Tekova - Straightforward Business Premises

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Tekova, which builds hall-like business premises ranging from shopping centers and commercial premises to multi-purpose halls, is planning to list! Let’s open a dedicated thread for it! :slight_smile:

Tekova is planning to list on the Nasdaq First North Growth Market Finland marketplace. The planned listing would be implemented in December as a technical listing, meaning no share issue or sale would be arranged in connection with it.

Inderes’ interview is already available on InderesTV: Tekova suunnittelee listautumista - Inderes

Tekova in brief

Founded in 2018, Tekova specializes in the construction of commercial, office, logistics, production, and sports facilities. During our operating history, we have completed approximately 100 projects. We have succeeded in business premises construction by focusing on hall-like business premises projects tailored to our customers’ needs, with a simple development process.

The guarantee of Tekova’s quality is our own skilled personnel in project development, as well as in design and project management. Construction is carried out in cooperation with reliable partners.

Our clientele primarily consists of private sector customers. Our clients have included national commercial chains and real estate investors, as well as companies investing in individual projects. Tekova’s good reputation and recognition in the industry are based on a customer-oriented approach and successful projects.

More from the company’s own investor pages: https://sijoittajat.tekova.fi/fi

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Potentiaaliset listautujat Helsinkiin
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A few highlights in no particular order:

Our current business model is primarily based on contracting. Our strategy aims to expand to cover the entire real estate development value chain, focusing on the develop-build-own-sell model. For project development projects to be carried out on our own balance sheet, we established Tekova Development Oy in 2023, which has already completed its first projects.

Financial targets:
We aim for annually growing operating profit
Within 3–5 years, a significant portion of our operating profit will come from our own project development
We prioritize profitability and efficient project management over revenue growth.

The company’s other founder, Aleksi Peltokorpi, left the company last year. Many Tekova employees have a Lehto background, which can be seen as both a threat and an opportunity.

The guidance for the 2024 financial year is as follows: Revenue is estimated to be 55–65 million euros and operating profit (EBIT) 4.5–6.5 million euros.

Building a narrative about a company with strong organic growth and rising profitability is unlikely to work. The business development curves are confusing, and I don’t quite understand why that curve, for example, says 1-6/2023 when it’s clearly about the whole year 2023.

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Zero-defect deliveries as the starting point for all projects sounds like an interesting approach to the construction business. The principle is probably strategically sensible if the business is expanded to developing and owning projects, as it’s certainly not worth building poorly for oneself :grin:

We have completed every project finished so far in 2024 with zero-defect delivery and on schedule. Unusually for the industry, our sites are completed on schedule and in one go, which eliminates the need for lengthy repair or rework. Our delivery reliability has created a strong customer base and reputation in our specialized area.

There aren’t many strongly specialized companies in the construction sector in Finland, so Tekova will be a very good addition to the small-cap end of the stock exchange. Welcome to the list and good luck :+1:

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The CEO responded directly to a question in the interview, which brought up investors’ suspicions about the Lehto background. Primarily, the content of the answer was that Lehto operated in the construction industry with a completely different logic, and it cannot be compared to Tekova’s operations and business logic. In my opinion, there was no direct answer to the potential distrust of investors towards Lehto-background operators, but on the other hand, it is difficult to comment on that now.

The interview itself was interesting. The CEO seemed to be very aware of their current situation, but the future plans for expanding the business logic to the entire supply chain were not entirely convincing, even though he assured that all its components should already be in place within the company.

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A short opinion piece after the interview and press conference. My background includes working for two Finnish publicly listed construction companies and one Swedish publicly listed company. But only at the construction site level.

Cons:
Construction industry. My own experiences from construction sites made me wonder how anyone could make money in this industry. Based on my experiences, I decided not to invest in construction companies. Despite this, Kreate was the first company that, upon its listing, made me hesitate my decision due to its good reputation and figures. However, I did not invest.

