Makolab SA: cheap Polish IT-services nanocap with good earnings quality
Makolab SA is an IT consultancy company. The company provides IT-development services for web-software, system integration and solution design. The company also provides search engine optimization and support and maintenance services for IT-systems. Headquarters are in Poland, in Łódź. The company also has offices in Warsaw, UK, US and Germany.
Since 2008 the stock trades at the Polish NewConnect exchange with symbol MLB.
On 19 May 2022 the CEO wrote in his annual letter about the explosion of AI tools and that the company would get the necessary skills in house to use this technology. That was before the launch of ChatGPT on 30 November 2022.
About 80% of the revenue is from outside Poland. I think the automotive sector is an important industry for Makolab.
Since 2011 the company is paying a dividend in the first half of July. The amount varies. Last year the company paid 0.1 PLN per share, in 2022 the company paid 0.07 PLN and in 2020 the company paid 0.23 PLN per share.
There are two large shareholders: Krzysztofa Sopek en Mirosław Sopek, each owning 30.55%. These two people are not in the management board. But until 28 February 2023 Mirosław Sopek was Vice-President in the management board. In the management board there are two Vice-Presidents and a President. The president of the management board is Wojciech Zieliński, since 2008.
Until 12 februari 2024 there was another shareholder with slightly more than 5%. Mr. Jacek Wolsk owned 5.39% but sold shares to get below the 5% disclosure threshold. His stock sales might have depressed the stock price.
I had a look at last quarterly report (31 December 2023) and at the annual report over 2022. The company does not consolidate its financial reports because “the business activities of each of the above-mentioned subsidiaries are conducted on a small scale in relation to the Company's operations”. The company does share detailed financial information for each of the four subsidiaries though.
At 4.4 PLN per share the company is very cheap based on EV/EBIT and EV/Revenue. In addition the Piotroski score is high and multi-year metrics for judging earnings quality are excellent. Moreover the ratio Gross Profit/Total Assets is high.
The balance sheet is strong with low leverage, a high current ratio and much more cash than debt.
I do not like very volatile stocks since high volatility is usually a sign I am too optimistic about certain risks or that I have overlooked something. This nanocap has moderate stock price volatility, which is good.
I have not found any concerning related party transactions. Typically the three members of the management board earn between 200k and 300k PLN per year. They might also get some money for being a director at one or more subsidiaries, but I do not thinks such extra pay is significant.
Conclusion: Cheap IT-services company based on EV/EBIT and EV/Revenue. Among the smallest nanocaps. 80% of the revenue depends on export, probably largely on the auto industry. Excellent Piotroski score and 8-year quality metrics also with high Gross Profit/Total Assets. Shareholder friendly. No governance red flags. I think this is a good stock for a small position.
Disclosure: long Makolab SA.