€2.6 (2.05) and Add (Reduce). The expectations are for every Nokia investor’s favorite year, meaning the results are expected to be weighted towards the end of the year. It’s going to be exciting.
It’s hard to say what to actually expect from this year. Hopefully Q1 will provide some indication, now that the staffing operations have somehow been kicked off. Of course, based on Inderes’s forecasts, a P/E of 10 for a transition year like this, where new businesses are being launched, doesn’t seem very expensive if you consider the normalized earnings power to be about 50% higher. However, there is quite a lot of risk associated with those forecasts as well. I’m still a bit puzzled by the eager dividend payout, given the cash situation as it is, and the fact that money should probably be put into those new business areas as well.
I assume that in a year’s time, the stock will be priced at different levels. It remains to be seen whether we’ll be higher or significantly lower.
It certainly is going to be exciting. The reason why the result at Wulff is now particularly weighted towards the end of the year is due to the school trade (4-5 MEUR) and Wulff Works, which we estimate will grow towards the year-end. If Works reaches the approximately 15 MEUR revenue we’ve forecast, significant revenue changes must start appearing in Q2-Q4. In the school trade, seasonality slightly changes the picture for Wulff, as purchases are made during Q1-Q2, which undoubtedly ties up a bit more capital than usual. Deliveries then occur more during Q2-Q3, which is reflected in the revenue.
The valuation is not extremely high, and if those profitability concerns turn out to be clearly temporary, the stock definitely has potential. However, very little is known about Works at this stage, and the market for workplace products is challenging, which adds to the uncertainty surrounding the stock at the moment.
The first construction workers in Wulff Works overalls were spotted in Tampere earlier, so operations have at least started here. https://www.wulffworks.fi/ has also launched. There appear to be job openings available. Hopefully, they can find workers for the positions as well.
Juho Toratti has written a piece on Wulff that can be read in just a few minutes.
In the Stock Tool (Osaketyökalu) scoring, Wulff Group receives a full ten points for its dividend. The company’s dividend policy is to aim for a growing dividend, and the company has been able to achieve this since 2017. The scores for dividend growth and stability are also excellent in the Stock Tool.
Here are Olli’s comments as the company announced it is changing its reporting structure starting from 2024 and published comparative data for its new segments for 2023.
Olli has been in a bit of a pre-game mood, as Wulff is releasing its Q1 results on Monday, April 22, 2024.
Wulff, which provides a wide range of workplace services and products, will publish its Q1 results on Monday, April 22, 2024. We expect revenue to continue to decline in Q1 due to a weaker market. We expect the decline in volumes to also have a negative impact on profitability. We expect Wulff Works, launched at the beginning of the year, to have started well based on the activity we have monitored, which is why we also slightly raised our forecasts. As a result of the forecast changes, we are raising our target price to EUR 2.80 (prev. EUR 2.60), but lowering our recommendation to Reduce (prev. Accumulate) following the share price rise.
It’s interesting to see how Wulff Works, which started at the beginning of the year, will affect the group’s figures. Of course, the interim report might not necessarily provide an answer to this question since there is other business in the same segment.
As a business, especially in these early stages, staff leasing seems to be the kind that provides revenue, but costs can be surprisingly high. In itself, staff leasing can offer Wulff the kind of revenue boost that hasn’t really been possible by selling copier paper and staples. There are certainly risks associated with this new business, but the people running the operations have a strong track record of success. I also noticed that Wulff Group had highlighted on LinkedIn, from the company update mentioned in this thread, specifically the sentence “we expect Wulff Works, which launched at the beginning of the year, to have started well.”
Wulff’s stock is quite low-volume and was down slightly today and yesterday. I bought a bit more Wulff in this minor sale with dividend money accumulated in my equity savings account just before the interim report. The report could either surprise positively on the revenue side compared to Inderes’ estimate, or the costs mentioned in Olli’s writings are very front-loaded and the report will be a shock in terms of costs and profitability. I’m looking forward to next week with interest in any case.
As I understand it, net sales were above and the result slightly below Inderes’ expectations, depending on whether you look at reported or comparable figures. I haven’t dug into the items affecting comparability, but there’s all sorts of activity going on, e.g., the ramp-up of Works, so perhaps no surprises there.
Cash position grew €0.15m > €0.76m. Cash flows were negative, though, so this was achieved through credit. Cash flow from operating activities was about €0.7m negative.
Perhaps the most essential part of the CEO’s comments is this:
I am particularly pleased with the start of the personnel leasing business Wulff Works, which launched at the beginning of the year, in line with expectations for January-March.
There are quite few actual figures for Works as it’s part of the Workplace Services segment, but I found this:
Wulff Works had an average of 47 (0) temporary employees in January-March 2024, calculated in person-years.
I think it’s a pretty good start to the year, since Works has seemingly started rolling well and the figures are decent, even though the market is still not favorable.
