Tessin: Capital still a limitation of growth
Research Update
2024-05-07
07:25
Redeye updates its estimates and valuation after reviewing Tessin's Q1 report, which showed lower sales and profitability than expected. All eyes continue to be on securing institutional capital, and until then, we expect muted loan volumes in the coming quarters.
AH
Anton Hoof
Q1 results – Continued headwinds
Tessin continues to face headwinds due to limited capital on the platform and sales (SEK6.2m) declined 38% y/y and 9% q/q. This was 23% below our estimate of SEK8m. In terms of profitability, Tessin’s EBITDA landed at SEK-3.6m and EBIT at SEK-4.1m, lower than our estimates of SEK-2.3m respective SEK-3.1m. Tessin continues to have good cost control, and the deviation in profitability is due to lower sales.
Securing short-term financing
After the quarter, Tessin secured an additional SEK12m in funding through the issuance of a new convertible loan. The loan, which matures on 31 December 2024, has similar terms to the previous one, including a conversion price of SEK0.1. With Tessin's already lean cost profile, we think it is clear that sales must rebound for the company to achieve profitability and positive cash flow. While the new funding reduces liquidity risk, dilution risk persists, given the SEK12m equity position at the end of Q1.
Valuation
On the back of the Q1 report, we have made downward adjustments to our sales estimates for 2024e-2026e, reducing them by approximately 29-11% due to lower loan volumes while leaving our cost estimates roughly unchanged. Based on our revised estimates, we lower our base case from SEK0.30 to SEK0.20, and our fair value range from SEK0.05-0.6 to SEK0.05-0.45. We still believe that the primary catalyst for the stock would be Tessin securing institutional capital.
Key financials
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Net Sales | 50.7 | 40.6 | 33.2 | 52.8 | 58.1 |
| Sales Growth | 14.6% | -20.0% | -18.2% | 59.3% | 10.0% |
| EBITDA | -30.0 | -7.5 | -7.3 | 7.7 | 9.1 |
| EBIT | -38.3 | -12.8 | -9.3 | 5.1 | 6.3 |
| EBIT Margin | -75.5% | -31.4% | -27.9% | 9.6% | 10.8% |
| Net Income | -44.9 | -14.4 | -13.2 | 1.1 | 2.4 |
| EV/Sales | 1.0 | 0.7 | 1.6 | 1.0 | 0.9 |
| EV/EBITDA | -1.6 | -3.9 | -7.3 | 7.1 | 5.6 |
| EV/EBIT | -1.3 | -2.3 | -5.8 | 10.8 | 8.0 |
Q1 – Sales and profitability below expectations
Tessin reported net sales of SEK6.2m in Q1, a 38% y/y decline, lower than our expectations of SEK8m. Looking at profitability, Tessin’s EBITDA landed at SEK-3.6m and EBIT at SEK-4.1m, lower than our estimates of SEK-2.3m and SEK-3.1m. The deviation is due to lower sales, as opex was somewhat lower than our estimates.
| Tessin: Forecast deviations | ||||||||
| 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | Actual | Estimate | ||
| SEKm | Q4 22 | Q1 23 | Q2 23 | Q3 23 | Q4 23 | Q1 24 | Q1 24E | Diff (%) |
| Net sales | 12.9 | 10.0 | 12.6 | 11.2 | 6.8 | 6.2 | 8.0 | -23% |
| Growth YoY (%) | -4% | 13% | -17% | -22% | -47% | -38% | -19% | -18pp |
| Gross profit | 12.0 | 9.6 | 12.5 | 11.2 | 6.8 | 5.7 | 7.9 | -28% |
| Gross margin (%) | 93% | 96% | 100% | 100% | 100% | 93% | 99% | -6pp |
| EBITDA | -12.0 | -2.1 | 0.4 | 0.6 | -6.5 | -3.6 | -2.3 | -55% |
| EBITDA (%) | -93% | -21% | 4% | 5% | -95% | -58% | -29% | -29pp |
| D&A | -3.3 | -1.7 | -1.6 | -1.3 | -0.6 | -0.5 | -0.8 | -39% |
| EBIT | -15.3 | -3.8 | -1.2 | -0.8 | -7.1 | -4.1 | -3.1 | -31% |
| EBIT (%) | -119% | -38% | -9% | -7% | -104% | -66% | -39% | -27pp |
| Net finance | -3.5 | -0.4 | 0.4 | -0.8 | -0.7 | -1.0 | -0.4 | n.m |
| PTP | -18.8 | -4.2 | -0.8 | -1.6 | -7.7 | -5.1 | -3.5 | n.m |
| Net income | -20.3 | -4.7 | -0.8 | -1.5 | -7.5 | -5.1 | -3.5 | n.m |
| Source: Redeye (estimates) |
The value of brokered loans amounted to SEK54m, a 71% decrease compared to Q1 2023 and lower than our expectations of SEK100m. The arrangement fee amounted to 9.5%, higher than our expectations of 7%. Regarding the sales mix, Arrangement fees amounted to SEK5.1m compared to our estimate of SEK7m, and rental income amounted to SEK1.1m, in line with our estimation of SEK1m.
