Earnings performance was staggering in phase 2 of that earlier message. Taking in as many apartments as debt allowed and immediate upward revaluations of their values. For some reason, they abandoned this even though the results were excellent.
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I suppose back then they were making those famous âExcel resultsâ with write-ups, but that same housing portfolio has been written down very aggressively, so one can have many opinions about the viability of that business model.
Ovaro did succeed very well in timing the sale of a large housing portfolio. Whether it was skill or luck, probably both, but the company entered this challenging market with a healthy balance sheet due to those sales and is consequently able to operate actively, unlike many other players.
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Ovaro acquired phases 2 and 3 of the Kukkula project in their entirety, so here are Fransâs comments on it. 
Ovaro is acquiring the so-called phases 2 and 3 of the Kukkula project in their entirety from Investors House and Royal House at a purchase price that, according to our estimate, corresponds to a debt-free price of approximately EUR 23 million. In our view, the purchase price corresponds roughly to the fair value of the properties. With the transaction, Ovaroâs business will be even more strongly built around real estate development. Given the companyâs size, the project creates a significant development pipeline far into the future, but its implementation will also, in our view, require partnerships/additional financing/asset sales.
What exactly happened here? The Kukkula project was originally too large for any one of these three operators, so they acquired it together. In a somewhat rogue fashion, its value was written up on paper, and now Ovaro bought the others out and paid them compensation based on this inflated value?
If you put two and two together, this didnât make any sense at all for Ovaroâs shareholders, did it? Or did I misunderstand something?
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These repeated related-party transactions certainly donât increase confidence in the companies (Ovaro and Investors House):
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Well, this certainly looks quite badâmaking reciprocal trades where both parties walk away with a quick profit. In principle, you could repeat that many times, just by raising the transaction prices by a million each time.
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The same game continues, just like with Orava. The players are just slightly different.
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That was a very effective system during the 1990s recession. At its peak, apartments/properties changed hands several times a day or week as prices rose by tens or hundreds of percent.
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Here are Fransâs comments on the recent sale by Ovaro.
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Here are Fransâs comments on Ovaroâs updated strategy and updated goals.
Ovaro released a concise strategy update bulletin this morning for the years 2024â2027. The key change in the strategy is a clear focus on the buy-develop-sell business model and making the Kukkula project a priority area. The company provided clear targets for return on equity (over 10%) and equity ratio (over 40%). Ovaro also announced this morning that it is starting a new share buyback program.
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And this should fit into this quiet thread as well:
Pyysing has been making some small purchases. I corrected this, as I underreported because I didnât know how to look properly again. 
Thanks @popo1
Detailed transaction information
(1): Volume: 2005 Unit price: 3.99997 EUR
Detailed transaction information
(1): Volume: 809 Unit price: 4 EUR
Detailed transaction information
(1): Volume: 218 Unit price: 3.96 EUR
(2): Volume: 39 Unit price: 3.98 EUR
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They launched a share buyback program, and if no one other than the company itself is buying shares, then the company canât buy either.
Was it the case that only 20% of the daily turnover can be buybacks? Todayâs volume at 12:30 is less than 1,500 shares and less than âŹ6,000. So the company could buy shares for just over a thousand today.
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Fransâs preview comments for the Q2 release
Ovaro Kiinteistösijoitus will publish its Q2 results on Thursday at approximately 8:30 am. We expect the reported result to rise to a strong level, with the capital gain from Forum and positive valuation changes in the Kukkula project acting as the main drivers. In the report, we are particularly interested in the progress of real estate development projects and further elaboration on the recent strategy update.
Here are Fransâs comments on the results.
Ovaroâs Q2 results, released this morning, fell short of our expectations as the fair values of apartments declined more than we anticipated. Operationally, the performance was slightly below our expectations but remained quite good. After the first half of the year, the guidance places quite a lot of weight on the rest of the year, but more detailed conclusions still require further digestion.
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Fransâs post-Q2 company report is here.
Ovaroâs Q2 report was operationally slightly weaker than our expectations and the reported result fell clearly short of our expectations due to the decline in fair values of apartments. The acquisition of development properties for the Kukkula project had a significant impact on our forecasts. There is significant uncertainty involved in assessing the projectâs returns and costs for the coming years, but its development pipeline also holds significant earnings potential far into the future, which we find interesting. The risk of a profit warning, the still very foggy outlook for the housing market, and a valuation level higher than historical levels keep us more cautious on a 12-month horizon. In our view, the companyâs valuation is at a fairly fair level in the short term, and we lower our target price to EUR 4.40 (prev. EUR 4.5) and our recommendation to Reduce (prev. Accumulate).
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Interesting years lie ahead for Ovaro as the company begins scaling up its development and construction activities. The Kukkula project holds plenty of potential for a company of this size far into the future, although naturally, the risks are also significant in a project of this scale. Market development adds its own flavor to the mix, but it is likely that now is at least no longer the worst time to start planning and launching new projects.
I went and updated the title slightly, as @Verneri_Pulkkinen and @Atte_Riikola at the office thought I was referring to residential property investing as a whole with this headline 
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Frans interviewed Marko Huttunen about Q2 and the outlook.
Topics:
00:00 Start
00:50 Q2 update
01:40 JyvÀskylÀ shopping center Forum
02:34 Guidance
03:15 Strategy update
04:52 Real estate development
05:52 Establishing the buy-develop-sell business model
06:50 Changes in the company
07:54 Kukkula project
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@henrielo has conducted an analysis of Ovaro.
Please note:
The author owns shares in the company.
IR-ikkuna is a channel for SalkunRakentajaâs and Sijoittaja.fiâs corporate partners for background and analytical articles as well as other interesting investor information. The article is part of a commercial collaboration with the company. The article does not contain investment recommendations.
Subheadings:
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The previous strategy progressed as planned
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JyvĂ€skylĂ€âs Kukkula is at the heart of the new strategy
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Result profitable â guidance remains unchanged
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Net rental yield to over seven percent
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A stronger turn in the market in 2026?
Negative profit warning: Ovaro Kiinteistösijoitus Oyj updates its 2024 guidance
Old guidance: Ovaro Kiinteistösijoitus guides that the result for the 2024 financial year will improve from 2023.
New guidance: Ovaro Kiinteistösijoitus estimates that the result for the 2024 financial year will weaken significantly compared to the comparison year 2023.
The result for 2024 is significantly affected by the timing of sales of certain development projects. The reasons for the change in guidance are the postponement of a significant transaction based on a preliminary agreement to a later date, as well as weaker-than-expected results from apartment sales. The aforementioned postponed transaction is the Hervanta plot sale in Tampere announced on January 4, 2024, the profit impact of which after taxes is estimated at approximately EUR 1.0 million. Ovaroâs result in 2023 was approximately EUR 2.6 million, which is why the impact of the transactionâs postponement on the 2024 result is significant.
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Iâm surprised by how brief the announcement is.
I understand that companies usually donât want to forecast earnings with decimal precision, but in the context of a negative profit warning, âwill weaken significantly,â âto a later date,â and âweaker-than-expected resultâ are unnecessarily vague.
So when is that deal expected to close? How much weaker have the housing sales results been?
Why canât they elaborate more on these?
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