Intrum Justitia-Lindorff merger

Hey there, Investor!I should totally be writing on other stuff… not investing or blog related stuff… But this is so much more fun, and that’s why I’ll be taking a look at the announced merger between Intrum Justitia and Lindorff!

What’s going on?
Intrum Justitia and Lindorff announced that they were suggesting a merger. The new company is going to be listed in Stockholm, but the CEO is so far unknown. Intrum Justitia jumped 37% on the announcement but has now fallen back all of that gain. This has gained some attention, because of some special happenings around this deal. First of all, some larger shareholders said that they were not informed of this deal before its announcement. Secondly, this deal is going to cost around 1 bn SEK and significantly weaken IJs balance sheet. The deal will be concluded by Intrum Justitia purchasing all shares of Lindorff, paid with shares of IJ. Both IJ and Lindorff boards are positive to the deal.

Intrum Justitia (GoogleFinance-STO:IJ) was founded in 1923 in Sweden, and listed in Stockholm 2002. IJ is the leading Credit Management Services group. IJ has no major shareholder and is active in 20 countries.

intrum_logo_colour_3d_140mm150dpi

IJ has 13.6 bn SEK in assets, of which 2.9 bn is Goodwill and 8 bn is purchased debt. They have 3.6 bn of shareholder Equity and 6 bn Long term debt. Trailing twelve months IJ had 5.76 bn SEK revenue and ttm EBIT is 1.8 bn SEK.

Lindorff was founded in 1898 in Norway, and is the leading (apparently leading does not mean the leader, or they are very clever with the wording) credit management partner, and Lindorff is active in 13 countries. Both companies are simultaneously active in 11 countries.

Lindorff has 3.4 bn EUR (~33,4 bn SEK) in assets, of which 1.5 bn EUR (14.7 bn SEK) is Goodwill, and 1 bn EUR (9.82 bn SEK) is Loans and Receivables. They have 774 m EUR (7.6 bn SEK) of Shareholder Equity and 2.2 bn EUR (21.6 bn SEK) of long-term debt. Big asterisk here, more on that later. Trailing twelve months Lindorff had 610 m EUR (5.99 bn SEK) of revenue and ttm EBIT is 160 m EUR (1.57 bn SEK).

lindorff_logo_rgb_3551

Important things to note with Lindorff is their very complicated ownership, and 1.9 bn EUR of internal loans.
Lindorff seems to be wholly owned by Nordic Capital Fund VIII, through a series of holding companies. As far as I have understood, this is how the ownership structure looks like: Lindorff, wholly owned by Indif AB, which in turn is owned by (w.i.t.i.o.b) Lock A/S, w.i.t.i.o.b Lock Lower Holding AS, w.i.t.i.o.b Lock Upper Holding AS, w.i.t.i.o.b Lock Topco AS, w.i.t.i.o.b Cidron 1748 S.á.r.l., and Nordic Capital seems to own Cidron 1748 S.á.r.l. I might have misunderstood all of this, but the point is that the ownership is quite complicated.

Now that is out-of-the-way, I noticed in the notes of Lindorff’s third quarter of 2016 report that there are 1.9 bn EUR of bonds emitted, to Lock AS and Lock Lower Holding. the coupon on these bonds range from 3 month EURIBOR + 5.5% to 9.5% and 3 month STIBOR +8.775%. The bonds range from 30 m EUR to 253 m EUR. If my calculations are correct the total bonds issued will cost 131.5 m EUR, which is a Cost of Debt of 6.91%. Lindorff also mentions the fact that they are in “discussions” with tax authorities regarding the deduction of interest costs. I am no master in these kinds of things, but I’m pretty sure this is what “tax optimization” looks like.

Intrum Justitia – Lindorff
What will the new company look like, and who would be the owner?

The new company would be active in something like 23 different countries, and have a portfolio of purchased debt of ~18 bn SEK, and total assets would amount to roughly 47 bn SEK. The new ttm revenue of IJ and Lindorff is ~11.7 bn SEK, and ttm EBIT would be 3.37 bn SEK. I calculated this by adding IJs numbers to Lindorff’s numbers, which totally neglects any costs or synergies incurred due to the merger, those will be discussed later. After the deal, Nordic Capital will indirectly be the largest owner of shares.

The newly formed entity will have approximately 27.6 bn SEK of long-term debt. On top of this there will be a “bridge facility” (read more debt) of 3.4 bn EUR and 850 m EUR more debt, in total 4.35 bn EUR (42.7 bn SEK). Some of this debt will be used to refinance Lindorff and to “provide certainty of long-term financing”. If all of Lindorff’s bonds are refinanced using the bridge (which they have said they won’t) the new company would have a total of 42.33 bn SEK. If my calculations are somewhat correct, the new company will have ~11 bn SEK of equity, giving us a debt to equity ratio of 3.8. IJ shareholders will own approximately 53% (55%, see update at the end of this post) of the post-merger company, and Nordic Capital will own ~47%. If I have my head on straight, given IJs current market cap of 20 bn SEK, the post deal company is valued at 37.7 bn SEK, based on the valuation of IJ. (20 bn / x = 53% -> X=37.7 bn). (Is the difference between 11 bn and 37.7 bn going to be Goodwill, or did I make a mistake?) This valuation indicates a P/B of 0.8 and a P/EBIT of 11. I know that my calculations are very rough, and they might be completely wrong (if so, please let me know!), and that is why YOU SHOULD ALWAYS CONDUCT YOUR OWN ANALYSIS!

Also if I am not mistaken, the Enterprise Value of the post deal company would be something close to 37.7+42.3-0.339-0.273 = 79.388 bn SEK. This gives us an EV/EBIT value of not so cheap 23.5. (79.388/3.37=23.5).

Arguments for the merger
The arguments speaking for this deal are cost and revenue synergies. an estimated 0.8bn SEK of cost synergies in full effect after 3 to 4 years. Furthermore, it is estimated that Intrum Justitia’s EPS will grow by 75% over a 3 to 4 year period.
Other arguments for this deal are; the fact that the new entity will be unmatched in scale and diversification, good strategic fit between the companies, larger geographical market, Cultural fit (Swedes ❤ Norwegians), and good position for future growth through investments.

Arguments against
However, the deal will incur costs of roughly 2 bn SEK split equally between the companies, as well as more debt and issuance of new shares of Intrum Justitia to Lindorff shareholders. The post-deal company will have a weaker balance sheet compared to Intrum, but better than Lindorff. Furthermore, it has been argued that it appears to be Intrum Justitia that has to pay for Lindorff’s refinancing.

