You see all sorts of things when you live to be old
The forecast figures are already on the company’s website, waiting for Thomas’s extensive report.
You see all sorts of things when you live to be old
The forecast figures are already on the company’s website, waiting for Thomas’s extensive report.
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Hello everyone in the Tulikivi thread!
Our analysis is now available on our website.
This Tulikivi case is interesting. Profitability has improved significantly in a couple of years, and the current year looks really promising. Like many beneficiaries of the “cocooning” trend, I wonder how much of the positive market situation is reflected in the numbers. Our forecasts are quite conservative compared to the company’s financial targets, but we’ll see how well the company can build upon strong comparative figures. High consumer energy prices support demand for fireplaces, but it’s difficult to assess to what extent and for how long this will be reflected in Tulikivi’s sales.
The company is also benefiting from the sauna boom, although the product category’s share of the group’s sales is still relatively modest (around 10%). Here, we see good opportunities for growth with market tailwinds.
Tulikivi uses soapstone mined by itself in its production, which limits exposure to raw material cost inflation and increases the share of semi-fixed costs in the income statement through personnel expenses. Because of this, the company’s profitability is very sensitive to changes in sales volumes, and revenue development plays a crucial role in the investment story.
The talc project brings an interesting twist to the case. Tulikivi is not transforming into a talc producer, so selling the asset is the logical outcome. Selling the project could quickly strengthen the balance sheet and simultaneously lower the risk profile. Currently, risks associated with the project are being reduced by progressing it internally through an EIA (Environmental Impact Assessment) and a financial feasibility study. In valuing the project, we make many uncertain assumptions, and in reality, its value will certainly depend on the buyer. It is important to note here that this is not a liquid asset, and there is no visibility into related negotiations. On some discussion forums, this talc deposit has been compared to Mondo Minerals, which Elementis acquired, but it should definitely be kept in mind that the said deal included much more than just a talc deposit (production, skilled management, a ready product portfolio, customer relationships, etc.).
The company is currently in a silent period, but we will hear about its development again in connection with the Q1 report, which will be published on May 6th.
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It’s good that Tulikivi is now being covered by Inderes.
How much of Nordic Talc Oy’s planned talc project is included in the valuation and/or target price (€0.45) according to the report, or are the calculations primarily/solely based on Tulikivi Oyj’s own business?
The report is open to everyone (no Inderes Premium membership required) and can be found here: https://www.inderes.fi/sites/default/files/company-reports/tulikivi_seurannan_aloitus_0.pdf
This can be found in the valuation (page 32). The image on the right illustrates well how the company’s total value is estimated.
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When modeled separately, we valued the core business at €0.4 per share and the talc project at €0.04 per share. The talc project is peculiar because it has to be approached separately from the core business, and the company alone does not have the resources to take it to the production stage.
It is also important to note here that the value we determined is the project’s value from the perspective of a Tulikivi shareholder, utilizing the assumptions used in the EIA (Environmental Impact Assessment) procedure. It is a moving target, and the project’s progress and the growth of proven reserves can change the applied forecast parameters.
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OK.
The value given to the talc is €2.4 million. If the talc is utilized by Nordic Talc or a third party (sale of the reserve to a third party or granting a right of use for x euros per ton extracted/min xxxxx tons/year), there is upside potential.
Based on the drillings carried out, the total amount of the reserve could still increase to 30 million tons, which is 2.5 times the 12 million tons used in the calculation.
The duration of the EIA (Environmental Impact Assessment) process has been estimated at 1-1.5 years, so the process should be completed this year, hopefully already during the summer.
Nordic Talc has secured a very experienced Advisory Board, which will certainly help achieve the best outcome.
Tulikivi has modernized and made its fireplace and sauna heater collections marketable, so the company should next focus on sales to increase revenue. Due to the high asset intensity of raw materials, revenue growth would significantly improve operating profit.
[quote=“Tero_Saarinen, post:152, topic:10428, full:true”]
Why does the analysis project revenue growth of only 7% for 2022, when the order backlog at the end of 2021 showed a 97% increase?
→ This anticipates a sharp decline in H2, meaning the COVID-19 buying frenzy would quickly turn into negative sales because everyone who considered purchasing did so during the pandemic, effectively pulling sales forward for several years.
Why did the analysis not mention Tulikivi’s opportunity to capture market share from its strongest competitors in Finland? Uunisepät, its main competitor in Finland, did not update its product range to comply with the Ecodesign Directive, but rather sells its outdated models equipped with a sheet metal box.
→ It hasn’t gained that market share until now.
Why was there no mention of the cooperation between Tulikivi and Jøtul?
→ ‘Business as usual’, nothing particularly significant in terms of cooperation.
