Tecnotree – Hijacking the Star of Africa?

[MoneyWalker]

Thanks @Roni_Peuranheimo for the answers Although it was a good answer, I won’t let you off that easy – I have to challenge you a bit!

@Roni_Peuranheimo

You are right that investments are slightly above the company’s guidance range. The challenge of the DCF model in Tecnotree’s case has been discussed here before. It is quite difficult to align the DCF with the company’s free cash flow guidance unless investment forecasts are above guidance and unless working capital continues to be significantly tied up in the balance sheet (now in Q1, the change in working capital was slightly positive). That FCF-based model is not really suitable for Tecnotree, as so much cash flow ultimately goes to financing expenses, among other things. Therefore, I would not consider future FCF forecasts a relevant measure of how much money the company will make for its owners. As an example, the cash flow shown by the model last year, which shows clearly positive operational free cash flow, when the free cash flow attributable to owners was nevertheless negative.

It seems, Roni, that you are now in the gentle but firm grip of Inderes’ FCFF-based DCF model! FCFF is certainly an approach generally favored by analysis firms – it works especially well for companies with interest-bearing debt and “clean” financing items. But when we enter Tecnotree’s territory, the situation changes: the company is almost debt-free and constantly records currency exchange losses in net financing expenses. In this case, FCFE would be the better tool.

FCFF is based on EBIT, i.e., earnings before interest and taxes – and it does not account for currency exchange losses, because they lurk in financing items. The model thus gives a picture of cash flow “as if” currency risk were only a theoretical concept.

FCFE, on the other hand, starts from net income, which includes currency exchange losses and other financing items. It more directly tells what cash truly remains in hand for the shareholders – especially when currency risks are not just random nuances but are constantly present in the picture.

This is not a criticism of you, Roni – quite the opposite. This is rather a small wish for Inderes: although FCFE is slightly more difficult to construct, it would be a fairer and more accurate model in certain cases, especially in situations like Tecnotree’s. Otherwise, you will have to remind people here and in your analysis not to cling too much to the DCF calculation. And I can only nod: I don’t consider Inderes’ DCF calculation for Tecnotree valid either.

That’s why, for the past year, I’ve been manually calculating FCFE-based cash flow statements for several companies myself – and in several cases, my view on the valuation level has been quite different from Inderes’. Tecnotree is a clear example.

I hope Inderes could consider presenting FCFE calculations at least selectively – for example, for companies where financing items have more than temporary significance. And why wouldn’t Tecnotree be a good place to start: the convertible bond (VVK-laina) conversion window only begins in 13 months (22.6.2026–22.6.2028), so there is plenty of time to bring the share price closer to its true value. The higher the price rises, the less the ownership of small investors will be diluted – and at this point, my own cow is standing in the middle of the ditch, sipping currency risk

[Gekko1]

And then next, a big deal for South Africa’s leading telecom operator…

SISÄPIIRITIETO: Tecnotree allekirjoittaa sopimuksen digitaalisen BSS:n...

[Af_Ambar]

The press release states that revenue recognition already begins in Q2, but the guidance is kept unchanged, i.e., that revenue would grow by a low or mid-single-digit percentage.

If simply calculated, the value of this agreement for this year is 4.24 million, i.e., 5.9% of last year’s revenue. Is this somehow a back-loaded agreement, or is something terrible expected for the rest of the year?

e: True, this is an extension agreement, not a new one.

[Osakehuntteri]

A post about the deal and the official stock exchange release. Having followed for years, it’s a fairly typical Teknopuu-like deal. It first appears in receivables and then perhaps in cash. After previous multi-million dollar deals and convertible bond recordings, I will only believe the annual revenues when they appear in the cash flow.

[lokomotiivi]

Well, the announcement didn’t reveal in which currency the deal is made, what the payment terms are, and how much revenue the customer currently brings in. It seems to be an existing customer. So, it’s quite impossible to estimate based on the text how much growth this brings or what tech-bubble-like risks the agreement contains.

[Af_Ambar]

The customer could be MTN South Africa, which was introduced last year as a new customer (https://www.tecnotree.com/investors_fin/porssitiedotteet/tecnotree-oyjn-puolivuosikatsaus-1-1-30-6-2024-tilintarkastamaton/). It is probably positive in itself, or at least not negative, that a new customer does not abandon the supplier

[Lexus]

The forum is understandably very skeptical. Perhaps even too much - in my own thoughts, this goes to the very positive side.

• Tecnotree received a contract whose value is almost as large as the company’s market capitalization.
• The contract was made with a rather large company, with South Africa’s leading telecom operator - so this is not a multi-million dollar contract “with a one-man company founded yesterday”.
• Although it is not known what currency is written in the contract, the company emphasizes that with the contract, it aims to reduce exposure to emerging market currencies. So not, for example, Nigerian currency. But if it is the South African rand, it is also relatively unstable in relation to the euro.

Year	EUR/ZAR (average)
2010	~9
2015	~13
2020	~18
2025	~19–20

• Even though it is a continuation contract, it also has positive features. 1) The operator wanted to make a new contract, so there is some satisfaction with Tecnotree 2) The value of the original contract is not known, but even presumably with the new contract the value has increased, due to the announcement style 3) And if all the money had gone to Tecnotree from the previous contract, the company would not have needed to make this contract, so it is not simply assumed.
• Edit: Oh, and it’s also positive that the contract and revenue recognition start somewhat immediately.

[Taitoo]

I would like to ask how many stock exchange releases mention all those points you mentioned… that is, generally in all companies.

