I read Inderes’ analysis and feel compelled to comment. Regarding the communication from the Savonians (KPY), the responsibility has been shifted to the listener before, but there were also a few things in that analysis that left me wondering.
Particularly interesting to me is Sentica, whose value in KPY’s own calculation is as high as 28.1m. This consists of the price paid in December, i.e., 3m in cash and 25m in shares. If the IPO price were used as the value for the shares, Sentica’s price would have been approx. 20m. Inderes arrives at a value of 7.3m for Sentica, calculated as a percentage of current AUM (4%) and future AUMs (3.5%). This is likely a valid way to assess the value of asset management operations, but I personally don’t understand how Sentica becomes an entity worth 7.3m–28.1m.
KPY has stated that Sentica’s AUM consists only of the AUM of the Sentica Buyout V fund, which according to them and Inderes is 166m. CEO Lehikoinen stated in the recording of the investor event found on KPY’s website that this 166m is the capital called into the fund. According to public information, the fund’s value (i.e., AUM as I understand it) was just under 105m at the turn of the year, of which remaining invested capital was 136m and the cumulative loss approx. 30m. It is, of course, possible that a 61m profit will accrue from Hohde, which was not factored in last year in any way, even though the deal was signed during last year. When we further consider that, according to the prospectus, KPY owns only 26.51% of this fund’s GP (General Partner), how does this result in a Sentica AUM of 166m from KPY’s perspective right now? And how should one view the new 150m fund estimated by Inderes, where KPY’s own share would be 50m and the ownership stake in the GP about 50%? From KPY’s perspective, is the AUM then 50m (i.e., 50% / 100m), 100m, or as much as 150m, and from which of these figures is the 3.5% or 4% then calculated to reach Inderes’ valuation?
Sentica’s quarterly loss in Q1 was 0.3m from managing Buyout V, and if management fees cannot even cover their own expenses with a 166m (or well, 100m) fund under management, how is significant value created with, for example, 100m of new external AUM, where approximately 50% of potential performance fees are paid out? So, I don’t understand how on earth the value of that current AUM could possibly be 6.6m (4%) if it doesn’t even cover staff salaries. No performance fees are expected from that fund, and even if they miraculously appeared, only 26.51% would end up in KPY’s coffers.
Another thing that jarred quite badly in Inderes’ analysis and KPY’s materials was the claim that management costs would be only 0.6% of the NAV (Net Asset Value) reported by KPY itself—implying that management is somehow efficient. There has certainly been creativity used in the calculation, because with that formula, KPY’s total management costs would be approx. 1.5m per year—that barely covers the management team’s cash salaries (share-based incentives on top of that). If we take the actual costs of the parent cooperative from last year, which were over 3m, and use Inderes’ estimate before discounts as the NAV, i.e., 189.4m, the management costs are 1.6%. Even this is a fairly lenient calculation method for KPY, and costs are surely rising as a result of the listing.
The communicated valuation levels and the valuation methods used for other assets also leave some question marks (both regarding Inderes and especially KPY, which doesn’t actually even disclose them). I suppose I’ll have to wait for more information, even though there does seem to be some so-called margin of safety in the share price.