On March 12, 2020, a stock exchange release was received: “Tulikivi and Jøtul have started cooperation in Finland.” At the same time, Jøtul’s representation moved from Tiileri stores to Tulikivi studios. Jøtul’s (the Mercedes of fireplaces) stoves excellent complement the selection of Tulikivi studios, as there are no overlaps. Jøtul’s stoves are made by casting, and Nibe’s (the Opel of fireplaces) stoves are made by bending sheet metal. Nibe sells its stoves in Finland through individual independent dealers. Tulikivi has Tulikivi studios (almost all entrepreneur-driven) that sell Tulikivi’s four fireplace collections, Tulikivi heaters, Tulikivi interior stones, and Jøtul.
In Heinäveden Lehti on January 20, 2022, sales director Markku Prättälä stated: “A large partner with a turnover of 130 million is sought for German exports.”
Heinäveden Lehti did not disclose the name of the German partner being sought, but Jøtul’s turnover is approximately €130 million per year.
Tulikivi has indeed gained market share from competitors in 2020 and onwards, even though fireplace manufacturers have not participated in market monitoring since 2019.
Tulikivi’s 2020 turnover +1.7% (EBITDA +12.4%), Uuniseppien’s 2020 turnover -11.6% (EBITDA +2.5%).
Tulikivi’s 2021 turnover +14.9% (EBITDA +15.5%), Uuniseppien’s 2021 figures have not yet been published.
Tulikivi renewed all its collections to comply with the Ecodesign Directive, which came into force on January 1, 2022. This enables Tulikivi’s new and good-looking collections to grow and gain market share from competitors. Finally, starting from January 1, 2022, all fireplace manufacturers will compete with the same emission regulations, and Tulikivi will benefit from this.
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It’s hard to see Jøtul’s fireplace sales reaching a new level in Finland in 2022.
The impact of potential new distribution/reseller agreements abroad on sales can only be estimated after their publication. Earnings forecasts probably cannot be based on unpublished agreements. Even after publication, making an estimate is very difficult, so concrete results will only be seen through practical experience.
Since I am not familiar with Jøtul’s business model in the German market, it is difficult to assess the benefits of cooperation for Tulikivi. I would personally think it would be more sensible to conclude a reseller agreement with a local operator than with another export company not operating in its domestic market.
Opening new sales channels abroad would be important for increasing turnover.
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Fire, water and earth.
When living, it is very desirable to have a beautiful garden, a lake view, and a fire to gaze at. It hypnotizes and calms an otherwise busy and restless mind.
That is perhaps the main meaning of fireplaces today. Decorative. A hobby. An amenity and ornament that is hoped to increase the value of a home.
For urban planning, there has been pressure to play a longer game in growth centers by intensifying development. Here in Tampere, at least, the plots allocated by the city are so small that a fireplace doesn’t really seem to fit into a dream home, leading to compromises. For a 300-500 square meter plot, where a 180m2 modern mansion is built, it’s difficult to find space for firewood storage.
Remote work has caused families to move further away from growth centers. Fuel prices impose their own limitations on this. We shall see what the long-term trend is.
For a long time, the fireplace also served as a source of backup energy, in case of various energy supply uncertainties. Russia’s current situation has perhaps slightly reminded us of this need, but for the most part, even today’s boomers no longer fear power outages. There isn’t really backup heating in apartment buildings either.
There are also more sensible solutions for meeting a detached house’s energy needs. The minimum passive energy solutions for construction have been so massive since the 2010 building regulations that, in my opinion, electric heating and good heat recovery ventilation would already be economically suitable, but almost every new house gets geothermal heating and cooling.
Fireplaces are still being built in new detached houses, but for how long? I agree with the extensive report that if a fireplace is installed, Tulikivi is a likely solution.
Sadness came over me when reading the report. 
I personally consider the construction of fireplaces in the future to be a somewhat marginal luxury rather than an acquisition for every home. Soapstone could be used to make all sorts of interesting interior design products. It could be branded for those who enjoy a serene, natural style. But how could these be transported cost-effectively to compete? Do products made of soapstone necessarily have to be interior design products? Rail transport has priced itself out of the market. Truck transport is more cost-effective for many products. Could we talk for a moment about our port fees? So much for the green transition.
The report brought to my attention the situation of Nordic Talc, which was new to me. I have always somewhat considered Tulikivi’s core to be that they have their own soapstone mining operations. Soapstone is an excellent raw material, and they have successfully processed the raw material locally into fireplaces, saunas, and other interior products. The report revealed that Tulikivi itself does not have the financial resources to utilize the talc found in the area.
Finnish logistics, especially near our eastern border, are admittedly challenging. It’s a shame one can’t tag Marin in this message. There would be more mining operations near Kajaani, from which all sorts of products could be made. It would employ wonderful, quiet people. Who would just handle more efficient logistics to Kajaani?
