Buying a Loser | The world of business


PORTFOLIO UPDATE The return portfolio can not keep your fingers away from a price loser, where the calculation has now become attractive.

The breakdown of the most recent year in the health and care company Attendo, where about 75% of the income comes from the care of the elderly, mainly in Sweden and Finland, some form of examples of how things go wrong in the stock market.

The long-time CEO Henrik Borelius He decided to leave the company in the fall of 2017. When a successful CEO leaves, it is rarely the successor who just picks up the staff and continues to deliver. It often goes down.

After the IPO in 2015, a new growth strategy was launched in 2016. It is always the case to look out when companies will make large investments because often it will not go according to plan. And then it can be expensive. In the case of Attendo, the company expanded very rapidly in Finland, while the industry ended up in the binoculars of the media and politicians. Now the company has difficulty recruiting staff and standing with empty beds.

Another lesson about the stock market is that a disappointment rarely comes alone. First, media reports of problems in Finendo's Finendo operations occurred on January 30 (share fell 5%). Then came a bad financial statement on February 14 (the share fell 17%). Subsequently, at the end of March, the action program was announced, costing SEK 200 million (the share dropped 19%). And then the notice of Wednesday's profit (21% stake).

Why does the return portfolio think Attendo is interesting now?
1.) The evaluation fell seriously. The value of the company's Attendo (ev) will come after Wednesday's fall of about 9.2 billion Swedish kronor. This should be compared to an expected year-round turnover of just under 12 billion Swedish krona, according to Factset. This gives ev / sales of about 0.77.

2.) The financial target of Attendo is an EBIT margin of 9%. 2014-2017, remained stable at around 9.1 to 9.9%. Last year, the margin fell to 6.5%, or 7.7% excluding extraordinary items. Profitability was negatively affected primarily by the company's rapid expansion.

3. Given that Attendo operates in an obvious growth industry, where the market grows both with an increase in the number of older people and with increased private penetration in the elderly market, and has a cyclically unfavorable profit, it is reasonable that relatively high. Any / ebita in any case 13 seems to be clearly reasonable.

4.) Current potential sales / sales valuation of Attendo, if possible / ebit 13, implicitly means an ebit result of just under 710 million. This corresponds to an ebita margin of about 5.9%. It is essential during what the company has historically accomplished.

5.) Problems in Finland should be temporary, but it will take some time to complete the deal. Among other things, it is likely that the new government clubs in Finland will increase staff intensity from 0.5 to 0.7 employees per resident in nursing homes. In the Wednesday press release, it is worth noting that Attendo sees little chance of raising prices this year. The outlook is described as "slightly better" by 2020. First, in 2021, the outlook is described as "considerably better." At Wednesday's conference call, management said it would take two to three years to restore profitability in Finland.

This means that the stock market sees 2019 as a lost year and probably also in 2020. It seems that Attendo can only get back on track in 2021. With the carrot so advanced and a list of owners full of institutions where many are measured quarterly or quarterly. annually, it is not surprising that many throw in the towel and dump their stock regardless of price.

The return portfolio, which can cost you a lot more patience, likes the conditions.
* Suppose Attendo's problems are temporary, in which we clearly believe.
Assume that the operating margin of Attendo (ebita) is back on target at 9% in 2022.
* Adopt 4% annual growth in 2020-2022 (low considering the rapid rate of company expansion). At that time, Attendo had a turnover of approximately SEK 13.4 billion in 2022.
* Assume that the ebb result in 2022 is evaluated in ebb / ebita 13. This gives the company a value of possibly 15.7 billion. Deduct a net debt of approximately SEK 2.5 billion (probably high as the company will prioritize the net debt repayment) and the stake is just over SEK 80 – twice as much as today.
* The calculation corresponds to approximately 26% annual return, excluding any dividend, in a standardization in Attendo in approximately three years.
* Instead, it should take five years, the annual return falls to 15 percent, excluding any dividends. It is also a very good return in the world today.

The risks then?
In Wednesday's conference call with management, it emerged that Attendo has about 2,500 empty beds in Finland and that the company has a contract to open about 650 beds in Finland this year. Next year, about 1,000 new places will be added. If there is a recruitment problem for Attendo and the company is unable to fill the beds at a higher rate, the company runs the risk of having even higher fixed costs without income, implying an additional risk of pressure on short-term profitability .

* Net debt, excluding leasing, is approximately SEK 2.7 billion. This corresponds to approximately 3.0 times the EBITDA result of last year, which can be adjusted against the financial target of a net debt / EBITDA of no more than 3.75 times. Attendo's ebitda results (excluding IFRS 16) may fall by about a third of the level already depressed the previous year, before the balance sheet begins to become a serious risk. The "turning room" in combination with the fact that the net debt will be gradually amortized means that we see the risk of breach of the terms of the loan, which ends up entailing a new issue, which is small at the moment.

* The political risks are so clear, but it is obvious that private actors are needed to meet the large and growing need for cost-effective care for the elderly. In Finland, private operators hold 50% of the market, compared to 11-17% in the other Nordic countries.

The return portfolio likes the conditions at Attendo, but does not see the stock as an obvious short-term winner given the negative trend in Finland. There is a risk that the company may have one or a few bad reports left. But as a long-term investment, the stock already attracts a valued valuation, good prospects for growth and oscillatory income. The portfolio buys 3,800 shares at the Wednesday closing price of SEK 40.44.

Given almost nonexistent money, something else has to be sold to make way for Attendo. The choice then fell into the large bank duo Danske Bank and Nordea which were real disappointments and are sold with a loss of 11.3 and 0.1 percent, respectively. Large banks face stiff competition, are drawn to money laundering / regulatory issues and central banks that do not want to remove their foot from the monetary policy accelerator. There is a compelling advantage in a normalization, but the signatory is less certain that it actually comes – at least in the near future.

The return portfolio will continue during the newspaper's summer vacation, but surveillance will be less regular and with the primary focus on whether something is happening in some portfolio company.

Below the portfolio situation after the closing deals on Wednesday:

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