I decided to open a thread about Cibus before tomorrow’s Q1 report release. The company is quite poorly known in Finland, even though it is a relatively large listed real estate investment company that owns only Finnish properties. Even on the Inderes.fi service, it only has 278 followers, which is not a high number. What thoughts does the company evoke? The dividend yield is high, but certainly not without risks. Attached are Inderes’ publications about the company:
A bit of an ad for Cibus, well, you have to do something for a living…
In Ovaro’s case, too, there was a high dividend yield, which is like flypaper for Finns.
In this case, of course, asset revaluations are not done at the same pace, but there is actual cash flow, which is quite good.
I myself am a bit afraid that the lemon might be squeezed dry before the exit.
I want at least a NAV discount, and it’s not in sight.
The location of the properties was also expressed a bit vaguely in the annual report, and they seemed to try to make Swedes believe that everything was in prime locations, even though that’s not the case.
There are also these funds that can be bought at a NAV of one. For example, EQ has yielded 9.3% per year for the last 3 years…
edit:
Correspondingly, in our opinion, there is room for a downward adjustment in the current balance sheet-based valuation level of the share, considering the peer group and the historical valuation level of the share, and thus investors’ return expectations in the short term rely purely on dividends. -Report
Our positive view is supported by the acquisition option related to the share, the value of which we consider positive. However, in our opinion, the possibility of an acquisition is not in itself a sufficient reason to justify a positive recommendation for Cibus’s share. -Report
Lately, these ventures have tended to sail on the stock exchange below NAV, right? Then they were bought at or slightly below NAV, right? How do we now expect this to be bought above NAV? I can’t understand it - not in any way.
Compared to its peers, Cibus’s business is, in our opinion, less risky and more stable than average. Cibus’s business is not significantly dependent on economic cycles, e-commerce does not, in our estimation, threaten the company’s business, and furthermore, the risk associated with the solvency of Cibus’s tenants is very small. Furthermore, Cibus’s growth prospects are currently, in our opinion, reasonably good. Due to these factors, a higher valuation level than its peers could be justified for Cibus. -Report
Those lease agreements are pretty concentrated on a few parties. The contracts are also not terribly long, and it might be impossible to find new tenants for empty properties, in which case a bulldozer must be called in.
I am quite dissatisfied with that peer comparison once again, especially regarding Finland, on the basis of which this valuation has been deemed “appropriate.”
I would say that the purpose of that target price is to leave a good taste in the mouth of a new customer from Sweden, and the correct valuation would be max. 0.9 p/NAV, and I myself would not be willing to pay even that, so 0.8 p/NAV would perhaps be a suitable price for this company after all. This is also quite a hot dog stand vs. peer group, so a discount should be given for that too, as you have done for example with Titanium.
Even if you disagree with the views, all comments are welcome! -Kinnunen J.
Tack så mycket och…
…Summa Summarum: I strongly disagree with the correct valuation once again.
Last September, Victoria Park, a real estate investment company listed on the Stockholm stock exchange, was acquired at a 16% premium above its EPRA NAV. A similar valuation level would imply a valuation of approximately 12.9 euros per share for Cibus, or about 134 SEK per share.
Could you please elaborate on why you are dissatisfied with the peer group comparison? The peer group includes all Finnish and Swedish real estate investment companies for which consensus estimates are available. Additionally, it contains one listed company from Norway. At least an effort has been made to make it as objective as possible.
Customers and pleasing them have no effect on where we set our target price. We have over 80 paying customers, and if someone leaves because they think the target price is wrong, then so be it. Independence, reputation, and credibility are much more important to us than a single customer relationship. Mikael has written well on the subject, for example, here: Disclaimer - Inderes
This is a bit off-topic for the thread, but I have to mention it. It’s strange that the legends about pandering and “always giving a buy recommendation” are still so strong. Even now, among corporate clients, 38 have a positive recommendation and 43 have a negative one. In principle, I understand that the tin foil hat is on tight when talking about money, but I encounter this insinuation so often, and no broader examination actually supports the claim.
