Commissioned Research: Investors House

Moving beyond traditional real estate

Investors House has commissioned Nordea Markets to produce a research report with the aim of providing investors with quality research on the company.

Solid start to the year – Updated 28 May 2018

Investors House reported EPRA earnings of EUR 0.6m, which was 77% higher compared to the Q1 2017 figure and above our estimate of EUR 0.4m. The company issued a positive profit warning on 24 May upgrading its 2018 guidance. We only make minor adjustments to our estimates.

Q1 driven by good performance of the real estate segment

The Q1 sales for the real estate segment were up substantially, landing at EUR 1.6m up from EUR 0.7m in Q1 2017. The increase was related to the acquisition of the remaining shares of IVH Kampus in Q4 2017. Sales in the Management segment on the other hand decreased slightly to EUR 0.3m, down from EUR 0.4m in Q1 2017, which to our understanding related to positive one-offs the previous year.

Outlook for 2018 upgraded – supported by acquisition

The company issued a positive profit warning and now expects the 2018 EPRA earnings to increase from EUR 1.9m in 2017 (previously “to be flat”). We expect the EPRA earnings to be EUR 3.0m in 2018 driven by the acquisition of Dividend House in Q2 2018, as well as continued strong performance of the underlying operations and currently favourable rental market in Finland.

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A diverse real estate company in the making

Investors House is transforming itself and aims to expand its current real estate business to include a broader service offering as well as launch a real estate fund in cooperation with the newly acquired Dividend House. We see good earnings upside potential with limited risk as the new business has good scalability and requires little upfront capital. The company has a solid record of expanding its real estate portfolio through favourable deals, which have resulted in portfolio revaluation of more than 3% in the past three years.

Strong basis for future expansion

Investors House has a strong balance sheet with an equity ratio of 61% and a net loan-to-value of 42%, which bodes well for future expansion without needing to issue additional equity. The macro environment in Finland is also supportive as strong GDP growth and rising inflation are favourable for rental development and the low interest rate environment is supportive for property transactions and property prices.

Valuation

Based on this combination of valuation methods, we derive a fair value range of EUR 6.9-9.9. Investors House currently trades at a 10% discount to its latest EPRA NAV, which is slightly lower than the Nordic sector average of 18%.

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