1. Nurminen Logistics
The company is in tremendous earnings shape, and its market cap is only €76M. Growing international rail transport enables a very high return on invested capital (30%), and the business does not tie up working capital, which can be funneled into developing rail operations in the Nordics, Europe, and Asia through acquisitions. I believe the company will make an acquisition in Sweden next year, aimed at growing rail and multimodal transport in the Nordics. An acquisition would also support the new Trans-Caspian route and a possible “China train” in the future, should it open up again someday after the war. Sweden has 3x more industry suitable for rail than Finland, which Nurminen could transport to various parts of the world. Based on Inderes’ fairly conservative forecast for next year, the P/E is 6.3x, where I see significant upside as the company begins to be priced as a growth company rather than a turnaround case. The company was previously a distressed company when equity turned negative due to years of losses in 2020, and the cessation of the China train last year made it a turnaround case, but the company has proven its ability to adapt. One reason why Nurminen is an interesting investment is that they are modernizing a very traditional industry with untapped potential. The company’s margins are among the highest in the industry, which I believe will continue thanks to an efficient organization. The Baltic operations also benefit from sanctions against Russia, as freight no longer flows to Russian ports but to Latvia. Nurminen’s case relies heavily on its team, which opportunistically seeks new business opportunities, as evidenced over the years by the China train, Nordic rail transport, Trans-Caspian, and the acquisition of North Rail—all areas where Nurminen acts as an industry pioneer.
2. HKScan
A “cigar butt” case that relies on structural arrangements to escape a debt trap. The turnaround of the Finnish business has moved in a better direction, and earnings power is, as I understand it, at record levels after a decade of struggling; this year, an operating profit of €24M could be achieved. If the Finnish turnaround is permanent, the stars would be aligned for the first time regarding structural arrangements and the ownership base (Finnish operations will never be sold due to the cooperative). If the Swedish and Danish operations were sold, HK could clear almost all of its debt, leaving only lease liabilities in Finland. At its best in 2021, Sweden generated an operating profit of €22.6M and the company has assets, so the Swedish operations could fetch €200M, considering the loss-making Baltic business fetched €70M + a €20M contingent component for possible profit improvement (€55M paid). Denmark is also in the best shape of its life right now and could perhaps fetch €50M. The Finnish subsidiaries remaining in the company have plenty of losses that can be utilized for tax purposes in the coming years. If the Finnish operating profit stabilized at an annual level of €24M and other businesses were sold, the company would make a profit of approx. €20M after financial expenses at a 0% tax rate. The company would then be priced at 2023 P/E figures of 75M / 20M = 3.75x and EV/EBIT (including the €28.9M hybrid in the calculation): (75 + 300 + 28.9 - 200 - 50 - 15) / 24 = 5.7x. This is, of course, a very rough calculation made with a superficial review of the company.
Negative scenarios are certainly possible, but the company is unlikely to go under since it still has the Danish and Swedish businesses that could be sold at a reasonable price, and a good turnaround is underway—one that has been awaited for a decade. The stock still sits near all-time lows (ATL). I see it as possible that the stock doubles after structural arrangements, giving the company a new beginning. This has some of the same elements as the Reka Industrial restructuring, after which the stock doubled.
3. Componenta
This is my pick for next year’s acquisitions. The market cap is only €22M, and in my view, the ownership base does not prevent a possible acquisition. Componenta also has the opportunity to develop its own business organically and through acquisitions, which the current balance sheet and years of scraping through corporate restructuring would enable.
). We’ll get a clean fiscal year in the quarterly reports, and business performance will be more visible. Bonuses include, among others, the real estate sale in Tallinn and a potential divestment of HTJ.
