This company doesn’t have its own thread, which speaks to its inherent boredom. You buy, own, and forget it for 364 days at a time. On one day, you check the excellent dividends and growth percentages for the year (now 59%). Not sexy, no alpha-male vibe at all, just uncle-like contentment. I don’t recommend it to any thrill-seeking player.
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I don’t know how others feel, but eQ might be a bit slow with their announcements. I’ve been attending shareholder meetings for many years, and it’s been the right decision. You hear the whole story and future guidelines, and all the graphs at once. Larma & co just do such an amazingly good job that you can only applaud.
I’ve been on board since Amanda’s time, and I’m holding onto the shares tightly. Others can sell if you want to buy. I’m also pretty much in agreement with Astrix that something might be coming when the price and the stars are aligned. Is it Capman, Ålandsbanken, Aktia, or what.
And a tip for those interested in eQ. There’s often been a dividend dip in the spring and early summer, from which you can get eQ at slightly lower multiples.
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This is one of my favorite stocks. It’s number one in the financial sector (Capman is my second choice). I proposed it for the model portfolio in the autumn. Later that same day, though, Sauli gave it a “reduce” rating, so that was that. Capital returns are amazing year after year and dividends are pretty nice too. The price reflects its quality. On the other hand, “time is on the side of good companies,” as they say on the forum.
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Good opening, it was about time to get its own thread for one of the best-performing stocks on the Helsinki stock exchange. Perhaps a bit surprising that eQ is hyped so little, even though it has been very successful and the dividend yield has been high, which usually increases interest 
In my estimation, this is at least due to the industry; compared to Revenio, for example, it is much more difficult to create a big investor story. eQ might not even have tried, for example, the logo and website design are, in my opinion, even old-fashioned, not very sales-oriented.
The valuation is, of course, currently a bit challenging if no new growth targets are found. Today’s announcement about the launch of a residential real estate fund was surprising; I wouldn’t have thought they would still go into such “basic operations.” Of course, they can probably manage even that so well and cost-effectively that it creates value for the owners.
In addition to stock ownership, I became a customer of eQ in September when I diversified about 20% of my investments into their real estate funds (Healthcare and Commercial Properties). I recently remember Inderes being concerned about the recent performance of Commercial Properties. The Q4/2019 report just came out, and the return for Commercial Properties was exceptionally good for a real estate fund, 2.9%/last 3 months. The whole year probably won’t go at that pace, but for example, with an annual return of closer to 10% after expenses, I would expect sales of Commercial Properties to pick up.
Another interesting piece of news was the completion of the Lauttasaari school center, built and leased by eQ:
If projects like this continue, growth limits in Finland probably won’t be met immediately, and the return should also be satisfactory, given the expertise in real estate development.
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eQ is closing the Care Fund for Q1. The last time the same operation was done was in Q1’17. The background for this is the extremely high net subscriptions (EUR 80 million) in Q4 and the difficult situation in the care market. The care property market currently has an imbalance between supply and demand, as there are a lot of buyers and the slowdown in investments by care operators limits supply.
With this measure, eQ wants to protect investors’ returns. Although this has a slightly negative effect on forecasts, this straightforward and investor-centric approach is a very good thing for the company’s long-term story 
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Boredom continues again with ATH readings at 14.00e. Guesses for spring dividends? 5% would be “pretty nice.”
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Yep. It’s boring to watch it only go up 
Last spring’s dividend was €0.54.
For this spring, analysts are giving €0.58 and €0.6.
If things have gone well, eQ will certainly distribute generously, unless good acquisition targets have come into view.
Whatever happens, I’m happy. It’s not about the percentage - but the share price and the absolute euros.
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I don’t believe in a 5% dividend. That 0.58 or 0.60 is realistic. The result from the last quarter is sure to be strong.
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You can follow information on eQ’s private equity/credit funds here:
As the link shows, ‘during the new eQ era’, from 2013 onwards, the pace of PE fund launches has been brisk and fund sizes have grown linearly, accelerating all the time. This means that from approximately 2023-2025 onwards, one can expect not only a generous hand of annual performance fees from the funds, but also the return of eQ’s own capital with its returns (eQ’s own commitments were 3M/fund until 2016, and 1M thereafter). I feel that little by little some investors are starting to internalize this, and that is why the stock’s performance has been strong and accelerating. Not everyone has surely caught on yet. This partly explains why the management/largest owners are not at all interested in selling their shares.