My conclusion
I think the outlook for the Post-Merger entity are good. Intrum Justitia and Lindorff have a lot of industry experience, and the increased size might give the new organization opportunity to grow through acquisitions. However, it seems that IJ shareholders have to pay for Lindorff’s “peculiar” debt refinancing. Furthermore, the deal was made in a very short time span, ca 6 weeks of discussions. And on top of that the IJ CEO owns zero shares (purchased 1500 shares at approx 307 sek/share.), and did not seem to be very interested in doing so. This might be a reason for the high price Intrum Justitia shareholders has to pay, standard principal-agent problem To be clear, the new company will probably lack a majority shareholder of meat and bones. Nordic Capital will be the biggest owner, and hopefully that leads to a more invested owner than IJ currently has. However, risk capital firms are not unfamiliar with “management by maximizing-return-on-equity-while-not-giving-f**k”. Ideally I would like to have a new CEO of the new company who has a significant financial investment. The CEO of Lindorff did at least own some shares of Lindorff through a compensation program, but he did not know how many. It’s probably not a significant part of his portfolio, or he just didn’t want to give the number away. The deal is expected to be done in the second quarter of 2017, but it still needs the final approval from the competition authorities.

Here is a bullet point list of the pros and cons in my view:

  • Pros
  • EPS growth 75% over 3-4 years, according to the company.
  • Growth outlook, and leading in Europe
  • Cost synergies
  • If my calculations are correct (probably not the best way of calculating M&A’s), it is cheap at P/EBIT 11 and P/B 0.8
  • Cons
  • Not so cheap EV/EBIT of 23.5 (depending on growth, can we expect 75% over 3 years?)
  • Lindorff’s debt situation
  • Lindorff’s strange ownership – by-product of Nordic Capital?
  • Hasty decision to merge with Lindorff, 6 weeks of discussions?
  • Faceless owners, no skin in the game. Risk capitalists are not famous for being long-term value creators…
  • Lindorff in open cases for tax deductions of interest cost
  • Debt to Equity 3.8
  • Pricy deal

I think there might be a positive outcome of this deal, but there are some question marks regarding Lindorff. But I would love to hear what do you guys think!

Have a good day, and may the profits be with you!
-Samuraimannen

Other opinions on the deal
Glass Lewis and ISS recommends shareholders to vote for the merger
Erik Selin (1% of IJ) is positive to the deal
Simon Blecher (Carnegie) sells his stake in IJ, however Carnegie renews their buy-recommendation
Danske Bank likes the idea, but the deals terms are too much in favour of Lindorff

Full disclosure
I own shares of Intrum Justitia at the time of writing, and I intend to own the post-merger as well. currently IJ makes up 3% of my portfolio. I plan to increase my holdings in IJ. Remember to always do your own analysis, don’t ever make investing decisions based on what you read here, or anywhere for that matter.

Update
Because some of the funds holding a combined 17% of Intrum Justitia stated that they would not vote to pass the deal, because they thought the deal was too much skewed in Lindorffs favor, the terms of ownership have changed from 53% to 55%. This made them happy and the deal has now been voted through. Now we are waiting for the competition agencies to give the deal a green light.
Furthermore, the CEO of Intrum Justitia purchased 1500 shares of IJ at a price per share of 307 sek. I would guess this is because it does not look good with a chef who does not eat his own cooking. This could also be an indication that he is to be the CEO of the post-merger company.
This update does little to change my view, it is good that IJ gets a lager share of the post-merger company, but an increase of 2 percent units is not that impressive. I also see the IJ-CEO share purchase as purely symbolical, and that carries very little value in my eyes.

Numbers at the time of writing
1 EUR ~9.83 SEK
1 NOK ~0.11 EUR
1 SEK ~0.10 EUR
3m EURIBOR -0.313%
3m STIBOR -0.567%
3m NIBOR 1.15%

Sources:
https://www.intrum.com/en/about-us/https://www.lindorff.com/en/about-lindorff

EURIBOR: http://www.euribor-rates.eu/euribor-rate-3-months.asp
STIBOR: http://www.riksbank.se/en/Interest-and-exchange-rates/search-interest-rates-exchange-rates/?g5-SEDP3MSTIBOR
NIBOR: https://www.oslobors.no/markedsaktivitet/#/list/nibor/quotelist

Lindorff Ownership
lock aslock lower holding aslock upper holding aslock topco as
Google: Cidron 1748 S.á.r.l.

Quick update – Life and Portfolio

Long time no see!
I have been having my hands full this spring and summer. That’s why I haven’t had the time to post at all lately.

Here’s a quick update for you out there, I have spent all summer working, and this semester (Autumn 2016) will be spent abroad! I’m currently attending an exchange semester in Oslo, at the bachelor level. I have been here almost two months and so far it has been so much fun! Both to meet a lot of new and exiting people from all over the world, and I have made so many new friends. As well as attending a higher quality university than the one in my home town!

In preparation of this, I have been working a lot. Both with my studies as the spring semester finished up, but also with my working situation. I got work during the summer, but this started a little too early, so it overlapped quite a lot with my studies AND my part-time work. (So happy that situation has passed, and that I made it without getting burned out as F…)

This also required me to simplify thing relating to my investing/personal finance. I have sold off a lot of my stocks, not because I don’t think they are good investments, but because I don’t have time to be as active as I want with my investments. Therefore I had to sell all my international investment, keeping the Swedish investment companies. I have also set up automatic investments in two different global index funds (Länsförsäkringar and SPP), and two different emerging market index funds (also Länsförsäkringar and SPP). Both are low-cost passive index funds.

I am also breaking up with one of my two internet brokers 😥 . But for simplicity I prefer to have everything in one place. I  am still far below the level of Deposit Insurance  so that is not an issue here, but when that becomes an issue I am not reluctant to go back to having two brokerages.

That said, coming back to the topic of my education. I have seriously considered taking a standard Bachelor+Master instead of the very Swedish/Nordic Civilekonom (4 year programme)+5th year master. This means I have to really apply myself next semester to clean up the courses I did not pass, as well as writing the bachelor thesis. Since I aim towards an international career, the Civilekonom-degree is not very recognized outside of the Nordic, so I think it is more preferable to get a standard 3-year bachelor from my current university (not the worst, but not a good one) and aim for a master at a more well-renowned university (hopefully SSE (HHS)). Also because I would prefer living somewhere other than my home city, one year less in that place is something I would like.

Here in Oslo I have also got my eyes open for the possibility for a career in management consulting. Pros are variety, analytical, travel, interesting. Cons are hard work, long hours, non-entrepreneurial… I’ll definitely think about it, perhaps try to get an internship to see what it’s like.

Well folks, I think that’s all for now. This ended up being quite a personal update kind of post, but I will update my portfolio page as well! It also became longer than anticipated! I’m off to my new hobby and way of exercising, Muay Thai.

Stay safe out there, invest wisely, and have a great day!
-Samuraimannen

Samuraimannens Börselva

Det är tydligen den tiden på året igen, Avanza frågar hur din #Börselva ser ut.
Jag är inte fotbollsintresserad, men jag är en aktienörd så det bara smäller om det! Därför har jag satt ihop Samuraimannens börselva!

Jämfört med förra börslaget är det lite aggresivare och mer sedvanligt (endast en målvakt)!

Börselva 2016.jpg Börselva 2016.jpg

Målvakt
Stabila och pålitliga Castellum står i mål. (Hade även kunnat vara Realty Income)

Backar
Lundbergs och ICA Gruppen, 3M och Johnson & Johnson, alla med breda bussinesses och god defensiv förmåga.