There are differences among real estate investment companies, and I understand the premium in Victoria Park’s case, as it involves apartments in growth centers. I also understand a small premium in care properties, which has been seen recently. Victoria Park’s NAV also rose by 20% this year, as its comrades “slightly” renovated properties, leading to an increase in value.
I do not understand the premium for commercial properties.
I read the report a bit poorly here, as I quickly skimmed through it and thought that the price was mainly influenced by Finnish companies. I don’t think it’s very good to compare this to care properties, as their premium is justified. Kojamo’s residential business is also, in my opinion, on a much more solid footing than commercial property ventures. I did eventually arrive at the correct peer group, but I’m not sure if commercial properties can really be compared with care properties or apartments.
I would consider this significantly riskier than, for example, Kojamo, and if Kojamo is trading below NAV, then this certainly shouldn’t be floating above it. Care properties also have a high concentration on certain clients, so it falls into a similar category as this company, but they also have truly magical development activities and a trend of the coming decades supporting them.
Yes, I have indeed read that.
In my opinion, the relatively high yield on Cibus’s properties indicates risk compared to, for example, Kojamo’s corresponding figures. Property values also do not rise in the same way as with Kojamo, which focuses on 7 growth centers, or Sato, which is 80% concentrated in the Helsinki metropolitan area.
I am personally concerned, for example, with UB Nordic commercial properties and EQ commercial properties, that if even a couple of buildings become empty, it’s not a good situation at all. Many of Cibus’s properties are also very old, so they are probably slowly reaching the end of their useful life.
With these specs, I would consider a target price of 129 SEK to be completely utopian, and the risk/reward does not align even remotely. The quality of the properties is closer to Ovaro than Kojamo or Sato. By the way, Ovaro is not in the comparables at all, even though it would be a better comparable for this hot dog stand than those big companies?
Sponda and Technopolis would also be closer, but commercial properties should be compared to other commercial properties. Other industrial and similar lease agreement companies are also acceptable. Surely, these can be found in Europe.
This is about a slightly different kind of opening gambit when one starts conquering Sweden, so it certainly shouldn’t start with a sell recommendation. It would actually be nice to be able to argue without immediately bringing out the tinfoil hat card, which was perhaps considered a good joke in the early 2000s. It would be nice to hear your thoughts on its value, or have you outsourced your thinking to Inderes?
This forum apparently doesn’t become “like the Kauppalehti forum,” because everyone here likes to agree with the Inderes guys, and last time I was wished well on other forums when I disagreed, and now a tinfoil hat is being put on.
For example, in Kauppalehti, 95% knew that Ovaro was worthless 5 years ago, and that prevented quite a few friends from losing their money, so I would see different opinions as a constructive factor…
I generally agree with you regarding normal commercial properties. However, I believe a premium on NAV is possible here for similar reasons that have led to premium prices being paid for care properties in portfolio transactions in Finland in recent years. Grocery store properties are a niche segment that is difficult to invest in on a large scale in Finland because there are hardly any properties for sale, and assembling a large portfolio is expensive and slow. The big picture is that there are only 6 billion euros worth of these properties in Finland. About half of these properties are owned by Kesko and S-Group. Three players own just under 2 billion euros worth: Cibus, Mercada, and Trophi Fastighets. The remaining approximately 1 billion euros are owned relatively dispersed by other parties. Large investors do not have access to this market, and therefore, they might be willing to pay a portfolio premium for Cibus’s portfolio over the price at which Cibus’s properties are currently valued (with a net yield requirement of 5.8%). And I acknowledge that Cibus’s entire portfolio does not consist of grocery store properties, but the majority does.
Sponda and Technopolis were indeed delisted from the stock exchange; otherwise, they could have fit into the peer group. The peer group could be narrowed down, but the main reason we used this broad peer group is that Sweden has a clear listed real estate sector, whose valuation level, especially on a balance sheet basis, is astonishingly consistent. The sector’s stocks are seen as having similar return/risk profiles and have historically been priced close to each other. We expect that in the future, the markets will also price Cibus through the multiples of this peer group.
