Thursday, September 28, 2017

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

4 comments:

  1. Interested until you mentioned "license to print money". I have a bad vibrations of those.

    ReplyDelete
    Replies
    1. You're kind of right in that when some business is overly lucrative, competitors soon flock around and yields go down. But it's not that gloomy: their profitability can sustain going down, change doesn't happen too quick and almost all of their customers are happy campers :)

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  2. Owners are selling a lot which makes me suspicious. Not like in Rovio though, and numbers look good. Also revenue should be real (is it?) and continuing which was not a case with Rovio.

    ReplyDelete
    Replies
    1. It's true they're selling but not huge stakes in my opinion, plus they have 2-year-lock-out and a 5-year work commitment.
      "Fixing numbers" can be done for a short periods of time but not with that consistency over time or consistency over different numbers.

      Delete