Mittfält
Defensivt och offensivt, Investor kan det mesta. Bra centerposition som både kan driva anfallet och hålla defensiven

Yttre mitt
Munich Re och Coca-cola, de kommer alltid finnas på kanterna, med på offensiv och defensiv. De är pålitliga och kompetenta!

Forwards
Här kommer de förväntade målskyttarna, Tesla kör på i toppfart tillsammans med Paradox och HM!

Med det sagt, tack för att du läste, och hoppas DIN #Börselva går bra under EM!
-Samuraimannen

Detta är bara mina personliga åsikter, se inget du läser här som råd utan gör din egen analys!

AcadeMedia

Ännu en spännande notering på gång, så spännande att jag kände att jag måste skriva några rader om AcadeMedias notering. AcadeMedia är enligt dem själva Nordens största utbildningsföretag, de har drygt 60 000 elever och ca 80 000 vuxendeltagare. De har ca 14 000 medarbetare varav 200 på koncernnivå. AcadeMedias varumärken innefattar Hermods, Pysslingen, Plushögskolan, Framtidsgymnasiet, Vittra och NTI-Gymnasiet.

Idag ägs AcadeMedia av ett EQT-ägt bolag, och dessa ser nu till att göra en så kallad exit. När jag tittade snabbt på siffrorna verkade tillväxten ha varit stabil, 6% marginal och 30% soliditet. Däremot har marginalerna sjunkid de senaste åren.

Här är en bild från AcadeMedias hemsida:

Nyckeltal-201415.jpg Nyckeltal-201415.jpg

Nu till riskerna. De uppenbara riskerna är politiska risker. Vissa är strängt emot så kallade friskolor, det vill säga skolor som inte drivs av Stat, Kommun eller Landsting, men är finansierat av skattemedel. Detta sker via en så kallad skolpeng, vilken beräknas efter kommunens beräknade kostnad för skolan, och betalas per elev. Skolpengen är lika stor för kommunala och fristående skolor.

Friskolorna har varit hårt kritiserade, och viss kritik är helt rättfärdigad enligt mig. Jag anser att när det gäller vård och skola (som är känsliga ämen i svensk debatt) mäste valfrihet finnas, men kvalitetskontroll måste även finnas. Anekdotiskt är jag även av åsikten att Sveriges skola måste få ett lyft, läraryrket måste få bättre anseende och villkor, och skolan måste börja lära ut faktiska kunskaper som man använder i verkliga livet (Läs bland annat privatekonomi, hejja Ung Privatekonomi).

Nu när jag fått det ur systemet, AcadeMedias nuvarande ägare, EQT, är placerat på skatteparadiser Guernsey. EQT i sin tur ägs av Investor, och är vad som kallas ett riskkapitalbolag. Dessa upprättar fonder, var olika investerare får stoppa in pengar som riskkapitalbolaget får förvalta. Efter ett antal år ska fonden likvideras och vinster delas ut. Tidigare ar riskkapitalbolagen varit förknippade med otroliga vinster, men även astronomiska arvoden till ägarna via så kallad vinstdelning. De (riskkapitalbolagen i plural) har även fått kritik för att vara kortsiktiga, giriga och enbart vinst-drivna ägare. Något som enligt många inte lämpar sig inom vård och skola. Riskkapitalbolagen anklagas för att köpa bolag som de sedan inför hårda kostnadsnerskärningar och “uppsminkningar” på, sedan säljer de ut bolaget till nästa ägare. Detta har historiskt generarat höga vinster men ibland på bekostnad av personal, elever och patienter. För den som intresserar sig rekomenderar jag “De Svenska riskkapitalisterna” av Carolina Neurath.

Slutligen vill jag säga att jag hoppas AcadeMedias notering väcker skoldebatten till liv, det behövs nog för Sveriges framtida konkurrenskraft och skolbarnens välmående. Jag tänker inte teckna AcadeMedia som det ser ut idag, med anledning av de politiska riskerna, samt att det är ett riskkapitalbolag som säljer. Nu hoppas jag siffrorna är till följd av sunda investeringar och hållbar tillväxt, men risken finns att bolaget har gått på turbo och att EQT exit leder till en avmattning av resultaten och marginalerna. AcadeMedia är även verksamt utanför Sverige, vilket innebär att de riskerna är svårare att värdera. Däremot läste jag att de anställda fått ett löfte om att teckna aktier för 30 000 kr , och tydligen är intresset stort bland de anställda. Om det stämmer är det ett tecken på ett bra bolag, jag gillar ägarledda bolag.

Vad tycker ni om AcadeMedia, tecknar ni?

Jag äger EQT via Investor, kom ihåg att alltid göra din egen analys! Det jag skriver på bloggen är bara mina personliga åsikter.

Källor:
https://fakta.academedia.se
https://fakta.academedia.se/organisation/kortfakta/
http://skolvalet.nu/fragor-och-svar/vad-ar-skolpeng-2/ [Läst 2016-06-03]
Neurath, C. Almgren, J. De Svenska Riskkapitalisterna, (2014).

Adidas

Adidas is a Germany-based sports-wear giant traded on the Frankfurt and Xetra stock exchange under ticker ADS. The largest brand is Adidas, but they also own Reebok, and Taylormade. They have a market cap of 23 (27) billion euro(USD) and had a revenue of 16.9 (19) Bn euro (USD).

Adidas was founded in 1924 by a German named Adolf “Adi” Dassler (brother of Rudolf “Rudi” Dassler, founder of Puma) in Bavaria, Germany. The founded company was named “Gebrüder Dassler Schuhfabrik” (Dassler Brothers Shoe-factory), and Adi produced shoes in his mothers laundry together with his older brother Rudi. At the peak the brothers produced 200,000 pairs of shoes annually each year before World-War II.

In 1948 the Dassler-brothers split their business following a dispute between the two. Rudi named his company Ruda, later renamed to Puma, and 1949 Adi founded “Adolf Dassler adidas Sportschuhfabrik” in Herzogenaurach.

adi_dassler_statue_at_wos.jpg

Adolf Dassler runs Adidas untill his death in 1978, at that point Adidas was a flourishing multi-sport shoe and apparel company. His son Horst takes over the business with the support of his mother Käthe. Käthe passes away in 1985 and Horst dies suddenly in 1987. Adidas is now left without a Dassler family member on board. The leadership makes some terrible strategic decisions and almost drives Adidas bankrupt! A new ceo is appointed, who turns the ship around. And many acquisitions later Adidas is what we see today. This includes Reebok, TaylorMade, CCM-Hockey and Five Ten.

The history is definitely interesting, and Adidas is a very well-known brand. Take a look today, how many people do you see wearing an item of clothing by an Adidas brand?

What do the numbers tell us?
Firstly, I have taken the numbers from Adidas’ five-year summary. I had to adjust some posts by putting back some goodwill impairments which they had excluded.

image (8)

Balance sheet

image (6)

If we look at my astonishingly handsome Google-Sheets graphs, we can see a slight increase in total assets, as well as debt. This leads to a slight increase in debt to equity. From 1.18 to 1.36. Debt to total assets remains at just above 55%. These are quite solid numbers, this looks like a healthy balance sheet.

image (9)image (3) image  image (2)

Earnings

Lots of beautifully hand-crafted graphs. On the top one we can see an increase in revenue, but not in gross profit, this means lower margins. Which moves us on to the next picture, margins. Gross margin just above 45% and operating margin is 6.3%. These margins are not terrible but nothing to get overly exited about in my opinion. They have not fluctuated much and seem to hover about the current levels.

