 25% plus return on invested capital.
• 4:31
  SPEAKER_00: Revenue compounded from 2014 and 2023 at 30% a year, and net profit margins were sitting at 5.5%, more than double the European standard.
• 4:45
  SPEAKER_00: It was an absolute compounding machine.
• 4:48
  SPEAKER_00: But now that the stock is dropping, everybody is starting to hate the company.
• 4:54
  SPEAKER_00: But is that justified?
• 4:57
  SPEAKER_00: I don't know, maybe it is.
• 4:59
  SPEAKER_00: What happened?
• 5:01
  SPEAKER_00: Why did the stock price collapse?
• 5:04
  SPEAKER_00: Basically, between late 2024 and now, Dino ran straight into three headwinds all at once.
• 5:13
  SPEAKER_00: First, food deflation.
• 5:16
  SPEAKER_00: High food inflation allowed grocers to easily pass price hikes onto consumers.
• 5:22
  SPEAKER_00: But by late 2025, Polish food inflation plummeted, eventually turning it into price deflation across key food categories.
• 5:35
  SPEAKER_00: And when prices drop on items you already bought at higher wholesale costs, well you guessed it, margins get squeezed.
• 5:45
  SPEAKER_00: Two they are at a price war with Bidronka.
• 5:51
  SPEAKER_00: Market leader Bidronka and German giant Lidl launched a very aggressive price war across Poland.
• 5:58
  SPEAKER_00: Dino guarantees the lowest prices on 5,000 of its products.
• 6:03
  SPEAKER_00: To defend customer food traffic, Dino matched those discount prices, taking a direct hit on the margins.
• 6:12
  SPEAKER_00: 3.
• 6:13
  SPEAKER_00: Severe wage inflation.
• 6:16
  SPEAKER_00: Poland's national minimum wage shot up significantly, and store personnel expenses and administrative overhead surged.
• 6:24
  SPEAKER_00: General and administrative costs jumped over 74% year over year in the first half of 2026.
• 6:32
  SPEAKER_00: Because our retail store networks has fixed costs like electricity, heating, basic staffing, sluggish top-line growth combined with rising wages creates negative operating leverage.
• 6:48
  SPEAKER_00: And fixed costs eat up a larger chunk of your gross profit.
• 6:53
  SPEAKER_00: And as a result, Dino's net profit margin contracted from 5.5% in 2023 to 4.6% in 2025.
• 7:04
  SPEAKER_00: Even though revenue grew almost 15%, net profit only grew 3.5%.
• 7:11
  SPEAKER_00: So the market hated seeing margin compression.
• 7:15
  SPEAKER_00: And justifiably so, and the stock got punished hard for it.
• 7:19
  SPEAKER_00: We need to separate the stock price from the actual operational execution.
• 7:25
  SPEAKER_00: So let's try and do that.
• 7:27
  SPEAKER_00: Is Dino actually losing some of its edge?
• 7:31
  SPEAKER_00: Or is it an overreaction?
• 7:34
  SPEAKER_00: If you look under the hood, Dino is actually kicking Bidronka's butt in execution.
• 7:40
  SPEAKER_00: Let's take a look at the numbers.
• 7:43
  SPEAKER_00: First, store rollout.
• 7:45
  SPEAKER_00: Dino added 283 stores in 2024 and 345 stores in 2025.
• 7:54
  SPEAKER_00: They reached 3,176 locations by mid-2026.
• 8:02
  SPEAKER_00: In Q1 alone, 2026, Dino opened 62 new stores.
• 8:08
  SPEAKER_00: How many did Bidronka open in that same quarter?
• 8:12
  SPEAKER_00: Just three.
• 8:13
  SPEAKER_00: Now, store rollouts is obviously not everything.
• 8:17
  SPEAKER_00: We have to look at perhaps the most important KPI, like for like sales.
• 8:23
  SPEAKER_00: In Q2 2026, as food deflation hit Poland, Bidronka's like for like sales growth fell to negative 1.6%.
• 8:33
  SPEAKER_00: Dino's like for like sales growth slowed down to 0%.
• 8:39
  SPEAKER_00: Now, obviously, this is nothing to brag about, but holding flat while your biggest rifle goes negative shows that Dino Polska is still doing better than Bidronka, and that rural Polish shoppers are sticking with Dino for their daily needs.
• 8:56
  SPEAKER_00: Lastly, the balance sheet.
