Take a look at how many store space Biedronka has, whether Dino is able to get more store space than biedronka, the current rate of store openings, LFL sales that are similar to competitors if you adjusted for new stores.
Management needs to be skilled (at capital allocation outside of store openings) and smart to compound at a decent rate.
Kevin, Nice Review on Dino. Good Management always comes up with surprises for their shareholders in term of capital allocation. Let ride with them to see how it unfold.
Thanks for the feedback! Planning to write a bear case on Dino to counter the endowment effect. What would you consider a plausible terminal value multiple? 10?
Hey, nice article. What do you think is the addressable market size here/how many stores will they reach before the unit economics and ROIIC start to get worse? Also, do you think they will face any new competition in their fairly rural target market before then?
My previous article (https://www.atmosinvest.com/p/dino-polska-where-is-it-headed-a?r=iil7v&utm_campaign=post&utm_medium=web&triedRedirect=true) displays a table with different analyst's estimates of the number of potential stores. But you're right they will not reach it in a simple linear fashion, more in an asymptotic way, with economics dwindling long before the last store is built. My rough estimate is they should be able to double the current number of stores without losing efficiency. On your second question: It depends on what Biedronka will do. Biedronka has built about 150 smaller stores in a way to get closer to its customers and compete more directly with Dino. I have to check their latest reports, but if memory serves well, they are not going full steam ahead with this strategy as just like a typical airliner, incurs costs in diversifying their strategy. In the next 10 years, Dino will outcompete the mom-and-pop stores. Once the market is consolidated, it will depend on how the biggest players will compete with each other. I hope this helps!
Thanks for the response. I think for me, Dino doesn't scream buy - say all goes well, they double their store count in 10 years and maybe margins rise by 1.5x as well, so profits approximately triple. That means the price now is 9x this estimation of profit in 10 years.
If they don't expand internationally, their growth approximately ends there. In that case, I'd much rather buy something that's at 9x earnings now (and earnings aren't expected to fall) than have to wait 10 years for earnings to reach that point.
If they do expand internationally though, I've no idea what the potential size of the market is, so maybe that's what makes it a buy.
One other thing - that article contains an urbanisation graph with I think 7 lines, 4 of which are different shades of orange! It's nigh on impossible to tell which country is which.
I get you reasoning. For me, it's about adding something that is simple, predictable and has competitive advantages. to my portfolio. The international expansion will be challenging, and I believe will only add 25% additional TAM. Thanks for the feedback on the graph, I'll see to it to make it more readable!
Okay, I'm gonna be a bit of a dick here, but you asked for pushback: I don't think what you're doing is value investing. Sure, you've got a good business and good management, but the fundamental idea of value investing isn't buying things that are simple, predictable or even have competitive advantages, as much as these things might help - the fundamental idea is buying things for less than they're worth. We've looked at quite an optimistic scenario, where they build out shops quickly and face no competition, and also significantly increase their margin, hell we can even add in the 25% additional from international, and what do we get? Earnings that are about 1/7th of the current price.
At that point, the business will be pretty much no-growth, right? What multiple does a no-growth retailer deserve? Probably about 10, no?
So we get that in 10 years, the price should be about 50% higher than it is now (10/7). That's an absolutely abysmal return. As nice as it might feel to buy this growing business with good management, but you're not buying it for less than it's worth. Be very careful that you're not letting your biases cloud your judgement here - if you can't argue a business is undervalued, you should not own it. But I'd be very happy to hear any pushback on my assumptions if you disagree with them.
No worries. I'm honored you're taking the time to reply. As mentioned in the article, the thesis is for a 10% earnings yield. But this is of course based on a moderate multiple contraction at the end of the ride. I base that assumption on other quality retailers in developed countries, who although they are only growing at 2 to 3% still trade at high multiples probably because of their negative working capital and high free cash flow generation. You are right, if at the end, the multiple contracts to 10, then it's dead money. I agree with your comment on bias. I'm going to take some time in the next weeks to write a bear thesis for myself. Thanks!
Take a look at how many store space Biedronka has, whether Dino is able to get more store space than biedronka, the current rate of store openings, LFL sales that are similar to competitors if you adjusted for new stores.
Management needs to be skilled (at capital allocation outside of store openings) and smart to compound at a decent rate.
