Dino after a third of its value dropped: end of the Polish miracle, or the cheapest entry in five years?
Poland's Dino added two billion zlotys in revenue in the first half of the year. But the credit doesn't go to the salespeople; it goes to the bricklayers. Sales area grew by 12.4 percent, exactly as fast as revenue. Inside the stores, growth was halted by food price deflation. Poland's most successful retailer is now growing by building, not by selling.
Key points
First-half revenue rose 12.5 percent, net profit rose one percent.
Comparable sales added just 0.3 percent in the second quarter. In 2022 it was 28.5 percent.
EBITDA margin fell from 9.5 percent in 2021 to 6.84 percent in this year's first half.
Biedronka, in the same Polish deflation, actually raised its margin by 30 basis points.
In nine years on the stock exchange, Dino has not paid a single dividend.
On August 20, Dino Polska $DNP published its half-year numbers and the stock jumped nearly six percent. The market had reason for relief: net profit for the second quarter reached 400.1 million zlotys, against the PAP consensus of 391.8 million. The company beat the estimate by 2.1 percent. After two quarters in which Dino had mostly scared investors, this looked like good news.
But beneath that good news lie numbers that can be read in two completely different ways. In the first half of this year, Dino posted revenue of 17,970.8 million zlotys, compared to 15,976.9 million a year earlier. That's almost exactly two billion zlotys in extra revenue, roughly 11 billion crowns. Net profit over the same period rose from 708.8 to 716.1 million zlotys. By 7.3 million.
So of every hundred zlotys of extra revenue, less than forty groszy made it to net profit. At the EBITDA level it was only slightly better: an increase of 47.2 million zlotys out of those two billion, i.e., an incremental margin of 2.4 percent for a company that as a whole operates at 6.84 percent. New revenue comes with significantly worse economics than the old.
The stock trades around 36.2 zlotys, about 31 percent below its all-time high of April 25 last year, and it's about 12 percent in the red since the start of the year. At the same time, it's still a company worth 35.5 billion zlotys, around 200 billion crowns, trading at more than twenty times earnings that have been practically flat for two years.
Management has a simple answer: food price deflation. It is real and measurable. The question every holder or prospective buyer of Dino must answer is different: can everything be blamed on shelf prices when the largest competitor, in exactly the same deflation, raised its margin?