Taaleri: Whole group almost at the price of Garantia

Translation: Original published in Finnish on 4/7/2025 at 9:00 pm EEST.

We reiterate our target price of EUR 9.0 for Taaleri and raise our recommendation to Buy (was Accumulate) following the sharp fall in the share price. Taaleri's valuation level has fallen exceptionally low, and the entire group can now be acquired for almost the price of Garantia. Although there is great uncertainty about the realization of value in the parts, the current huge markdown relative to the sum-of-the-parts offers an exceptionally large margin of safety.

Estimates updated to reflect new reporting structure

We have changed our estimates to reflect Taaleri's updated reporting structure published on Friday. The most important change in reporting is that Investments will be its own segment going forward. We think the change is excellent as it clarifies the group structure. Another clear change is that going forward, group overheads will be reported in the Other segment and will no longer be allocated to the operating segments. In addition, there have been many minor technical changes in the reporting, but these are not materially important to investors.

As for our operating estimates, we have reduced the amount of future bioindustry investments. This also has a direct impact on earnings, as we have modeled bioindustry investments simply by multiplying the book value of the investments by Taaleri's cost of capital. In addition, we have revised Garantia's investment income downward for Q1. Overall, our earnings estimates for the next few years have decreased by 7-9%, but the big picture in terms of estimates remains unchanged.

The fall CMD should provide a roadmap for unlocking value

Taaleri is currently updating its strategy, and the results are expected to be announced at the Capital Markets Day in the fall. The company undeniably has significant value in its parts, and our conservative sum-of-the-parts calculation gives a value of EUR 10 per share. Taaleri has three very different and separate businesses (Private Asset Management, Investments and Garantia), and we believe that keeping them under one roof is questionable. In our view, in addition to the general market decline, the company's conglomerate structure and uncertainty about the strategy's bioindustry investments (aiming to invest at least 100 MEUR in these by the end of 2026) explain the current drastic undervaluation relative to the share price.

In our view, the company's updated strategy should focus on outlining a roadmap for unbundling the value. In practice, this would mean spinning off some part of the company, as it is difficult to see the value of the parts being fully realized with the current structure. Also, changes in capital allocation and a commitment to a more aggressive return of capital through profit distribution (dividend/share buybacks) would serve as a route to unlock the value of the parts. In our opinion, already in the current situation, the company should consider share buybacks as a tool for unlocking value, given the huge markdown relative to the SOTP.

The stock is exceptionally cheap

The current market capitalization of roughly 180 MEUR is very close to our estimate of Garantia's market cap of 170 MEUR. In practice, investors are getting the Renewable Energy operations almost for free (we estimate the value at 85 MEUR), a 90 MEUR investment portfolio (including cash and already recognized performance fees from old wind funds) and a net present value of -67 MEUR for group overheads. In our view, the current share price already offers an exceptionally large margin of safety, and if the company were to commit to unlocking value in its strategy, the expected return would be excellent. If the strategy were to continue on its current path, the expected return should still be at least reasonable through a high dividend and the dismantling of the most blatant sum-of-the-parts markdown. Due to the exceptionally beaten-down valuation, the stock's risk/reward ratio is exceptionally good.