Taaleri Q3'24: Value for the patient investor

Translation: Original published in Finnish on 11/5/2024 at 8:00 pm EET.

Taaleri's Q3 results exceeded our expectations, with better-than-forecast performance in all segments. The biggest beat was seen in Garantia, whose investment portfolio return exceeded our forecasts by a very wide margin. Our projections for the coming years have been boosted mainly by non-recurring income, as our fund sales projections have been reduced due to the still sluggish fundraising market. However, the stock is attractively priced and we reiterate our Accumulate recommendation with a target price of EUR 9.5.

Q3 result was stronger than expected

Taaleri's Q3 operating profit was well above our forecast, mainly due to investment income from Garantia. Otherwise, the results in the report were broadly in line with our expectations, although the performance across the Group was slightly stronger than we had forecast. EPS exceeded our forecast by an even higher margin than EBIT, as the tax rate remained quite low in Q3. Meanwhile, the fundraising market remains challenging, with Taaleri announcing that it will not launch its planned venture capital fund in the absence of an anchor investor. In addition, the launch of the new real estate fund, planned for the end of the year, has been postponed until the middle of next year. Management's comments suggest that delayed exits from old funds, in particular, continue to dampen investor interest and the ability to make new investment commitments.

One-off returns led to the biggest changes in forecasts

We have raised our earnings forecasts for the next few years mainly due to one-off returns. The increase is mainly explained by the earnings beat in Q3 and the return on the development project portfolio, which was around 3 MEUR higher than our forecasts. On the other hand, our sales forecasts for funds have declined slightly, with a small negative impact on the coming years. The earnings distribution is still strongly focused on performance fees and investment income in our forecasts for the next few years. Garantia continues to develop steadily in our calculations despite the challenging market. The ramp-up of private equity funds continues headed by SolarWind 3, but the result will mainly come from one-off income. The result based on recurring fees remains modest, as growth investments of Other private equity funds depresses profitability. In line with the updated strategy, Taaleri will invest a significant part of its cash flow in the coming years in bioindustry investments, whose actual return potential will not be seen until the end of the decade when the first exits in bio-investments are seen. In our forecasts, profit distribution is limited to the basic dividend (around 60% of the result for the period in the coming years), as investment portfolio growth ties up a lot of capital.

Share price under the SOTP value

We consider the sum of the parts calculation to be the best method for valuing Taaleri, as it best considers the different profit and risk profiles of the parts. We continue to estimate the total value of Taaleri at around EUR 10 per share. Most of the value is tied up in the insurance company Garantia, while the remainder is spread mainly between Renewable Energy and balance sheet investments. Going forward, Taaleri’s value creation will increasingly rely on its own investment activities, so the key for investors will be how successful management is in allocating capital to higher-risk bioindustry investments. Drivers for a higher sum of the parts value would be: 1) success in bio-investments 2) better than expected performance of Private Asset Management or 3) faster-than-expected growth of Garantia.