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As global investors, our mandate permits us to scour the world for the best investments we can find, understand and value. In most cases, the companies and areas we invest in differ from our initial thoughts and a good example was our allocation to Poland.

Since our first investment three years ago, Poland has quickly grown to a sizeable portion of the strategy and currently represents 20% of the portfolio allocation, only behind our largest country, China. Although painting a top-down macro-driven story provides readers with a more enjoyable and complete briefing, our decision to allocate this much to Polish-listed companies was purely bottom-up individual stock selection.

In software, among all 1,241 listed IT Software companies (GICS), Poland’s LiveChat is the most profitable software company in the world.

Software peers generally target the Software golden rule of 40 (the growth rate + profit margin should exceed 40%). LiveChat reached 86% in 2022, more than doubling the aspirations of its listed software peers. Its closest listed rivals in the chatbot communication industry, like Zendesk and LivePerson, are still loss-making.

In the cyclical gaming sector, many studios can only dream of consistently churning profit margins above 20% year-on year due to the industry’s cyclicality. For Poland’s PlayWay, its net income margin has consistently exceeded 40% since reporting began in 2014 without taking on significant debt. Only four listed gaming companies achieved a better operating profit margin than PlayWay’s 67% in 2022. Unsurprisingly, all four companies are other Polish gaming studios.

In the European grocery market, finding a retailer growing revenue and earnings above 6% will be above average, given that industry estimates expect the category to average 4% over the next few years. In Poland, retailers like Dino Polska have compounded their profits by 40% over the past ten years. What makes Dino Polska even more interesting is how they’ve uniquely combined value creation for consumers despite having the best profit margin among its European-listed grocery peers. Since going public in 2017, Dino’s shares have returned more than 900%.

The contrasting issue here is that despite the presence of these high-quality, growth companies, the broader Polish market hasn’t been a great place for investors. Since 1994, the MSCI Poland index has compounded at just 1%. Over the past ten years, it’s annualised -3.88%, significantly underperforming the MSCI ACWI of 8.44%, and now trades at a P/E of just 6x, less than half of the MSCI ACWI 17.4x.

The divergence between its best companies, in our view, and the overall market is what makes Poland an excellent environment for stock pickers to study and in this Polish briefing, we explore the Polish economy, its growth over the past years, the breakdown of the Warsaw Stock Exchange and four key themes we believe are shaping the investment opportunity set in Poland. On a personal level, I have an admission. I have never physically been to Poland and the insights here come from the studies and reports companies publish to investors, our conversations with locals who live or left Poland and other research materials. As an outsider, our research will bring a different perspective but not a combine the briefing with other writings we have included in the appendix.