A Little Journal of a Shameless Investor

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$S4E.PL – “Thou Shall Never Use Excel” Play

Polish Screening


A year ago, the idea of purchasing Polish stocks never crossed my mind.

One Thursday afternoon after work, I found myself casually browsing through my Trading View screens. Typically, I limited my selections to the US, Australia, UK, Canada, and Japan. However, on this occasion, I decided to include Poland based on recommendations that highlighted the potential for discovering undervalued stocks in that market.

Then this came up to my screen.


An EV/EBITDA of 0.06, P/E of less than 5.

First I thought it would either be a shit co or a highly cyclical business.

After 30 seconds of glancing through the financials, I was completely in shock.

For seven consecutive quarters, they have achieved year-over-year growth in their quarterly revenue and maintained a positive free cash flow.

Just three years ago, the company’s annual earnings stood at 147 million, a figure that has since surged to the current trailing twelve months (TTM) total of 391 million. Over the past three years, the company’s book value has quadrupled.

Micro Cap Polish IT Distributor

Operating within the IT solutions industry, the company primarily derives its revenue from distributing storage, server, and networking solutions provided by industry giants like Dell, Hitachi, and Huawei. They identify as Value Added Distributors, acting as intermediaries between suppliers and partnering clients in Poland.

While the net income has experienced a decline over the past two quarters, this can be attributed to the exclusion of changes in net working capital from the calculations. Notably, the company’s receivables and inventory have decreased, leading to an influx of approximately 11 million Polish Zloty (a currency name I particularly enjoy) into the company’s coffers.

The company’s first-quarter 2023 generated FCF of 11 million was included in the balance sheet, elevating the cash holdings to 23.69 million. Their interest-bearing debt remains minimal at 1.4 million, resulting in a negative net debt of 22.29 million.

To recap, the company is experiencing rapid growth in both revenue and book value, with a current net debt of 22.29 million. Operating in the IT solutions sector, the company’s business demonstrates a relatively stable pattern rather than being highly cyclical. So, what is the market capitalization?

As of August 13, 2023, the market capitalization stands at 23.626 million.

The company presently generates 15 million Zloty annually while trading at an enterprise value (EV) of 1.3 million.

Considering this scenario, if accurate, the company’s valuation should have experienced a tenfold increase overnight. In the subsequent discussion, I will outline my perspective on the reasons behind the company’s undervaluation and explain why I have chosen to initiate a small position in this Polish enterprise.


Possible Reasons for the Company’s Low Valuation


Lack of Liquidity & Institutional Investors


One significant factor contributing to the company’s undervaluation lies in the realm of liquidity and international investor presence. The acquisition journey involving ABC Data S.A has led to a consolidation of stakes in the company.

Starting with ABC Data’s acquisition of a majority stake in S4E from individual stakeholders, and further proceeding with ABC Data’s acquisition by ALSO Holding AG, the pool of available shares for investment has been substantially restricted.

Currently, only 13.64% of shares are accessible to external investors, translating to a mere $1.09 million in value. This limited availability deters institutional investors from entering the scene, even though this scenario might be appealing to smaller individual investors.

Moreover, the Polish market’s lack of attraction for international investors from regions like the UK and the US contributes to a constrained influx of capital into S4E.

Low Margin Business

Another contributing factor is the nature of the company’s business.

Positioned as an intermediary between IT vendors and commercial partners, S4E operates in a low-margin environment. Their gross margin, constituting just 10% of revenue, is indicative of this reality.

However, the company has managed to maintain profitability through efficient cost management.

Despite the challenges associated with a low-margin business, S4E has consistently upheld profitability over the past three years, maintaining an average operating margin of 2%. The low price-to-sales (P/S) ratio of 0.09 suggests that the market has already factored this aspect into the company’s valuation.

Certainly, the issue of illiquidity is a pertinent consideration, as it raises concerns about the potential challenges in executing timely stock sales. Nevertheless, my conviction remains firm, grounded in the perspective that acquiring shares in a thriving and profitable enterprise, while maintaining an exceptional EV/EBITA valuation of 0.06, is a rarity within the realm of highly liquid markets. Should such an opportunity elude conventional avenues, it beckons us to venture beyond the ordinary in pursuit of these exceptional investment prospects.