Pros:
It was music to my ears to hear that the business idea is not based on doing additional and alteration works. While working for another Finnish construction company, we were instructed to actively seek additional and alteration works, even if it meant a slight exaggeration. When I was younger, it felt like cheating. As I got older, I was more annoyed that I had to spend my time role-playing (=larping) a contract lawyer.

Neutral:
Their actions and presentation seem sympathetic. Growth is often investors’ number one wish, so it remains to be seen how Tekova will stick to its promise of only undertaking profitable projects within its core area of expertise.

Will follow.

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The company seems to have a good momentum, a clear vision for construction quality, and a vision for the beauty of simplicity. However, a few things jarred my ear or remained unanswered in the interview and on the website. I haven’t (yet) watched the press conference.

My background is in design and construction management, both as a designer and a client. I have also worked with investors and companies of this type to some extent previously. I am not an expert, but I will still offer my opinion on this matter.

Motives for Listing
Raising the company’s status and recognition, and somehow listing would support its own real estate development. I don’t understand how these goals couldn’t be achieved without listing. Listing can help, but it’s not a prerequisite. And it’s certainly great to work for a publicly listed company :sunglasses:

Value Chain
The company has a desire to expand its share in the value chain, but there doesn’t seem to be evidence of this yet, or at least it’s not apparent. Does it need to hire more experts for real estate development, or does it already have enough workforce in-house? Real estate development requires deep pockets and good risk management.

Group Structure
The group structure, with its development and regional companies, sounds a bit clumsy for a 50-person corporation at this early stage. The division can be changed later. The website only mentioned a development company, but I believe regional companies were also mentioned in the interview?

Cherry-picking
It’s admirable that the company has been able to select its projects during these times. And it requires great self-discipline to implement its vision so rigorously (not messing around). But as an investment, this seems quite low-yield. I know similar unlisted companies, and the moat is not deep.

Pitfalls of the Construction Industry
“During a boom, the subcontractor rips you off; during a downturn, the main contractor does,” an older chap once remarked.

I am not a pessimist; I will follow the case with interest, but I won’t invest money. This still seems like a more sensible case than Toivo.

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That corporate structure sounds like what Lemminkäinen practiced in the past. Local regional company managers have a minority ownership in their own company, which motivates them to generate profit when their opportunities to influence their own earnings are better. According to the book Lemminkäisen harharetket - Perheyhtiön tuho (Lemminkäinen’s Misadventures - The Destruction of a Family Company), it was once in the entire group’s interest that minority owners ran the regional companies as if they were their own. Subsequently, the new management focused on cutting minorities and expanding head office functions, and that did not end well.

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In this case, a technical listing will also mean that trading will be completely non-existent. The main owner has over 40% ownership, and with employees, ownership exceeds 80%. The lock-ups were at least for the management team, I don’t remember the details offhand, but in an interview, the CEO stated that he hopes someone else would at least sell so that there would be trading in the stock. The valuation thus does not appear very promising on the stock exchange.

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So far, the previous ventures of the people behind this have not enriched small investors. Why would this time be different? Contracting steel halls for clients has never been a goldmine in the construction industry, and it’s worth considering whether some projects have now been prematurely recognized as revenue to get the company ready for listing. Hopefully this is not the case, but for this reason, I myself am not interested in buying the said stock.

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As one observation, I came across news in a construction magazine about the appointment of a new regional director. My initial reaction was that the guy had gotten into leadership positions with relatively little experience, and, by all accounts, from a vocational school background. Well, based on a quick check, the surname matches that of the chairman of the board. Similar appointments are familiar from a few other listed companies as well.

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Are these now Lehto’s former owners? Shareholders? Anything to do with Lehto??

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The company’s management surely also has a lot of expertise in construction. Is the expertise from Lehto also good experience? If one can make a profit from construction during such a time, could there be a lot of potential in the future?

