E-commerce is still pretty small in Poland, so it'll take a while before it becomes a big factor. Dino is more of a neighborhood store for everyday groceries, especially fresh items, which aren't as likely to shift online. Plus, they own a big stake in eZebra, an online retailer for cosmetics and medicine, and they own their land, which helps with pickup points for e-commerce. I think the founder will adapt to the trend, and their grocery model fits well with Polish shopping habits. However, you’re right that it could be quite a threat to retailers and it’s something I’ll keep an eye on. Thanks Rajesh!
Great write up, I'm a holder and was already familiar with the company but still learnt a few things.
One concern I do have from a governance perspective is from my understanding Tomasz owns the construction company that builds the stores. This could create the possibility of dodgy related party transactions. It doesn't seem like this would be an issue now, as they have high ROCs on these developments. But think it's something to keep an eye on and would be more comfortable if the construction company were part of Dino Polska, rather than owned by Tomasz
I was not aware of THAT and that is the sort of shell game commonly played here in Asia! (e.g. in the Philippines, its the relatives who are involved in the construction or fitouts of SM malls / Jollibee's etc)... I posted my other concerns in a comment on here - do they or a related party own the land and stores, are they doing triple net leases (NNN) etc? Red Lobster went under in part b/c the hedge fund owners sold the RE to a related party who then overcharged rent... Also, I wonder how long commercial grade refrigeration/freezer equipment along with a/c or rather heat (as its Poland) lasts for...
I've looked more deeply into this since I posted my last comment and I think overall it should be all right for a few reasons.
1. This has been the way its been since DNP went public in 2017, so if they were using dodgy fit outs or building it would likely be showing by now. If they were overcharging DNP management would be pretty good to be getting a 20% ROI on overvalued construction.
2. Tomasz who owns the construction company also owns more than 50% of DNP. Their market cap now is 29.9bn zloty which is about 7.7 bn USD. So Tomasz has 3-4bn USD of his personal wealth tied to DNP, so it wouldn't be in his interest to earn a few thousand dollars on each fit outs and building at the risk of jeopardizing his 3-4bn USD in wealth.
I would prefer it if the construction company were also under DNP and don't know why it wouldn't be. But there is no evidence he is doing anything bad and he is incentivized not to.
from my understanding unlike other supermarket chains DNP owns all the land and buildings there stores are built on.
"from my understanding unlike other supermarket chains DNP owns all the land and buildings there stores are built on." That also has potential value in the future although not that much since they are focused on smaller towns etc....
As long as these sorts of related party transactions are properly disclosed + I can also make the case (like you sort of do above) that doing things in-house so to speak can ensure honesty-quality construction work + maybe there is corruption or shoddy work by outside construction companies in Poland...
And I know I have been linking to other pieces in my Monday posts... Its probably not a bad stock to own and keep owning or to buy some shares if it dips (I think the business model fits the trends I see in SE Asia and in the USA with the dollar stores albeit the latter is not doing so well now as low incomers struggle) IF you recognized it early BUT new investors might be better off hunting for the next Dino...
Maybe! I do see enough growth runway ahead for Dino to earn myself a return higher than 10% per annum for the next 5 years, which is what I aim for. However, of course almost always are there better investments to be found. If you happen to find one, let me know! :)
Great write-up. A 5 year view seems reasonable, as the long term P/E multiple for Dino might stay in the twenties range once all mom and pop stores are competed away.
I've posted my concerns below on other Substacks covering Dino Polska (I find the Portuguese chain (+Poland & Colombia ops) Jeronimo Martins SGPS SA (ELI: JMT / FRA: JEM / OTCMKTS: JRONY / JRONF) to be interesting):
1) The funds got into Dino Polska early and lately they have been profit taking...
2) Alot of podcasters and Substackers etc have been talking about the stock compared to other so-called EM stocks just as the "smart money" was getting out or taking profits...
3) Its not clear where future growth will come from. At some point, they will have Poland saturated - if not already as they already have one store for every so many Poles (sorry, can't remember the figures I have seen...). Expansion eastward to Russia and Belarus is probably out along with Ukraine given its a war zone rapidly loosing population.... Germany, Czech, Slovakia etc would be completely new markets with probably different retail laws even though they are EU...
4) At some point, the stores will need to be remodelled by somebody e.g. landlord, tenant or Dino if they are the owner... Same with any refrigeration etc equipment as it will need to be replaced - not sure the lifespan of such equipment - definitely longer than the junk sold to consumers...
With that said, they do have the right business model when it comes to format size. Here in Malaysia, Speedmart and K.K. no frills smaller format chain stores have saturated every neighbourhood and housing estate selling mostly the shelf stable basics (and it seems like at higher prices than supermarkets!) while Indomaret and Alphamart have done the same in Indonesia (albeit there is still room for growth there given Indonesia's size and they have multiple formats + the latter expanded into the Philippines)... And of course, the USA has its dollar store chains (that are now struggling as lower income people struggle + Temu etc competition)...
Isn't the risk of e commerce taking off in Poland a big threat to the growth of Dino? Does Dino have an online delivery platform?
E-commerce is still pretty small in Poland, so it'll take a while before it becomes a big factor. Dino is more of a neighborhood store for everyday groceries, especially fresh items, which aren't as likely to shift online. Plus, they own a big stake in eZebra, an online retailer for cosmetics and medicine, and they own their land, which helps with pickup points for e-commerce. I think the founder will adapt to the trend, and their grocery model fits well with Polish shopping habits. However, you’re right that it could be quite a threat to retailers and it’s something I’ll keep an eye on. Thanks Rajesh!
