Taaleri Q4'24: Share remains firmly in the discount basket

Translation: Original published in Finnish on 2/12/2025 at 8:59 pm EET.

We reiterate our EUR 9.0 target price for Taaleri and our Accumulate recommendation. Although the Q4 report was better than expected, changes to the forecast remain limited. Taaleri's focus in the next few years will be on the ramp-up of private equity funds and bioindustry balance sheet investments. The valuation of the stock is well below our sum-of-the-parts calculation and the stock is also cheap in absolute terms. However, we do not see clear drivers for near-term value release, with bioindustry investments being a key value driver in the coming years, and thus our own target price is also below the sum-of-the-parts value.

Good Q4 result

Taaleri’s Q4 EBIT was 9.4 MEUR, far above our 3.3 MEUR forecast. The overperformance is due to the additional income of around 6 MEUR recognized by Renewable energy related to an old development project. The proposed dividend of EUR 0.50 is in line with our estimate of EUR 0.49 and will be paid in two equal parts.

Private Asset Management’s development in the quarter was two-fold. In Renewable energy, the SolarWind 3 fund continued to grow and the non-recurring fees from the development project again demonstrated the team's ability to create value. The report for Other private asset management was again a lackluster read. There was no growth in revenue and, as expected, the result was negative. The numbers were marred by a write-down of 1.7 MEUR. Garantia continued its strong performance, and the insurance service result was fully in line with our expectations (3.3 MEUR). As expected, the guaranty insurance portfolio came down by around 4% as demand for residential mortgage guarantees remained subdued. Investment returns were better than expected and thanks to this, Garantia's result (4.8 MEUR) exceeded our expectations.

Much riding on bioindustry investments

There were no surprises in Taaleri's outlook for 2025. Of course, the main interest is in the success of the fundraising for the SolarWind 3 fund (ending 6/25), the exits of older wind funds and the own balance sheet bioindustry investments.

In the coming years, the stable development of Taaleri’s operating businesses is, in our forecasts, supported by non-recurring income (capital gains and investments). 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. We expect Garantia to return to stable growth as the housing market slowly picks up. Bioindustry investments are an important variable in the company's investment story, but their timing remains a question mark. Overall, we expect Taaleri to deliver stable earnings development in the coming years, with operating profit (EBIT) in the range of 30-40 MEUR (the result will fluctuate with non-recurring income). The dividend stream is reasonable, with the main focus of capital allocation on own balance sheet investments.

Value exists, but how to unwind it is unclear

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 conservative 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 also cheap in absolute terms (P/E 10x, EV/EBIT 6x).  A bolder view would also be justified, but from an expected return perspective, we see the time horizon as challenging, as it will take years to release value through bioindustry investments. 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.