Tessin: Muted risk appetite holding back sales
Research Update
2024-02-16
07:30
Redeye updates its estimates and valuation after reviewing Tessin's Q4 report, which showed weaker figures than expected. Despite the accelerated decline in sales during the quarter, we believe there is potential for a rapid rebound if institutional capital were to be secured.
AH
Anton Hoof
Q4 results – Weaker than expected
We think the Q4 report was weaker than expected, and sales of SEK6.8m declined 47% y/y and 39% q/q. This was 34% below our estimate of SEK10.3m. The lower sales are attributed to muted risk appetite from investors on Tessin’s platform, while the demand from developers is still strong, according to the company. In terms of profitability, Tessin’s EBITDA landed on SEK-5.8m and EBIT on SEK-7m, lower than our estimates of SEK-0.7m respective SEK-2.0m. The deviation is primarily due to lower sales.
Capital - still the limiting factor
Once again, capital on the platform remains the limitation of growth while demand from developers is holding up. In light of the unexpectedly weak performance in the second half of 2023, Tessin did not reach its financial goals of profitability by the end of the year. To achieve profitability in the near term, sales must rebound, as we believe the company may have limited room to further cut costs. A potential rapid rebound in sales would be if Tessin managed to secure capital from institutional players.
Valuation
Following the Q4 report, we have made adjustments to our sales estimates for 2024e-2026e, reducing them by approximately 13-16% due to lower loan volumes. Our estimates reflect a cautious outlook for H1 2024, followed by a gradual recovery in H2 2024. Our new base case stands at SEK0.30 (SEK0.35), and the fair value range is unchanged at SEK0.05-0.6
Key financials
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Revenues | 54.1 | 43.2 | 49.5 | 62.9 | 68.6 |
| Revenue Growth | 14.0% | -20.2% | 14.7% | 27.0% | 9.1% |
| EBITDA | -30.0 | -7.5 | 4.7 | 14.4 | 15.7 |
| EBIT | -38.3 | -12.8 | 1.6 | 11.4 | 12.5 |
| EBIT Margin | -75.5% | -31.4% | 3.4% | 19.2% | 19.2% |
| Net Income | -44.9 | -14.4 | -0.06 | 9.8 | 10.9 |
| EV/Revenue | 0.9 | 0.7 | 0.6 | 0.5 | 0.4 |
| EV/EBITDA | -1.6 | -3.9 | 6.2 | 2.0 | 1.8 |
| EV/EBIT | -1.3 | -2.3 | 18.4 | 2.5 | 2.3 |
Fourth quarter – Sales and profitability below expectations
Tessin’s Q4 report was surprisingly soft in our view, and net sales amounted to SEK6.8m, a y/y decline of 47%. This was lower than our expectations of SEK10.3m. The lower sales resulted in lower margins and Tessin’s EBITDA landed on SEK-5.8m and EBIT on SEK-7m, lower than our estimates of SEK-0.7m respective SEK-2.0m.
| Tessin: Forecast deviations | ||||||||
| 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | Actual | Estimate | ||
| SEKm | Q3 22 | Q4 22 | Q1 23 | Q2 23 | Q3 23 | Q4 23 | Q4 23E | Diff (%) |
| Net sales | 14.4 | 12.9 | 10.0 | 12.6 | 11.2 | 6.8 | 10.3 | -34% |
| Growth YoY (%) | 30% | -4% | 13% | -17% | -22% | -47% | -20% | -27pp |
| Gross profit | 14.3 | 12.0 | 9.6 | 12.5 | 11.2 | 6.8 | 10.3 | -34% |
| Gross margin (%) | 99% | 93% | 96% | 100% | 100% | 100% | 100% | 0pp |
| EBITDA | -6.3 | -12.0 | -2.1 | 0.4 | 0.6 | -5.8 | -0.7 | n.m. |
| EBITDA (%) | -43% | -93% | -21% | 4% | 5% | -85% | -7% | -79pp |
| D&A | -1.6 | -3.3 | -1.7 | -1.6 | -1.3 | -0.6 | -1.3 | 58% |
| EBIT | -7.9 | -15.3 | -3.8 | -1.2 | -0.8 | -7.0 | -2.0 | -244% |
| EBIT (%) | -55% | -119% | -38% | -9% | -7% | -103% | -20% | -83pp |
| Net finance | -0.5 | -3.5 | -0.4 | 0.4 | -0.8 | -0.7 | -0.8 | n.m. |
| PTP | -8.4 | -18.8 | -4.2 | -0.8 | -1.6 | -7.6 | -2.8 | n.m. |
| Net income | -9.1 | -20.3 | -4.7 | -0.8 | -1.5 | -7.5 | -2.8 | n.m. |
| Source: Redeye (estimates), company data (historicals) |
The value of brokered loans amounted to SEK86m, a 74% decrease compared to Q4 2022 and lower than our expectations of SEK120m. The arrangement fee amounted to 6.9%, lower than our expectations of 7.8%. Regarding the sales mix, Arrangement fees amounted to SEK5.9m compared to our estimate of SEK9.4m, and rental income amounted to SEK1m, in line with our estimation of SEK0.9m.
