Eurotel S.A. (ETL.WA)
Founder led and owned micro-cap operating as Apple's APR, selling for less than 50% of its value, EV/EBIT of 0.29x, and a 20.7% dividend yield.
Key Facts
Description: Eurotel (ETL.WA) is a company that operates retail chains for various telecommunications and electronics companies in Poland and is headquartered in Gdańsk. It operates chains for T-Mobile, Play, and Canal+ under the providers’ brands and for Apple and Xiaomi under its own “iDream” and “MiMarkt” brands respectively. The company was founded in 1996 and 54% of equity is owned by the management and board of directors with ~33% being owned by the CEO.
Track record: Over the last 10 years Eurotel compounded revenue at 18.3% CAGR (12.8% over the last 5 years) and its EPS at a CAGR of 25.7% over the last 10 and 38.6% over the last 5 years. It has done so by reinvesting its operating cash flow and with a low level of debt (0.34 D/E). Simultaneously it has improved its ROIC (10-year average of 21.8% and 5-year average of 23.1%). It has never closed an iDream store in its history besides one relocation.
Market cap: Its market cap as of the 27th of June 2023 is 190.4 million PLN (~$47 million). It has grown 153% over the last 5 years. It is also ~30% up from its 52-week low.
Valuation: ETL.WA trades at a TTM P/E of 5.05x (5-year average of 6.21x), EV/EBIT of 0.29x (5-year average of 0.23x), and a dividend yield of 20.74% (future expected ~15%).
Business Overview
Background
Eurotel is a company operating retail chains for telecommunications and electronic companies in Poland. It does so based on the agency and distribution agreements with T-Mobile, Play, Canal+, Apple, and Xiaomi who are its only suppliers. The company sells under the brands of T-Mobile, Canal+ and Play, under the “iDream” brand for Apple, and the “Mimarkt” brand for Xiaomi. The chains are, for the most part, independent from one another due to the exclusivity agreements signed with some suppliers and as such it is worth going over them separately.
The company’s first retail chain is T-Mobile–its oldest and original part of the business. T-Mobile is one of the “Big 4” of the Polish telecommunications market together with Plus, Play, and Orange. It entered the Polish market after acquiring its domestic telecommunications company, Era, in 2011 and rebranding it to T-Mobile. Eurotel runs the stores under the T-Mobile brand based on the agency and distribution agreement whereby T-Mobile provides Eurotel with its products and service offers and Eurotel sells them to the customers on behalf of T-Mobile. Then it gets paid in the form of commissions designed by T-Mobile (quantity-based, point-based, value-based, etc), which tend to be changed every few years.
Eurotel also manages stores, which like in T-Mobile cases tend to be located in shopping malls and high streets, for Canal+. It is one of the main and oldest TV providers in Poland and the retail chain managed on its behalf by Eurotel is its smallest by revenue and economic significance.
The company is bound by the exclusivity agreement with T-Mobile that prohibits working with any of its competitors. This, however, is bypassed by independent equity entities. One such entity was fully acquired by Eurotel, which enabled it to run stores for Play, one of the Big 4 and T-Mobile’s main competitors. The entity is called Viamind and is 100% owned by the company. Both Canal+ and Play operate on a commission basis similar to that of T-Mobile.
Since 2013, Eurotel has operated as an Authorised Apple Reseller (AAR), which has allowed it to run Apple stores under its own brand name (iDream). Being an official APR allows it to obtain supplier discounts and products on a priority basis during premiers. This also permitted Eurotel to operate official service and repair points for Apple, expand its offer to B2B (B2B also exists in other chains), and education offers.
Xiaomi is the most recent chain added to the company’s operating portfolio. It’s owned by Viamind and operates on a basis similar to its iDream stores as the company uses its own brand “MiMarkt”.
Each of Eurotel’s subsidiaries operates independently from the others due to the exclusivity agreements signed with some of the suppliers. As such the only cooperation between the chains is the financial support through lending. However, the subsidiaries buy the products together and service the same customers to receive better supplier discounts and lower logistic costs. Eurotel itself manages some of the stores for its subsidiaries and handles their office work, including accounting and managing the e-commerce channel taking advantage of subsidiary synergies (T-Mobile x Apple, etc.)
Brief history
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