Great write up, I'm a holder and was already familiar with the company but still learnt a few things.
One concern I do have from a governance perspective is from my understanding Tomasz owns the construction company that builds the stores. This could create the possibility of dodgy related party transactions. It doesn't seem like this would be an issue now, as they have high ROCs on these developments. But think it's something to keep an eye on and would be more comfortable if the construction company were part of Dino Polska, rather than owned by Tomasz
I was not aware of THAT and that is the sort of shell game commonly played here in Asia! (e.g. in the Philippines, its the relatives who are involved in the construction or fitouts of SM malls / Jollibee's etc)... I posted my other concerns in a comment on here - do they or a related party own the land and stores, are they doing triple net leases (NNN) etc? Red Lobster went under in part b/c the hedge fund owners sold the RE to a related party who then overcharged rent... Also, I wonder how long commercial grade refrigeration/freezer equipment along with a/c or rather heat (as its Poland) lasts for...
I've looked more deeply into this since I posted my last comment and I think overall it should be all right for a few reasons.
1. This has been the way its been since DNP went public in 2017, so if they were using dodgy fit outs or building it would likely be showing by now. If they were overcharging DNP management would be pretty good to be getting a 20% ROI on overvalued construction.
2. Tomasz who owns the construction company also owns more than 50% of DNP. Their market cap now is 29.9bn zloty which is about 7.7 bn USD. So Tomasz has 3-4bn USD of his personal wealth tied to DNP, so it wouldn't be in his interest to earn a few thousand dollars on each fit outs and building at the risk of jeopardizing his 3-4bn USD in wealth.
I would prefer it if the construction company were also under DNP and don't know why it wouldn't be. But there is no evidence he is doing anything bad and he is incentivized not to.
from my understanding unlike other supermarket chains DNP owns all the land and buildings there stores are built on.
"from my understanding unlike other supermarket chains DNP owns all the land and buildings there stores are built on." That also has potential value in the future although not that much since they are focused on smaller towns etc....
As long as these sorts of related party transactions are properly disclosed + I can also make the case (like you sort of do above) that doing things in-house so to speak can ensure honesty-quality construction work + maybe there is corruption or shoddy work by outside construction companies in Poland...
Wow thanks for this discussion both of you! Lots of stuff to keep an eye on. I feel like I do not have much to add. Thanks!
Dutch Investors also had a recent piece: https://thedutchinvestors.substack.com/p/dino-polskas-origin
And I know I have been linking to other pieces in my Monday posts... Its probably not a bad stock to own and keep owning or to buy some shares if it dips (I think the business model fits the trends I see in SE Asia and in the USA with the dollar stores albeit the latter is not doing so well now as low incomers struggle) IF you recognized it early BUT new investors might be better off hunting for the next Dino...
Maybe! I do see enough growth runway ahead for Dino to earn myself a return higher than 10% per annum for the next 5 years, which is what I aim for. However, of course almost always are there better investments to be found. If you happen to find one, let me know! :)
Thanks Christopher! That’s a good point and I agree it’s something to keep an eye on. Luckily, Biernacki’s track record is great so far.
Great deep-dive! I'll feature the link in today's Friday Roundup!
Awesome. Thanks!
Great write-up. A 5 year view seems reasonable, as the long term P/E multiple for Dino might stay in the twenties range once all mom and pop stores are competed away.
Thanks Kevin! That’s what I thought as well.
Excellent post!
Thanks!
Great writeup, valuation is spicy for now, will add more if it drops.
Good luck! :)
I had linked your post in my links collection post last week: Emerging Market Links + The Week Ahead (September 3, 2024) https://emergingmarketskeptic.substack.com/p/emerging-markets-week-september-3-2024
I've posted my concerns below on other Substacks covering Dino Polska (I find the Portuguese chain (+Poland & Colombia ops) Jeronimo Martins SGPS SA (ELI: JMT / FRA: JEM / OTCMKTS: JRONY / JRONF) to be interesting):
1) The funds got into Dino Polska early and lately they have been profit taking...
2) Alot of podcasters and Substackers etc have been talking about the stock compared to other so-called EM stocks just as the "smart money" was getting out or taking profits...
3) Its not clear where future growth will come from. At some point, they will have Poland saturated - if not already as they already have one store for every so many Poles (sorry, can't remember the figures I have seen...). Expansion eastward to Russia and Belarus is probably out along with Ukraine given its a war zone rapidly loosing population.... Germany, Czech, Slovakia etc would be completely new markets with probably different retail laws even though they are EU...
4) At some point, the stores will need to be remodelled by somebody e.g. landlord, tenant or Dino if they are the owner... Same with any refrigeration etc equipment as it will need to be replaced - not sure the lifespan of such equipment - definitely longer than the junk sold to consumers...
With that said, they do have the right business model when it comes to format size. Here in Malaysia, Speedmart and K.K. no frills smaller format chain stores have saturated every neighbourhood and housing estate selling mostly the shelf stable basics (and it seems like at higher prices than supermarkets!) while Indomaret and Alphamart have done the same in Indonesia (albeit there is still room for growth there given Indonesia's size and they have multiple formats + the latter expanded into the Philippines)... And of course, the USA has its dollar store chains (that are now struggling as lower income people struggle + Temu etc competition)...
Thank you for the write-up. You mentioned several times the Q2 conference call. Is there any chance you could share the transcript?
Hi Kristof! Sadly, I cannot find the transcript. If I do, I will definitely send it to you!