Taaleri CMD: Capital allocation at the heart of value creation

Translation: Original published in Finnish on 9/3/2025 at 8:31 am EEST.

Yesterday's Capital Markets Day clarified Taaleri's previous growth strategy. Regarding capital allocation, the focus remains on investments in the company's own balance sheet, though the emphasis on the bioindustry has shifted to a broader, more opportunistic investment mandate. The company will also maintain its current structure, at least for the time being. While the share is cheap by all measures, we find it difficult to see how the sum of its parts could be realized with the current structure and uncertainty surrounding capital allocation. Therefore, we consider it justified to price the share at a clear discount to the sum of its parts for the time being, and as a result, we are revising our target price to EUR 8.5 (was EUR 9.0) and lowering our recommendation to Accumulate (was Buy).

Previous strategy honed at CMD

The company aims to grow in all business operations and focuses on improving profitability based on continuing fees. The strategy revolves around current business operations, and Garantia's role within the group has been more clearly defined than before. Garantia's role is to act as a stabilizing element and generate stable cash flow to enable investments in other business operations. All private equity funds seek clear growth. Regarding capital allocation, the focus remains on investments in the company's own balance sheet, though the emphasis on the bioindustry has shifted to a broader, more opportunistic investment mandate. Overall, CMD's outcome was twofold. In operational terms, CMD provided substantial concrete information about growth prospects for different segments. Furthermore, broadening the investment portfolio's focus beyond the bioindustry was a positive development. At the same time, however, there are still clear question marks surrounding capital allocation, and CMD did not provide a plan for unlocking value in the parts.

No major forecast changes

The key change in our forecast is a decrease in the size of the investment portfolio, but the other changes are minor. Our projections for the 2025 result remain modest, as only a small amount of non-recurring income will be realized. Similarly, 2026 will be very strong, as several significant exits have been planned for that year. As a whole, we predict that Taaleri’s operating result will be 30 MEUR on average in the coming years. The result fluctuates significantly on an annual basis due to the significant proportion of non-recurring income. We expect the profitability of private equity funds to gradually improve as AUM grows. Central to this is the new SolarWind 4 fund, set to launch next year. Overall, the outlook for Renewable Energy's earnings is very good. We expect Garantia to return to stable growth as the housing market slowly picks up. Investments on the company's own balance sheet are a significant variable in its investment history, and visibility into them is non-existent. Our dividend forecasts remain cautious, as the focus of capital allocation is on investments.

The share is cheap but drivers are in short supply

Our conservative sum-of-the-parts calculation has remained unchanged at around EUR 10 per share. Most of the value is generated by the insurance company Garantia, while the remainder is effectively split between the energy fund business and balance sheet investments. Although Taaleri left the door open for larger restructuring measures at the CMD, it does not actively pursue them, as far as we know. Therefore, we cannot assume that the sum-of-the-parts value will be realized, and we deem it justified to value the company below the sum of its parts for the time being. Historically, Taaleri has been priced at a 15-20% discount relative to the sum of its parts, and we consider this level justified for the time being. In absolute terms, the share price is attractive, but we note that the significant proportion of non-recurring income weighs on the acceptable valuation. In our view, a higher valuation requires next year's earnings growth to materialize, which hinges on the realization of large non-recurring fees. M&A and changes to the company's balance sheet could naturally also act as catalysts.