Someone put it beautifully: should Tulikivi sell its fireplace operations after a record year and reallocate capital?
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Yes, logistics are coming to Suomussalmi. The Finnish state is currently building an 81 million euro railway there. The railway will be completed in 2023, conveniently serving Tulikivi’s Nordic Talc as well:
https://vayla.fi/kontiomaki-pesiokyla
5.4.2021 HS: “Kai Mykkänen of the National Coalition Party suggests that Europeans should lower the temperature of their homes by 4 degrees to end dependence on Russian energy”
In winter, from December to March, most energy is needed, but wind turbines don’t spin, and solar panels collect very little energy in severe cold. In such cases, fireplace heating can cut consumption peaks. Without fireplace heating, Finland alone would need one additional nuclear power unit. It will only become clear for all of Europe in December 2022 what will happen to energy prices as we fortunately move away from Russian oil and gas. The past winter already showed a preview, as electricity prices quadrupled from two years ago, but next winter, electricity prices will be significantly higher:
https://www.nordpoolgroup.com/en/Market-data1/Dayahead/Area-Prices/FI/Weekly/?dd=FI&view=table
@Thomas_Westerholm: At the end of 2021, the group had confirmed losses of €12.249 million. Deferred tax assets of €8.199 million have not been recognized from these. Did you take this €8.199 million into account when calculating the company valuation and taxes?
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Such provocative suggestions are probably only made by a few people 
Below is my own valuation of this company, which has an unfortunately poor quality core business but a wonderfully promising mining project:
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Nice to see that the new coverage has generated so much discussion! 
Welcome to the Inderes forum, Tero, you are clearly well-versed in Tulikivi.
Indeed, the growth is based on the assumption that it will slow down towards the end of the year. The order book has admittedly grown tremendously from the previous year, but it is worth noting that the order book rotates quickly and accounts for approximately 19% of last year’s revenue. In addition, the financial statement release mentioned the postponement of deliveries to early 2022 due to a challenging component and logistics situation. In Q4, the growth in order flow was significantly more moderate (+10%).
We did not go into detail about who wins and loses market share due to the Ecodesign requirement, but we did mention that the Ecodesign requirement can rationalize the competitive landscape, support Tulikivi’s competitiveness especially in Finland, and that tightening requirements create opportunities for Tulikivi.
The cooperation with Jøtul could have been mentioned in connection with distribution, but the company has communicated quite cautiously about it, which is also reflected in my own expectations regarding it. The cooperation has not been mentioned at all in the company’s annual reports, so the communication related to it has been limited to the press release you linked. If an expansion of the cooperation is announced, I will write a comment about it and make sure it is included in the next extensive report.
There is upside potential, and if the deal goes through, I expect the price to be higher than that €2.4 million. The value of our project’s NPV calculation is €3.4 million, but we discount it by three years due to the uncertainty related to the start date (the company cannot start the project alone). A similar approach would not be necessary for cash, but that asset is significantly less liquid.
Winning market share may appear staggered from the end-user’s perspective, because, as I understand it, retailers are allowed to sell all fireplaces purchased before 2022, even if they do not comply with emission regulations. This situation certainly confuses consumers to some extent.
This certainly applies to a certain customer segment in certain markets, but it is advisable to be cautious with your own anecdotal observations in companies that engage in exports. 
Elsewhere, for example, the need for an alternative heating method in case of emergency or energy cost savings can very well be the most significant factor guiding the purchase decision.
I guess Nordic Talc is still the most likely moving part. Some may be concerned about a shrinking market like fireplaces, but at the same time, its size still offers plenty of growth opportunities if it manages to gain market share. Of course, a slowly growing/shrinking market typically leads to aggressive competition, but on the other hand, it also limits the number of new entrants. If tightening legislation drives players out of the market / leads to consolidation, the normalized profitability of the industry could rise significantly.
Good catch! We have not fully taken them into account, but after the quiet period ends, I could inquire about their expected usability from the company’s CFO to refine the calculation.
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Well, an analyst could also be more precise with the facts at hand when labeling a claim as anecdotal.
You, the professional analyst; me, the ordinary forum user. Ugh.
My first degree is in civil engineering, though.
Here’s a good Raksystems article about different construction trends and how household wealth affects construction.
Here’s a slightly outdated image of the development of building square meters. Source: Statistics Finland.
One of the fundamental cornerstones of energy efficiency and construction costs is reducing building square footage. This is done at the design stage, even before any discussions with a fireplace supplier have taken place.
Regarding exports, the situation in Russia is what it is. Fireplaces have a better market in the Northern Hemisphere and at higher altitudes. For Finns, when going abroad, it’s always very difficult to understand why people want to build upwards and densely. This trend has been present elsewhere due to urbanization when land is scarce, and now it’s reaching us too.
