North Media A/S - Value in the storms of 2023

[Elias_L]

Investors - North Media A/S

North Media A/S is a relatively interesting value stock from Denmark. I have been following the company since 2020 and finally added it to my portfolio this December at a price of 58.3. I didn’t buy it right now out of any extraordinary wisdom, but rather because I didn’t really have the cash available for this fellow in my portfolio before.

In this post, I will try to roughly outline what the company does and how its various business segments have performed in recent years. I will also review the overall performance of the group over the past few years and finally weigh this against the company’s price tag. I recommend reading the annual reports and quarterly reports for 2020 and 2021. They clearly lay out forecasts and guidance, strategic goals, and updates for each business. The purpose of this introduction is solely to bring the company to light, not to offer any deep analysis of it.

What does the company do?

The company has two business segments: Last Mile & Digital Services, with the latter further divided into three different business units.

Last Mile - Fk Distribution

FK Distribution - North Media A/S

Last Mile accounts for about 85% of the company’s revenue and consists solely of the Fk Distribution business unit. In practice, this involves delivering advertisements and local newspapers to households across Denmark. Additionally, the company operates a digital platform, minetilbud.dk, where people can, among other things, choose which ads they wish to receive at home. Last Mile also offers packaging services to Danish customers and Deutsche Post. This cooperation with Deutsche Post is intended to be continuously expanded. The company is the largest player in its home country, and its position here has strengthened significantly since 2017, when PostNord withdrew from the market as its main competitor.

Figures:

• Local newspapers are delivered weekly to 2.3 million households
• 525,000 people use the NoTak+ feature to customize which ads they receive
• 1.4 million people receive all papers and advertisements

MinetilBud:

• 1,000,000 users
• 500,000 active users, meaning 30 minutes on the site per month
• 104,000,000 digital flyers read in 2021
• Minetilbud’s revenue dropped from 2020 to 2021, likely from 35M DKK to 25M DKK

From 2017 onwards, it started printing money as PostNord withdrew from the market, allowing the company to gain customers and raise prices.

Digital Services

This second business unit consists of three different businesses: BoligPortal, Ofir, and Bekey. In practice, these represent the company’s future, because relying solely on ad distribution carries the risk of the entire business being banned, given that printing paper and then delivering it straight to household trash cans is neither very ESG-friendly nor modern

BoligPortal

BoligPortal - North Media A/S

BoligPortal is the largest business in the “Digital Services” segment and it is Denmark’s largest rental housing portal. This is where landlords find tenants, comparable to Oikotie.fi in Finland. BoligPortal has also launched in Sweden on the same platform under the name BostadsPortal.se. In February 2022, BoligPortal acquired a company called Boligmanager: https://www.northmedia.dk/en/meddelse/?storyID=15317330

The company aims to expand its revenue streams (subscription-based) through at least the following ways:

• Selling data on supply and demand in specific areas and streets to real estate companies, banks, investors, and contractors.
• Offering small and medium-sized landlords solutions for managing property portfolios or real estate, which include advertising and market data sharing.
• Aiming to sell third-party electricity contracts, subscriptions, and home insurance to tenants via the platform, earning a commission for NM.

BoligManager, acquired in February, is software that allows landlords to manage everything related to renting out apartments. Read more here:
https://www.northmedia.dk/en/meddelse/?storyID=15317330

Digital boligadministration → Book gratis demo | Boligmanager

BoligPortal has been a quite decent business for NM.

Ofir

Aktiviteter - North Media A/S

Ofir is the second-largest business on the “Digital Services” side. The business’s moneymaker is connecting job seekers and employers. This is Denmark’s second-largest job portal. Ofir was the first to start advertising job openings online and on social media (Facebook, LinkedIn & Instagram).

Figures:

• 400,000 visitors per month
• 32,600 job ads in 2020
• Cooperation with 900 private and public sector employers in 2020

History:

Bekey

Bekey - North Media A/S

Last and least, Bekey is the smallest in terms of revenue, but the largest in operating loss . Bekey provides a digital solution for opening doors—a platform where, for example, apartment building residents are granted access using this platform. The solution eliminates physical keys, allows blocking a specific person’s access to the building without changing locks, and provides an audit trail of all movement within the properties.In 2021, 114 million doors (14.4 million according to the annual report) were opened using Bekey’s solution. In addition to residents, the solution is used by, among others, home care services in Danish and Norwegian municipalities (every third municipality in Denmark uses it), grocery and meal box delivery companies, real estate agents, property managers, etc.

This sounds like a good solution, but the business has faced challenges, at least when looking at the figures:

In 2021, a 20m DKK writedown was made, which further strained the earnings.