I personally believe that Sweden will be conquered in the same way as Finland. That is, by acting with investors and the community first, and by offering independent analysis that has value. I don’t believe we will gain any foothold in Sweden if we immediately lose our reputation and every local investor notices that Inderes only gives positive, bought recommendations. This would be a very short-sighted self-inflicted wound.
One would need to examine this case by case to determine whether paying a premium is worthwhile. Looking at the numbers from the Quartz report, I’d say I wouldn’t pay it, but we’ll see. Sometimes I’ve been wrong… Precisely because these properties can’t really be used for anything other than retail operations, the yield requirement is quite high. In my opinion, the risks that vacancy in such rural areas might cause haven’t been fully accounted for. I also don’t know how good the locations are in Southern Finland.
These properties are located in Finland, and in their sales pitches, they talk about expanding to other Nordic countries. In my opinion, in that case, the reference point should rather be the prices of Sponda and Technopolis than Swedish valuation levels.
Furthermore, the average maturity of lease agreements is nowhere near the level of Hoivatilat or Titanium’s care properties.
That’s not how it works either, but almost always, the initial recommendation is positive. This almost seems to be included in the purchase price. Then later, the tune can be changed, like, oops, we were a bit over-optimistic.
For example, weren’t the warning signs already visible at this stage, as in many other cases? Of course, it’s possible my memory is a bit selective.
We initiate coverage of Lehto Group with a buy recommendation and a target price of 9.5 euros.
During its short history as a listed company, the company has grown significantly
stronger and more profitably than the industry in cyclical construction markets due to its business model. However,
due to the construction market upturn in recent years, the company has now, like other
construction companies, started to suffer from profitability problems and growth pains.
The high expectations placed on the company’s stock met the uncertainty of the construction cycle,
and now, to restore confidence, the company must be able to prove
the effectiveness of its competitive advantages to the market again. -Initiation of Lehto’s analysis
It would be nice to get statistics on how many companies Inderes has started coverage with a negative recommendation versus a positive one.
A natural explanation for this would be that companies are aware of their own value, and when a company is undervalued, it buys an analysis so that the undervaluation is corrected. If Inderes values the company at the same value as the company itself, the result is a positive recommendation.
The Lehto example already disproved this theory. Lehto was certainly not undervalued. Many examples of this can be found in failed recommendations. Inderes has often had an overly positive belief in management’s pronouncements, I have noticed. GF-money, Enersense, and Ovaro (twice) are the most striking examples. Hopefully, this one doesn’t fall into the same category.
Rather, Cibus is buying the analysis because the main owner wants to get rid of the shares at a good price before it hits the fan itself, and wants to generate hype among Finns again with a huge dividend yield, because it knows that the actual operations don’t really interest Finns, but a high dividend yield, with which Finns like to justify even Nordea’s (Finnish bank) purchases. According to empirical research, many don’t even understand anything about business operations, but simply do what Inderes tells them to. In Ovaro, the biggest problem was that they only relied on management’s pronouncements and their estimate of the value of apartments, and JLL (Jones Lang LaSalle) did not, in my opinion, provide significantly better estimates, but rather gave overly positive estimates of the value of houses in need of demolition. All these properties should also be thoroughly examined to be able to say what the company is really worth. For example, Ovaro fudged things by using fancy terms, such as the Helsinki region, which included practically everything within a 100 km radius of the railway station. I haven’t found property data with a quick search, as one usually finds from these real estate companies. It’s not very difficult or expensive to set up a tin shack in the middle of nowhere and get huge rental income if you happen to find a tenant.
This is totally off the cuff, hopefully our digital team/chief analyst can provide more precise data on this…
Over the past few years, we’ve roughly started coverage on one new company per month (maybe a little less).
I just looked at our coverage initiations from the last year.
Those that started with a sell recommendation included Sievi Capital and SSH.
Reduce recommendations at the start of coverage included Terveystalo, Endomines, Tallink, Aktia, VMP, and Wulff.
There, one can vent more about Ovaro, as seems to have already started happening.
This thread discusses whether Cibus is a good investment or not, and Inderes’s other recommendation history should not influence it one way or another.