Kevin, Nice Review on Dino. Good Management always comes up with surprises for their shareholders in term of capital allocation. Let ride with them to see how it unfold.
Thank you. Indeed, typical sidecar investing...
Also 20x terminal value is just delusional. Dino would be growing just a MSD or LSD
Thanks for the feedback! Planning to write a bear case on Dino to counter the endowment effect. What would you consider a plausible terminal value multiple? 10?
Think 10x is a good conservative multiple, indeed.
Fantastic article! Dino has been on my radar for some time.
Thanks!
Hey, nice article. What do you think is the addressable market size here/how many stores will they reach before the unit economics and ROIIC start to get worse? Also, do you think they will face any new competition in their fairly rural target market before then?
My previous article (https://www.atmosinvest.com/p/dino-polska-where-is-it-headed-a?r=iil7v&utm_campaign=post&utm_medium=web&triedRedirect=true) displays a table with different analyst's estimates of the number of potential stores. But you're right they will not reach it in a simple linear fashion, more in an asymptotic way, with economics dwindling long before the last store is built. My rough estimate is they should be able to double the current number of stores without losing efficiency. On your second question: It depends on what Biedronka will do. Biedronka has built about 150 smaller stores in a way to get closer to its customers and compete more directly with Dino. I have to check their latest reports, but if memory serves well, they are not going full steam ahead with this strategy as just like a typical airliner, incurs costs in diversifying their strategy. In the next 10 years, Dino will outcompete the mom-and-pop stores. Once the market is consolidated, it will depend on how the biggest players will compete with each other. I hope this helps!
Thanks for the response. I think for me, Dino doesn't scream buy - say all goes well, they double their store count in 10 years and maybe margins rise by 1.5x as well, so profits approximately triple. That means the price now is 9x this estimation of profit in 10 years.
If they don't expand internationally, their growth approximately ends there. In that case, I'd much rather buy something that's at 9x earnings now (and earnings aren't expected to fall) than have to wait 10 years for earnings to reach that point.
If they do expand internationally though, I've no idea what the potential size of the market is, so maybe that's what makes it a buy.
One other thing - that article contains an urbanisation graph with I think 7 lines, 4 of which are different shades of orange! It's nigh on impossible to tell which country is which.
I get you reasoning. For me, it's about adding something that is simple, predictable and has competitive advantages. to my portfolio. The international expansion will be challenging, and I believe will only add 25% additional TAM. Thanks for the feedback on the graph, I'll see to it to make it more readable!
Okay, I'm gonna be a bit of a dick here, but you asked for pushback: I don't think what you're doing is value investing. Sure, you've got a good business and good management, but the fundamental idea of value investing isn't buying things that are simple, predictable or even have competitive advantages, as much as these things might help - the fundamental idea is buying things for less than they're worth. We've looked at quite an optimistic scenario, where they build out shops quickly and face no competition, and also significantly increase their margin, hell we can even add in the 25% additional from international, and what do we get? Earnings that are about 1/7th of the current price.
At that point, the business will be pretty much no-growth, right? What multiple does a no-growth retailer deserve? Probably about 10, no?
So we get that in 10 years, the price should be about 50% higher than it is now (10/7). That's an absolutely abysmal return. As nice as it might feel to buy this growing business with good management, but you're not buying it for less than it's worth. Be very careful that you're not letting your biases cloud your judgement here - if you can't argue a business is undervalued, you should not own it. But I'd be very happy to hear any pushback on my assumptions if you disagree with them.
No worries. I'm honored you're taking the time to reply. As mentioned in the article, the thesis is for a 10% earnings yield. But this is of course based on a moderate multiple contraction at the end of the ride. I base that assumption on other quality retailers in developed countries, who although they are only growing at 2 to 3% still trade at high multiples probably because of their negative working capital and high free cash flow generation. You are right, if at the end, the multiple contracts to 10, then it's dead money. I agree with your comment on bias. I'm going to take some time in the next weeks to write a bear thesis for myself. Thanks!
Great article. I haven't taken a position yet, but plan to do so in the future.
Thank you!
Thanks Kevin, good writeup! Dino is gathering fans across substack! :) let's hope we are all correct! 😜
True, always looking for pushback, but more and more people go long...