In addition to these, the company owns 50% of a company called Karman Connect. You can read more about this in the Q3 report, for example. Here are the figures from the Q3 report:

Digital Services as a whole:

Here is all the information compactly from the company itself:
https://www.northmedia.dk/en/forretningsomraader/

That was a very rough overview of what the company does. History for the “Digital Services” division only goes back to 2019, because it wasn’t until 2020 that the current model was implemented, where the business is divided into these two areas.

Here is the development of the entire group: This year, EBIT is expected to be around 200 and cash flow for Q3 YTD was approximately 114.

So, the company is practically just the Last Mile segment, which mainly delivers advertisements and newspapers. This carries the risk that regulation could be introduced regarding the printing and consequently the distribution of paper advertisements, which could cause the entire business to drop to almost zero.
On the Digital Services side, there seems to be a good vibe, and innovation, data, and technology are emphasized multiple times. However, we must remember that today it accounts for only about 15% of the company’s total revenue.

The company has grown its earnings significantly over the last 5 years, which raises the question of how much capital had to be tied up in the process. Here is the development from recent years: calculated (NOPAT/IC) (excl. goodwill 39Mdkk)

I have gathered some figures based on Q3 and 2022 forecasts. NM updates its forecasts every quarter, so the 2022E figures are quite likely close to the actual value:

And then comes the question we Finns ask on a holiday in the Canaries: “How much?”

30.9.2022				Company	North Media A/S (XCSE:NORTHM)
Mcap (mDkk) @ 56,5dkk		1.050 kr
Total Debt				115
Liquid assets (Cash & stonks)				676,5
EV				489 kr
Book Value				920,8
EV/EBIT (2022E)				2,5
EV/FCF (2022E)				3,3
P/FCF (2022E)				7,0
P/B				1,14
P/cash				1,6
Dividend/share				5.0Dkk				\
Dividend yield				8,8%			\

This seems relatively cheap, considering that the company is still producing excellent earnings and that the Book Value largely consists of liquid assets. The company has a habit of keeping an investment portfolio on its balance sheet, into which a portion of the profits is invested. Here is the development of that in relation to market value.

So far it has yielded well, but the future is unknown and the returns could be significantly worse. Contents of the portfolio:

So here is a company that costs about 56.5 currency units, of which a net amount of about 30 units is cash and stonks. You are thus paying about 26.5 units for future cash flows, which in 2022 will generate about 8 units of free cash flow.

Why is the company valued so low?

Reasons could include, for example:

• The public believes that regulation for paper distribution is coming soon, e.g., next year, making the current valuation completely fine.
• Margins have been under pressure recently, so there is fear that they won’t be able to achieve that 20% going forward.
• One of the company’s ways of allocating capital by investing in listed companies is not appealing this year.
• The main shareholder owns 60% of the company.
• The post-covid stock surge and the subsequent decline have further accelerated the drop.
• Technical analysis (TA) enthusiasts will be spooked by the following chart:

After the year 2000, it dropped down to the level of 11, and similarly after 2007. So this will likely happen this time as well This has been a fun find, especially since there is an exceptionally large amount of cash on the balance sheet. A major driver of the company’s value is how many years of cash flow we will get from Fk Distribution’s business. I can’t really say much about that myself, but I believe the cash flow will last longer than what is currently priced into the stock.
To reiterate: I recommend reading those annual reports and quarterly reports from 2020 and 2021. They very clearly outline the forecasts and guidance, strategic goals, and updates for each business.

Here is an analysis of an extreme case from ABG Sundal Collier: (found on the NM investor page)

I couldn’t find a thread about this here on the forum, so hopefully through this we can figure out together whether these shares should be sold now or held.

E: The results for 2020 and 2021 were slightly incorrect

[Toni_K]

Great post and thanks for bringing this unknown revelation to my watchlist!

Inspired by this, I did my own calculations, and with a 20% expected return, my spreadsheet showed a share value of 105 DKK. However, it doesn’t take into account the risk of the main operations being discontinued… A strong balance sheet and current recurring cash flow account for about 60% of the value, so at under 63 DKK, this would fit my strategy. I’ll keep an eye on the share price development and jump in if needed

[PerpBeta]

Isn’t the investment case here that Schibsted buys the Danish classifieds business (BoligPortal, Ofir)? Schibsted already expanded into the auto and general goods verticals in Denmark following the eBay Classifieds Group acquisition, and the package is still missing real estate and jobs. Furthermore, the real estate vertical in Denmark isn’t fully consolidated yet, which would entice Schibsted to buy BoligPortal. Jobs is completely dominated by JobIndex, so in that sense, Ofir is a low-value business from a consolidation perspective, but it would likely move to Schibsted in the same deal anyway. It’s taking surprisingly long for the deal to happen, as I thought the transaction would have occurred earlier. So it might be that North Media’s majority owner doesn’t want to sell…

EDIT. Yes, and indeed a good text, thanks. I was so taken aback seeing this name here on the forum that I didn’t even realize to say thanks.