The most puzzling aspect of this acquisition option is why it was initially taken public and not immediately sold to the parties operating in this sector, especially if they are willing to pay a premium? I don’t see any other reason for going public than the principal owner cashing out this way, as it seemingly didn’t work otherwise, because growth isn’t being sought, and everything is intended to be paid out as dividends. The portfolio has also been assembled by buying properties elsewhere.
Inderes’s history in real estate investments is, in my opinion, quite relevant, so I would strongly disagree with this.
I have argued the matter otherwise and haven’t used any personal attacks. Here, dissenting opinions were requested, but now they cannot be comprehensively justified?
Real estate funds Sirius Fund I Grocery and Sirius Fund II have today sold all their properties to the newly established Cibus Nordic Real Estate AB (“Cibus”). Cibus will be listed on Nasdaq First North in Stockholm on March 9, 2018. After the transaction, the funds will continue to own a portion of Cibus’s shares. The portfolio consists of a total of 123 grocery stores, with a combined area of 437,830 m2. The largest tenants are Kesko, Tokmanni, and S-Group, which together operate in over 90% of the properties. The portfolio’s value is 767 million euros. Sirius Fund I Grocery and Sirius Fund II were established in 2015 and 2016 with the goal of assembling a large, cohesive grocery store portfolio. The portfolio was created through 26 separate, smaller transactions. During the ownership period, several lease agreements have been renegotiated and the portfolio improved. "This transaction leads to an excellent outcome for both funds and their investors. With the sale, the funds’ business plan has been fully implemented as planned - Cibus March 7, 2018
Somehow, this reminds me of the assembly of Ovaro, if anyone still remembers. A lot of junk is dumped into one pile and put on the stock market at a hefty price. A quick exit, and because it worked so well, a little more junk can be dumped for shares, which are then immediately sold off, because it’s known that the stock is worth more than the properties.
Yeah, I was unclear. In this thread, you can, and absolutely should if you feel like it, express criticism and differing opinions about Cibus, and other companies in the sector when they are so closely related.
But when the discussion concerns all our initiation of coverage, let’s move that discussion to the recommendation thread. This way, this thread stays compact.
Yeah, it’s just a side plot in this saga, so it doesn’t matter that much. It did nicely heat up the Inderes guys.
I honestly can’t get over the fact that a couple of years old company, cobbled together from almost 30 parts, is recommended significantly above NAV. This, in my opinion, doesn’t align with the risks you usually see in such cases, and I greatly wonder about such an expensive target price, which, in my opinion, hasn’t taken any risks into account. If the risks were removed and your normal valuation criteria were maintained, then its value would be at least P/NAV 2.
In the past, high prices were justified by “bulk discounts” which then didn’t actually exist.
Here, it’s justified by, among other things, an M&A option, but why didn’t Trophi Fastighets or Mercada buy some of those 26 portfolios earlier? Why would they now buy them in bulk above NAV, when Cibus presumably acquired them below NAV?
I strongly disagree with Cibus’s valuation and the price that should be paid for it.
This is a good point and perhaps the strongest argument against the probability of an acquisition. Cibus has certainly mapped out buyers for its portfolio before and still decided on a stock market listing, most likely because it estimated it could get a better price for its ownership through the listing. This is also mentioned in the report on page 32. However, one must consider what has happened in the markets. Typically, the listing process begins a year or a year and a half before the actual listing. This means that when Cibus listed in March 2018, the decision to list was likely made in the fall of 2016 or even earlier. Since then, the market situation has changed significantly; interest rate expectations have decreased, and real estate transactions in the Nordics have risen to record levels. In many ways, real estate has become a more attractive investment target for large institutions. This is one of the reasons why an acquisition is considered possible.
However, this is just a detail, and this acquisition option is not an essential factor behind the recommendation. The matter is brought up in the report: “We estimate that Cibus’s share has an acquisition option, which is positive in value. However, in our opinion, the acquisition option alone is not a sufficient reason to own Cibus’s share due to the uncertainty related to its realization.”
