Ilkka is quite a character, those with voting power in Ostrobothnia aren’t very interested in unlocking value.
It would be an easy task to conjure up (6.09-3.04) x 25.45 = 77.6 MEUR in value for shareholders, the pieces are that clear.
Sum of the parts 6.09 EUR/share, price exactly half of that, i.e., Ilkka 2 right now is 3.04 EUR.
-holding Alma listed shares worth 4.0 EUR / Ilkka share, and block trades in Alma were made a couple of weeks ago at 12.00 / 11.42 / 11.30 EUR. In this sum of parts, a value of 11.35 EUR / Alma share was used, which is the current price.
-debt doesn’t burden Ilkka either, not as an expense or a risk; net cash is 35 MEUR, i.e., 1.38 EUR/share.
-Ilkka’s own businesses, i.e., Media Services (the newspaper Ilkka-Pohjalainen and local papers) and Marketing and Technology Services (especially Liana Technologies, where >50% of revenue is SaaS), are moderately valued in the sum of parts, no values pumped up to massive expectations by steroid bulls.
-Media 0.18 x 25.45 = 4.6 MEUR valuation for this zero-result newspaper drag. Revenue approx. 25 MEUR.
-Marketing and Technology 1.22 x 25.45 = 31.0 MEUR. Revenue approx. 31 MEUR.
-group expenses -0.89 EUR x 25.45 = -22.7 MEUR valuation for the maintenance of this value concealer. Wow!
“Corporate expenses” at a present value of €23M; I assume this means central administration & supervisory board expenses from now until eternity, discounted to the present day.
In practice, @Petri_Gostowski assumes here that the corporate administration cannot be dissolved and the supervisory board will continue even into the next millennium. This is, of course, the correct conclusion when assuming the company continues “as is”.
If a “sum-of-the-parts” analysis were built around a liquidation scenario, there would certainly be costs from winding down the corporate administration, but never at that €23M level. In this scenario, deferred tax liability should also be taken into account. It exists in the whole, even though, for example, the Alma ownership can be realized tax-free.
If we look at the company’s reported operating profit (see image below), we can see that in addition to the two operational business segments, these unallocated items are reported as one “segment”. In practice, it includes expense items that are not allocated to the operational business units. A precise breakdown of what it contains has not been provided. However, I would assume it includes standard administrative expenses ranging from management compensation to certain property costs, etc.
I have assumed an average scale of 1.6 MEUR for this, for which a net present value has then been calculated in the sum-of-the-parts valuation, as @Bensatankki mentioned.
We continued reviewing Ilkka’s extensive report over at inderesTV. Capital allocation is said to be one of corporate management’s most important, if not the most important, tasks, and in this regard, Ilkka is a very interesting case study, as we discussed further at the end. Let’s not draw a final conclusion yet on how this will turn out.
Topics:
00:00 Introduction
00:20 Ilkka in brief
02:16 Traditional media in the midst of transformation
05:10 Realizing the profitability of marketing and technology services
09:20 M&A and strategy
10:42 Probability of selling the media business
14:03 Everything boils down to the sum of the parts
Ilkka will release its Q3 report on Monday afternoon, and here are Pete’s preview thoughts.
We forecast the company’s revenue to have taken a slight step back from the comparison period, which we also expect to have contracted the adjusted operating profit from own operations compared to a year ago. The company has guided that the revenue from continuing operations for the current year will remain at the previous year’s level or decrease slightly. On the other hand, the company estimates that the adjusted operating profit from own operations will rise from the previous year. Our forecast for the result is at the previous year’s level, i.e., below the level of guidance. The comprehensive report on Ilkka we recently published is freely available at this link.
Growth struggled more than expected, but profitability was instead better than expected and guidance remained unchanged. This better-than-expected profitability came from the strong profitability of Media Services. I’ll need to look into whether there’s something else behind it besides the usual efficiency measures.
Liana’s SaaS is growing well (10%) and is now 100% owned by Ilkka. Would a public listing be possible at some point? As growth continues and strengthens, it could be likely.
Ilkka’s Q3 result reported on Monday exceeded our forecasts, driven by the performance of Media Services. We have made positive changes to our short-term forecasts for Q4, but our 2025-2026 forecasts remain practically unchanged. The stock is priced significantly below the sum-of-the-parts, which in our view provides a clearly positive expected value for the coming years, even though unlocking the value inherent in the parts will likely require a long-term perspective. We reiterate our target price of EUR 3.5 and our Accumulate recommendation. The fresh extensive report on Ilkka is free to read at this link, while the company CEO’s Q3 interview can be heard at this link.
Quoted from the report:
The value for Ilkka’s share according to our sum-of-the-parts calculation is approximately EUR 5.9. Regarding the calculation, it is noteworthy that Alma Media shares constitute a significant (about 2/3) part of the sum-of-the-parts calculation. Consequently, the performance of that share significantly impacts the outcome of the calculation. Due to normal price volatility, the value of the holding should be treated as indicative, but currently, Alma Media’s share price is roughly in line with our target price and within our estimated fair value range for Alma Media’s share. At the latest closing price, the value of the Alma Media shares owned by Ilkka (EUR 100 million) is approximately EUR 3.9 per share. Thus, Ilkka’s share is currently priced by the market below the value of its Alma Media holding.