Moving on, we can see that the Adidas-brand makes up the major part of the total sales, Reebok and TaylorMade are quite insignificant in comparison to Adidas. But perhaps Reebok can reach another audience with the sponsoring of CrossFit and generally being focused more on  sports other than football (soccer) and such. However Reebok sales have not had any growth in the last five years. It’s actually down from 1.9 bn  euros to 1.75 bn euros.

As the next graph shows, shoes and apparel make up the largest portion of sales, split roughly half in each.

image (5).png

Onwards, to Per share numbers

This fine specimen shows the EPS, Dividend and payout ratio. No strong trend can be seen in EPS, but it is up since 2011, but its down from 2012 and 2013.
Dividends have had an average annual growth rate of 13% since 2011. From 2012 the average dividend growth rate is 6%. Adidas also has a sustainable payout ratio, in the area of  50%. It is however up from 2011 because the dividends have been outgrowing the EPS. This is what has led to the increasing payout ratio.

conclusion
Adidas is definitely a leader in the sports clothing industry, but there is not very much growth on the bottom line. The balance sheet is quite nice, with a low debt to total assets, and almost equally much equity as debt. The financial position is very strong  in my opinion. Revenue is growing but earnings are not keeping up, this is not a good sign, but it’s not terrible in this case. This indicates harder competition which drives down margins.

At a price per share of 113 Euro and an EPS of 3.46 Euro, Adidas is valued at a P/E ratio of 33. With a  dividend of 1.60 Euro per share Adidas has a yield of mere 1.4%.

At P/E 20 and an EPS of 3.46 Euro Adidas would be valued at 69 Euro per share. At P/E 15  this drops to 52 euro per share.

Rolling four quarters EPS is 3.91 according to Google Finance as of 06/05/2016. This gives us P/E 29. And gives Adidas a value of 78 at P/E 20.

In my opinion Adidas seems like a good quality company, although the valuation is too high for me. Because the growth is not that steady nor is it high, I feel that the valuation should be lower.

I hope you liked this analysis, feel free to leave your thoughts in the comments!
-Samuraimannen

Always remember to do your own analysis. Nothing you read here should be seen as a recommendation, it is just my own personal opinion. Don’t make any investment decisions based on what you read here.

I do not own any shares of Adidas at the time of writing this analysis. I might consider buying closer to P/E 20.

Sources:
https://en.wikipedia.org/wiki/Adidas
https://www.google.com/finance?q=ETR%3AADS&ei=_L4sV6GECYqDsgHFnJmgAw
http://www.adidas-group.com/en/group/history/
http://www.adidas-group.com/en/investors/key-financial-data/five-year-overview/

Paradox Interactive

Här kommer mitt första svenska inlägg, rörande den stundande noteringen av Paradox Interactive. Det här är den första IPOn jag analyserar ordentligt, så kom gärna med åsikter och synpunkter!
Presentation av bolaget
Paradox Interactive är ett svenskt bolag som utvecklar och är utgivare av spel. Som utgivare ansvarar Paradox för producering, marknadsföring och finansiering av spel, både externt utvecklade och spel utvecklade av Paradox egna utvecklingsenheter. Dessa är Paradox Development Studio (Stockholm) och Paradox Arctic (Umeå).
Paradox Interactive äger även White Wolf Publishing, som utvecklar och publicerar bland annat fysiska RPG’s, kortspel, böcker och datorspel

Paradox-organization-sv-en-c-600x359.png

Intäktsmodell
Intjäningen ser ut på det viset att Paradox köper ett spel av en utvecklare, antingen extern eller från Paradox egna utvecklare. Detta spel ges sedan ut av Paradox Interactive till kund, antingen via en extern distributör, eller den egna distributionskanalen. Detta visar Paradox ganska bra med en bild på sin hemsida

Paradox-Revenue-model-en-b-600x226.png

Alla spel hittills är antingen via engångs-betalning  eller free-to-play (endast ett fåtal). Paradox säljer även vad de kallar för Add-ons, tillägg, dessa kan vara till exempel musik, nya världar/banor, in-game prylar eller IRL-saker (In Real Life) så som muggar eller T-shirts. Paradox säljer även en rad expansioner / DLC’s till många av sina spel.

Vilka är ägarna?
I dag är de största ägarna är VD Fredrik Wester (39%), Spiltan (37%) och Styrelseledamot Peter Lindell (13%). Ordförande Håkan Sjunneholm är fjärde störsa ägare med 4% av bolaget. Dessa fyra äger tillsammans 93% av bolaget. Efter emmissionen kommer dessa fyra äga totalt 75%, fördelat så här. VD 33,33%, Spiltan 30.5%, Peter Lindell 11%, Ordförande 3.8%. Det innebär att de som säljer störst andel av bolaget är Spiltan och VD Fredrik Wester som säljer ca 6% vardera.

Syftet med IPOn är enligt prospektet, punkt E.2a:Bakgrund och motiv, som följer:

Några av de viktigaste tillgångarna för Paradox är dess anställda och fans. För att ge dem en möjlighet att investera i Bolaget har Styrelsen för Paradox ansökt om upptagande till handel av Bolagets aktier på Nasdaq First North Permier. I samband med noteringen har styrelsen beslutat att genomföra en ägarspridning av aktierna riktad till allmänheten för att skapa goda förutsättningar för en regelbunden och likvid handel i Bolagets aktie. Ytterligare viktiga syften med noteringen är att erhålla en marknadsvärdering av Bolaget och att kunna använda Paradox aktie som betalningsmedel vid förvärv.

Kort om IPOn
Paradox Interactive kommer noteras på Nasdq First North, med första handelsdag den 31 maj. Erbjudandet omfattar totalt  16 327 400 aktier, motsvarande ca 539 miljoner kr. Vilket i sin tur motsvarar ca 15.5% av bolaget. Drygt en halv miljard, eller 15.5% av bolaget är enligt mig en ganska stor IPO. Det innebär en värdering av Paradox Interactive på knappt 3.5 miljarder kr.

Paradox produkter
I prospektet anger de att de har en spelportfölj med över 80 spel, jag hittar 56 av dessa på steam. De enligt Paradox viktigaste serierna är Europa Universalis, Hearts of Iron, Crusader Kings, Cities: Skylines and Magicka. Paradox har även släppt en stor mängd DLCs (Downloadable Content) och extramaterial till många av spelen. Efter en snabb sökning på Steam får jag bilden av att spelare tycker bra om många av spelen och ganska dåligt om en del DLCs och extramaterial.

bästa spel.PNG

Sökningen sorterat endast på Spel samt rangordndad efter bästa recensioner på Steam ser ut så här.

sämsta spel.PNG

Bläddrar vi till sista sidan av denna sökning ser det ut såhär:
Endast fyra av de 56 spel jag får fram i sökningen har en röd tumme. Vilket innebär att de flesta av recensionerna är negativa. Uppskattningsvis är ca 25 st spel “Mixed”, vilket innebär cirka 50/50 positiva / negativa recensioner.

