From a positive perspective: The company is interesting, and there’s clear demand for its products. During the COVID-era construction boom, eco-wool was more often out of stock than available from retailers (this is anecdotal, based on following a few friends’ construction projects). The green transition is a clear tailwind for the company, and insulation material in, for example, house or renovation projects is such a small cost item that the price can easily be tens of percentage points higher than competitors, and people will buy it without batting an eye. As a bonus, those new product launches have strong growth potential. I also like that, in the initial situation, the company’s market cap and revenue are absolutely low, providing more room for growth.
Then, from a negative perspective: Why are eco-wool and other eco-products constantly out of stock? A positive explanation is that capacity is low, and the IPO funds will fix the situation, and sales will flow like a dream. A more negative explanation is what people here have speculated: raw material availability is a problem. For example, eco-wool uses old newspapers, etc. Printing paper is a sunset industry, and it’s hard to see the supply of this “raw material” increasing in the future. There’s no evidence of growth. The EBIT% is slightly under 10. Doubling this while achieving over 20% organic growth in the coming years seems quite… ambitious. Of course, Inderes’ forecast doesn’t quite reach that far. However, what makes me not subscribe is the valuation.
I’m inevitably comparing this to Orthex. It was listed with moderate multiples (roughly half of EcoUp’s P/E), moderate growth prospects, and reasonably good profitability. In that case, basic performance would have been sufficient for good/neutral stock development. With EcoUp, at this valuation (using EV/S and relying on it for a construction material manufacturing company with no track record of growth yet, tsk, tsk…) there’s no room for any disappointments.
Then again, from a positive perspective: Even if I don’t participate in the IPO, it’s quite possible that the share price development at the beginning of its stock market journey will be poor. This could later open up a good opportunity for ownership at a more moderate valuation.
Saint-Gobain Finland has at least coordinated the WOOL2LOOP EU project, which focused on the utilization of mineral wool waste. I wonder if other players have decided that it’s small money, so they don’t want to compete?
Keko Geopolymers’ website states:
In the best case, we can also manufacture products directly from materials produced by the customer. So far, we have utilized various steel industry slags, mineral wool waste, and recycled aggregates.
And considering these, on the other hand, those valuation levels…
I am still puzzled by the logic that transporting mineral wool, which has a light specific gravity, to Turku would be profitable, even if EcoUp’s reception fee was less than half of the landfill fee.
It certainly makes sense from nearby areas, but not from very far away. This new innovation cannot handle very large volumes.
And what do they do with the fraction that is left over from this process? They cannot utilize one hundred percent of the incoming wool waste. In addition, demolition wool is usually impure, meaning it has wood, plastic, and other debris attached to it.
My beer almost went down the wrong pipe when I saw the IPO’s valuation multiples. Because of this, I didn’t bother to research the company further, so it’s possible that the technology is excellent, growth will be achieved, and now you can even get such an excellent company at a bargain price. Circular economy is mentioned well over 200 times in the Inderes report, so there’s no doubt about the angle from which the company is being sold (assuming the story came from the company’s management).
The market value after the IPO, including the new shares issued at the subscription price, is EUR 67m. Is there any particular reason why the table uses a market value of EUR 52m, which corresponds to the number of shares before the offering multiplied by the subscription price?
The company’s market value before listing is EUR 52 million. In the IPO, the company will apparently receive EUR 15 million. Company + cash = EUR 67 million after listing (assuming all shares are subscribed).
The raw material flow for printing papers is naturally shrinking, but other wood fibers are also suitable for Ekovilla (I understand, for example, recycled cardboard). The tonnage of raw materials required by Ekovilla has not been disclosed, but based on sales and retail prices, I roughly estimate that Ekovilla’s production is not a massive material consumer; rather, raw material consumption is measured in a few tens of thousands of tons. Acquiring this amount of raw material should not be a huge challenge, considering Finland’s annual volume of recycled paper (not including cardboard) is about 200,000 tons.
Additionally, UPM’s Kaipola mill, which some sources say used up to half of the paper collected in Finland as raw material for newsprint, closed down at the end of last year. Of course, the closure of Kaipola has likely changed waste paper flows more broadly, but surely some of it has remained available for EcoUp’s presumably many times smaller territory. Against this background, I highly doubt that Ekovilla’s production would be halted or slowed down due to a raw material shortage. The price of raw materials may have risen, of course, but based on the IPO prospectus, sales prices have also been increased. Good demand and capacity constraints are, in my opinion, more likely reasons for potentially poor availability (an interesting observation in itself).
In our analysis, EV/S is only used for EcoUp’s technology side. The EV/S for the entire company is about 2x based on our current year forecast, while, for example, competitor Rockwool’s corresponding multiple is 3x. A relative discount for EcoUp is certainly justified (higher risk profile due to small size, more concentrated structure, and earlier development stage). And, of course, EV/S at the company level doesn’t really tell the whole story, but good methods for pricing the technology side are scarce.
