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H1 an exceptional period.
Financial markets in H1 were affected by heavy volatility as market turmoil in Q1 turned to a strong recovery in Q2. Overall, we expect H1 to be Taaleri's weakest half-year report since it was listed, with operating profit at EUR1m (EUR6.4m in H1 19). We estimate that the exceptional market turmoil hit mostly Garantia's investment operations and to a smaller extent management fees, given decreased assets under management (AuM). However, the strong market recovery means Garantia's investment income is not as bad as we had feared in March, and also that operations are set to normalise in H2, provided financial markets are stable. As the earnings slump is only temporary and the fundamentals for natural resource alternative investments, Taaleri's core expertise, are intact, we do not read too much into the weak figures expected in H1.

Focus on AuM recovery.
Our focus in the H1 result will be on AuM recovery, which is the key driver for Taaleri's continuing earnings. We estimate Taaleri's AuM decreased only 4% h/h from EUR7.1bn to EUR6.8bn, supported by market recovery.

Estimate changes.
We cut our operating profit estimate for 2020E by 52% from EUR26.1m to EUR12.4m because of 1) Garantia's investment income due to financial market turmoil 2) Fellow Finance's mark-to-market loss (share -37% in H1), 3) lower management fee estimates and 4) deferral of the capital gain from the sale of the Texas wind farm from 2020E to 2022E. We expect earnings to recover in 2021E to EUR24.9m, driven by normalising performance and management fees, as well as Garantia's investment operations.

Taaleri's shares are down 20% YTD and are trading at a 22% discount to Finnish asset management peers at a 2021E P/E of 9.8x on our estimates. We set our fair value range at EUR7.5-9.0 (EUR9.0-11.0). The lower end of the range implies a 2021E P/E of 11.2x, which is 14% below Taaleri's five-year average P/E 13x. The upper end of the range, on the other hand, implies a 2021E P/E of 14.2x, 9% above the historical average.
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