| Tessin KPIs: Forecast deviations | ||||||||
| 0.00 | #REF! | 0.00 | 0.00 | 0.00 | Actuals | Estimate | ||
| SEKm | Q3 22 | Q4 22 | Q1 23 | Q2 23 | Q3 23 | Q4 23 | Q4 23E | Diff |
| Value of brokered loans | 368 | 334 | 184 | 242 | 130 | 86 | 120 | -28% |
| Growth | 35% | 3% | -16% | -31% | -65% | -74% | -64% | -10pp |
| Arrangement fee | 13.5 | 11.4 | 9.0 | 11.6 | 10.2 | 5.9 | 9.4 | -36% |
| Rental income | 0.9 | 0.9 | 1.0 | 1.0 | 1.0 | 1.0 | 0.9 | 0% |
| Arrangement fee / Value of brokered loans | 3.7% | 3.4% | 4.9% | 4.8% | 7.8% | 6.9% | 7.8% | -1pp |
| Source: Redeye (estimates), company data (historicals) |
In line with the previous quarter, demand remains robust on the developer side but subdued on the investor side. Hence, it is evident that Tessin must secure institutional capital to sustain sales and meet the growing demand from developers. In light of the unexpectedly weak performance in the second half of 2023, Tessin did not reach its financial goals of profitability by the end of the year. To achieve profitability in the near term, sales must rebound, as we believe the company may have limited room to further cut costs. We recognize that credit losses remain at 0%. However, Tessin states that several loan payments have been postponed, potentially leading to credit losses in the coming quarters.
Financial development
The arrangement fee landed at 6.9% (arrangement fee / brokered loans) during the quarter. Down from 7.8% in Q3 but still ~3pp higher than H1 2023 levels.
Value of brokered loans
Tessin has reached brokered loans worth SEK5.7bn since its inception and is still adding new projects to its platform in a challenging market. However, we can see that Tessin has adjusted interest rates on new projects (currently ~13%). According to the company, this has resulted in slightly longer fill rates, which may also have a moderate impact on sales. Brokered loans past twelve months stand at SEK642m.
The decrease in loan volume has led to lower sales, with total net sales declining by 20% compared to 2022. This can be compared with the 50% decline in loan volumes from 2022, indicating that price increases have helped offset the decline in loan volumes.
Financial situation
In conjunction with the Q3 report, the company announced its plans to secure additional capital as the underlying market has been weaker than expected. In our previous update, we wrote that we expected a maximum capital injection of SEK10m. Consequently, the SEK2m convertible loan that Tessin issued after Q4 falls on the lower end of the spectrum. However, our understanding is that Tessin has invested in loans on the platform alongside some of its institutional partners. Should these loans mature in the near term while sales rebound, we think there is a potential scenario where no additional capital is needed.
