MIFID2: What the actual f**k?!

Brandon Cragsley: Facepalm

My jaw dropped a couple days ago when I heard the latest news of the EU directive MIFID2. As part of the MIFID2 directive, brokers within the EU will cease to allow European customers to purchase American and Canadian ETFs and ETNs. What?! What the actual fuck?!

The directive was supposed to:

“strengthen investor protection and improvethe functioning of financial markets making them more efficient, resilient andtransparent.”

Yeah, so it will protect investors by blocking them from making purchases altogether.

The reasoning behind the block is, that as the products don’t have information available in all European languages, investors need to be protected (read: blocked) from such devious products. But the investors who are looking at American or Canadian ETFs probably know enough English to manage with the information provided in English. Thus rendering the block only as a nuisance.

What the regulators are trying to do here is protectionism but they’re only shooting themselves in their own foot; to circumvent the directive's blockage, European investors will need to take their business to a non-European broker. None of this shooting yourself in the foot makes any sense what so ever! 

At least one of my brokers, Nordnet, will impose the blocks in the 3^rd of January. But then again, I don’t trade American or Canadian ETFs there due to the extortionate pricing. I just hope, that my other broker, Lynx, will not impose these blocks as I’m holding a multitude of American and Canadian ETFs (Vanguard, Horizons marijuana ETF, etc.) and intend to buy more.

If you know a trustworthy non-European broker that takes European customers, let me know please!

Gofore about to IPO on First North

Gofore’s IPO closed just minutes ago and I got on board just in time!

Gofore about to IPO on First North

Gofore

Gofore is a rather small IT consultancy of approximately 400 employees from Tampere. Gofore seems to be almost a carbon-copy of another Tampere based IT consultancy, where I actually own a couple of stocks, Vincit.

Just like Vincit, also Gofore has been a success in the “Great place to work” competition. This becomes less of a merit once one realizes that taking part costs money and only a limited number of companies partake. That still doesn’t take anything away from Gofore, or Vincit.

IPO details

New shares 1.6 million

Sold shares 1.8 million

Of which offered to general public 750 000 shares

Minimum 150 shares => 5000 people at minimum would max out the IPO

Sold shares account for about 26% of all shares in the company

Lock-up period 6 months for Gofore itself and 12 months for sellers

Valuation

Market cap after IPO will be 82 million euro

P/E, trailing twelve months, is 18.5

EV/EBITA is 12-14 for the current year (Vincit is at 17, Siili at 12)

Growth

Revenue growth from 2015 to 2016 was about 50%, to 18.6 million euro

Revenue for 2017 is expected to hit 32.5 to 34.5 million euro, which would be +80%

Q1-Q3 2017 revenue was 22.7 million euro, which is up 76% compared to Q1-Q3 2016

Q1-Q3 2017 EBITA was 3.8 million euro, compared to 1.9 million euro Q1-Q3 2016

Q1-Q3 2017 EPS was 0.30 euro, compared to 0.14 euro Q1-Q3 2016

EBITA for 2017 is expected to hit 5.2 to 6.2 million euro, which would be +130%

Sales CAGR from 2012 to 2016 was 49.7%

Profitability

EBIT% 2017 estimate 17%

EBIT% from 2012 to 2016 has been 13.5%

ROI% has been around 50-60%

Major risks (from Evli research)

1) failing to maintain key personnel and attract new skilled professionals, 2) increased competition dampening price level, 3) unsuccessful internationalization to Germany and the UK, 4) Higher personnel costs due to wage inflation and 5) Customer risk; five largest customers account 42% of the sales.

Conclusions

I’m taking part in the IPO because of the current “climate” where the IPO scene is somewhat heated up and in my opinion there are quick profits to be made. I believe the IPO to be overbooked and that price on the open will be a bit over the IPO price. 

As for Gofore, the price seems quite fair, not too bad but not cheap either. The business is not capital intensive and is quite profitable. And having public sector as its biggest customers may be considered as a feat of entrepreneurship. Gofore tells that they will seek to grow faster than the overall market’s, which itself is growing quite fast at 15% to 25%.

Gofore’s current owners are selling their stock but they are not making an exit and will still retain a dominating 56% of all stock in the company. Mutual pension companies Varma and Ilmarinen are the anchor investors, with at least 1.35 million shares combined. 

The company lacks a moat or some other characteristic that would make it special. I mean, sure they have had success as a good employer and all but that doesn’t tend to last. As the company grows, recruiting top talent and providing a close environment becomes increasingly difficult. Therefore, I don’t intend to hold the stock for a long time.

Cheating my way to 110k

A new milestone! It was back in May that my portfolio clocked it’s first 6 figure rating and on Wednesday 18^th was the first time it reached 110k, or 111 094 euros to be exact. I also record my net worth although I don't find it such a valuable metric as it's not "edible", but it's hovering somewhere around 133 000 euros at the moment.

Although I have a bit of a confession to make. I cheated a bit! But only myself, I moved a couple of grands from my usage money to my portfolio and may have to move it back at some point. So, the figure is perhaps a little bit inflated.

Between first 100k and first 110k was exactly 167 days, so my portfolio gained a really nice 60 euros per day. Savings since 100k were 6 381 euros and gains were 3 742 euros within that period. With time the proportion of portfolio gains should dominate savings but such a trend is not emerging yet.

