An attractive Polish subportfolio

In this post I would like to cover my polish stocks (as time of publishing this article), which represent an above average growth profile at very attractive valuations.

Poland is an interesting EM/DM with the following characteristics:

-Stable society and politics (Except for some excess anti Russian politics due to history).

-Well managed economy that is increasing in complexity.

-Growth in financial wellness.

-Consumption upgrade.

-Stable demographics (the only negative point)

This market, which should trade as a premium because the fundamentals are better than the rest of Europe, trades as a discount. I believe this is due partly to stereotypes by europeans (poor Poles emigrating west), or like it could be seen in a comment by the popular blogger at Valueandopportunity.com "To be honest, Poland is not a country where I feel comfortable to invest."

The other reason is that financial investment and pension investment is not yet fully developed in Poland if we compare it to western Europe. (more on this later). This is changing with regulation, and also the popular new listed stocks such as Allegro in Ecommerce and CDprojekt in Gaming, bringing new people to investing.

Here are my 4 polish stocks currently in portfolio.

1-Ambra: Ambra is a slow growing company selling Wines, drinks and spirits in Poland, Rumania, Czechia and Slovakia. They have retail wine stores, production of beverages, and sales to restaurants. They have strong positions in Poland and these markets, with the ability to develop or acquire new brands and market these efficiently. They have brands which are popular, including sparkling wines and specialized drinks like wines mixed with juice. A lot of their brands market to new drinkers, women.

https://www.ambra.com.pl/marki-i-konsumenci/swiat-naszych-marek/dorato/

https://www.ambra.com.pl/marki-i-konsumenci/swiat-naszych-marek/fiore/

Consumption in Eastern Europe is premiumizing where beer is losing marketshare to wine and spirits as income grows. The company is at the forefront of this. They also have an online wine club.

One negative in the consumer goods sector is that Poland has no demographic growth. However it could change with immigration, and the thesis here is consumption patterns changes, marketing, and acquisition led growth.

We have growth, are a solid dividend payer, and trade at a PE of about 13 while their earnings were reduced by covid in the bar and restaurant sectors.

2-Warsaw stock exchange: This is a wide moat company. It is growing with volumes and volatility on the exchange, new IPOs, and information services. The growth has been generally slow.

Last year CD Project and Allegro listed here. Because it is the largest Eastern European economy Ex-Russia, many companies outside of Poland have a listing in Warsaw. Poland is turning out to become an important tech centre bringing foreign earnings, and therefore, more trading volume and bigger market caps. There is a risk of competition from CBOE (https://polandin.com/39715751/warsaw-bourse-may-feel-cold-wind-of-competition)

, but the Warsaw stock exchange (called GPW - https://www.gpw.pl/investor-relations ) has many resources and future product potential, for examples, from Q4 earnings:

-The company started preparations for commercialisation of two IT products: the GRC system (Governance, Risk, Compliance), which automates compliance management, and the TCA Tool, an application supporting the analysis of market micro and macrostructure and the quality of order execution on the exchange.

We have growth, are a solid dividend payer, and trade at a PE of about 13

3-PZU

PZU is the largest insurance company in Poland. It also has operations in the region.

The earnings have been a bit depressed in 2020, and hit by impairments, and if we look at 2019 earnings, it trades at <10 PE. it starts getting interesting.

There are quite a few insurers at similar valuations, but

now consider the following facts:

• Insurance products are way under developed in Poland versus western Europe, in total premiums. I live in Spain, not particularly booming and rich (I can assure you that), and we have much much more insurance sales volume. "The Polish insurance market is the 15th largest in Europe with EUR 12,5 billion gross written premium. . Gross written life and non‑life premiums in Poland total EUR 325 – per capita yearly –an estimated sixth of the EU average" https://www.mdsgroup.com/en/fullcover/the-polish-insurance-market/

• Poland has low debt/gdp

• Poland does not have the Euro and controls its currency.

• Solvency II at 257%, strong capital

Recently, I saw on twitter W.Buffett's thesis for investing in Geico in the 50s or 60s. After reading some of it, I immediately recognised the emerging markets characteristics of Geico at that time, It was not a developed market but an emerging market. Low penetration, huge market, growing underlying product sales.

There is no Geico from the 60s in the insurance sector in developed markets anymore. They are in Poland, Africa, Indonesia and the likes. While PZU will not be such a Geico, it is closer to it than today's Berkshire.

We have growth, a solid dividend payer, and it is cheap.

4-TOYA

It is a tools company in Poland, with operations in Romania, the region and in China.

It makes tools for DYI, repairs, small construction and renovation jobs.

This one, I haven't analysed it deeply, because every document needs to be translated, and news sites are all in Polish, many with Paywalls. I generally diversify to avoid concentration risk in this type of holding. But I have analysed the numbers and they are incredible. I do not really know why there is all the growth. My guess is that there are good products and brands that people like to buy and use. Maybe the pandemic helps them since many people are doing repairs and renovation projects, and they are over earning a bit. At this value, it is a risk worth taking.

• Earnings and revenue go up in a straight line since 2014

• Dividends are enormous.

• current assets > total liabilities.

• Price is ... PE of 8.5!

We have growth, are a solid dividend payer, and it is cheap.

In conclusion, these 4 stocks are a bit of a Pilar of developed market type stocks with "emerging market prices" and also growth potential in my portfolio. While Asia, Africa and Latin America have exciting features and amazing prices, as an European based investor, I am trying to keep a balance between world regions, and stock types just in case. While I have also recently found an amazing Italian stock to fill this role, this Poland subportfolio produces a stable pilar of my portfolio.

Other interesting stocks are PBKM, but expensive, Mobruk that I saw mentioned online, and some IT companies like Livechat (for growth investors). I find it harder to invest in growth stocks in "obscure" markets because of the. language barrier, and not being familiar with the company through news and forums. For this reason, I prefer paying for no growth and having the growth as a bonus, like in Poland. I still have many companies to review in the country.

This is not investment advice, please conduct your due diligence on the stocks presented if you want to take a decision on buying them.