Dino Polska: Owner-Operated Compounder With Long Runway

Christopher Karlin of Aquitania Capital Management presented his investment thesis on Dino Polska (Poland: DNP) at Best Ideas 2024.

Thesis summary:

Dino Polska is an operator of medium-sized grocery markets in rural and small towns in Poland where 73% of Poles reside.

Dino’s strategy is designed around developing owned stores in a standardized format with a modest 400 sqm footprint selling fresh groceries, meat, and staples at competitive prices. The efficiency of their store model allows the stores to be supported by a population of just 2,500 people within a 2km radius. Dino has opened 2,340 stores since 1999 at a fast rate of 20+% per year and has not closed any stores. Chris estimates that the theoretical ceiling on stores is around 11,000, almost 5x the current footprint.

Dino is controlled 51% by its founding Chairman, and actions to date indicate the behavior of a highly aligned owner-operator.

Dino’s business model is driven by fully reinvesting all free cash flow into the development of new stores. Chris estimates that Dino achieves a ROCE of 40% at the store level and the firm generates ROIC of 20%.

Dino is reasonably priced, with a normalized FCF yield 50–100bps above 10-year treasuries after backing out growth capital expenditures. The investment opportunity lies not in a repricing, but in the continued execution of a successful business model by a competent and well-aligned management. It is entirely reasonable to project that Dino could compound intrinsic value by 15-20% per annum over the next decade.

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About the instructor:

Christopher Karlin has been in the investment business since 1991. Prior to founding Aquitania Capital Management in 2012, Christopher held positions as a Research Analyst and Portfolio Manager at First Pacific Advisors, Kestrel Investment Management and Fairview Capital Investment Management. Christopher interned with Farallon Capital Management while pursuing his MBA. He began his career with Wells Fargo Nikko Investment Advisors which later became a part of Blackrock. Christopher received his BBA from the University of Wisconsin in 1990 his MBA from Yale University in 1998 and has held the CFA designation since 1994.