Regarding PE funds, starting in a couple of years, the income streams are quite secure for the long term and, above all, growing for a long time, even if eQ does not sell any more (which is not very likely with eQ’s track record 
)
Another timely point is certainly that eQ and its Hoivakiinteistöt (Care Real Estate) fund is Finland’s largest owner of social infrastructure properties with assets of well over one billion euros, and when one looks at the price at which (and NAV premium!) Hoivatilat was delisted from the stock exchange, it is probably clear that a special investment fund always priced at NAV contains quite a lot of unrealized value. eQ certainly has plenty of options on what to do with the fund, some of which would have a huge impact on earnings.
This year’s EPS is likely to be around 0.7€ due to the returns of the Amanda IV fund, meaning a 14€ share price would be P/E 20 with this year’s EPS. The path is, in my opinion, open for an EPS of 1.0€ easily within 3-5 years, and from then on, as described above, EPS growth should at least be maintained or probably accelerate with the returns/profits of the PE funds.
One can read between the lines that my own shares will remain on hold, even though sometimes I really feel like cashing in profits. It’s just so damn hard to find an alternative to eQ, meaning a company where earnings growth is as predictable, the company has no investment needs, good management, 30% return on equity and a growing good dividend stream. Or tell me if you have found one? The acquisition option is of course an added bonus here, but in my investment philosophy, I don’t base my decisions on them.
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You nailed it 
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So, it came in at 0.62, which is slightly above my forecast. The future looks pretty okay, so I’ll add more during the dividend dip or at the latest during summer holidays when prices tend to lag. The risk of a buyout is always present when waiting like this. But this is what we’re going with. With the dividends, I hope to buy more EQ at prices below 14€.
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Alright, great, the last two pages of the report finally explain the dynamics of PE (Private Equity) funds’ performance-linked fees for the first time ever. For example, mandate positions totaling €677 million are missing from the tables, but it will certainly help investors understand the good cash flows to come.
“Private Equity funds and asset management’s assets under management were EUR 7,196 million (EUR 6,049 million), of which eQ funds accounted for EUR 1,609 million (EUR 1,420 million) and mandates for EUR 677 million (EUR 611 million). Assets under reporting services amounted to EUR 4,919 million (EUR 4,019 million).”
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This is why it has always been worth waiting for the dividend to be detached, because it seems that few, even professional investors, do not understand that leverage. There are still a couple of other leverages until 2025, and Inderes did explain these, but they didn’t seem to understand, maybe?
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If I understood correctly, the Amanda IV fund is expected to generate 3.4-4.0 million in performance-related fees. The company’s enterprise value is 530 million, so it shouldn’t have much impact on the valuation. Is there anywhere to see the performance of the other funds?
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Of course, the basis of this enterprise value is EUR 11.7 billion in assets under management, which are strongly growing, and the management fees (and performance fees) derived from them. The point about these future performance fees from PE funds, in my opinion, is that they come as a bonus on top of the normal twenty percent earnings growth, and when eQ is valued at an earnings multiple of around 20, the leverage comes from that. For example, an extra EUR 4 million in earnings is clearly reflected in the EPS when there are approximately 38 million shares.
It should also be noted that the Amanda IV fund, which distributes performance fees this year, is, first of all, less than half the size of eQ’s current PE funds, and additionally, its investment period has been, as far as I understand, roughly double the length compared to the investment period of the PE funds under the current 2013 → strategy. This is due to, among other things, the secondary allocations of the ‘new strategy’ PE funds, which flatten the J-curve, i.e., accelerate the payout of returns, and eQ’s significantly better position in the PE market, where history and long-standing relationships with managers are paramount. Furthermore, Amanda IV’s hurdle rate was 8% compared to the current funds’ 7%, meaning performance fees start accruing after that 7%.
eQ is currently raising over 200 million every year in new PE funds exclusively for its core strategy (lower-midmarket, Europe every other year, USA every other year), plus an additional amount for its secondary and credit funds, roughly the same. The size of the funds at the core of the strategy has thus doubled since they began to be actively launched and raised in 2013 under the current model, meaning the number of eQ’s ‘regular customers’/mandate investors has grown significantly over seven years.
With this information, anyone skilled in Excel can get a rough idea of the earnings leverage just from the PE funds, and this is on top of the EUR 677 million PE mandates, whose fee structure eQ apparently does not disclose in more detail (or does someone know?).
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I’ve always adjusted one-off incomes/expenses from the result so that it wouldn’t even affect my own EPS. If similar returns started coming in regularly, then the situation would be completely different. There is certainly an interesting opportunity in those performance-based fees.
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Yeah, my base case at least is that all funds will generate returns, meaning there should be annual cash flow from 2022 onwards. If you know the PE market at all, things would have to go pretty badly if you get to choose the best managers for your fund in Western Europe / North America and couldn’t achieve an IRR of over 7% in those target markets and fund sizes. A basic scenario is 10-12% IRR, and if things go well, more, or if they go poorly, less, but that 7% hurdle rate is no impossible feat to exceed; it’s what one would call standard performance.
