Frans-Mikael Rostedt has written a new and comprehensive company report on Arvo following the H2 results.
We raise our target price to 83 euros (prev. €79), but we are taking a breather from the share and moving to a Reduce recommendation (prev. Accumulate). The fair value of Arvo’s investment portfolio continued to rise, and the cooperative dividend proposal was slightly higher than our expectations. Our sum-of-the-parts calculation rose slightly and the discount on the share relative to our calculation has continued to contract, but it remains at -32%. In our view, the clearest upside has mostly been exhausted, but the strong cooperative dividend of approximately 7% this spring (5-6% in the coming years) supports the expected return. However, the expected total return falls slightly below our required rate of return, as we believe many key holdings are now fairly priced.
Hanza released a really good report, at least in the eyes of the market. The share price is up about +16%. However, it is fluctuating wildly back and forth. A very nice thing from Arvo’s perspective. The value of its Hanza holding rose quite nicely today.
Arvo’s financial statements mention: “Arvo thus became one of HANZA’s largest shareholders with a stake of just under two percent. The 896,806 shares owned by Arvo are subject to a fixed-term lock-up period.”
Currently, Hanza’s share price is up +21 SEK, meaning from Arvo’s perspective:
896,806 x 21 SEK = 18,832,926 SEK in profit (repeating that the price is fluctuating wildly). Translated into euros, this is €1.76M.
Hanza is raising its dividend significantly from a year ago: “The Board of Directors proposes a dividend of SEK 1.50 per share (0.80)”. This is a great thing for Arvo and its owners, especially for those chasing the cooperative interest. Arvo will receive 1,345,209 SEK in dividends from Hanza, which at the current exchange rate translates to approx. €126,000.
Yeah, it seems Hanza’s results were to the market’s liking
Hanza’s dividend is reflected to some extent in Arvo’s figures, but a greater impact on earnings will come once the company reduces its holding in Hanza. As I understand it, the holding is recorded at acquisition cost on the balance sheet, so a substantial profit will be booked at the time of sale, and if Arvo follows its dividend policy, this will be clearly reflected in the distribution (osuuskorko). YTD share price increase approx. 20% and 12-month approx. 90%.
I couldn’t immediately find information on how long the company’s lock-up period (sitoutumisjakso) is regarding the sale of shares. Does @Frans-Mikael_Rostedt have more information on this? And if you dare to speculate, do you think Arvo will look to reduce its holding as soon as possible? The company’s share in Arvo’s investment portfolio is already quite significant due to the price increase, so reducing the position would be justified for diversification reasons alone.
This hasn’t been communicated externally, even though I’ve tried hard to dig for info In the BMK deal, lock-ups were up to 3 years, but shares are also released in stages at the 12-month and 24-month marks.
I personally give it a fairly high probability that Arvo would trim their position, because just as you said, the weight has grown quite large compared to Arvo’s typical weighting.
Great! The following figures might sound high at first, but Arvo should be able to achieve earnings of 10 EUR/share quite easily. And that wouldn’t even need to be a peak exit period (when it should make 15-18 EUR). Arvo achieves that 10 EUR/share with a return on equity of just over 8% (equity per share is approx. 120 EUR). In addition to strong dividend payments, the board should get share buybacks moving to address the overcapitalization.
In addition to the initial purchase price, an
additional purchase price of up to EUR 15 million may be
payable, depending on the economic development in
Leden. The additional purchase price was estimated in the
acquisition analysis at SEK 56 million (EUR 5 million), which
is discounted to SEK 53 million. During the third quarter of
2025, the estimated purchase price was revalued. The
reversal, recorded as other operating income, adjusted for
discounting, amounts to SEK 53 million
If I understand that Hanza report correctly, they haven’t yet reversed the provision for the additional purchase price of the Leden acquisition. They have only lowered it from 56 to 53 MSEK after Q3. Maybe something could still come from there. Arvo’s share of Leden was around 30%.
Arvo Sijoitusosuuskunta has sold all of its 896,806 shares in HANZA AB at a sale price of approximately 139.5 million Swedish krona (MSEK), which translates to a positive earnings impact of approximately 6.8 million euros (MEUR) for the current financial year. The final capital gain will be determined by the exchange rate difference specified upon the settlement of the trades.
And there go the Hanza shares. Looking at Hanza’s valuation, which at a quick glance is around P/E 30 (info may not be accurate), one has to be satisfied with the sale. The cooperative interest will likely be good next year as well.
Strong. It seems to mean that if it materializes like that or roughly like that, it’s already an EPS of about 6.5 EUR when corporate tax is taken into account. A strong start to the year and a good move. Additionally, the company has fixed-income investments etc., so it looks promising
The lock-ups expired quickly, and Arvo pulled the trigger even faster than my expectations. HANZA’s development has certainly been good, but IMO, expectations are also starting to get quite high. The valuation (with Tikr as the source) on a forward 12-month basis is at an adj. EV/EBIT level of around 14.5x, which is a fairly high level compared to history and contract manufacturing peers. Expectations for the company’s future profitability have also risen clearly, as EV/Sales (next 12 months) is at its historical high of 1.12x. On average, the level has been 0.70x in the 2020s.
High valuation helps in value creation through acquisitions, but I wouldn’t be surprised by some growing pains either, as the scale has already more than doubled compared to 2024.
I updated my view to positive also for the short term. I estimate that Arvo is now able to pay an average cooperative interest of 7.2% for the next three years. This strengthened outlook for cooperative interest, combined with a low balance sheet-based valuation and a good business trend, makes the expected return attractive. A steady profile, low valuation, and a well-diversified portfolio also stand out to their advantage, in my opinion, in the current volatile market, where average valuation levels have risen significantly.
I agree with Hanza’s valuation and that now was a good time to exit. I would say the estimate for the interest payout is a good conservative one, but it naturally depends on whether there will be other exits. Furthermore, thanks to its very strong equity ratio, the company could buy back its own shares, creating market liquidity without the dividend suffering. A fantastic exit and Hanza case overall!
Absolutely agree. In Arvo’s case, I would see it as very sensible capital allocation to start buying back its own shares. Especially when there are so many highly liquid assets. This would be a clear driver for narrowing the discount to book value.
I support share buybacks; it would make sense right now!
Is there an authorization for share buybacks? I didn’t find one at a quick glance. Even now after the news, volume is low and the spread is often wide. It would definitely improve pricing efficiency.
EDIT: Could the company form and the cooperative’s rules even be an obstacle here…
The corporate form does not restrict this, but currently the board does not have authorization from the cooperative meeting to acquire its own units. So, such authorization would be needed from the spring cooperative meeting
Exactly, I couldn’t agree more. This would bring liquidity to the stock and support EPS growth through cancellations if implemented for years to come. Might it even get the Chairman of the ‘Share Buyback Party’ interested in the stock? Let’s hope the board makes decisions that favor us all.
Arvo made an additional investment in Nordic Bites Group (a minority investment with Juuri Partners) to enable acquisitions and growth plans. At the same time, NBG is acquiring nine Subway restaurants in the Turku, Tampere, Nokia, and Salo regions, increasing the number of its own restaurants to just over a hundred. Last year, the company grew by 32%. I would assume that this additional investment is relatively small. However, the size or valuation was not commented on, but the full picture will become clear in the H1 report.
Maybe something could still come from there. Arvo’s share of Leden was around 30%.