Now, let us delve deeper into a more comprehensive analysis of the company’s particulars.

How Do I Value the Company?


You might naturally wonder, “How can one confidently invest in a sub-$5M market cap company in Poland when lacking fluency in the local language?” An understandable question, indeed.

My approach has revolved around leveraging the resources at my disposal, and in this case, Google Translate has played a pivotal role. Here’s the meticulous process I’ve adopted:

  1. I initiate my journey through the company’s investor relations platform, utilizing the English-translated version of their website: S4E – English Website
  2. With an intent to delve deeper, I download the company’s periodic reports in Adobe format.
  3. To facilitate smoother analysis, I convert the Adobe files into Microsoft Word documents.
  4. The crux of my method lies in employing the Google Translate platform: Google Document Translation. Here, I meticulously upload the Word documents, meticulously transposing Polish content into English, which constitutes a language I am more familiar with.
  5. The translated material is then re-exported, typically opting for Adobe format given my personal inclination.
Google Translation is not perfect

Admittedly, the intricacies of language nuances aren’t fully captured by machine translation, a reality I acknowledge as a bilingual individual in English and Japanese.

For instance, consider the Japanese word “やる” which may merely translate to “do” in English. However, its implications can vastly shift based on its contextual surroundings, encompassing meanings from confrontation to intimate relations.

In acknowledgment of these limitations, I accept that my current abilities only stretch so far. Nonetheless, I firmly believe that this proactive approach, though imperfect, transcends conceding due to linguistic barriers. It’s an effort driven by the desire to glean insights from available resources, enabling a degree of understanding that would otherwise be elusive.


S4E’s Business Economics


Exploring the contents of the 2022 annual reports has significantly illuminated their business operations:

Within their revenue structure, I’ve labeled two distinct categories emerge as primary sources:

Distributor Service

The foremost contributor to their revenue, accounting for approximately 85% to 90%, is the Distributor Service segment. This encompasses the sale of high-quality IT devices, notably storage solutions and interconnected IT infrastructure. This segment stands as the bedrock of their income generation.

Own IT Service

Complementing this primary revenue source, the Own IT Service sector contributes around 10% to 15% of their total revenue. This entails the provision of value-added services such as training, implementation support, and adaptational services in conjunction with the sold goods. Additionally, this segment involves facilitating the sale of services provided by suppliers to the Company’s clientele.

Evidently, the Distributor Service aspect predominantly relies on acting as a reseller for key vendors such as Dell, Huawei, and Hitachi. Despite constituting the mainstay of revenue, this segment is characterized by low margins. As such, it’s imperative to recognize that while this facet sustains the financial inflow, the company’s strategic focus should ideally pivot towards the growth of higher-margin segments, considering the inherent limitations of the low-margin reselling model.


Own IT Service is the Key to Growth


The Own IT Service segment, though subsidiary in nature, holds the pivotal value proposition for the business, drawing its strategic focus for enhancement. Through the sale of intricate IT products, a pronounced demand emerges from commercial enterprises seeking to outsource the intricacies of support, implementation, and training. Evidently, the appeal of entrusting these services to S4E outweighs the alternative of hiring in-house IT personnel on a permanent basis, thereby substantiating the viability of this value-added offering.


Central to the company’s growth trajectory is the cross-selling mechanism, ingeniously woven into the fabric of its core operations. This approach hinges on the sale of supplementary services that seamlessly align with customer interests following product purchases. This concept resonates with the banking sector’s strategy, investing substantially in enticing account openings to unlock bundled products like home loans, investment opportunities, and short-term loans.

For S4E, cross-selling finds resonance in the distribution of IT storage products and infrastructure, seamlessly complemented by implementation, maintenance, and educational services meticulously tailored to the distributed products. Notably, the “own service” facet, while accounting for a mere 2.3% of revenue in the 2017 fiscal year, exhibited remarkable growth, escalating to 7.8% in 2018 and subsequently surpassing the 10% mark post-2020. Presently, it constitutes an impressive 12% of the overall business revenue, underscoring the dynamic evolution and burgeoning significance of this segment.

