CapMan Q1'25: Earnings growth expected to accelerate towards year-end

Translation: Original published in Finnish on 5/11/2025 at 9:43 pm EEST.

CapMan's Q1 report was ultimately quite neutral. The market situation will continue to hamper new sales in the short term, but the strong earnings growth outlook for the next few years remains intact. Once earnings growth is realized, the stock will be cheap, but due to the uncertainty surrounding the realization of new sales, we are holding back on a stronger view for the time being. We reiterate our EUR 2.1 target price and Accumulate recommendation.

Year started as expected

In the end, CapMan's Q1 report came out quite neutral. New sales were weaker than expected as market uncertainty prolonged customer decision-making. However, the acquisition of Midstar's hotel portfolio raised more funds than we expected, and in that respect, Q1 new sales performance was slightly better than our initial comments. Q1 revenue was slightly below expectations as sluggish new sales caused assets under management to fall below our forecast. However, the result was well above expectations, driven by investment income.

Market conditions remain challenging in the near term

Regarding the market outlook, the company noted that fundraising processes have become even more prolonged. This is not surprising in itself, given the current uncertainty in the market and the challenges posed by the dormant exit market for alternative funds. The first close of Nordic Real Estate IV, which is key to future growth, will be delayed until the end of the year. According to the company, investor interest is high, but of course this will not be demonstrated until the end of the year. Sales of the new forest fund have started well and the first close will take place in H2 as planned. Next year is shaping up to be a very critical year for the strategy, with three spearhead funds in the fundraising process at the same time.

We continue to expect significantly leveraged results

We have made relatively minor estimate revisions with the Q1 report, and our estimates are broadly unchanged. We continue to expect the company's results to improve strongly in 2025 as investment income recovers significantly. In 2026, the result will be further leveraged by the scalability of the management business and the increase in carried-interest income. The 2026 EBIT of ~40 MEUR reflects quite well the current potential of the company. Our dividend forecasts are unchanged, and we expect a steady dividend growth. The earnings mix is forecast to continue to improve as profitability from continuing operations, which is the most valuable area for investors, increases. Between 2024 and 2028, an average of about 60% of revenue growth will flow through to the bottom line. It's a challenging level, but doable as long as revenue growth is strong and cost control is in place. Historically, cost control has not been one of CapMan's greatest strengths, and this, along with the rate of new sales in the coming years, are the key uncertainties in our estimates.

Valuation is cheap as long as earnings growth holds up

At the current share price, the value of CapMan's business is approximately 185 MEUR. Relative to assets under management of 6.4 BNEUR, the price tag is small. However, the challenge at the moment is that AUM performance is far from its potential. Actual results do not justify a higher value than the current one, but our earnings growth forecasts for next year already put the price tag on the business at a very low level (EV/EBIT 8-9x). Relative and absolute multiples send the same message as the sum-of-the-parts. Once the earnings improvement is realized, the stock is cheap and the expected return is excellent. We think the current multiples would also support a stronger view, but first we want to see more concrete evidence of accelerating new sales and improved cost efficiency.