Probably none. The core of the technology business is to sell these facilities across Europe, alongside larger waste streams than those in Finland. These facilities cannot be on EcoUp’s own balance sheet; instead, the commercialization of the technology is pursued through a technology company’s business model.
In my opinion, the role of the Tarvasjoki plant for EcoUp has been to serve as a pilot plant to verify the functionality of the technology and to further develop it. On top of this, it may be possible to build some kind of contract manufacturing business in connection with the plant, but a factory on EcoUp’s own balance sheet will not bring a massive scale or sustainable growth to the company. Of course, I would be surprised if the location of the pilot plant had not been positioned in such a way that the largest material flows in the country, i.e., those from the central growth centers (i.e., the Helsinki metropolitan area, Turku, and Tampere), could be utilized.
Our IPO research has largely been based on the pre-money price and the pre-money enterprise value. This is, as I understand it, also a common practice. This way, for example, there is no need to take a stand on the outcome of the offering. The share issue does not affect the company’s enterprise value; rather, the increase in market value resulting from the issue is theoretically completely offset (in practice, the costs of the IPO slightly reduce efficiency) as cash flows into the company’s coffers and net debt decreases.
How confident are they and what has the company commented on improving the fire rating? In my opinion, it’s quite a big red flag that it’s not suitable for high-rise buildings. Regulations usually only get stricter in these cases, and if they can’t manage it now, how will they in the future if regulations worsen?
The probability is really low, but if the fire rating can’t be improved and regulations get stricter, they might have to call it quits =).
I only know that regulations for buildings changed a few years ago, and that brought additional costs and hassle when fire stopping regulations for electrical/plumbing penetrations changed.
Did the company intend to expand into other product segments in the future, too? I was mainly thinking of, for example, pipe insulation and others.
Then, the turnkey insulation renovation segment – I don’t really understand this and would like more information if someone can shed light on it? =)
The reference to Koti Sun doesn’t work here in my opinion. Pipes need to be replaced every 20-40 years, but aren’t insulations eternal? In old (log) houses, sawdust, etc., was used back in the day, and I understand replacing them in certain situations, but the market for that is small and shrinking. Then, in some larger renovations, when structures are changed, blow-in insulation might be sucked out and new ones put in at some point. But in my more than 10 years in construction, I can’t recall many such occurrences. Of course, I could be completely wrong.
There are dry vacuum trucks in every locality, and of course, they are needed, but I feel the market is small, and I personally don’t see significant potential. Of course, one or two installation teams per province might succeed, but that won’t provide a significant source of income, and initial investments are high.
In my usual manner, I’ve penned an anti-analysis of EcoUp.
A couple of key takeaways: Almost no other competitor has managed to grow their business in the recent past, which lends some credence to EcoUp’s ambitious organic growth targets. The company also has sufficient cash for strong niche growth in the Nordic markets.
Furthermore, the industry itself should, by all accounts, have favorable tailwinds (even though it’s a challenging sector and “circular economy” is a buzzword, it’s so for good reason).
I will participate in the offering, and while I don’t believe EcoUp will reach its targets without acquisitions, I do believe it can grow much faster with the help of the offering than it has historically.
Of course, Europe has large volumes when it comes to waste. But what about the demand for insulation material? Energy efficiency regulations become looser the further south you go, and I doubt there’s much thermal insulation in buildings even at the latitude of Bavaria.
Time will tell how this plays out. Having observed waste and recycling efforts in my line of work, many good innovations have ultimately been buried as cost-ineffective.
Does Anttila know about management’s track record in growth companies? Valuation multiples require good growth in Finland for the next few years. This will not withstand a recession.
My two cents on the thread: Having worked in the construction industry for several years, I swear that the reason why eco-wool (Ekovilla) is constantly out of stock (as asked earlier) is that demand significantly exceeds production capacity → often leading to price increases and a decrease in buyers / So it hasn’t quite reached the general public yet… All in all, the problem is very bullish. Another point, when the discussion has been about the moisture properties of stone/mineral wool, my opinion is that there is no more unpleasant sponge, it absorbs everything but releases nothing. Every wood fiber or cellulose flake likely only improves the product’s moisture properties. I could be wrong, but this is my own view.
A bit off-topic,
This is not true. Mineral wools (stone/glass wool) do not absorb water capillarily, and hygroscopic moisture absorption is very low. Its defect tolerance (depending on the structure) is good, moisture performance is excellent, and mold susceptibility is low, if the structure is well executed and organic material, e.g., sawdust, has not been left here and there, which is an excellent substrate for mold and other microbial growth. There is decades of evidence for mineral wool’s good moisture performance, whereas the moisture performance of new natural fiber-based wood fiber and other insulations still requires extensive research, especially in future climates, and contains significant uncertainty regarding mold susceptibility.