EDIT2. Indeed, if you study Schibsted even a bit more, you’ll notice they roll out the same strategy in every country, so it’s quite certain they are interested in BoligPortal. Why the deal hasn’t been made yet is indeed a bit concerning.

[Elias_L]

This Schibsted thing hadn’t occurred to me or come across my radar, thanks for bringing it up However, as you said, BoligPortal is likely in their sights, as well as Ofir. I’m not sure what to think about that, as these are a big part of the company’s future. Of course, if it’s bought for a high price and cash flow is received from FK for a few years, the value would be unlocked through that and the company would disappear pretty quickly.

The decisions are indeed made by our Richard Bunck with his 55% ownership, and we cheer from the sidelines

I don’t know how you see NM’s future? Digital services are promising, but it’s really small-scale business compared to FK Distribution.

[PerpBeta]

NM is in a difficult position because Schibsted has clearly communicated its desire to expand in Denmark (and Finland). NM’s position is tricky because BoligPortal (and Ofir) do not hold dominant market positions that could be defended against even a relatively large resource advantage. For example, Alma Media in Finland has achieved this position in the automotive sector, despite having far fewer resources than Schibsted. This means that at some point, NM will face a decision: is it better to sell or to start competing against the business Schibsted is growing organically, where their resources will not be enough in the long run. This is why I personally believe a sale will occur, at which point I will also exit the stock because the remaining business does not interest me.

The main owner is already over 80 years old, so these decisions will inevitably come to a head there as well. The worst-case scenario for (my) investment case would be if the owner transfers their holdings into a foundation and includes a clause in the rules that effectively kills any hope of spinning off the classifieds business. The same thing happened at Schibsted: the only reason the News Media segment is still included there is because of the foundation owner whose mandate is to preserve Nordic journalism.

EDIT. Regarding the valuation, the company is trading at an EV of approximately DKK 1.1bn, and about half of this consists of listed shares. BoligPortal’s LTM revenue is approximately DKK 92m, and Schibsted could pay an EV/Sales of 10x for this alone, which is practically the amount of the entire company’s EV (half of which are liquid investments). So there is indeed a massive amount of value if the owner were only interested in creating it for the shareholders…

[Elias_L]

North Media Oy released its Q4 results about two weeks ago, and now that exam week has started, I have some time to digest and update these results. My two cents:

The year 2022 went pretty much as expected, but the guidance was perhaps a slight disappointment for the stock market, at least initially.

Fk Distribution

Revenue dropped by 6% for the full year according to the company, due to the price of paper rising by nearly 100%, which led customers to reduce ad distribution. The company reports that companies advertising consumer durables in particular reduced their ad distribution, while grocery stores maintained roughly the same level. Consumers, however, are looking for deals as purchasing power is under pressure. Some seasonal product sellers stopped ad distribution entirely.

• Price increases also affected the volume of local newspapers.
• A 2% price increase was implemented, but it was not enough to offset the rise in costs.
• Revenue from packaging services for Deutsche Post is growing slowly.
• The number of consumers registered for the NoAds program remained stable at 36%.
• Things happened in the political field, and 140m DKK was allocated to local newspapers through a new media agreement, which slightly reduces doubts about the entire business being at risk.
• In 2022, Fk Distribution launched a data-driven solution, providing advertisers with information on which areas would have interest in a specific product.

How does inflation show in costs?

2023

Fk Distribution reports on its strategic steps, which have remained unchanged even though the 2023–2024 guidance was lowered. Fk aims to develop its digital advertising platform (minetillbud) and offer this new data-driven advertising solution to advertisers to offset the chronically declining revenue caused by the fact that physical papers are read less year by year.

In the Q&A, it was asked why the result is dropping so “much” even though you say the need for ads is greater than ever as consumers look for deals.

A: The 2021 operating profit was, so to speak, too large, and such a margin should not be expected in the future. In '22, prices were not raised, which led to a margin drop from 28% to 22%. Now prices have been raised by 9.2%, but the margin drop to around 19% reflects poor visibility and declining distribution volumes.

BoligPortal

The crown jewel of the entire company continued its strong performance. The full-year EBIT was 26%, and adjusted for costs from the Boligmanager acquisition, the EBIT was approximately 30%. Revenue grew by 11%.

The company is developing this marketplace for landlords and tenants, and reports that sales of new services grew by 140%, now accounting for 9% of revenue. Below is an image of this business.

Looks like smart business, at least here on PowerPoint.

2023

The company believes the core business will grow only marginally in '23, as people are not as willing to move in a high-inflation environment. However, the company guides for over 10% growth, meaning these new products are expected to generate good growth. From an investor’s perspective, it’s very positive that growth opportunities are being found.