• 8:58
  SPEAKER_00: Bidronka's parent company carries a net debt to Abdah ratio of around 1.5% and paid out 400 plus million in dividends in 2026.
• 9:09
  SPEAKER_00: Dino's net debt to EBIDA is basically zero.
• 9:14
  SPEAKER_00: Dino doesn't pay any dividends because it continues to reinvest most of its operating cash flows back into store openings and solar panel installations.
• 9:25
  SPEAKER_00: Today, 94% of all Dino stores have rooftop solar panels.
• 9:30
  SPEAKER_00: This will shield them from future energy price spikes.
• 9:35
  SPEAKER_00: Back then, when our TDI analyst Mateis visited several Dino stores in Poland, he noticed this exact dynamic.
• 9:45
  SPEAKER_00: Consumers might drive to Bydronka or Little once a week for a big haul, but for daily essentials, fresh meat, convenience, they walk or drive down the road to Dino.
• 9:56
  SPEAKER_00: So we think the thesis is still not broken.
• 10:00
  SPEAKER_00: They are, however, navigating a very tough, deflationary environment, but they are doing it better than Peers.
• 10:09
  SPEAKER_00: So where does this leave us investors?
• 10:12
  SPEAKER_00: And what kind of return can we expect from today's price?
• 10:18
  SPEAKER_00: When recording this episode, Dino Polska's current stock price is about 34 to 35 pln.
• 10:27
  SPEAKER_00: It's currently trading at a PE of roughly 21.
• 10:31
  SPEAKER_00: Back in mid-2024, when everybody loved Dino, it was closer trading to 33 times trailing earnings.
• 10:39
  SPEAKER_00: Dino Polska is a great example of where your assumptions make the case.
• 10:46
  SPEAKER_00: If you expect Dino Polska to lower margins to only 2% and grow only 8% on top line, with perhaps an exit multiple of 15, you will get a negative return of about 14% IRR.
• 11:04
  SPEAKER_00: But if you think 15% growth at a 5% margin and an exit multiple of 20, you can get an IRR of over 16%.
• 11:16
  SPEAKER_00: I will give you my relatively conservative assumptions into a very simple 5-year valuation model, which I think is reasonable.
• 11:25
  SPEAKER_00: First, the revenue growth.
• 11:27
  SPEAKER_00: Let me assume 14% annual sales growth, and this comes from adding 12 to 15% more stores each year, plus a slight recovery in like-for-like sales as price deflation passes.
• 11:42
  SPEAKER_00: I think a net margin gradually should recover from 4.6 back towards 5.5%.
• 11:49
  SPEAKER_00: They've shown they can hit that over the next five years as wage spikes normalize.
• 11:55
  SPEAKER_00: I like to use a terminal multiple of around 17, which is lower than their historical average, and I think it's fair for a retailer which is still growing relatively fast.
• 12:08
  SPEAKER_00: And under these base case assumptions, you can expect an IRR of about 12% over the next five years.
• 12:18
  SPEAKER_00: Let's wrap this episode up.
• 12:20
  SPEAKER_00: Dino Polska has shifted from a beloved European compounder by the likes of many large podcasters and Substack writers.
• 12:31
  SPEAKER_00: And it's easy to hate Dino Polska now since it's down so much over the past few years.
• 12:37
  SPEAKER_00: We think that's too easy.
• 12:39
  SPEAKER_00: Dino Polska did shift from a high margin, almost hypergrower, into more of a volume-driven market consolidator.
• 12:51
  SPEAKER_00: The shorter margin compression is real.
• 12:53
  SPEAKER_00: We won't deny that.
• 12:55
  SPEAKER_00: It's driven by food price deflation and wage hikes.
• 12:58
  SPEAKER_00: But management so far hasn't panicked.
• 13:01
  SPEAKER_00: They aren't taking on heavy debt, they aren't changing their proven store rollout, and they are continuing to gain market share against Bidronka every single quarter.
• 13:12
  SPEAKER_00: And with such an unlevered balance sheet and plenty of room to expand in eastern and southern Poland, and who knows, perhaps even internationally someday, I think Dino can still be a durable cornerstone in your portfolio.
• 13:28
  SPEAKER_00: But hey, that's just me, and always do your own research.
• 13:33
  SPEAKER_00: That's it for today's episode.
• 13:35
  SPEAKER_00: Let me know your thoughts on Dino Polska, and I'll catch you all in the next one.
• 13:40
  SPEAKER_00: And like always, stay curious, keep learning, and happy investing.