In the big picture, I see Titanium as a dual-natured entity.
First, there are the funds, primarily real estate funds, whose recurring fee income alone amounts to approximately €18 million per year for Titanium. The average lease term for the properties owned by the funds remains significantly long. At Titanium, basically three people handle the practical operations of the real estate funds. Of course, they also employ administrative staff, and many tasks are certainly outsourced. However, there are about 140 properties and an additional 450 apartments.
But it is quite difficult to justify multiples where the value of the funds to Titanium would be less than €150 million. (At a recommended price of €6 per share, Titanium’s market cap is about €60 million. That is, 40% of the value of the real estate funds.)
On the other hand, Titanium has a large staff that forms an expert/sales organization for the company.
Titanium’s primary product for sale has been real estate funds. And as is well known, since interest rates began to rise in 2022, real estate funds have not exactly been a hit product over the last three years.
Consequently, the expenses resulting from Titanium’s large headcount have consumed a significant portion of the company’s income without sales generating corresponding revenue or growth. However, Titanium values its staff and has invested significantly more in them.
Besides Titanium having a strong income stream from real estate funds, the Titanium investment case is primarily about how the expert/sales organization can be successfully utilized in the future.
Titanium updated its strategy just under a year and a half ago. According to the new strategy, in the long term, a significant portion of income will come from products and services other than the current ones. Meaning, other than real estate funds. Currently, it is clearly visible that the company is transforming into a wealth manager. The long-term strategy is thus being implemented through wealth management, and in the long run, a large part of the company’s income would come specifically from wealth management.
The need for this change and its logic is clear. For a “product house,” which Titanium has been until now, it is challenging to maintain its own extensive retail sales organization. It largely requires the company to have exceptionally good proprietary investment products that scale well and can be sold effectively and continuously. In competitive markets, year after year. The Acting CEO’s mention during the earnings call—that a product house with its own sales organization can work well in suitable market conditions—likely referred precisely to this. The deep freeze of the real estate market over the past three years has been a harsh example for Titanium of the difficulty of reconciling a product house and an internal sales organization in changing market conditions.
On the other hand, having a product house and a wealth manager under the same roof might not be entirely without its problems either. A wealth manager should always strive to offer its clients the best possible investment solutions. If proprietary products are for sale under the same roof, there may be a temptation to sell one’s own products rather than what is best for the client.
In my opinion, a good solution—which I suspect Titanium is aiming for with the new strategy—is to differentiate the real estate fund products from the sales/expert organization, i.e., wealth management. If successful, Titanium could effectively utilize its extensive sales/expert network in changing markets through wealth management.
A large portion of Titanium’s staff comes from the Investium era, which was essentially already a wealth management company. I understand that 40 percent of Titanium’s owners have a strong background in similar fields. The wealth management concept as a principle is therefore not a leap into the complete unknown for the staff or the main owners. Although there is certainly a need for updates to meet modern requirements.