Sorterar jag istället bara ut DLCs får jag 157 resultat, totalt 7 sidor. Fram till och med sida 4 är det uteslutande blåa tummar upp, det vill säga mestadels positiva recensioner.Endast 11 DLCs har röda tummar.

Slutsatser vi kan dra av det här är väl att Paradox verkar ha lojala spelare, som i stor utsträkning tycker bra om det mesta Pardox har släppt. De flesta spelen och DLCs verkar kosta mellan 9.99 euro och 19.99 euro.

Hur ser då siffrorna ut?
Saxat från prospektet, Resultat- och Balansräkning ser ut såhär:

RR BR  BR2 Nyckeltal.PNG

I prospektet skickar de även med ett antal nyckeltal, de poster med två asterisker är dock inte reviderade. Jag väljer att lita på bolaget och utgår ifrån att de tillämpar god redovisningssed och dylikt.

Omsättningen har haft god tillväxt, i prospektet hänförs det till externt utvecklade Cities: Skylines samt Pillars of Eternety. Imponerande att omsättningen från 2014 tilll 2015 växte med 240%! Vinsten har vuxit den också, och den växte även 2013-2014 när omsättningen minskade, men tillväxten i vinst före skatt 2014-2015 var otroliga 460%! Grafiskt ser omsättningen och vinsten ut så här:

oms res marg

Vi ser även att marginalerna har ökat, och är höga. Jämför  vinstmarginalen före skatt 2015 som var 40% med Activision Blizzard som för helåret 2015 hade en vinstmarginal på 19%.

I balansräkningen ser vi hög soliditet, men tillgångarna är i princip uteslutande imateriella. Det är dock inte konstigt eller onormalt eftersom företaget gör spel, tillgångarna är därför FoU samt immaterialrätter. Nackdelen med det är att det föreligger högre risk för eventuella nedskrivningar, eftersom sådant som inte går att ta på i regel är svårare att värdera. Å det positiva finns ingen goodwill, eftersom företaget inte förvärvat något annat bolag där goodwill uppstått. Mer om förvärv senare.

Vidare ser vi att företaget har jättemycket eget kapital i förhållande till skulderna, bra tycker jag. Sunda finanser och stark balansräkning lägger jag stor vikt vid, då det innebär bättre tillgång till kapital samt bättre stabilitet om intjäningen temporärt skulle svikta. Det egna kapitalet är ungefär dubbelt så stort som de totala skulderna.

Vi ser även att Paradox skulder är mestadels kortfristiga, varför de har valt att ha det så kan jag inte svara på. Det vi kan se är även en avsaknad av lån, skulderna är mestadels upplupna kostnader samt förutbetalda intäkter (något som inte än är betalt, men förbrukat. Samt förskottsbetalningar). Jag ser en avsaknad av lån i balansräkningen.

Vidare ser vi att kassaflödet från den löpande verksamheten har hängt med tillväxten i omsättning. Vi ser även en nyemission år 2014 samt stora investeringar i spelprojekt år 2015 under posten förvärv av immateriella anläggningstillgångar.

Resultat per aktie, justerat för en 100:1 split (genomförd mars 2016), har ökat med raketfart. 2014 till 2015 ökade den med ca 440%. Bolaget har även delat ut kontanter till aktieägarna. 2014 delade de ut nästan hela vinsten, 30 öre/aktie av 33 öre i vinst per aktie. 2015 delade man ut 67 öre av 1.79 kronor i vinst per aktie, en utdelningsandel på 37%. Frågan om det är rätt för ett mindre spelbolag som Paradox att dela ut kontanter istället för att behålla dem i bolaget för framtida projekt är rätt eller inte kan man diskutera. Jag anser att det beror på företagets verksamhet.

Diskussion och slutsatser
Paradox Interactive visade sig vara ett väldigt intressant bolag. Paradox Interactive känns ganska indie, och deras vision är att göra nichade spel till “lojala fans med hög stickyness” som det heter på Paradox hemsida. Jag älskar Paradox starka balansräkning, jag tycker det ser ut som en bra grund att stå på inför framtida spelprojekt och bolaget har mycket krut på lager. Balansräkningen har definitivt utrymme för ett eller flera lånefinansierade förvärv. Något de även nämner i motiveringen till noteringen.

I avsnitt 18 av podcasten #PrataPengar gästar Per H Börjesson, och jag får bilden av att Paradox Interactive väger aningen tungt i portföljen (62% av substansen en Spiltans hemsida). Detta kan innebära eventuellt framtida försäljning av aktier fråns Spiltans håll. Vad som talar emot det är Spiltans generella investeringsstrategi, vilken jag har förstått är buy-and-hold. Spiltan skriver även om bolaget på sin hemsida att “Paradox fortsatta utveckling kommer att ha stor betydelse för Spiltans framtida utveckling”. Jag tror Spiltan kommer fortsätta vara en stor ägare av Paradox, men jag blir inte förvånad om vi ser en minskning av innehavet för att balansera portföljen.

När det kommer till Paradox Interactives portfölj av spel måste jag erkänna att jag inte känner igen andra än Magicka-spelen och Cities: Skylines. Nämnvärt är att Europa Universalis IV och Cities: Skylines återfinns högt upp på Steams topp 100 lista över populära spel just nu (utifrån antalet spelare just nu). Kan även noteras att Europa Universalis IV ligger högre upp än Payday 2, som gjorts av populära aktieinnehavet Starbreeze (11496 ägare hos Avanza).  Det som talar för Paradox portfölj är att den stora majoriteten av spelen har positiva recensioner på Steam. Detta tyder på att Paradox lyckas med sin vision om att göra nichade spel till en lojal och “sticky” skara fans.

Enligt Steamspy har Paradox släppt 56 titlar, och spelen har en genomsnittlig userscore på 70.9%. Det genomsnittliga priset är $14 och totala antalet sålda spel uppgår till ca 22.5 miljoner. Det kan vi jämföra med Activision, som har sålt ca 40,5 miljoner spel. EA med 33 miljoner spel, Bethesda 36 miljoner, Ubisoft med 47 miljoner, 2K med 50 miljoner och Valve med häpnadsväckande 331 miljoner spel! Detta är dock bara via Steam.

I pipelinen verkar det finnas Stellaris (strategispel i rymden, släpps 9 maj 2016), Tyranny (Diablo-liknande RPG, 2016) och Hearts of Iron IV (WWII historie-strategispel, 6 juni 2016). Stellaris kommer kosta 39.99 euro, de andra två har inte fått någon prislapp ännu.

Det är svårt att försöka förutspå framtidsutsikterna för dessa spel, men Stellaris ser ganska unikt ut. Det ser ut att påminna om Civilization-spelen, men med rymdtema och en helt annan look. Tyranny ser visuellt ut ganska likt Magicka 2, jag misstänker att det är byggt på samma spelmotor. Alla dessa kommer relativt snart, och det skulle vara kul att se något spel som ligger längre fram i tiden. På hemsidan skriver Paradox såhär:

“Paradox currently has partnership agreements with a number of game studios around the world for yet unannounced games or porting of existing games to new platforms.”