Overall, it was a pretty good report. Profitability (adjusted) and revenue were slightly above our estimates. Especially the 50% growth in the Services segment in this market was a pleasure to see. Wulff Works has indeed gotten off to a good start based on the report. Client accounts have been won and revenue has already accumulated nicely (judging by the segment’s figures). The Group’s cash flow also improved and should clearly turn positive towards the end of the year as working capital is released. In the early part of the year, purchases are often made for inventory for the year’s deliveries, so this increases inventory levels.
How has that success/expectations been calculated/defined for Works? 47 rental workers converted to full-time, averaging 155-160 hours per month, doesn’t look like much yet. It probably generates about €600k-€700k in revenue for Q1, though the weight is likely on March. But despite that, there is over 14 million left to catch up on for the final nine months compared to the promises.
Of course, the start doesn’t show a run rate reaching the €15 million target yet, but hardly anyone expects that. One must remember that the company started from scratch and had to set up the organization during the first quarter. After that, acquiring customers and recruiting workers just to generate revenue. In that sense, I think this is a good performance, and it is likely that revenue accumulation will accelerate significantly in the coming quarters. Of course, there are risks involved, especially since the market in the staffing industry is uncertain.
The stock seems cheap, given the revenue of 93 million, profit after taxes of over 2 million, a 6% dividend, and new business in the staffing sector with the potential to grow revenue by another 100 million. The company’s market cap is 16 million! It’s a bargain. Heikki Vienola is a well-known salesman and surely has various business ideas planned for the future to grow and develop the company’s operations.
For comparison, Talenom has revenue of 120 million, profit after taxes of just over 3 million, a 3.5% dividend, and a market cap of 228 million. Wulff has also entered the accounting services business.
“Following the completed acquisition, the Wulff Group’s accounting and financial management services’ combined annual net sales are expected to be approximately EUR 4 million, and more than 40 professionals will serve customers. The transaction is expected to have a positive impact on profitability.”
Small deal, but a good addition to Wulff Economy. Very good profitability as well, if Wulff’s adjustment is taken into account.
EDIT: We supplemented the comment slightly regarding the valuation section. Now the figures have been reviewed on an EV basis and the structure of the deal has been clarified a bit.
Here is a fresh deep dive report by Olli, which, like other deep dive reports, is available for everyone to read. It’s a really good comprehensive report, so it’s definitely worth reading. I recommend opening every deep dive report that is published—I don’t mean you need to read them in full, but they often contain general information that might be useful regarding other companies.
Regarding the figures, there is no historical data, as the former Expert Sales (Asiantuntijamyynti) segment is now included in the product segment. The segment cannot be compared to history in the same way as the product segment, as most of the current segment’s services were in the Contract Customer (Sopimusasiakas) segment before the change. However, last year’s figures clearly show that the segment is smaller than the product segment.
Profitability, on the other hand, is likely more stable than the Expert Sales segment has historically been. In addition, we believe the growth opportunities and profitability potential of the segment are better than in the past and also better than the product segment.
According to our estimate, the profitability level of the services, measured by the EBIT margin, could rise to the 4-8% level using average industry profitabilities. Wulff also aims to invest in growing the service business
There’s a fresh comprehensive report above, available for everyone to read.
Additionally, @Sara_Antonacci interviewed @Olli_Koponen about Wulff in connection with the comprehensive report.
Topics:
00:00 Introduction
00:14 Company description and business model
01:28 Business segments
07:28 Segment markets and Wulff’s market position
13:30 Improving growth and profitability
17:59 Financial situation
20:56 Value drivers
23:29 Risks
25:46 Forecasts and recommendation
Olli has written preview comments as Wulff releases its Q2 results next Thursday.
Wulff, a provider of workplace services and products, will publish its Q2 results on Thursday, July 18, 2024. We expect Q2 revenue to be at the level of the comparison period and profitability to remain at the same level.
I’ve been reflecting on this after reading the report and listening to the interview. Predicting M&A. This applies to the Wulff case as well. In the Wulff forecast, no upside is factored in for potential acquisitions, and it states: “the cash position doesn’t provide opportunities for deals etc. in the coming years.” However, the company itself has made small and slightly larger acquisitions over the years at reasonable prices. For example, in the accounting services segment and a few years ago in the office supplies sector (the latter resulted in a value write-up on the balance sheet).
In my view, an analysis stating that the balance sheet doesn’t allow for acquisitions and “we don’t forecast them” is contradictory and unfairly negative towards the company. This is especially apparent with companies that have executed acquisitions with at least reasonable results. If M&A is among the company’s objectives and they are executed consistently, impacting both earnings and revenue, then acquisitions aren’t just “rabbits out of a hat”—they are part of the company’s business operations.
For instance, when I spoke with Revenio’s Robin about how much time goes into reviewing potential acquisitions, he said, if I remember correctly, 10–60% depending on the situation. If acquisitions aren’t forecasted, should we then forecast better profitability for all companies? Even though these costs often get buried in group expenses. When a limitation is seemingly made not to forecast deals, the companies’ profitability is not realistically reflected in the 12-month targets.
Ps. I know this is very difficult for an analyst, but it’s something a stock picker should take into account.
