Taaleri Extensive Report: Capital allocation matters a lot

Translation: Original published in Finnish on 1/17/2025 at 8:34 am EET

Taaleri's focus in the next few years will be on the ramp-up of private equity funds and bioindustry balance sheet investments. The Group’s performance, however, is still heavily reliant on non-recurring fees, but the profitability of continuing operations should also improve gradually as new fund launches and assets under management (AUM) grow. The valuation of the share is clearly below the Group's sum-of-the-parts, so we consider the expected return attractive despite the weak earnings growth outlook for the next few years. However, we believe the release of value requires the general risk appetite in the market to return in the absence of clear short-term earnings growth drivers. We lower our target price to EUR 9.0 per share (was 9.5) and reiterate our Accumulate recommendation.

Alternative investment products and insurance operations

Taaleri is a private equity fund house focusing on alternative asset classes, whose key product areas are renewable energy and bioindustry funds. The Group also includes the insurance company Garantia. In addition to funds and insurance, Taaleri carries out significant investment activities from its balance sheet. The company’s investor story has evolved in recent years, and in history M&A transactions in particular have played an important role. The latest major transaction was seen in 2021 when Taaleri sold its Wealth Management business to Aktia. After the transaction, the company changed its strategy significantly, focusing on alternative investment products and impact investment. In its latest strategy update, Taaleri took a step toward a more investment company-like business model, as it intends to allocate significant capital to industrial-size bioindustry investments in the next few years. As a result, the role of balance sheet investments will increase further, which has also raised the company’s risk profile. Profit distribution will also be at more modest levels than before in the next few years due to increasing balance sheet investments.

Non-recurring fees play a significant role in the result in the next few years

In the coming years, the stable development of Taaleri’s operating businesses is, in our forecasts, supported by income (capital gains and investments) that are considered one-off. We expect the profitability of private equity funds to gradually improve along with the growth in AUM, but the timing and amount of non-recurring fees will sway annual earnings somewhat. At the same time, the difficulties in the fundraising market slow down AUM growth, but we consider the challenges mainly temporary. We also consider it very possible that the company will accelerate the growth of Private equity funds with acquisitions. The first results of the success of bioindustry investments will have to wait until closer to the turn of the decade. We expect Garantia to return to stable growth along with the rest of the market as the housing market slowly picks up.

Stock valuation is low compared to the value of the business operations

In this analysis, we focus on the sum of the parts, as it is the best way to consider the value of different parts of Taaleri and the different profiles of the businesses. The value based on our sum of the parts is around EUR 10 per share which is clearly above the current share price level. The majority of the value is still generated by the insurance company Garantia, while the remainder is effectively split between the energy fund business and balance sheet investments. The stock is moderately priced, which is reflected in our positive recommendation. A bolder view could also be justified, but considering the expected return, we see the timeframe, which may well stretch to several years, as challenging as the general equity market sentiment affects investors' risk appetite. However, the value released over a slightly longer horizon also constitutes an attractive annual expected return. While waiting for this, a healthy dividend yield (6-7%) provides solid ground for investors.