Well then, the sum-of-the-parts calculation simplifies, as EUR 20 million seems to disappear from the cash and EUR 6 million in revenue with a low operating margin comes in its place. Or rather, for 2024 it has been EUR 1.9 million /9 months
INSIDE INFORMATION: PROFINDER BECOMES PART OF ILKKA GROUP AND SUMMA COLLECTIVE
Ilkka Oyj has acquired the entire share capital of Rootfon Oy (”Profinder”) through a transaction made on November 29, 2024. Profinder provides the market’s most comprehensive and highest quality target group data through its B2B and B2C services using a SaaS business model. With this acquisition, Ilkka expands its marketing and technology services business area to include sales technology and data services, in line with its strategy.
Profinder’s story began in 2017 as part of LeadDesk Oyj, continuing for two years. Private equity investor Juuri Partners joined as the main owner to develop Profinder’s business starting in 2019. In recent years, the company has focused its operations on developing a continuously billed service. Profinder’s growth has been driven by the increasing demand for marketing and sales tools, and the up-to-date target group data combining various sources that meets this need. The service is enabled by a user-friendly, continuously developed, and cloud-based software platform that can be integrated into sales systems.
In 2023, Profinder’s revenue was EUR 5.9 million (EUR 5.5 million in 2022) and operating margin was EUR 0.7 million (EUR -0.1 million). In 2023, the balance sheet total was EUR 5.1 million (EUR 5.0 million in 2022), of which equity was EUR 1.6 million (EUR 2.0 million). Revenue and operating margin have developed positively in 2024. Profinder’s revenue for January-September 2024 was EUR 5.1 million and operating margin was EUR 1.9 million. Over 80% of the revenue is continuously billed. Profinder’s market area is Finland, and it has approximately 1,300 corporate customers. The company has 28 employees. The figures presented in this paragraph are consolidated pro forma figures, which include the figures of Rootfon Oy and its subsidiary Leadventure Oy.
The debt-free purchase price (EV value) paid for the shares (100%) is EUR 20.4 million. In addition, Rootfon Oy’s loans have been restructured by a total of approximately EUR 1.6 million in connection with the transaction. The purchase price has been financed with cash reserves and debt financing. The purchase price was paid in cash at the time of the transaction.
The share acquisition is not estimated to have a significant impact on Ilkka Group’s 2024 revenue and adjusted operating profit.
Ouch! It certainly looks like Ilkka drew the short straw at first glance. I’ve been following Ilkka from the sidelines and maybe I could have even bought if the price had dropped to somewhere around 2.8€, but I certainly couldn’t pay the same price as yesterday anymore. Luckily I avoided this.
Here’s also a link to the company’s pages.
And the relative operating margin for 2024 is quite impressive, considering it was only 12% in 2023, and negative in 2022.
At the income level, the corresponding was shown, the story doesn’t say why
This is probably why Ilkka’s business value is considered negative by the market year after year. Shareholders’ money is going up in smoke If things go really well, this deal might pay for itself back sometime in 10 years.
Five years of Alma Media dividends were wasted there. As an owner of Ilkka, I am not happy with the deal. But hopefully, from this, they will now get their own operations firmly (several millions) into profit (I doubt it).
Instead of the deal, I would have preferred an additional dividend of 80 cents.
In the morning, I stared at the news and saw that a company with a turnover of 5.8 million, an EBITDA of 0.7 million, and a slight loss was acquired for over 20 million. It didn’t feel good. 3.5x P/S and hardly any profit coming soon. I had feared the use of cash, and that fear came true…
A later observation of this year’s Q1-Q3 turnover of €5.1M and EBITDA of €1.9M, however, gives some hope for better. With over 80% SaaS revenue, the company may have the potential to make money for its owners in the future.
If we were to continue at the same pace in Q4 with these numbers, the turnover would grow to approximately €6.8M and EBITDA would accumulate to approximately €2.5M, which would almost certainly leave some profit.
I cannot comment on the company’s moats or competitive advantages, but 1,300 corporate customers could bring some cross-selling potential for Liana’s or other ‘Summa’ companies’ services. Why not the other way around too?
The Rule of 40 would be met with the above assumptions, with growth at approximately 17% and an EBITDA margin of 37%. And if growth continues with a team of that size, increasing profit will almost inevitably come through.
Let’s convince ourselves at this point that the profit will be approximately €1.5M this year and approximately €2M next year. Could we be somewhat satisfied with numbers like these?
I gave up my own Ilkkas (fortunately) a good while ago. I used to work at a factory. When you wanted to take a self-initiated 15-minute break from work there, you’d pick up a tool and walk around the hall whistling. This was called a ‘factory walk.’ These Ilkka acquisitions are CEO-level ‘factory walks,’ by which they pretend to be doing something for the owners.
And it’s certainly nice to do, when the biggest owners seem to be pleased by this fiddling around.
Analyst’s comments on yesterday’s Profinder acquisition news.
Cautiously neutral positive?
At least the sum of the parts remains the same, i.e., €6.0, as does the target price of €3.5 and Add
I would have hoped for the distribution of the excess cash and Alma Media shares to the shareholders.
At least, the acquisitions of recent years have not specifically created value for shareholders, and certainly not released it.
If things go really well, this deal might pay for itself back sometime in 10 years.