On Wednesday my portfolio looked like this:

	6.1.2017	10.5.2017	18.10.2017	change
Savings account	7575	7596	2000	-5596
Passive funds, broad	30172	33599	35844	+2245
Passive funds, niches	9734	11330	12902	+1572
Actively managed funds	6603	7499	8279	+780
Listed stocks	24930	32872	43036	+10164
Unlisted stocks	5250	5250	4500	-750
Fixed income	100	100	100	0
Cash	6012	4093	4434	+341
Total	90376	102337	111094	+8757

Year-to-date my portfolio is up about 7% so the year has been okay but not great. The lowering dollar valuation has hurt my portfolio to some extent as I hold plenty of US equities. I also have to note that I am a bit worried with the bull market just continuing and continuing on, Dow and S&P making not all-time-highs and VIX making all-time-lows. Just doesn’t add up!

I think my individual stock picks are getting a bit out of hand. I’ll need to try and limit my purchases to indexes for now. I also notice I’m checking my accounts rather often which isn’t a good sign. I’m thinking about adding trailing stops to my positions but at least Nordnet doesn’t support that.

What's there not to like about the Titanium IPO

A week ago I wrote about Rovio's IPO, which I think is overpriced, but I still pulled the trigger on that one. That IPO has just closed but the results aren't out yet. I'm hoping for an opening bounce and plan on exiting Rovio soon.

Titanium

The next IPO on the schedule is Titanium, a rather small investment fund company, specializing in healthcare real estate. They describe themselves as follows:

Titanium on suomalainen, pankkiryhmistä riippumaton hoivakiinteistöihin ja asuntoihin sijoittaviin erikoissijoitusrahastoihin sekä omaisuudenhoitopalveluihin keskittynyt kasvuyhtiö. Titanium on perustettu vuonna 2009 ja sen hallinnoima varallisuus 30.6.2017 oli noin 350 miljoonaa euroa.

I've looked at the investment case and am struggling to find anything bad to say about it really. This post includes my notes. Again, not thoroughly formatted but the content is key right?

Titanium's business areas(numbers for end H1 2017)

• Health care real estate fund: started 2013, AUM 217M, number of units 76, occupancy 100%, average lease 11 years == accounts for almost 90% of revenue
• Apartment real estate fund, started 2016, AUM 58M, number of apartments 331, occupancy 93%
• Stock market fund, started 2016, AUM 5M
• Asset management service, AUM 62M

Biggest product = Healthcare real estate fund

• real estate is new (mostly less than 10 years old)
• in good, diversified locations
• diversified rentees (23) with top3 rentees accounting for 36%

IPO details

Shares offered:

• Share issuance = 827.5k shares
• Share sale by current owners = 2440k shares
• Additional share sale if oversubscription = 821.4k shares
• Number of stocks offered to general public = 1.625 million (minimum is 150 stocks so 11k investors with minimum would do it)
• Number of stocks offered to institutions = 1.48 million 
• One share is 6.15 euro

Dates:

• Starts 25^th of September,
• Earliest end date 29^th of September,
• Results out 9^th of October
• Trading starts 16^th of October

The numbers: Fast growth with awesome profitability

2011 through 2016: revenue growth 57% (CAGR) and at the same time EBITDA margin average 44%

Titanium's growth in 5 last years is +57% CAGR with an average EBITDA 44%.

Most important numbers:

	H1 2017	H1 2016	2016	2015
Revenue	4.6M	2.4M	6.7M	4.3M
EBITDA	2.9M / 63%	1.2 / 49%	3.5 / 52%	2.4M / 55%
Operating profit (EBIT)	2.3M / 49%	0.6M / 23%	2.2M / 33%
Profit for year	1.7M	0.3M	1.6M	0.7M
Equity ratio	91%	93%	88%	93%
Net gearing (negative value means more money than debt	-51%	-33%	-43%	-38%
ROE	18.5%	4.4%	18.5%	8.4%
EPS	0.20 euro	0.04 euro	0.18 euro	0.08 euro
Total assets	10.7M	8.2M	10.2M	8.7M
CF	2.4M	0.9M	2.4M	1.9M

Inderes’ key numbers for 2017:

• P/E 9.9
• EV/S 4.2
• EV/EBITDA 7.0
• dividend yield 7.6%
• EPS 0.62 euro

Future outlook, dividend and risks: demand is expected to remain high

• Goal to increase revenue to 16M by 2020 (2017 about 10M) by increasing current products and by launching new products
• ==> Assuming revenue for 2017 is around 7 million, that would require over 30% of annual growth for 4 years
• Increase Healthcare fund to 500M within 2 to 3 years, with most of the expansion already agreed upon
• Maintaining high profitability = EBITDA above 50%.
• Dividend policy: growing dividend, at least 70% of profit

Major risks:

• societal and political risks, e.g., social and health services reform (“Sote”)
• AUM could go down, e.g., if people realize the extortionate fees they’re dishing out
• regulatory, e.g., increased costs and risks of handling MIFID2, etc.
• market turning and performance fees going down (lately a major component of revenue)

Additional insights and conclusion

Insights:

• A lot of emphasis is given to management team's experience, agility and "leanness".
• All major owners are selling shares but still maintaining most, most seem to be selling 25-33% of their stocks. Long 2 year lock-up and key personnel have a 5 year working commitment.
• Customer loyalty: Of customer who have used services and products, 94% are still customers.

Titanium seems to have come up with a very well scaling business model that is very cost efficient. I'm finding it difficult to come up with anything bad about the company, it basically seems to be a "license to print money". I'd like one of those please!