| Tessin KPIs: Forecast deviations | ||||||||
| 0.00 | #REF! | 0.00 | 0.00 | 0.00 | Actuals | Estimate | ||
| SEKm | Q4 22 | Q1 23 | Q2 23 | Q3 23 | Q4 23 | Q1 24 | Q1 24E | Diff |
| Value of brokered loans | 334 | 184 | 242 | 130 | 86 | 54 | 100 | -46% |
| Growth | 3% | -16% | -31% | -65% | -74% | -71% | -46% | 25pp |
| Arrangement fee | 11.4 | 9.0 | 11.6 | 10.2 | 5.9 | 5.1 | 7.0 | -27% |
| Rental income | 0.9 | 1.0 | 1.0 | 1.0 | 1.0 | 1.1 | 1.0 | 3% |
| Arrangement fee / Value of brokered loans | 3.4% | 4.9% | 4.8% | 7.8% | 6.9% | 9.5% | 7.0% | 3pp |
| Source: Redeye (estimates) |
Despite loan volumes coming in 46% lower than expected, EBIT deviated by cSEK1m, aligning the quarter with the previous one marked by declining loan volumes due to the lack of capital on the platform. The company has yet to secure any institutional capital, and while awaiting that, it continues to operate with a streamlined cost base. Currently, there have been no credit losses on the platform, and as older loans mature, more capital should become available for reinvestment, which will support future loan volumes. With the new convertible loan of SEK12m, we believe the short-term financing risk has decreased, although the dilution risk remains, considering the equity of SEK12m at the end of Q1. The primary catalyst for growth remains to secure institutional capital, and until then, we anticipate Tessin will maintain its lower cost base alongside lower loan volumes.
Financial development
The arrangement fee landed at 9.5% (arrangement fee / brokered loans) during the quarter, up from 6.9% in Q4 and higher than our expectations of 7%. It is worth noting that the arrangement fee tends to increase when loan volumes decline, as Tessin’s other revenue sources become a larger portion of the total. Therefore, a higher fee does not necessarily mean that Tessin has raised its prices.
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 SEK512m.
The decrease in loan volume has led to lower sales, with total net sales (LTM) declining by 30% y/y. This can be compared with the 60% decline in loan volumes in the same period, indicating that price increases have helped offset the decline.
Financial situation – Securing additional funding
After securing short-term funding of SEK2m at the beginning of the year, Tessin secured additional funding of SEK12m by issuing a new convertible loan to Troserums Förvaltning AB and Dan Brander at the end of April. The new convertible loan has a maturity date of 31 December 2024 and has similar terms as the previous one with a conversion price of SEK0.1. The loan has a monthly interest rate of 1.5%, and interest payments can be deferred until the loan’s maturity date, with the option to convert the payments into shares. The convertible loan could result in up to a 51% dilution of outstanding shares. The additional funding should not come as a surprise, as the company had already stated in conjunction with the previous convertible loan that more capital was likely needed. We agree with the company's assessment that this funding solution is probably the best option, and we believe it could be sufficient for the company to achieve positive cash flow if market sentiment improves throughout the year. Given the SEK12m equity position at the end of Q1, we think the loan will be converted to equity, leading to further dilution. (We are calculating with full dilution in our valuation).
