Dino Polska S.A. (DNP.WA)
The fastest growing and owner-controlled Polish retailer with a predictable business model and a moat trading at a 38% discount to its intrinsic value and EV/EBIT of 17.8x.
Key Facts
Description: Dino Polska (DNP.WA) is a Polish chain of small/mid-sized proximity grocery supermarkets. It was founded in 1999 by Tomasz Biernacki, a Polish entrepreneur and as of 2023 the second-richest man in Poland. The company sold ~49% of its shares to the public in April 2017.
Track record: Over the last 9 years Dino compounded revenue at a 32% CAGR (36% over the last 5 years) and its EPS at a CAGR of 43% (39% over the last 5 years). It has done so by expanding its retail store network financed mostly by its operating cash flow and some borrowing. At the same time, it has improved its ROIC from 19.9% (9-year average) to 22.4% (5-year average).
Market cap: Its market cap as of the 5th of May 2023 is PLN 41.1 billion ($9.7 billion). It has grown at a CAGR of ~40.8% over the last 5 years. It is also ~49% up from its 52-week low.
Valuation: DNP.WA trades at a TTM P/E of 32.2x (5-year average of 30.5x) and an EV/EBIT of 17.8x (5-year average of 23.9x).
Business Overview
Proximity model
Dino Polska (“Dino”) is a national domestic grocery store chain in Poland. It operates only in its home country where it is currently the 4th largest FMCG retailer. As of FY 2022, Dino runs 2,156 stores. They are small/mid-sized (~400 sqm of selling area per store) grocery supermarkets with 10-15 parking spaces. The company builds its stores only in rural areas, small and medium-sized towns, villages, and outskirts of cities as a part of its strategy. This allows it to operate as a “proximity” supermarket that competes based on both location and price and lets it avoid direct competition with larger retailers in the cities, which allows it to take on local stores and smaller rural chains.
By adopting the proximity model as a critical tenant of its business strategy Dino aims to benefit from certain consumer trends in Poland (more active lifestyle, less leisure time, higher frequency and reduced duration of shopping, etc.) It builds its relatively small supermarkets close to residential areas, which makes shopping there less time-consuming than at larger hypermarkets that require a longer trip. This combined with competitively low prices gives the company an edge, however, it leaves Dino in direct competition with local discount and convenience stores and independent retailers. The edge over the former is its wider selection and mix of products and the scale is over the latter. A clear downside of Dino’s proximity model is its inability to enter large city markets that could offer more volume and concentrated traffic.
Dino sells mostly fresh and non-fresh food products like packaged food and snacks, bakery, meat, dairy, fruits and vegetables, beverage, alcohol, and cigarettes, among other typical perishable FMCG products. This makes it a regular shopping spot for customers who need to eat and drink. In 2022 39% of revenue came from fresh products whilst other groceries and non-grocery products were 49% and 12% respectively.
Dino store on the outside.
And on the inside...
Growth strategy
As an essential part of its strategy, Dino owns all of its store real estate. Dino’s real estate investment subsidiaries are responsible for finding suitable land and making the purchase. A substantial part of the land the company purchases is farmland, which is typically cheaper than other alternatives and still allows Dino to build in local high-traffic areas in its rural market. Direct land ownership allows the company to standardise the store format, and speed up the product roll-up. It also opens up more opportunities for cost-cutting.
On top of owning all the properties, the company controls the whole construction process as all Dino stores are built by one general contractor that has worked with the company for most of its history and is directly owned by Dino’s founder, Chairman, and the controlling shareholder: Tomasz Biernacki.
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