Vilket innebär att det finns icke ännu tillkännagivna spel och projekt på gång.

Nu börjar det vara dags att avsluta den här mycket angenäma analysen, detta är den absolut roligaste analysen jag genomfört!

Jag har dock svårt att bedöma skickligheten hos Paradox. Jag har svårt att bedöma hållbarheten i att göra väldigt nichade spel, även om jag tycker Cities: Skylines riktar sig betydligt bredare än föregående spel. Jag skulle vilja påstå att risken borde vara mycket högre i att göra väldigt nichade spel. Eftersom det kräver att man känner sin kundbas bra, och det känns som att missar det så missar det mer än ett spel som riktar sig till en bredare publik.

Prognoser är inget för mig riktigt, men är det rimligt att anta en lika hög vinst som 2015? Paradox menar att den höga vinsten är beroende på bra lansering av Cities: Skylines och Pillars of eternety. Paradox har gått ut med tre uppkommande spel som ska lanseras i år, hur de mottas kan jag inte spekulera i, men ju bättre lanseringarna går, ju bättre blir givetvis resultatet.

Värdering då?
På 33 kr per aktie och 2015 års resultat på 1,79 kr per aktie värderas Paradox Interactive till P/E (ttm) 18.4.
Givet bibehållen utdelning på 0.67 kr per aktie är direktavkasningen 2%. Detta tycker jag dock är helt orelevant i Paradox fall, eftersom utdelning från ett sånt här bolag är inget man bör räkna med. Man skulle ju helst vilja att företaget investerade pengarna till god avkastning internt via olika projekt och liknande.

På P/E 18 måste jag säga att Paradox är billigt, Activision Blizzard värderas till P/E 28, och Paradox har högre marginaler. Däremot är Actvision Blizzard större och har mycket stabilare intjäning, så det är väl kanske inte helt orimligt att det är ett dyrare bolag, men nog borde Paradox vara rimligt prissatt på P/E 18.

I sin presentation av bolaget säger VDn att bolag växt med i snitt 50% per år sedan 2008. Räknar vi med den formidabla tillväxten blir vinsten för helåret 2016 2.685 kr per aktie. På 33 kr blir P/E talet 12.29. Det är rena rånet, men givettvis är det svårt att lägga någon större vikt vid den glädjekalkylen.

Summan av den här kardemumman är vadå?
Jag gillar ägarna, mycket interna ägare samt Spiltan. Bolaget har även berättat att det finns en vilja att investera hos de anställda i Paradox. Jag gillar balansräkningen och framgången 2015. Det finns definitivt möjligheter till förvärv, och de nya spelen är rätt intressanta.

Riskerna jag ser är att Paradox inte lyckas med hits som Cities: Skylines igen och då kommer intjäningen minska till den som genereras av de redan befintliga spelen. Denna minskar succesivt varje år, plus det att värdet på de imateriella tillgångarna skrivs av. Detta leder helt enkelt till att kostnaderna måste täckas med nytt kapital, antingen lån eller nyemissioner. Risken att Paradox inte kommer med spel som tas emot väl av marknaden är inte helt obefintlig, men det är även svårt att bedöma hur stor den risken är. Det är även svårt att förutspå hur stora kostnaderna kommer vara, och således hur länge företaget kan gå utan en lyckad release.

Här kommer (äntligen?) slutklämmen: Jag tecknar Paradox. Det kommer bli min första IPO jag tecknar, och jag skulle gissa att även den här blir övertecknad så hett som det varit med IPOs på denaste tiden.

Tack för att du läste, det här var en jätterolig analys att skriva! Har jag missat något, tänkt fel, eller har du något att tillägga? Hur tänker du kring Paradox Interactives IPO? Diskutera gärna i kommentarsfältet!

Håll till godo!
-Samuraimannen

pratapengar

PS Uppdaterar med några rader efter detta:

Uppdatering 2016-05-24: I #PrataPengar snackar VD Fredrik Wester om vad för typ av bolag Paradox är, och jag får känslan av en inbiten och djupt engagerad VD. Om du inte lyssnat på avsnittet rekomenderar jag det starkt, Wester förklarar även hur företagets resultat kan förväntas svänga över kvartalen och att Paradox inte tänker “sminka” resultaten inför kvartalsrapporterna. Sydling och Sundström intervjuar även Spiltans Per H. Börjesson i podcasten 25 Minuter. Rekomenderas starkt om du vill lära känna Spiltan, tillika Paradox näst största ägare, närmre.

Disclaimer: Detta ska INTE ses som råd. Det här är mina egna personliga åsikter, ta inga investeringsbeslut baserat på vad du läser här utan gör alltid din egen analys!

Källor jag använt:ProspektErbjudandet via AvanzaParadox Interactive Corporate-hemsidaParadox konsument-hemsidaParadox Interactive’s spel på SteamSpel som Paradox gett ut på steamParadox Interactive på SteamspySpiltans portföljVD Fredrik Wester pitchar bolaget på Avanzas youtube-kanalBildkälla

Johnson & Johnson

Johnson and Johnson describes themselves as a family of companies, namely 250 different companies. Together they operate in 60 countries and in three major segments: Consumer Healthcare, Medical Devices, and Pharmaceuticals.

Consumer healthcare includes Baby Care, Skin and Hair care, OTC Pharmaceuticals and Oral Health. Some examples of brands under Consumer Healthcare are Listerine, Nicorette, Pepcid, Band-Aid, Compeed, Netrogena, Johnson’s and Piz Buin.

In the Medical Devices Johnson and Johnson produces a broad range of product in the fields orthopaedic, neurovascular, surgery, vision care, diabetes care, infection prevention, cardiovascular disease, sports medicine, and aesthetics.

The Pharmaceutical segment is carried out through the Janssen companies. Here is a list of all  Janssen products. And there sure is a lot of them! Janssen also concludes R&D

Sales per segment Sales per segment

This is a slide from the 2015 Q4 Earnings Presentation webcast. Pharma and Medical Devices make up the lion share of Johnson and Johnsons’s sales.

Number crunching

Eps, Gross margin and EBIT margin 2005 - 2015 Eps, Gross margin and EBIT margin 2005 – 2015

The EPS since 2005 has grown a total of 63%, with an average of 6.23% per year. The margins are very stable, gross margin is down 3 % units from 2005 levels at 72% to 69%. EBIT margin is 25%, up from 24% in 2005. The averages over the ten-year period is 70% and 25.5%. I like these margins, they are very stable, barely moving during the financial crisis.

Solidity, ROA, ROE. 2011-2015 Solidity, ROA, ROE. 2011-2015

Johnson & Johnson’s solidity is quite stable, hovering around 46%. Return on total assets is up from 8.5% to 11.5%, which indicates an increase in efficiency. Return on equity stays in the region of 17%. J&J is very solid, and they have a Aaa credit rating (although it is important to remember what rating Lehman Brothers had just hours before the crash). I like the increase in ROA, and the ROE is attractive.