The growth rate of this part of the service is evident from the below graph:


The contrast in growth rates between the Own Service and Distributor Service segments is striking.

The Own Service segment, requiring specialized skills, exhibits a significantly higher growth trajectory. Its scalability is facilitated by the proficiency it entails.

Furthermore, services like IT infrastructure maintenance inherently offer recurring revenue streams. In the fiscal year of 2022, the revenue contribution from the largest customer stood at 7%, signifying a positive trend of customer diversification. Notably, this proportion has declined annually, from 11% in 2018. This trend underscores the company’s success in continually expanding its customer base.

Cash Flow Generation


What truly caught my attention about this company was its ability to sustain positive cash flow even during the challenging period between fiscal years 2017 and 2019 when profitability was a struggle.

With the exception of the 2022 fiscal year, an impressive consistent trend of over +100% cash flow conversion rate is observed. This remarkable consistency reflects the efficiency with which the company’s operations translate into cash generation. This reliability is intrinsic to their business model, notably involving re-selling and IT services. Consequently, the company doesn’t necessitate excessive capital expenditure, in stark contrast to enterprises such as Tharisa Plc, where substantial capital investment is required to fuel revenue growth.


The stability in capital spending across the years, coupled with an upward trajectory in operating cash flow, underscores the soundness of their financial management. The importance of cash flow conversion in valuing such businesses cannot be overstated. A robust cash conversion rate signifies not only effective financial health but also an agile and adaptable operational model, capable of converting operational success into tangible liquidity.

Clean Balance Sheet


Even in the absence of Polish language proficiency, the company’s balance sheet narrates a compelling story of judicious capital allocation throughout the years. A striking testament to their financial prowess lies in their adept debt management and the remarkable surge in net cash accumulation.

As exemplified in the graph above, the inflection point of 2020FY marked a pivotal juncture when the company’s cash reserves eclipsed the debt holdings, propelling an exponential growth in net cash. This strategic shift in capital structure mirrors the company’s commitment to fortifying its financial standing.

The decline in debt hasn’t just bolstered their financial robustness but has also led to a consistent enhancement in the interest coverage ratio. Presently hovering between the x10 to x15 range, this ratio positions the company securely against potential vulnerabilities stemming from fluctuations in interest rates.

Reflecting on the latest Q2 earnings report, the company’s net cash per share stands at an impressive 15.39 PLN. Against the backdrop of a current share price of 23 PLN (as of August 20, 2023), this considerable net cash cushion significantly augments the investment’s margin of safety.

In essence, the company’s unwavering focus on maintaining a clean balance sheet, coupled with a strategic pivot towards net cash growth, provides a solid bedrock for investing in this compelling Polish enterprise.



Eminent investors, including the likes of Buffett and Monish Pabrai, have collectively emphasized the axiom “Thou Shall Never Use Excel.” However, the underlying message isn’t an indictment of spreadsheet tools per se, but rather an exhortation to possess an innate numerical acumen that transcends computational aids. The essence lies in being able to swiftly discern if a business’s valuation aligns with its intrinsic worth, a skill that stands paramount in investment decisions.

Real gems are those investments where the math is so outlandish that the price tag seems like a joke. This company, in my book, fits the bill.

Consider the following key tenets:

  • Income Growth: This company is pumping out an astonishing +30% growth in revenue every year. Yep, you read that right.
  • Consistent Cashflow Prowess: A defining hallmark, the company’s free cash flow conversion rate has consistently exceeded +100% over the span of six years.
  • Potent Net Cash: With net cash constituting around 65% of the market capitalization, the company’s financial cushion is substantial.
  • Recurring Revenue Model: Operating in a non-cyclical, recurring revenue domain, the company enjoys a resilient and sustainable business model.

A straightforward investment thesis is the bedrock of my approach. Sure, I throw Excel into the mix for a sanity check, but the allure of this company goes beyond any spreadsheet.

No need for fancy words – the growth, cash flow, cash reserves, and business model all point to one thing: a great investment opportunity without the need for help of excel.

New Buy: 09/08/2023 – at 13.40 PLN

Please see my portfolio spreadsheets for more recent updates.

Until next time.


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