Estimate changes
Following the Q4 report, we have made adjustments to our sales estimates for 2024e-2026e, reducing them by approximately 13-16% due to lower loan volumes. Our estimates reflect a cautious outlook for H1 2024, followed by a gradual recovery in H2 2024. Consequently, we anticipate a total loan volume of SEK610m in 2024e, down from SEK642m in 2023; the lower volume is somewhat mitigated by a higher arrangement fee. Therefore, with the higher fee, we still expect a net sales growth of 15% in 2024e. Additionally, we have made some cost adjustments for 2024e-2026e, lowering them by 12-17%. In total, we have made modest adjustments on an EBIT level. We anticipate Tessin to achieve positive profitability in Q2 2024; however, for this to materialize, loan volumes must rebound.
| Estimate revisions | |||||||||||
| New estimates | Old estimates | Difference % | |||||||||
| 2024E | 2025E | 2026E | 2024E | 2025E | 2026E | 2024E | 2025E | 2026E | |||
| Net Sales | 46.8 | 59.4 | 65.3 | 53.5 | 70.7 | 77.8 | -13% | -16% | -16% | ||
| Growth | 15% | 27% | 10% | 22% | 32% | 10% | -6pp | -5pp | 0pp | ||
| Work for own use | 2.7 | 3.4 | 3.3 | 3.1 | 4.2 | 4.7 | -0.1 | -0.2 | -0.3 | ||
| Other income | 0.0 | 0.1 | 0.0 | 0.0 | 0.1 | 0.0 | -13% | -13% | n.a | ||
| Total revenues | 49.5 | 62.9 | 68.6 | 56.7 | 75.0 | 82.5 | -13% | -16% | -17% | ||
| Direct Costs | -0.5 | -0.6 | -0.7 | -0.5 | -0.7 | -0.8 | -13% | -16% | -16% | ||
| Personnel costs | -19.4 | -21.7 | -24.2 | -22.3 | -25.3 | -28.0 | -13% | -14% | -14% | ||
| Other external costs | -24.9 | -26.2 | -28.1 | -26.2 | -29.9 | -33.0 | -5% | -12% | -15% | ||
| D&A | -3.1 | -3.0 | -3.1 | -5.4 | -6.1 | -5.8 | -42% | -51% | -46% | ||
| Total Operating Exp | -47.9 | -51.5 | -56.0 | -54.3 | -62.0 | -67.6 | -12% | -17% | -17% | ||
| EBIT | 1.6 | 11.4 | 12.5 | 2.4 | 13.1 | 14.8 | -33% | -13% | -15% | ||
| EBIT % | 3% | 18% | 18% | 4% | 17% | 18% | -1pp | 1pp | 0pp | ||
| Source: Redeye Research |
Financial Forecast
For the upcoming quarter, Q1 2024e, we estimate net sales of SEK8m, with SEK7m expected to come from arrangement fees and SEK1m from rental income. We estimate the value of brokered loans to reach SEK100m, compared to SEK86m in Q4 2023 and SEK184m in Q1 2023.
| Tessin: Financial forecasts | |||||||||
| (SEKm) | 2022 | 2023 | Q1 2024E | Q2 2024E | Q3 2024E | Q4 2024E | 2024E | 2025E | 2026E |
| Arrangement fee | 47.2 | 36.7 | 7.0 | 11.2 | 10.5 | 14.0 | 42.7 | 55.2 | 60.7 |
| Rental income | 3.4 | 4.0 | 1.0 | 1.0 | 1.0 | 1.0 | 4.1 | 4.2 | 4.6 |
| Capitalized costs | 3.4 | 2.5 | 0.6 | 0.5 | 0.7 | 0.9 | 2.7 | 3.4 | 3.3 |
| Other income | 0.0 | 0.1 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.1 | 0.0 |
| Total income | 54.1 | 43.2 | 8.6 | 12.8 | 12.2 | 15.9 | 49.5 | 62.9 | 68.6 |
| Direct costs | -1.3 | -0.5 | -0.1 | -0.1 | -0.1 | -0.2 | -0.5 | -0.6 | -0.7 |
| Other external costs | -39.2 | -27.2 | -6.0 | -6.4 | -5.8 | -6.8 | -24.9 | -26.2 | -28.1 |
| Personnel costs | -40.8 | -21.8 | -4.8 | -4.8 | -4.6 | -5.3 | -19.4 | -21.7 | -24.2 |
| Property costs | -0.4 | -0.3 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Change of prop value | -2.4 | -1.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| EBITDA | -30.0 | -7.5 | -2.3 | 1.5 | 1.7 | 3.8 | 4.7 | 14.4 | 15.7 |
| D&A | -8.2 | -5.2 | -0.8 | -0.7 | -0.7 | -0.9 | -3.1 | -3.0 | -3.1 |
| EBIT | -38.3 | -12.7 | -3.1 | 0.8 | 1.0 | 2.9 | 1.6 | 11.4 | 12.5 |
| Net financials | -5.0 | -1.4 | -0.4 | -0.4 | -0.4 | -0.4 | -1.6 | -1.6 | -1.6 |
| EBT | -43.3 | -14.1 | -3.5 | 0.4 | 0.6 | 2.5 | -0.1 | 9.8 | 10.9 |
| Tax | -2 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Net income | -44.9 | -14.4 | -3.5 | 0.4 | 0.6 | 2.5 | -0.1 | 9.8 | 10.9 |
| Source: Redeye Research |
Valuation
We have used a WACC of 14% in all scenarios, derived from Redeye’s Rating model, and a tax rate of 20.6%. The discount analysis extends to 2036, and the key financial assumptions for the scenarios are summarized below.