One of Johnson & Johnson’s main attraction, its dividend history. Take a look at this!

As you can see Johnson & Johnson has a formidable dividend history. Annualized the 2016 dividend is 3 USD. Which would mean a 0.05 USD increase from 2015. Or 1.7%. From 2011 the dividend has increased a total of 33%. Johnson & Johnson have paid dividends every year since 1970 according to Divdata.com! That’s 46 years of dividends!

Compared to peers
The peers I chose are Pfizer, AstraZeneca, Merck & Co, Roche, and GlaxoSmithKline. The following graphs show the annual income statements and come from Google Finance. Thanks Google.

Both Pfizer, Merck and AstraZeneca shows a bad sign in form of steadily declining Revenue, not good in my book.

Pfizer has still maintained its operating margin and operating income, but the net income has declined as well as the profit margin. This does not look very attractive in my opinion.

In AstraZenecas case its combined with a falling income AND a falling margin. For 2015 the net income was up which means an increased margin, but I don’t like those previous years of decline.

Merck has had some swings in income and margins and it seems to be quite low. I can’t explain the swing of the margins and the income and that’s why I would not feel comfortable investing in Merck.

Roche has increasing revenue which is great, but the net income is not quite keeping up. The operating income is stable and Roche has an operating margin of solid 25%. The net income is, as I said, not quite keeping up to the increase in revenue. Which leads to lower profit margins. This can be due to infectivity or increased competition.

GlaxoSmithKline has had a small decrease in revenue, but we can see a big bump up in the operating and net income for 2015. I have no explanation for this but if its lasting GSK is a potential candidate for a deeper analysis.

For Johnson & Johnson we can see a steady increase in revenue as well as income and margins. Isn’t it beautiful.

I have not personally cross-checked that Google Finance has the correct numbers for any of these companies, but I assume they have the correct figures.

Closing thoughts
First of all, I’m going to admit that I break one of my investing rules by investing in Johnson & Johnson. Because honestly I don’t fully understand the medical devices or pharmaceutical industry. However Johnson & Johnson’s history gives the picture of competence and the increasing revenue combined with an increasing net income and profit margin is very impressive! Their dividend history is simply astonishing and it gives the picture of a stock-owner friendly company.

Valuation
According to Reuters, Johnson & Johnson’s 5 year highest and lowest P/E ratio is 19.2 and 18. The industry has highest and lowest P/E in the last 5 years of 41 and 17.88. JNJ s current P/E(ttm) is 20.11 according to Reuters.

In the Q4 2015 Condensed Consolidated Statement of Earnings JNJ presents a diluted EPS of 5.48 $ per share. At P/E 18 and EPS of 5.48 one share would cost 98.64 $.   Dividend Discount model with a required rate of return of 9% and a dividend growth at 6% gives us a price of 100 $ per share.

Conclusion
Johnson & Johnson looks like a very competent company, they have a great history of paying dividends and growth. The Q1 Report for 2016 signalled quite weak growth, only 0.6 % increase in sales compared to Q1 2015. The EPS for the first quarter 2016 was up 0.7% compared to the  first quarter 2015.

The value seems to be somewhere around the levels of 98-100 $. Currently Johnson & Johnson seems expensive at P/E 20 and a lower yield.

I like Johnson & Johnson and I currently own 10 shares of JNJ. That makes JNJ have 10 % of the value in my portfolio, and the make up 7% of my annual dividends.

With that said, I hope you enjoyed this analysis! Tell me if you think I missed anything, and what you think of the company! Have a good day, make wise decisions!

-Samuraimannen

Remember that these are only my own personal opinions, and remember to always do your own analysis!

Sources
http://www.jnj.com/ http://www.janssen.com/products http://www.morningstar.com/stocks/xnys/jnj/quote.html http://www.dividend.com/dividend-stocks/healthcare/drug-manufacturers-major/jnj-johnson-and-http://www.investor.jnj.com/sales-earnings.cfm https://www.dividata.com/stock/JNJ/dividend http://www.reuters.com/finance/stocks/financialHighlights?symbol=JNJ

My BEST savings tip

Happy Easter everybody!
I hope you have had a pleasant Easter, and I want to share my BEST tip for saving your hard earned cash! The best, top shelf, number one tip I have is so simple, you can save so much money by using it. You ready?

The advice I want to share is this:
If you feel a need or a want for something, write it down, along with one reason to why you want and/or need it, then put away the notebook or piece of paper, and wait two weeks. Then go back and take a look at what you wrote down, see if you still feel that want or need. Most of the time, you won’t. Also note that you managed two weeks without that thing, can you manage two more?

Image belongs to Sven Dännart
http://www.svenart.de/

This has saved me so much money on what would otherwise have been a spontaneous purchase, because most of the times you realise that: I really didn’t need that thing anyway!

The waiting period can be adjusted to what you feel is right for you, and I understand that every purchase can’t be put off until later, and that’s okay. For example if you get a flat tire on your bike you don’t really want to wait two or so weeks until you buy a repair kit. But most of the things you feel that you desperately want or need is largely due to the work of clever ad-men and retailers, who know how to push the right buttons in your head to provoke an instant need and want for that particular product. This method eliminates the urge which the super-evil ad-men so skillfully provoke.

That’s all for this time, have a good one
-Samuraimannen

Soccer Starting Lineup

What if my portfolio was a soccer team? What 11 players would there be on the field? I don’t know much about soccer, but this was really fun! If my portfolio was a soccer team, this is what it would look like!

Overall strategy
Defence is the best offence. In short, the strategy is double goalkeepers and solid defence, combined with a broad midfield and huge forwards. My team is so heavy that the whole stadium will be tilted!

Forwards
H&M and Coca-Cola are my forwards, these are the ones putting out the aggression are on the front line. H&M is the low cost clothing giant hard to match, paired with the soft drink TITAN Coca-Cola. If I were a soccer player, I would NOT want to face H&M and Coca-Cola!

Midfielders
ICA J&J and P&G make up the midfield players in my soccer team. P&G are streamlining their brand portfolio, this should increase profitability. Defensive products on a broad market. Johnson & Johnson, a cornerstone in many portfolios make up the centre player. J&J is the spider in the web, they can help with the aggression as well as the defencive! ICA Gruppen in broadening their fields of action, leading in groceries, entering in banking and insurance as well as pharmacy stores. Defence in the grocery stores, offensive by increasing its field of view.

Defenders
Munich Re, L E Lundbergsföretagen and 3M together with Unilever make up the defence line in my soccer team. Munich Re is the German well run reinsurance company, really smooth operations, world wide leader and a solid history. Like a brick wall as long as no major disaster happens in the world. Lundbergsföretagen is an investment company, a very good one at that. Diversified in super high quality companies, another brick wall. A brick wall that keeps growing. 3M delivers their products all over, to industries and consumers. Worldwide reach with a broad spectrum of products. Unilever has a broad portfolio of consumer products, distributed worldwide. Unilever is of good quality and consumer will keep consuming their products.