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Yes, it is. A company founded by former directors from Lehto Group. For example, CEO Jaakko Heikkilä and Asko Myllymäki. At least for me, that duo tells everything necessary.
Tekova was indeed founded years ago, but that’s how the scheme works. The end of Lehto’s story was visible years ago already, and once the joy had been extracted from it, the activities continue through the next company. Those brothers certainly have their networks which “naturally come along”. No normal construction company would have really pushed into the stock market with those figures in this economic climate. But when one knows the background, one understands to look at the company’s operations and figures through glasses of the right color.

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New Listing on the Stock Exchange
Trading in the shares of the premises company Tekova began on Tuesday. Tekova listed on the Helsinki Stock Exchange’s First North growth market. The company’s listing was carried out as a technical listing, meaning no share issue or sale was arranged in connection with it. Tekova is a company founded in 2018, specializing in the construction of business, office, logistics, production, and sports facilities.

In the first half of 2024, Tekova’s net sales were 28.1 million euros. The company guides its 2024 net sales to be between 55–65 million euros and its operating profit to be between 4.5–6.5 million euros.

Tekova’s share traded at 0.92 euros at the end of the day, placing the company’s market capitalization at just under 40 million euros.

According to Jaakko Heikkilä, CEO of Tekova, the motive for the listing was to improve the company’s visibility and credibility at this stage. Upon listing, Tekova has the fewest owners on the stock exchange, a total of 175. Almost every member of Tekova’s 50-person staff is among the owners. The staff’s ownership stake in the company is almost 45 percent.

The anchor investor, with a 38 percent stake, is Kaselli, whose partners are Tomi Koivukoski, Asko Myllymäki, and Markus Myllymäki.

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Today we have published the initiation of coverage report on Tekova. It’s great to have a growing, specialized, profitable, and ambitious builder back on the Helsinki Stock Exchange and under coverage.

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The initiation of coverage report is freely available here:

https://www.inderes.fi/research/tekova-seurannan-aloitus-kasvava-toimitilarakentaja

If you have any questions, comments, or thoughts, please send us a message and we will answer to the best of our ability.

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I haven’t read the report, but the forecasts seem quite conservative, at least. Companies whose operating profit decreases in the DCF model’s earnings forecast are quite rare. The underlying assumption here is probably that 2024 is a banner year, where everything goes smoothly.
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You’ve correctly concluded. In the long run, profitability approaches industry averages. So far, we see no reason why Tekova could indefinitely achieve significantly better profitability than the industry does.

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In the short term, one could get a 10-15% quick profit here.
The reasoning is that the price already incorporates quite a lot of risk.
The price is now €0.83/share, so are there opportunities at least in the short term?
This economic cycle can extend the competitive advantage, as competition has been lost due to bankruptcies.

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And based on this report, Olli and Tomi discussed this company. :slight_smile:

Topics:

00:00 Introduction
00:33 Builder of hall-like premises
04:17 Potential in self-developed projects
06:43 Organizational structure and regional companies
08:55 Lehto background in the company
10:10 Market growth drivers
13:11 Strategically profit-first
18:25 Excellent capital returns
23:14 Difficult to achieve clear competitive advantages
27:44 Cyclicality and large projects increase risk level
31:30 Forecasts for the coming years
36:18 Share valuation

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These are words of wisdom.

It was seen with Lehto, it is seen with Tekova, and it will fundamentally be seen with all construction companies, especially when talking about contracting. In a small scale and a good niche, better profitability is possible, but if you want to grow significantly, it requires moving outside your area of specialization, which will gradually be reflected in profitability.

If you see a construction company in contracting whose profitability is somehow significantly better than its peers of the same size, it’s wise to be cautiously optimistic that it will remain so in the long run.

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Olli has commented on Tekova’s order intake. :slight_smile:

Tekova announced on Friday that it had signed nine new contract project agreements in Q4 2024, with a total value of approximately EUR 32.4 million.

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