Publication of quarterly report for the third quarter of 2020

The third quarter of this year was a period of economic recovery after the lifting of pandemic administrative restrictions (quarterly dynamics of Polish GDP amounted to + 7.7% q / q – which shows the scale of the rebound, but of course it is an effect of an exceptionally low base). As the economic outlook improved, the valuation of financial assets listed on the Warsaw Stock Exchange and the BVB in Bucharest also increased. In this favorable environment, Carpathia Capital recorded its historically best quarter in terms of results. The profit on investment activities exceeded PLN 6.328 million, and the net profit was PLN 4.803 million (for the full three quarters it was PLN 8.108 million and PLN 6.078 million, respectively).

The main factor was the introduction to trading of the shares of GenXone S.A. held in the portfolio. – an entity from the biotechnology industry specializing in molecular diagnostics. Thanks to the use of the existing infrastructure for the purposes of COVID-19 disease diagnosis, the issuer significantly increased the income potential. As a result, the share price after introducing to trading on the NewConnect market (over PLN 53) was 8 times higher than the reference price and over 10 times higher than the average purchase price of its shares by Carpathia Capital. Considering that at the time of its debut, Carpathia had a block of over 253,000 shares of GenXone S.A., the translation into the profit generated was significant.

At the same time, another of Carpathia Capital’s portfolio companies, Skinwallet S.A., debuted on the NewConnect market. (operator of a platform for trading digital goods from games). Also in this case, the debut price was significantly higher than the average purchase price of shares by Carpathia (PLN 74.99 vs PLN 38), which was also reflected in the generated financial result. The above illustrates the effectiveness of the investment strategy consisting in investments in stocks and shares of companies from the private market, ultimately listed on the stock exchange market. Appropriate selection based on a detailed fundamental analysis allows you to build a portfolio of entities whose valuation after introduction to trading has a chance to be significantly higher than the purchase price by Carpathia. An important factor shaping the financial results of Carpathia is the behavior of the market value of the portfolio of shares listed on the Polish and Romanian markets. Among the held stocks on the NewConnect market, it is worth emphasizing the increase in the value of Ekopark SA (over 200% from the beginning of July to the end of September) and Dook SA (almost + 50% over the quarter). On the other hand, the value of investments held on the Romanian market was characterized by low volatility and its share in the financial result was negligible (the main position held on BVB – Bittnet Systems – after the transition from the AeRO market to the main market of the Bucharest stock exchange closed the quarter with the share price 1.5% lower compared to the beginning of July).

In the case of investment activities conducted on the secondary market (the effect of which is the item “Result on sale of securities”), the Company’s activity in the third quarter was relatively small. After significant divestments realized in the previous quarters, in the opinion of the investment team, the current market valuations of portfolio companies did not show any signs of overvaluation. Ultimately, the result on investment activity on the secondary market was a derivative of the performance of previously concluded share sale agreements. The third quarter was a continuation of the expansionary investment activity on the primary market. Investments were made in United Label SA (a company from the gaming industry, acting as the sole publisher for cooperating development teams), Polkon SA (producer of housing containers), Grow Uperion SA (producer and distributor of IT tools for managing a team of employees). The shares of MD Games Sp. z o.o. (a producer of computer games – including the well-received Postal Redux) and PhotoAiD Sp. z o.o. (photo booths at stations and in shopping malls and an innovative application for taking photos). After the quarter was closed, funds were committed to the shares of Genomtec SA (producer of quick tests for coronavirus infection), Mazurska Manufaktura Alkoholi SA (producer of premium vodkas, beers and disinfectants) and Gamivo SA (owner of a platform for trading digital goods and games). At present, the investment team is analyzing several investment projects, in the case of which investments may be undertaken in the current year.

The economic situation in individual segments of the stock market will be of key importance for the results in the fourth quarter. The shares of GenXone SA remain the largest position in the investment portfolio, thus the development of the epidemic situation in the country and the demand for diagnostic tests for COVID-19 disease will have a significant impact on the financial result of Carpathia. It is worth noting that currently several portfolio companies (Detalion Games SA, Play2Chill SA, Incuvo SA and United Label SA) have submitted an information document to the WSE in order to apply for the introduction of their shares on the NewConnect market. It is possible that in the coming weeks they will be admitted to trading, which, if enthusiastically received by investors, will have a positive impact on the final annual financial result. If the economic situation continues, further divestments are also planned in order to accumulate cash for further investment projects.