Ofir

Revenue grew by 11%
EBIT 7%

Growth comes from the business of selling job advertisements. Public sector revenue grew due to price increases in addition to sales, but private sector revenue is reported to have grown only through sales growth.
The market peak last year was seen after Q1, and a sharp decline began after Q3, when volume dropped by 10.8%.

2023
Based on the Danish central bank’s estimate, job advertisements are expected to decrease by 10–12% next year. Ofir sees revenue dropping <10%, and EBIT will go slightly into the red. The data platform is being developed, and public sector jobs are being filled, as demand for these is expected to remain this year as well.
Below is an image of Ofir’s 2023 goals:

Bekey

Bekey failed to move the business forward as desired again this year. Revenue grew by 4 percent, and the result was -57% of revenue. The Homecare Dk segment is the largest segment, accounting for 83% of revenue. In this segment, 3 new contracts were signed and 12 contracts were renewed. Recurring revenue 65%.

A new CEO was hired in November; we’ll see if this makes a difference!

I personally like the Bekey product, and it sounds like this kind of solution is needed in modern society. Bekey’s NetKey is a cloud-based key management solution where you can either grant access to a key or remove it.

Bekey also has a mobile app connected to the NetKey cloud service, where these doors can be opened and you can determine who gets a key or who doesn’t! This solution is used to a great extent by healthcare personnel when visiting their clients.

Strategic Priorities

In Bekey’s situation, the important thing is just to get the solution scaled so they can start making a profit. So far, it has just been burning a lot of cash. For Bekey, winning municipalities as customers is crucial.

Q&A

They were asked when this crap will be divested.

A: We see potential here and are not divesting. It was also asked if there is a specific deadline for when it needs to become profitable or be divested, but there is no such thing; they are developing and spending money because they see potential here.

The dividend was cut from 5 → 4 DKK, why?

A: We want to keep plenty of cash in the coffers for new growth opportunities and to enable an attractive dividend yield in the long run.

The company does have money, and in my opinion, more isn’t specifically needed for new growth investments. I suspect the reason behind this is that the main owner wants to maintain and grow that stock portfolio.

The big picture of the company’s development with 2023E figures.

Digital Services growth:

By business unit:

Profitability development:

From this, you can see how “beautifully” Bekey eats into DS’s profitability; Ofir’s profitability fluctuates a bit, but it’s not yet significant when looking at the big picture.

Fk Distribution

Profitability development

Multiples
Mcap (mDKK)		1,253 kr
Total Debt (Mortgage)				115.5
Liquid assets (Cash & stocks) (31.1.23)				827
EV				542 kr
Invested Capital				331.1
Book Value				1058
EV/IC				1.64
ROIC				48.6 %
2023E
EV/EBIT				3.6
EV/FCF				4.2
P/FCF				9.6
P/B (31.12.2022)				1.18
P/cash (31.12.2022)				1.5

[Elias_L]

And I still recommend reading those annual reports. They are written from an investor’s perspective exactly as they should be. Very clear strategic goals, where they have succeeded, where they haven’t, and what is expected and will be done next year.

Even if you never owned this company or weren’t interested in it otherwise, the annual reports serve as an example of how these should be done.

[Elias_L]

I was browsing through TIKR and came across this surprise:

There is our eQ as the 2nd largest owner! Just a fun surprise; I haven’t personally found a more detailed ownership structure on NM’s website, but it seemed to be here.

[Elias_L]

Good text/interview about North Media’s chairman of the board. Explains why North Media has such a massive cash pile and the investment philosophy behind the stock portfolio management. Also provides background on how the company achieved a monopoly position in 2016. A good read overall about this company

http://www.northstarinvestor.com/north-media/

[Elias_L]

Q2 stuff on Twitter!

https://twitter.com/EliasLuhtaniemi/status/1692105227842011540

[Elias_L]

North Media announced on Friday that it has made an acquisition A quick deep dive into this and a bit of a company status update on Twitter as well!

https://twitter.com/EliasLuhtaniemi/status/1737424731630907470

[Elias_L]

I’m posting here a stock comparison tool I made in Excel, which is based on data from Inderes’ stock comparison tool. You can download it for yourself from there. A short introduction to this on Twitter.

Osakevertailu_Excel_November_24_2.xlsx (1,7 Mt)

https://x.com/EliasLuhtaniemi/status/1854477037920264436

[Sijoittaja-alokas]

@Elias_L has made a good tweet thread at the beginning of December.

You should follow him on X.

https://x.com/EliasLuhtaniemi

The rest of the tweet thread

[Elias_L]

Hi.

I’m sharing an Excel file here that can be used to research companies on the Finnish stock exchange. It has nothing to do with North Media, but this is a quiet enough thread where the link can be easily found in the future if needed.

pörssi_6.2.2026.xlsx (882.8 KB)

https://x.com/EliasLuhtaniemi/status/2012114597352984668