[Gekko1]

This year, deals have now been announced for the United States, the Netherlands, and South Africa. Each of these countries is a “lower-risk” country, so the strategy has started to fall into place well. What perhaps convinces me most here is that the product must be in good order. A Tier 1 customer from the United States has joined, and now apparently a satisfied customer from South Africa is significantly extending the contract.

[mskomu]

A riskier market is being replaced by a less risky one, so revenue won’t grow much either, as it’s leaving from one end, or at least that’s how it can be interpreted. If this holds true, then cash flow would start approaching the reported profit at the same time, and furthermore, IF the business sustains itself in the long run like this, then revenue growth should improve years from now, when there isn’t the same extent of dwindling revenue from riskier markets. Very big ‘ifs’, but perhaps one can benchmark earnings reports against this.

[lokomotiivi]

Of course, not in many cases, or hardly ever. However, there are very few companies that have messed up this badly. I just said that from the announcement, one cannot say for sure whether known problems have been solved or not.

[Construct-Destruct]

@Lexus

Edit: Oh, and it’s also positive that the contract and revenue recognition start somewhat immediately.

Although the announcement was positive in itself, I don’t think positively about this. This has been precisely the problem, that revenue is recognized even if there is no cash flow. Hopefully, Tecnotree does not recognize revenue from anything where the cash flow is unclear/uncertain.

[Lexus]

Yeah, generally speaking, that’s about right, but we don’t know about this case. When a sale is made, revenue is recognized (and without a sale, revenue cannot be recognized, or if there’s uncertainty related to the sale), and the funds should follow soon after (yeah, and indeed there have been big problems regarding this). Hopefully, with this customer, the sale equals the cash flow from it.

[Sijoittaja-alokas]

Here are Roni’s comments regarding Tecnotree’s latest deal.

The agreement announced yesterday by Tecnotree is very significant in the company’s scale and it should clearly support the company’s growth outlook in the coming years. There are still question marks regarding the more precise details of the agreement, to which we aim to get better answers soon. After a clearer overall picture, we will assess potential needs for forecast changes.

Tecnotreelle merkittävä monen vuoden sopimus Etelä-Afrikasta - Inderes

[Montau]

Tecnotree Oyj: Arvopaperimarkkinalain 9 luvun 10 pykälässä tarkoitettu...

Jorma Nieminen’s ownership has exceeded 5%

[JuhaR]

@Montau

Jorma Nieminen’s ownership has exceeded 5%

Ownership appeared to be 4.99% at the turn of last month, and the man has been making small additions all along.

[Sijoittaja-alokas]

Roni has made a fresh company report on Tecnotree.

The agreement announced by Tecnotree on Monday clearly supports the company’s growth outlook in the coming years. The agreement also supports cash flow potential, but we expect the cash flows generated from the agreement to materialize further in the future. Following our increased forecasts, we raise our target price to 3.8 euros (previously 3.5 euros) and reiterate our reduce recommendation.

Tecnotree: Piristystä kasvunäkymään - Inderes

[WhoopWhoop]

From the ashes of Pericius, Clarus rises proudly. This time, everything is different.

Or at least, let’s make sure the company isn’t founded in the name of Padman’s son.

Or at least, let’s make sure that the name of Padman’s assistant, or the lawyer familiar to the whole family, isn’t found in company registers.

Or at least, let’s make sure the company doesn’t have a public address that some nosy virtual traveler or real-life Eka could investigate

Or at least, let’s make sure no company is registered in India or any other even slightly open country.

Or at least, let’s ensure liquidity, so there’s no sudden need for 2 million euros.

Or at least, let’s make sure Tecnotree’s name isn’t found in recruitment ads.

However, it’s clear to everyone whose projects they are recruiting people for there.

One would somehow imagine that a software company’s website would be handled in-house, or that the pages would be something other than a concoction built on top of a $9 Poolwash – Pool Cleaning & Services HTML template.
https://clarussoftwares.com/ assets/img/demo/demo-img1.png
https://themeforest.net/item/poolwash-pool-cleaning-services-html-template/54544487

Or that the company’s website wouldn’t mention the email address of the wrong company.

But nothing surprises anymore when Indian expats in Dubai are pushing business. The apartment ownership and transaction data leaked from Dubai last year didn’t surprise either, by the way. Eagerly awaiting a new Paradise Papers leak containing Vistra

[Lexus]

I’ve come to the conclusion that this kind of cronyism is absolutely true. Through Tecnotree, they are somehow trying to help sisters, brothers, aunts, and even the aunt’s cat. At the same time, this seems to be quite common in their thinking - one could even describe it as business as usual.

But unlike before, I simultaneously hope, and even somewhat believe, that this activity is genuinely also aimed at helping Tecnotree with its business. So it wouldn’t be just about pumping money out - or can one call it that? So operations are just outsourced to close circles, and at the same time, they communicate constantly and share the same korma and curry. Of course, this activity has a Finnish whiff to it, but even here, one doesn’t live without structural corruption - greetings to political decisions. And if before, things were agreed upon in the sauna in a Finnish way, then now, the same korma or naan bread is being shared.

Recognizing all of the above, I ended up making a small addition after the South African news.

[kovatuotto]

Could you also forward these questions to the company’s management? This would clarify the matter, and it seems you have some better information than the rest of us investors for one reason or another. It wouldn’t turn into speculation or rumor-mongering regarding the company’s operations or owners. The general meeting would also be a good place for these questions, including the auditor. Or have you worked for the company?