Then some PE funds investing in Eastern Europe, Asia, etc., are difficult to predict and a completely different matter, but eQ doesn’t do those.
If I looked correctly, Inderes, in its latest (quick) company report on eQ, estimated the performance fees of the Amanda IV fund to be 3.7 million euros and marked the entire sum as income for this year, 2020.
From eQ’s financial statement release outlook section: “We are reporting for the first time our estimate of when our private equity funds will start paying performance fees. We believe this will help our shareholders and analysts analyze eQ’s future returns. These estimates can be found on page 29 of the financial statement release. We estimate that the Amanda IV fund will start paying performance fees towards the end of this year.”
In my own Excel, I didn’t dare to put the entire performance fee of Amanda IV for this year but rather spread it over several quarters, starting from Q4/20. With my system, eQ’s annual earnings growth becomes slightly smoother than Inderes’.
Background. I primarily use Inderes’ services for peer support. I don’t really care for its recommendations, 12-month target prices, or other nonsense. More precisely, I first analyze my own forecasts in Excel, which I then compare to Inderes’ forecast. The main point of the comparison is to ensure that my own forecast doesn’t contain any “blunders.”
In any case, for those of us who follow eQ more closely, it’s probably time to do our homework, including Inderes’ analysts.
I hope that in its next, hopefully soon-to-be-published comprehensive report, Inderes will explain to us clients the logic of eQ’s private equity funds’ returns, for example, the performance fees (including multipliers) for eQ, i.e., the management company, from a fund that has entered the profit distribution phase, and consequently, potential performance fees for eQ’s PE team. Or do the performance fees flow directly to the bottom line of the income statement?
My understanding is that eQ’s PE fund’s performance fees are recognized as income only when its target private equity funds concretely pay money (after exceeding the hurdle rate) to eQ’s PE fund (and thereby also to the parties invested in eQ’s PE fund).
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I completely agree with this; PE profit distribution will become a significant revenue stream later this decade. This revenue stream will also be pleasantly predictable in the longer term, due to the faster launch pace of funds you mentioned.
“Another timely point is certainly that eQ and its Hoivakiinteistöt fund is Finland’s largest owner of social infrastructure properties with assets well over one billion euros, and when we look at the price (and NAV premium!) at which Hoivatilat was delisted from the stock exchange, it is probably clear that a special investment fund always priced at NAV contains a considerable amount of unrealized value. eQ certainly has plenty of options for what to do with the fund in question, some of which would have a huge impact on results.”
There is clear hidden value in the Hoiva fund; if the fund’s properties were sold now, they would fetch significantly more than their book value. However, it’s good to remember that the money belongs to eQ’s customers, not eQ. Thus, eQ would only receive its performance-related fee from this excess return. It’s also good to remember that the more eQ realizes this hidden value, the weaker the fund’s future returns become => the more difficult it becomes to sell the fund.
Practically, what I believe will happen is that the Hoiva fund’s portfolio’s net rental yield will continue its gradual decline due to value appreciations (and new properties with lower yields). This will keep the fund’s return level attractive for new sales, and at the same time, it will enable moderate performance-related fees for years to come. However, it is good to remember that our forecasts for Hoiva’s performance-related fees are 2-4 MEUR in the coming years, while Hoiva’s management fees are 15-20 MEUR. The point here is that the impact of Hoiva’s hidden value on eQ’s results is ultimately quite limited when compared to the fund’s recurring fees.
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I have the same base case regarding the Care Fund. Of course, another option would be to liquidate the fund if the NAV premium were sufficiently large, say around 50%. In that case, the fund would record over 500 million euros in one-time profit (as the fund’s NAV is now approximately 1010 million euros), from which eQ would receive a performance fee (20% for annual returns exceeding 7%). According to my calculations, this would mean a performance fee of just under 90 million euros for eQ, which would have a huge EPS impact.
Investors trust eQ’s real estate team and expertise, so I believe that by selling the properties, for example, to a large international investor, returning the capital and profits to the fund’s unit holders, and collecting huge performance fees themselves, eQ would have a good opportunity to immediately launch, for example, a limited partnership (Ky) structured social real estate fund with excellent return expectations, which could also be leveraged more than a special investment fund, where the maximum leverage is 50%. I believe that a significant portion of the clients’ capital would return to eQ’s management in one way or another, so such a “flip” is certainly not a far-fetched idea, and I bet it has at least been on the drawing board at some point.
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