| Assumptions, fair value range | |||||
| Bear Case | Base case | Bull Case | |||
| Value per share, SEK | 0.05 | 0.30 | 0.60 | ||
| Sales CAGR 2024-2028 | 5% | 11% | 32% | ||
| Total Sales 2028, SEKm | 63 | 90 | 175 | ||
| Avg EBIT margin 2024-2038 | 11% | 19% | 22% | ||
| Terminal EBIT Margin | 10% | 20% | 25% | ||
| WACC | 14.0% | 14.0% | 14.0% | ||
| Terminal growth | 2% | 2% | 2% | ||
| Source: Redeye Research |
Investment thesis
Case
Market leader in a market with robust underlying growth
Evidence
A solid track record that demonstrates an effective business model
Challenge
A business model that must prove itself in a more challenging environment
Valuation
The current share price reflects the current uncertainty
Quality Rating
People: 3
Tessin has a relatively unproven management team, most of whom only joined in 2020 or later, which makes it hard to have a strong opinion of their execution. They have broad experience and a good understanding of the company’s market. However, their conviction is somewhat low, as a majority, including the CEO, only own limited shares in the company.
Business: 2
Tessin has a proven business model and operates in a market with high structural growth. Tessin is an immature company and must convince the market that its business model is scalable and resistant to more challenging market conditions. Currently, revenues are primarily non-recurring based on brokered loans. This makes the business model vulnerable to external factors that affect the financial and real estate markets. Tessin intends to increase its recurring revenues.
Financials: 1
Historically, Tessin has shown healthy top-line growth. However, its growth rate has slowed in recent years, creating uncertainty about its long-term growth rate. In addition, Tessin has not reported any profits since its foundation, making the company score low in this rating.
Financials
| Income statement | |||||
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Revenues | 54.1 | 43.2 | 49.5 | 62.9 | 68.6 |
| Cost of Revenue | 1.3 | 0.46 | 0.47 | 0.59 | 0.65 |
| Operating Expenses | 79.4 | 47.6 | 41.6 | 44.4 | 49.0 |
| EBITDA | -30.0 | -7.5 | 4.7 | 14.4 | 15.7 |
| Depreciation | 0.74 | 0.47 | 0.41 | 0.45 | 0.65 |
| Amortizations | 5.2 | 3.3 | 2.1 | 2.2 | 2.5 |
| EBIT | -38.3 | -12.8 | 1.6 | 11.4 | 12.5 |
| Shares in Associates | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Interest Expenses | 7.0 | 11.9 | 15.6 | 15.6 | 15.6 |
| Net Financial Items | -5.0 | -1.4 | -1.6 | -1.6 | -1.6 |
| EBT | -43.3 | -14.1 | -0.06 | 9.8 | 10.9 |
| Income Tax Expenses | 1.6 | 0.33 | 0.00 | 0.00 | 0.00 |
| Net Income | -44.9 | -14.4 | -0.06 | 9.8 | 10.9 |
Rating definitions
The team
Disclosures and disclaimers