Ekovilla’s (Ecoupin kamaa) products have been manufactured since the 80s, so surely some information about moisture resistance has accumulated in that time. Besides, if the wool gets wet inside the wall, it probably needs to be replaced regardless of the type of wool.
And various rubbish, from sawdust to lichen, has been used as thermal insulation in walls and floors in Finland for a couple of hundred years, so Ekovilla (ekovilla) is probably nothing more special than that.
Ekovilla seems to be more than just “wool.” Sometimes, people preferred to talk about “cellulose wool” because it sounds cleaner, or was it a product made from pure cellulose?
Ekovilla contains everything that is in the recipes for manufacturing various papers and cardboards, plus what is added during shredding, baling, and application to vertical walls. Who would dare to give a good summary of this? Ekovilla?
The company’s website contains an Ekovilla environmental report prepared by VTT, which states the following:
Does this matter? I don’t know.
Edit: Based on these discussions, I’d bet that if Fazer goes public, people here will start worrying about how chocolate affects people’s health in 10 years.
Excellent questions, @osakeoppilas! Below are my own views on the topics, though I readily admit I am not an expert in construction and materials technology. EcoUp’s CEO may be able to comment more precisely at this evening’s event if you ask him these questions.
According to the listing prospectus, a higher fire classification is expected to be achieved in 2022. Thus, the process is unlikely to be in its very early stages, and there seems to be confidence internally that the development work will succeed, as this assumption has been printed and approved in the prospectus (though this naturally doesn’t guarantee its realization). Without the expertise of a materials engineer, it is very difficult to assess how challenging it is to improve Ekovilla’s fire resistance to meet the requirements for tall buildings, and how much time the development work will ultimately require.
However, the achievable market for insulation products and services in Finland is 290 MEUR even with current information, and for example, in my own forecasts for the coming years, I have not assumed that Ekovilla would become an insulation material for tall buildings on a significant scale. Nor have I seen or heard any signs of tightening regulations regarding Ekovilla’s current applications, but I suppose that could be printed on an expanded risk list. However, I believe the probability of the risk materializing is quite small.
Based on my understanding and the listing prospectus, EcoUp does not have such plans.
My understanding is that at least not all insulation materials are eternal; their lifespan depends on the material (glass and stone wool have a longer lifecycle), construction techniques, and building maintenance. Based on Statistics Finland data, there are over 300,000 detached houses built before 1970 in Finland, which, in my understanding, may have quite varied insulation solutions in their attics. For example, roof problems, in my opinion, could have damaged especially old-fashioned insulation solutions (mineral wools have better moisture resistance when used correctly). The consumer concept primarily focuses on insulating attics with blown-in wool. Furthermore, it is also possible to improve the energy efficiency of buildings by adding/renewing attic insulation (i.e., achieve savings in heating costs and maintain the building’s value). My understanding is that merely adding blown-in insulation (the cheapest solution) is not always a feasible option; additionally, the condition of the old insulation and structures, as well as ventilation-related issues, must be considered to achieve a good result.
Naturally, some of the old detached houses will not undergo significant renovations, and some have already been renovated. According to the listing prospectus, EcoUp estimates the potential for its consumer concept in the coming years to be over 200,000 detached houses, which, in my opinion, corresponds with reasonable accuracy to the number of old detached houses in Finland. This is where, in my opinion, the potential for the consumer concept must originate. Of course, it is clear, as I wrote in the report, that an insulation renovation is not as critical for a homeowner as a pipe renovation.
Certainly. Even large competitors are not idle regarding this trend. However, the significant use of virgin material and the relatively energy-intensive production process of mineral wool, in my opinion, give them a certain structural disadvantage in positioning themselves within the circular economy trend compared to EcoUp. Additionally, EcoUp also collaborates with Paroc on the recycling of surplus material.
As far as I understand, the insulation material is not even intended to be transported particularly far, and this business will remain Finland-centric in the future. In this business, production must be relatively close to the customer because the product is bulky and inexpensive, and it is not profitable to transport it from Finland all over Europe. On the other hand, expanding material production (i.e., new factories) in Europe would require significant capital, and no such plans have been observed (fortunately). Some exports to Norway, Sweden, and the Baltics might be possible for insulation material, but these products would come from existing factories in Finland, and the flows would likely remain relatively small. The main point regarding insulation material, in my opinion, is definitely gaining market share in Finland.
The management team consists of a relatively young group for a listed company, born around 1980. The CEO and CFO appear to have been employed by companies related in one way or another to the main owner (KaskiPartners) even before EcoUp, so at least the largest owner seems to have confidence. Several members of the management team appear to have experience in small businesses, and growth companies are likely among them. Public company experience is naturally limited within the management team, but this type of expertise seems to be available on the board.
Boric acid is apparently added as an insecticide and for flame retardant purposes. Magnesium sulfate in this context, no information? In addition, when blowing into vertical walls, it is known that an adhesive is added along with water?
