Frans and Aapeli have written their preview comments on Arvo’s H2, which will be published on Wednesday.
Arvo will publish its H2 report on Wednesday around 9 AM. Based on previous reports, we expect the cooperative to report its results only at the group level. In H2, Arvo made two significant divestments from its direct equity investments (Leden Group and Champion Door), the capital gain from the latter of which will be recorded in the H2 results. In addition to the cooperative interest proposal, the most interesting aspects of the report are the development of the target companies and comments on the development of activity in the unlisted market. We expect the cooperative interest to grow from last year to 3.6 euros per share, which corresponds to an approximate 6.7% cooperative interest yield.
Loihde and Partnera offered a dividend surprise, let’s hope Arvo follows suit. The company could certainly afford to distribute more than that 3.6 euros, especially now that there have been profitable exits.
Pohjanmaa Arvo Investment Cooperative’s financial year result shows a profit of 5,203,065.54 euros. The Board proposes that 4.50 euros per share be distributed from the cooperative’s profit as interest on cooperative capital.
I was wondering last night what had raised Arvo’s share price so much in recent days, but that cooperative interest proposal, which was much higher than forecasts, explains the matter, meaning those who received insider information just got to trade a little before others.
Frans and Aapeli have already managed to write quick comments on the results as well.
Arvo published its H2 report in the morning, the biggest surprise of which was a higher-than-expected dividend proposal of 4.50 euros, which corresponds to a yield of approximately 7.7% on the current share price. Arvo commented that it sees a clear revitalization in the market regarding mergers and acquisitions and divestments. In H2, Arvo made two significant divestments from its direct equity investments (Leden Group and Champion Door), the capital gain from the latter of which will be recorded in the H2 results. In unlisted target companies, development was, in our estimation, varied during the year, but we are seeking further visibility into the development during the day.
Those are strong claims. I myself was on the buying side and certainly don’t have any insider information. Small share turnover, however. The situation just looked too good relative to the risks. Information about those divestments has been communicated a long time ago, and Arvo has been completely forgotten and undervalued for a long time. Lapwall and Partnera share prices have been ticking upwards. Interest rates have come down…
You put it well that the divestments have been known for a long time, but they didn’t really boost the share price. A significant increase in the cooperative interest rate compared to forecasts was only published this morning, but the share price nevertheless rocketed already yesterday and on Monday. The trading volume has certainly been small, but I don’t really believe that even small investors would be willing to pay a price significantly higher than the long-term share price without better information about a sharply rising cooperative interest rate.
Generally speaking, these smaller companies are more susceptible to information asymmetry. Due to low trading volume, “leaks are more visible” in the share price. I’ve heard these accusations from time to time, most recently regarding WithSecure and Ponsse when looking at share prices before M&A or financial statement releases.
NOTE! I am not implying a leak of Arvo’s 2024 financial statement and dividend proposal in advance, but one can certainly gain some information advantage, for example, by working in an associated company.
This should be accepted when investing in these companies, and one can even achieve excess returns in small companies if one’s own analytical work sparks an idea, as Juippi2 and Blackparta, for example, have demonstrated before the financial statement release. For me, this has been under observation, but the courage to ‘step on the gas’ has been lacking, as the company structure and the low ownership by management have raised some question marks.
Arvo Sijoitusosuuskunta, which made two significant divestments at the end of the year, surprised investors by also proposing a hefty cooperative interest. Arvo Sijoitusosuuskunta’s CEO Jari Pirinen commented in an interview with analyst Frans-Mikael Rostedt.
Topics:
00:00 Introduction
00:26 H2 highlights
02:10 Associate company’s result in the red
04:11 Good financial income for the parent company
06:07 Additional investment in Ruoto
08:15 Additional investment in Multirel
10:02 Divestment from Champion Door and Leden Group
13:39 Hanza as part of the investment portfolio
14:47 New investment project pipeline
16:36 Signs of recovery in the capital market
Frans and Aapeli have prepared a new company report on Arvo after H2.
Arvo’s H2 report figures were quite unsurprising, but the cooperative interest proposal clearly exceeded our expectations. We slightly raised our longer-term earnings and cooperative interest forecasts. The strengthened cooperative interest yield outlook (7-9% yield) in the coming years, successful exits, and a recovering capital market, in our opinion, support the unwinding of Arvo’s significant balance sheet discount.
Juho Toratti has written about Arvo for SalkunRakentaja.
The P/B ratio, which describes the cooperative’s market value in relation to its equity book value, is approximately 0.5. The valuation is thus clearly below the company’s equity book value. Arvo’s market value also appears low when compared to its investments. The fair net value of the cooperative’s investment portfolio is approximately 2.2 times the company’s market valuation.
The company has a solid balance sheet. At the end of the review period, Arvo’s net gearing ratio was only 4.8 percent. The group’s cash assets at the end of December were 5.4 million euros, and in addition, the group had unused credit limits of 9.0 million euros. Arvo’s liquidity is good.
NOTE.
IR-window is a channel for SalkunRakentaja’s and Sijoittaja.fi’s corporate partners for background and analytical articles, as well as other interesting investor information. The article is part of a commercial collaboration with the company. The article does not contain investment recommendations.
With the rise in HANZA’s share price, the basic purchase price rose to 11.9 MEUR, and the capital gain from the transaction will be 7.6 MEUR. We previously expected the transaction to generate a capital gain of approximately 6.6 MEUR, so there is some upside potential in the 2025 earnings forecast. Half of the purchase price is paid in shares, due to which Arvo will become a significant shareholder in HANZA.
A potential additional purchase price of 4.6 MEUR is based on Leden Group’s financial performance for the 2025 financial year. In addition, the number of HANZA shares received by Arvo as part of the purchase price may increase by approximately 93,500 shares (800 TEUR) based on HANZA’s share price development in 2025
On Tuesday, Meriaura’s market value would be approximately 800 million euros, including the merging Summa Defence. Meriaura’s share price has more than quadrupled since the beginning of the year. The share has seen sharp upward days, but on Tuesday afternoon, Meriaura’s share price was down by about 9 percent.
Among the largest owners of the new company are, for example, members of the investor group Aktiiviomistajat. PM Ruukki Oy is a company owned by Markku Kankaala, and Oy Haapalandia Invest is Martti Haapala’s company. Kankaala and Haapala were involved in a similar arrangement where the car dealership Wetteri went public through the Soprano merger.
However, investment funds or other institutional investors have not significantly invested in the new defense industry company.
According to the prospectus published by Meriaura, Pohjanmaan Arvo Sijoitusosuuskunta owns approximately 92 million shares and BaltiaCap Latvia Venture Capital Fund approximately 61 million shares. United Bankers also holds approximately 121 million Summa Defence shares.
Exactly so, to my knowledge. Summa Defence acquired Lännen MCE Oy last November, to which Arvo had provided bridge financing, and this has now apparently turned into shares. Thus, Arvo became one of Summa Defence’s largest owners. Probably through a rather complex ownership arrangement
Arvo indeed had 1 MEUR in bridge financing for Fifax, which has now entered corporate restructuring. This was supply financing provided for ramping up and delivering the current capacity. I spoke with the company’s CEO Pirinen, and he did not seem hopeless about the loan. Naturally, at present, it is very difficult to say what will happen to Arvo’s debt. This bridge financing corresponds to approximately 0.9% of our sum-of-the-parts calculation.
Here is a comment from our fish analyst Lohi on Fifax’s situation.
