Publication of quarterly report for the second quarter of 2020

After the slump in economic activity resulting from the outbreak of the pandemic and a drastic overestimation of financial assets, the second quarter was a period of a strong recovery. The increases were especially enjoyed by entities with lower capitalization (especially from the NewConnect market), whose specific business profile prevented their revenues from falling and additionally benefited from the increased interest of individual investors. The exposure of the equity part of Carpathia Capital’s portfolio to the NewConnect market segment made it possible to take advantage of the favorable market environment.

Thus, the first half of this year was the best in the history of the Company in terms of the generated net profit and proceeds from the sale of securities. The net profit generated in the first six months was PLN 1.275 million, and in the second quarter alone, PLN 0.737 million. More importantly, the result on the sale of securities exceeded PLN 1.309 million in six months (of which PLN 1.048 million was generated in the second quarter). The profit on updating the investment portfolio in the first half of the year amounted to PLN 0.358 million. At the same time, the second quarter was also historically the most active in terms of Carpathia’s investment activity. The proceeds from the sale of securities amounted to PLN 2.249 million, while the expenditure on the purchase of new assets to the portfolio was PLN 2.077 million. As a result, the structure of the portfolio has been significantly modified, giving it a clearly greater exposure to industries related to the so-called new economy (IT service providers, gaming, biotechnology). Taking advantage of the valuation increases which, in the opinion of the Management Board, in some cases exceeded the intrinsic value of individual companies, decisions were made on divestments by selling shares through market transactions. In the second quarter, this way the investment in Polman S.A. was completed, which allowed to generate a gross profit on the transaction of PLN 824,429.04. Maintaining a good economic situation on the NewConnect market should allow for further, gradual divestments from companies for which investment assumptions have been implemented.

The profit generated on the sale of assets was subject to reinvestment under new projects. Taking advantage of the synergies occurring within the INC Capital Group, Carpathia takes advantage of the opportunity to engage in shares of unlisted companies under the pre-IPO (preceding the introduction of the issuer’s shares to trading on the NewConnect market) carried out by Dom Maklerski INC SA. In the second quarter, a number of investments in this type of entities, especially in the gaming sector (Detalion Games SA, Madmind Sp. z oo, Play2Chill SA, Punch Punk Games SA, Incuvo SA, United Label SA), trading in digital goods – Skinwallet SA and biomedicine – GenXone S.A. Already after the end of the quarter, investments were made in Polkon S.A., Olymp S.A. and Grow Uperion S.A. – companies that successfully counteracted the effects of the pandemic on their business. The observed interest of investors in individual, non-marketed portfolio companies should be assessed very high. At the turn of July and August, the investment in the shares of Legimi S.A. was finalized. (e-book platform operating in the subscription model). At the same time, Carpathia’s investment team considered investments in several entities for which it was possible to purchase their shares at a discount to the current market price (as part of block trades). In this way, among others investment in the company ArtGames S.A., whose shares were sold during several consecutive sessions, allowing to generate a profit of over ten percent on the investment.

As regards the changes in the valuation of individual companies in the portfolio, a significant appreciation of the prices of several companies should be noted. Listings of Plantwear, which has several percent share in the investment portfolio. During the second quarter, the share of Pozbud gained 15.98% (in this case the previous quarters were marked by declines) and BitEvil S.A. The right decision was to increase the involvement in Bittnet shares at the end of March. We managed to resell a large part of the purchased package on the market at a significantly higher price in the following months. It is worth noting that the company in which Carpathia Capital was an investor from the very beginning, at the beginning of June, changed the trading floor from AeRO to the main market of the Romanian stock exchange. It was the first such case in the history of the local market and at the same time another proof of the impressive success of Bittnet. Already after the reporting period, Bittnet paid dividends in shares that were issued to existing investors (for each 10 shares held, the shareholder received an additional 7), but this did not create an opportunity for arbitration (similar operations in the previous years allowed for favorable sale of shares due to inefficiency).

In the coming months, the Management Board and the investment team of Carpathia Capital plan to continue expanding the investment portfolio with further pre-IPO investments. As at the date of the report for the second quarter, the value of cash available for investment is PLN 2.865 million. If the economic situation on the NewConnect market continues, further gradual divestments of the currently held companies are planned.

In the horizon of the next few weeks, the planned debuts of GenXone S.A. on the NewConnect market will be very important from the point of view of the results for the third quarter. and Skinwallet S.A. Considering the high interest of investors in these entities, we can assume that the prices on the day will be significantly higher than the purchase price, which should make a positive contribution to the financial results in the third quarter. In the longer term, further debuts related to this year’s debuts will be important (potentially Detalion Games S.A., Play2Chill S.A., Incuvo S.A. are companies whose shares may be introduced in the current calendar year).