Lifa Air announced yesterday, March 28th, that it is starting an IPO on First North, but as far as I can see, no dedicated thread has been created for the company yet, so let’s start one now.
Company introduction taken from the release:
Lifa Air is a Finnish technology company founded in 1988 that provides clean breathing air solutions, with its headquarters located in Helsinki. Lifa Air’s business is divided into three business areas: air purifiers, respirators and surgical face masks, and ventilation hygiene products.
Sijoittaja.fi has written an article about the company.
“Due to a very attractive valuation, we anticipate that the IPO will be oversubscribed. Lifa Air is a small company, but an interesting addition to Nasdaq’s growth company list. The company also has its own patented air purification technology, which has good growth potential in commercialization.” Sijoittajan näkökulma Lifa Air Oyj:n listautumiseen - Sijoittaja.fi
The valuation is already really cheap given the market’s growth forecasts (not to mention the company’s targets). So cheap that it makes me wonder why. How can a clearly profitable company operating in a market with about 10 percent annual growth be available at a P/E of 10 based on this year’s guidance? The situation also feels a bit vague, with the IPO funds intended, among other things, to acquire a subsidiary where the founder and CEO of the entire company would be the main seller.
Indeed, the air purification industry is, in my opinion, very interesting and growing strongly, but this IPO doesn’t quite convince me yet, at least not for now.
The company does guide for higher revenue this year than last year. Also, the lower end of the operating profit is roughly at last year’s operating profit level.
In addition, the face mask market is expected to grow even from its current level. A quote from the sijoittaja.fi article: “In 2020, the global market for face masks was approximately 6.5 billion dollars, and it is estimated to grow to 8.1 billion dollars by 2027. The growth estimates are based on both the coronavirus pandemic and the increased use of surgical masks and respirators in the healthcare and industrial sectors.”
The Lifa Air air purifier “pot” has been in use at our home for over 5 years. The user experience has been easy and functional. The design is simple and practical, the only downside has been the availability of filters in Finland.
For me, this feels a bit shady right now. The offering aims to raise at least around 6 million euros, of which about 3 million euros, or half, will be used to purchase the remaining 57% stake in Lifa Air International, which is primarily owned by the current Lifa Air owners/management/board members And for that reason, I’m skipping this.
Even though the technology is top-notch and there’s plenty of demand for these air purifiers in households, workplaces, schools, etc., now and in the future, I just don’t have enough faith in that innovation-gadget worn around the neck. I just don’t see people walking on the street with that around their neck.
If face masks account for 45% of revenue in a few years, which is the same as the patented high-tech, then what’s wrong? Perhaps the unsexiness of these face masks makes this a good target?
This is again a very confusing offering. Indeed, a P/E ratio of 11 for a company aiming for 25% annual growth is just strange. Even if profitability levels were to decrease, I would have probably listed the company at twice the price myself - if I genuinely believed in the set growth targets. The problem, of course, is, for example, a very concentrated customer base (over 50% from one customer, which is an utterly insane risk in the end). As usual, I wrote an anti-analysis!
That CEO’s subsidiary arrangement is one of those situations where you don’t really know what to say. Both in the Kauppalehti interview and the listing presentation, they asked if management was selling shares. In both, the CEO repeated the same mantra: “the company needs money, owners don’t, and no one is selling shares.” And yet, the CEO gets 1.8 million euros from the sale of subsidiary shares - and where does this money come from? Directly from the IPO, and the condition for the sales is the success of the offering… I want to believe that this is unintentional poor communication, because technically the CEO is not selling shares of the parent company - and not deliberate concealment of the matter, because it certainly sounds more appealing that management is not selling their holdings. However, this was enough for me to lose faith in the management and, at the same time, in the set targets, which is why I’m skipping the offering.
I must say, however, that if the targets are met, this will probably go down as one of the best offerings ever on the Helsinki Stock Exchange. Over half of the revenue currently comes from masks, and their mainstream adoption is still a big question mark in my opinion, even though they will certainly become more common compared to pre-corona times.
{“content”:“I’m admittedly surprised this came up. I myself was on the payroll of that particular company until recently. Unfortunately, I can’t comment on the matter further as a non-disclosure agreement is still in effect. However, this stock will not end up in my own portfolio.”,“target_locale”:“en”}
I looked through the brochure. The products are not convincing. The air purifiers are based on ancient HEPA filters. I would be much more interested in the shares of Espoo-based Genano, if they were available for trade. Genano actually has genuinely innovative and exclusive technology, in which I see huge growth potential. It could be a tenbagger, but Lifa Air hardly. There are 13 producers of these HEPA filters in a dozen, and none of them has any significant competitive advantage over each other. This stock will certainly not be in my portfolio.