Goalkeeper(s)
Castellum and Realty Income are my TWO goal keepers! Castellum is the Swedish version of Realty Income. Both are really solid and have great history. These two combined make up a solid concrete wall, with which I have blocked the goal. Good luck with scoring, Opposing Team!

Thanks to Västkustinvesteraren for the idea!

Thanks for reading, remember that these are only my personal opinions and ideas. Always do your own analysis!

-Samuraimannen

Northwest Healthcare Properties

This post will be a quick look at Northwest Healthcare Properties, I’ll structure it like this: fist some sort of free form analysis based on the latest report Q3 2015, followed by an analysis of Earnings, Solidity and Liquidity.

Overview Northwest healthcare properties (TSE:NWH.UN) is a Canadian REIT focused on healthcare properties in Canada, Brazil, Germany Australia and New Zealand. They own a total of 123 properties, totalling 7.8 million square feet (~720000 square meters).

Northwest Healthcare properties currently pays 0.80 CAD annually, with equal monthly payments. At a price per share of 9 CAD that’s more than 9% yield. The purpose of this post is to see if that yield is safe, and if there is any kind of stability in Northwest Healthcare properties.

Looking at the Q3 2015 Report for NWH.UN they report an AFFO of 0.80 cad on an annualised basis. Because of non-recurring items the normalised AFFO is 0.84 cad. Compared to a dividend of 0.80 CAD this means they pay almost all of their normalised AFFO in dividends. Unadjusted they pay 100% of the AFFO.

They report an occupancy rate of 95.8%, this is good in my opinion. The international (non-Canadian) portfolio holds an occupancy rate of 98.1%. This combined with an weighted average lease expiry of 9.9 years means relatively safe earnings over the next 10 years. Hopefully these leases will be renewed and increasing in numbers and value.

The assets are diversified as follows:

Asset diversification, Q3 2015

Over half of the assets are invested in Canada and 28% in Australia. The CEO utters a goal for the company to further diversify its portfolio. (“Our team looks forward to executing on this differentiated strategy as it seeks to build a leading global healthcare real estate company.” – CEO Paul Dalla Lana)

Earnings
Revenue for the nine months ending 2015 September 30 is 135 m CAD. 4 times greater than nine month ending 2014 September 30 which was 32m CAD. I take note of the big fluctuations in revenue.

Property operating costs for the nine months ended 2015 Sept 30 are 33.3 m CAD. Same period 2014 resulted in operating costs of 1.586 m CAD. Total costs are 69.4 m CAD for the same period 2015. For 2014 the total costs were 27.6 m CAD.

One reason I can see for the huge difference in revenue and costs is the merger with Northwest International Properties, NWI. This is where NWHs international portfolio comes from. The merger was completed in May 2015. (link to the press release).

FFO for Q3 2015 was 15.5 m CAD. Compared to 3.88 in Q3 2014 it a huge raise, but its also not comparable because of the merger with NWI. FFO for the nine months ended September 30 2015 landed on 26.75 m CAD.

AFFO per share after dilution for the third quarter was 0.20 CAD. for the nine months ended September 30 it was 0.61 CAD. Dividends for the same periods were 0.20 CAD and 0.69 CAD. This is a warning sign. in the third quarter they paid all of their AFFO in dividends. and for the nine months they paid more than their AFFO per share.
Solidity
The balance sheet is very much non-comparable to the balance sheet for the previous year. This is because of the merger with NorthWest International Healthcare Properties. I will do so anyway, since there might still be some information to reveal by comparing the two.

Investment properties as of September 30 2015 totals 2.5 bn CAD. per December 31 2014 investment properties totalled 524 m CAD. Quite a huge difference. 1.28 bn CAD comes from the merger with NWI according to note 8 on page 13 in the Q3 financial report. During 2015 NWH acquired all of the right and obligations of Vital Trust, and also all of NWI’s shares of NWH. These two posts make up the line Investments in Associates totalling 255.9 m CAD in Dec 31 2014.

NWH has a very small Goodwill post of 41 m CAD, this is positive since a large Goodwill post is hard to value and might indicate a larger total asset value than it actually is. I generally don’t like Goodwill. 41m compared to the property value of 2.5 bn is nothing to cause further investigation into the Goodwill post.

Liabilities as of Sept 30 2015 totals 1.75 bn CAD. As of Dec 31 2014 the total liabilities were 746 m CAD. This is also because of the merger with NWI. About 800 m CAD of debt comes from NWI.

This gives us a debt to asset ratio of 0.7 (1.75/2.5). I think this is quite high, I would like to see a debt to asset ratio closer to 0.5. However the debt is going down and the company refinanced some of the debt in the third quarter.

Annualised normalised AFFO to assets is 59.9 m / 2500 m = 0.02396, or a 2.4%. This can be seen as a return on assets, but calculated using AFFO.

NWHs Equity totals 766.77 m CAD as of Sept 30.  Debt to equity is 2.28, or 228%. This means NWH has very little equity compared to the size of its total debt.

Liquidity
I calculated an annualised interest cost by taking the interest cost for the nine months ended Sept 30 2015 and adding one third of that. I ended up with 44m + 44/3 = 58.6m.
This gives us an interest coverage by annualised normalised AFFO of 59.9/58.6=1.022. Given that my calculations are correct, and that the company calculated AFFO in a reasonable manner, the interest coverage is not great.

The company has 11m in cash as of Sept 30 2015. It’s difficult to know what assets are liquid, but it seems as if they don’t have very much liquid assets. 11m in cash compared to 58 m in interest expenses is not so much.

Summary
They only offer an unaudited quarterly reports for 2015, and no annual report for 2014 yet. The report and MD&A I used were not so nice to work with. This is just some sort of gut feeling but still something I keep in mind. The website offers some investor friendliness but nothing as of multiyear overview or nice charts. I had to dig deep into the report to find the diversification of the properties.

As a financial investment NWH is risky, this is mainly because of the thin AFFO and FFO. They have a huge payout ratio of AFFO, and the AFFO barely covers their interest costs. NWH has high debt compared both to assets and to its equity.

The company is in an expansive phase, with significant acquisitions during 2015. the results of these acquisitions and the merger with NWI is crucial. They need to bump up AFFO and keep costs to a minimum.

On the bright side, the occupancy rate and the long term leases, combined with the nature of their properties, suggest steady revenue for the next 10 years.

The risks I see are in the balance sheet. The company has thin equity and not too much assets compared to its liability. Also the AFFO payout ratio is stretched, at times passing 100%.

The upside is close to 9% yield, Price to book is 1.0 (Morningstar.com at 9.13 CAD/share) expansive, not so much goodwill even though they have acquired a lot of assets during 2015.

All in all, I’m going to keep my investment in NWH.UN but I’m going to be very watchful and wait for the next quarterly report. Nortwest Healthcare Properties has potential, but also big risks.

That’s all my friends, did you like my analysis? Is there something I missed? Please tell me!

Best Regards
-Samuraimannen

Disclosure: I own shares of Northwest Healthcare Properties (TSE:NWH.UN) as I write this

Sources (PDF downloads):
Northwest Healthcare Properties website
Q3 2015 MD&A
Q3 2015 Financials (unaudited)
Morningstar