Tecnotree’s Board of Directors proposes reverse split and small dividend

Translation: Original comment published in Finnish on 3/25/2024 at 7:00 am EET.

The proposed dividend is very small and has no practical significance for Tecnotree's financial position or the returns to the investor. In view of the convertible bonds issued by the company, we question the appropriateness of a dividend payment in the current situation. Given the small size of the dividend, we believe the proposal is intended to signal the company's confidence in its financial position and future ability to generate cash flow. Dividend payment is conditional on the reverse split.

The proposed dividend is very small, but still an unusual solution in the current situation

Tecnotree's Board of Directors has decided to amend the dividend proposal in the financial statements for the Annual General Meeting to be held on April 15, 2024. According to the previous proposal, the Board of Directors proposed that no dividend be paid for the financial year 2023, but now it proposes a dividend of EUR 170,000 to the AGM. At the current share price, this would only correspond to a dividend yield of around 0.2%. Therefore, the dividend would not represent a relevant return for investors and the payment of the dividend would not have a material impact on the company's financial position. We believe that by proposing a dividend, the Board is attempting to signal confidence in the company's financial position and future ability to generate cash, which was one of our clear concerns in the company's investor story.

For the convertible bonds issued by the company, we believe that a dividend payment would be somewhat questionable in the current situation. In 2023, the company issued 43.1 MEUR in convertible bonds, which the company intends to use, among other things, for product development and inorganic growth. At this stage, 20 MEUR of convertible bonds are still to be collected. Also in 2021, the company raised growth capital through a directed issue. The company's free cash flow has been clearly negative for the last two years, and if the company has to rely on external financing to finance its growth after the convertible bond, we believe that the dividend payment may look like a bad solution in hindsight. It remains to be seen how the company's cash flow profile will develop in the future and whether the dividend payment was a prudent capital allocation for the company in the current situation.

Dividend distribution is conditional on the reverse split

The Board of Directors of Tecnotree proposes that the company's shares be combined in such a way that 20 existing shares will correspond to one share after the reverse split. In order to avoid the creation of fractions of shares, the Board of Directors is authorized to resolve a directed share issue free of charge, whereby new shares are issued free of charge in such manner that the number of shares in each book-entry account is divisible by 20. The maximum number of new shares to be issued under the authorization is proposed to be 389,652. It is worth noting that at the current share price, the total maximum amount of the free directed issue (EUR 112,000) is already close to the proposed dividend payout. The Board of Directors justifies the reverse split on the grounds that it increases the value of the individual share, promotes efficient price formation and enables the payment of dividends. We note that the reverse split has no impact on the fair value of the company. If the AGM vote in favor of the reverse split, the proposed dividend would be EUR 0.01 per share (after the reverse split).

We will include the dividend in our forecasts in our next update. If the new dividend proposal is approved at the AGM, the preliminary dividend record date will be September 24, 2024 and the preliminary payment date will be October 1, 2024.