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Poorly phrased on my part, apologies for that! The point was just that the factors influencing consumers’ purchasing decisions can differ surprisingly much in different market areas.
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I agree that the underlying reasons for purchase can vary greatly across different customer groups and market areas.
The general rise in energy prices is a factor that increases sales.
The refreshed design of the product range will certainly help sales significantly, and its importance is emphasized when a fireplace is acquired as an interior design element.
Even if the company’s profitability remained at its current level, it would mean net debt-free status in approximately four years (free cash flow around €3 million/2021) and a reduction in the gearing ratio to a tolerable level much sooner than that.
Thomas; Aren’t Tulikivi’s reported earnings burdened by Nordic Talc’s costs? If so, the core business’s profit has been better than reported (for 2021, we are certainly talking about an order of magnitude of €300 - 500k).
It’s precisely when you can’t really use engineering balance sheets or industrial economics cost and payback calculations to determine the true justification for acquiring a fireplace in the name of energy efficiency. At least not if you don’t embellish the numbers and “forget” to calculate everything. But that’s what those small house building budgets tend to be, of course.
In energy efficiency, competitors include, for example, passive building, i.e., effective insulation of buildings and other more effortless renewable energy sources. Of course, I’m not familiar with the building codes of many countries and the way states support the use of renewable energies and energy efficiency.
For example, in Germany, the state has long supported the development of renewable energy forms such that 20% of a building’s energy needs must be produced with renewable energy. At least in the past, solar panels received some kind of energy subsidy per installed square meter of panel. This makes installing solar panels an affordable option for builders, which is why solar panels are used more in Germany than in Finland.
In Finland, the National Building Code (Rakennusmääräyskokoelma) in turn provides relief in the allowed U-values for the walls of log buildings, which aims to give our log building industry time to find more energy-efficient solutions.
I do know about things like these, for example, and they generally aim to support some local business. But do you have an example that supports fireplaces specifically in the context of energy efficiency, promoting renewable energy forms, and the trends of urbanization?
I myself easily stick to my original claim regarding fireplaces, that a fireplace is first and foremost a hobby, a decoration, and a luxury. Its installation might feel important if there is fear of power outages or a state of war.
Many small house builders feel that it would be nice to have a fireplace. There is also often the misconception that burning a fireplace saves money. But firewood also costs money, and the price of wood has also gone up. Increasingly, when cutting construction costs, a compromise is reached that a fireplace is not needed after all, and it is a lot of work. 
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That’s certainly one way to look at it.
There’s probably a wide variation in fireplace ownership in residential homes, but I’d guess most holiday homes have a fireplace, as a live fire is considered an essential element of a holiday home.
In itself, an increase in wealth allows for decisions that are not purely economically justified.
For Tulikivi, the product is in good shape, which is why investing in international sales channels is essential for increasing turnover.
The expenses related to the Nordic Talc project are mainly capitalized on the balance sheet, so the project primarily affects the cash flow statement, but through depreciation, for example, it impacts the income statement. However, its effect on the reported profit should be significantly smaller. There is also cladding stone business in Suomussalmi, but I cannot say to what extent the resources of personnel focused on the core business have been utilized in advancing the project.
In the DCF calculation, we have a certain standardized model, which results in some differences compared to the reported figures. The biggest factor causing this difference here is the IFRS-16 standard implemented in 2019, which results in rental expenses being recorded as part of depreciation, even though they have a cash flow impact. Since we add depreciation in its entirety to operating profit, we have to account for rental expenses in gross investments in the model. This effect is emphasized in rental-based retail companies like Tokmanni and Kamux.
It is entirely possible that I am overestimating Tulikivi’s investment needs, especially for individual years, but if we go back more than 10 years in history, the company’s investment level was considerably higher than in recent years (of course, the size of the business was also in a different league). In my forecasts, Tulikivi grows from here to eternity, except for 2023, so the company’s profile changes completely from its pre-corona nature. Therefore, the assumption of growing investment needs is, in my opinion, appropriate.
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Thank you for your answer. In other words, investments made in Nordic Talc have not reduced profit but have decreased cash flow.
My understanding is that the largest start-up cost for the talc project relates to the acquisition of machinery and equipment, as the company has stated that the existing factory building can be utilized for the new Nordic Talc operations.
Regarding the removal of topsoil at the quarry, my understanding is that the entire area does not need to be excavated immediately, but can be done during operations as mining progresses.
Would it be possible to ask the company’s own view on the start-up costs during the next earnings release?
I have been wondering that if the company’s intention was not to start operations but to sell the business to an external party, would there be a need for such an experienced Advisory Board, and would individuals join if the intention was to sell the business to an external company after obtaining permits? Time will tell.