What's there not to like about the Titanium IPO

A week ago I wrote about Rovio's IPO, which I think is overpriced, but I still pulled the trigger on that one. That IPO has just closed but the results aren't out yet. I'm hoping for an opening bounce and plan on exiting Rovio soon.

Titanium

The next IPO on the schedule is Titanium, a rather small investment fund company, specializing in healthcare real estate. They describe themselves as follows:

Titanium on suomalainen, pankkiryhmistä riippumaton hoivakiinteistöihin ja asuntoihin sijoittaviin erikoissijoitusrahastoihin sekä omaisuudenhoitopalveluihin keskittynyt kasvuyhtiö. Titanium on perustettu vuonna 2009 ja sen hallinnoima varallisuus 30.6.2017 oli noin 350 miljoonaa euroa.

I've looked at the investment case and am struggling to find anything bad to say about it really. This post includes my notes. Again, not thoroughly formatted but the content is key right?

Titanium's business areas(numbers for end H1 2017)

• Health care real estate fund: started 2013, AUM 217M, number of units 76, occupancy 100%, average lease 11 years == accounts for almost 90% of revenue
• Apartment real estate fund, started 2016, AUM 58M, number of apartments 331, occupancy 93%
• Stock market fund, started 2016, AUM 5M
• Asset management service, AUM 62M

Biggest product = Healthcare real estate fund

• real estate is new (mostly less than 10 years old)
• in good, diversified locations
• diversified rentees (23) with top3 rentees accounting for 36%

IPO details

Shares offered:

• Share issuance = 827.5k shares
• Share sale by current owners = 2440k shares
• Additional share sale if oversubscription = 821.4k shares
• Number of stocks offered to general public = 1.625 million (minimum is 150 stocks so 11k investors with minimum would do it)
• Number of stocks offered to institutions = 1.48 million 
• One share is 6.15 euro

Dates:

• Starts 25^th of September,
• Earliest end date 29^th of September,
• Results out 9^th of October
• Trading starts 16^th of October

The numbers: Fast growth with awesome profitability

2011 through 2016: revenue growth 57% (CAGR) and at the same time EBITDA margin average 44%

Titanium's growth in 5 last years is +57% CAGR with an average EBITDA 44%.

Most important numbers:

	H1 2017	H1 2016	2016	2015
Revenue	4.6M	2.4M	6.7M	4.3M
EBITDA	2.9M / 63%	1.2 / 49%	3.5 / 52%	2.4M / 55%
Operating profit (EBIT)	2.3M / 49%	0.6M / 23%	2.2M / 33%
Profit for year	1.7M	0.3M	1.6M	0.7M
Equity ratio	91%	93%	88%	93%
Net gearing (negative value means more money than debt	-51%	-33%	-43%	-38%
ROE	18.5%	4.4%	18.5%	8.4%
EPS	0.20 euro	0.04 euro	0.18 euro	0.08 euro
Total assets	10.7M	8.2M	10.2M	8.7M
CF	2.4M	0.9M	2.4M	1.9M

Inderes’ key numbers for 2017:

• P/E 9.9
• EV/S 4.2
• EV/EBITDA 7.0
• dividend yield 7.6%
• EPS 0.62 euro

Future outlook, dividend and risks: demand is expected to remain high

• Goal to increase revenue to 16M by 2020 (2017 about 10M) by increasing current products and by launching new products
• ==> Assuming revenue for 2017 is around 7 million, that would require over 30% of annual growth for 4 years
• Increase Healthcare fund to 500M within 2 to 3 years, with most of the expansion already agreed upon
• Maintaining high profitability = EBITDA above 50%.
• Dividend policy: growing dividend, at least 70% of profit

Major risks:

• societal and political risks, e.g., social and health services reform (“Sote”)
• AUM could go down, e.g., if people realize the extortionate fees they’re dishing out
• regulatory, e.g., increased costs and risks of handling MIFID2, etc.
• market turning and performance fees going down (lately a major component of revenue)

Additional insights and conclusion

Insights:

• A lot of emphasis is given to management team's experience, agility and "leanness".
• All major owners are selling shares but still maintaining most, most seem to be selling 25-33% of their stocks. Long 2 year lock-up and key personnel have a 5 year working commitment.
• Customer loyalty: Of customer who have used services and products, 94% are still customers.

Titanium seems to have come up with a very well scaling business model that is very cost efficient. I'm finding it difficult to come up with anything bad about the company, it basically seems to be a "license to print money". I'd like one of those please!

Rovio IPO valuation is too damn high!

Rovio is currently IPOing to the Helsinki stock exchange. Taking part in IPOs has been quite lucrative in the near past, so I’m definitely interested! I read Rovio’s IPO prospectus and will publish my notes here. The format ain’t too polished but here goes.

Stock and IPO basics

Stock:

Number of stocks total currently = 75.3 million

Number of new stocks being issued = 2.7 million

Number of stocks after IPO = 78.0 million

Stock sellers get 373 million euro (=exit). Rovio gets 30 million euro only from stock issuance.

IPO:

Number of stocks offered to general public = 2 million (minimum is 100 stocks so 20k investors with minimum would do it)

Number of stocks offered to institutions = 35.2 million (~95% of stocks are going to institutions)

..of which institutions’ already committed number of stocks = 20.2 million (15 million stocks up for grabs)

Dates:

IPO ends Tuesday 25^th of September at 16:00

Results of IPO out 28^th of September

Trading commences on 29^th of September at pre-list and 3^rd of October on main list

Key numbers from end of H1 2017 (trailing 12 months):

Income statement:

Revenue 266 million (=S)

Operating income 29.5 million (=EBIT)

Net income 20.3 million (=E)

Cash flow statement:

Cash flow from operations 40.8 million (=CFFO)

Balance sheet:

Cash 44.9 million

Debt 50.0 million

Debt/CFFO = 1.2

Total assets 147 million (=B)

Net gearing -35% (=no net debt)

Profitability and valuation

EPS for H1 2017 (6 months) = 0.18 euro = low

EBIT margin 14%

ROE ttm 31%

low end of scale 10.25 euros per stock -> Market cap = 800 million (=P)

high end of scale 11.50 euros per stock -> Market cap = 897 million (=P)

P/B = 5.4 – 6.1

P/E = 39 – 44

P/S = 3.0 – 3.4

P/CFFO = 20 – 22

Other considerations

Future: Mobile gaming estimated to be growing at 14% through 2020.

No major operative risks being seen: Second movie is produced by Sony, not Rovio.

Number of personnel is reduced to less than half of peak (848 -> 376) (=lean).

Operations seem quite professional but still somewhat of a “one hit wonder”.

Leadership team (execs and board) all have skin in the game in the company via stocks and/or options.

Growth in previous months is very high but the sustainability of such growth seems unlikely.

Rovio leadership’s guidance for H2 2017 is “significant EBITDA increase […] Over 10% is considered ‘significant’”

Conclusions

One thing holding me back is my personal disinterest in engaging in Rovio’s games. In the reports one can see that the monthly average revenue per paying user (=MARPPU, one of Rovio’s KPIs) is over 30 euros is stunningly mind-boggling to me! Also, the Angry bird brand seems a bit past is Best before date, but that’s not the worst part.

The valuation is too damn high! ..But I may still try and juicy a couple of euros from “greater fools” by partaking in the IPO with a very short term outlook. Another strategy I’m pondering is abstaining for now, checking how the stocks opens in the first minutes of trading and try and do some “play moves” then.

Happy trading!