I watched the interview with Inderes’ CEO. However, it didn’t provide any information on how the box around his neck works. Even as a physicist, I can only guess at the technology this talisman uses to purify the breathing air from such a distance. I have a strong hunch, as there probably aren’t many safe alternatives, but a lot of questions remain.
So, I’d be interested in information about the technology and any related patents.
Let’s continue here.
So, I found some information about the device. It’s a filter with some kind of ionizer, apparently. At this point, I’m probably not the only one wondering the same thing. How on earth do you only sniff air that has passed through this device if it’s hanging around your neck and you’re even moving?
The gadget does have a fan that actively sucks in air from its surroundings, which it then mechanically filters. It would be great to get research results on what proportion of the breathing air ultimately passes through this device. I also dare to claim that this box, at least, does not contain the patented technology advertised by the company. (I wish I were wrong…)
In a confined space, like a car, I believe it would work significantly more effectively when it comes to the ratio of truly purified and breathed air to unpurified breathed air.
There seems to be at least a Chinese product on the market that is half the price.
Well, the more one looks into the topic, the worse it seems. These neck-worn, completely identical purifiers, which, to my understanding, use entirely similar technology, are already available from numerous manufacturers at a much more affordable price. And this device was advertised as a spearhead?? It’s really hard to believe that such a Tamagotchi would see so much use that this high-end device would ever be a sales success.
I also have strong doubts about how growth will continue in the future. The pandemic is presumably “over,” and I don’t believe that mask use will remain a practice for many percentage points of citizens in Western countries. The same applies to healthcare, where I also work; mask use will decrease as corona subsides. In Asian countries, masks were used even before the pandemic, but China satisfies that need, and there’s no hope of competing on price. Considering this, since the majority of Lifan’s revenue came from mask sales, I am very skeptical. The same applies to that portable gadget
I don’t intend to participate in this, even though it will presumably be oversubscribed. After trading begins, I guess there might be a rush with the shares, because I believe there will be quite a lot of people chasing quick profits
It would have been great to have even a short introductory video, a few minutes long, about the function of the wearable air purifier. Now, its effectiveness was left to the viewer’s imagination. The website states that it blows purified air towards the user. The blowing force must be good enough to replace air coming from elsewhere. For example, when walking outdoors in air pollution, a strong wind is probably stronger than the device’s blowing force. So, the wind will likely blow pollutants onto one’s face, and this device probably can’t prevent that very well? The device’s filter apparently needs to be replaced every 4-8 weeks; a pack of 10 filters costs 59 euros.
The material of face masks, i.e., plastic, will be replaced by biomaterial in the future. Good idea, but the cost is concerning. For example, single-use plastic forks were replaced with wooden ones in Europe. Everyone has probably noticed in the grocery store that before, you could get 100 plastic forks for 2 euros, but now, with biomaterial, you might get 20 wooden forks for 3 euros.
If the price of a biomaterial face mask multiplies, who will buy single-use face masks at a unit price of 3-5 euros? Certainly no one poor or with a normal income. Sales will not be easy if costs get out of hand.
It’s great that face masks are made in Finland. How to compete against Chinese workers and a few euros an hour in wages is not easy.
"According to data collected by Alma Talent Tietopalvelut (Alma Talent Information Services), the company’s normalized revenue has remained almost unchanged since 2011, excluding the pandemic years.
The median return on invested capital for that period is 3.2 percent, which cannot be considered very flattering. However, in the 2020 financial year, the return on invested capital was as high as 42 percent, driven by increased mask demand.
If the median net profit for the years 2011–2020 is used as the net profit, the P/E ratio would be as high as 2045. Therefore, an investor participating in the offering relies on the company’s profit remaining on the upward trajectory initiated by the coronavirus pandemic."
This part is really interesting (is that P/E ratio accurate?). The gadget hanging around the neck, the above information, the subsidiary acquisition scheme. I’m definitely sitting this one out.
Has the market potential of that neck device really been researched much? We need some popular influencers to advertise them (a bit like Flavor Flav with a clock around his neck, the juniors might not know these relics).
There doesn’t seem to be a market maker for the listing, right?
Anchor investors have apparently valued the company at 45 million, usually it should be put on the lower side rather than the higher side,
when many have seen the air purifier hanging around the neck as 1. challenging in function, 2. challenging in user comfort, 3. competitive situation, it’s easy to comment with hindsight, one could have asked these questions in some presentation/interview or answered them without being asked
And for that reason, I’m skipping this.
