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R22 Group: Exposure to attractive digital macrotrends

We initiate on R22 with a BUY rating and set the FV at PLN 27.3, which implies 41% upside. R22 is a holding company with exposure to three IT/tech oriented segments: (1) H88 - hosting; (2) Vercom - omnichannel communication and (3) Oxylion – fixed-line telco. In our view, the attractiveness of R22’s business model is that the hosting and omnichannel segments are growing organically, supported by the digitalization of the global economy trend where the internet is increasingly used as a way of entertainment, mass communication, business promotion, trade of goods etc. Additionally, the majority of hosting and omnichannel sales are automated in a SaaS model based on subscriptions fees which makes them scalable, cash generative and not absorbing working capital. The telco segment, which is not seeing organic growth, is highly profitable (EBITDA margin above 40%), being R22’s cash cow. Apart from the organic growth story, R22 is also a M&A story as it plans to further consolidate both the hosting and omnichannel communication segments, which we regard positively as their scalable business models typically make acquisitions value creative through both sales (ARPU upsell) and costs (fixed cost optimization) synergies.