Estimate changes
After reviewing the Q1 report, we have revised our sales estimates for 2024e-2026e downward, reducing them by approximately 29-11% due to lower-than-expected loan volumes in recent quarters. Our outlook for Q2 2024 remains cautious, with an anticipated gradual recovery in H2 2024. We now expect a total loan volume of SEK394m for 2024e, down from SEK642m in 2023. This figure can also be compared to Tessin’s record quarter in Q3 2022, during which it brokered loans totaling SEK368m in a single quarter. We anticipate making upward sales revisions if Tessin secures capital from a larger institutional player. In terms of opex, we have made limited estimate revisions.
| Estimate revisions | |||||||||||
| New estimates | Old estimates | Difference % | |||||||||
| 2024E | 2025E | 2026E | 2024E | 2025E | 2026E | 2024E | 2025E | 2026E | |||
| Net Sales | 33.2 | 52.8 | 58.1 | 46.8 | 59.4 | 65.3 | -29% | -11% | -11% | ||
| Growth | -18% | 59% | 10% | 15% | 27% | 10% | -34pp | 32pp | 0pp | ||
| Work for own use | 2.8 | 3.1 | 2.9 | 2.7 | 3.4 | 3.3 | 5% | -11% | -11% | ||
| Other income | 0.0 | 0.1 | 0.0 | 0.0 | 0.1 | 0.0 | -31% | -31% | n.a | ||
| Total revenues | 36.0 | 55.9 | 61.0 | 49.5 | 62.9 | 68.6 | -27% | -11% | -11% | ||
| Direct Costs | -0.7 | -0.5 | -0.6 | -0.5 | -0.6 | -0.7 | 55% | -11% | -11% | ||
| Personnel costs | -18.2 | -21.5 | -23.2 | -19.4 | -21.7 | -24.2 | -6% | -1% | -4% | ||
| Other external costs | -24.4 | -26.3 | -28.1 | -24.9 | -26.2 | -28.1 | -2% | 0% | 0% | ||
| D&A | -2.0 | -2.6 | -2.8 | -3.1 | -3.0 | -3.1 | -36% | -11% | -11% | ||
| Total Operating Exp | -45.3 | -50.9 | -54.7 | -47.9 | -51.5 | -56.0 | -6% | -1% | -2% | ||
| EBIT | -9.3 | 5.1 | 6.3 | 1.6 | 11.4 | 12.5 | n.m. | -50% | -44% | ||
| EBIT % | -26% | 9% | 10% | 3% | 18% | 18% | -29pp | -9pp | -8pp | ||
| Source: Redeye Research |
Financial Forecast
For the upcoming quarter, Q2 2024e, we estimate net sales of SEK6m, with SEK4.9m expected to come from arrangement fees and SEK1.1m from rental income. The estimated value of brokered loans is anticipated to reach SEK70m, compared to SEK54m in Q1 2024 and SEK242m in Q2 2023.
| Tessin: Financial forecasts | |||||||||
| (SEKm) | 2022 | 2023 | Q1 2024 | Q2 2024E | Q3 2024E | Q4 2024E | 2024E | 2025E | 2026E |
| Arrangement fee | 47.2 | 36.7 | 5.1 | 4.9 | 8.4 | 10.5 | 28.9 | 48.6 | 53.5 |
| Rental income | 3.4 | 4.0 | 1.1 | 1.1 | 1.1 | 1.1 | 4.2 | 4.2 | 4.7 |
| Capitalized costs | 3.4 | 2.5 | 0.7 | 0.7 | 0.8 | 0.7 | 2.8 | 3.1 | 2.9 |
| 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 | 6.9 | 6.7 | 10.2 | 12.3 | 36.0 | 55.9 | 61.0 |
| Direct costs | -1.3 | -0.5 | -0.5 | -0.1 | -0.1 | -0.1 | -0.7 | -0.5 | -0.6 |
| Other external costs | -39.2 | -27.2 | -5.8 | -6.0 | -5.8 | -6.8 | -24.2 | -26.1 | -27.9 |
| Personnel costs | -40.8 | -21.8 | -4.2 | -4.4 | -4.6 | -5.0 | -18.2 | -21.5 | -23.2 |
| Property costs | -0.4 | -0.3 | 0.0 | 0.0 | 0.0 | 0.0 | -0.2 | -0.2 | -0.2 |
| 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 | -3.7 | -3.8 | -0.3 | 0.3 | -7.3 | 7.7 | 9.1 |
| D&A | -8.2 | -5.2 | -0.5 | -0.4 | -0.6 | -0.6 | -2.0 | -2.6 | -2.8 |
| EBIT | -38.3 | -12.7 | -4.1 | -4.2 | -0.9 | -0.3 | -9.3 | 5.1 | 6.3 |
| Net financials | -5.0 | -1.4 | -1.0 | -1.0 | -1.0 | -1.0 | -3.9 | -3.9 | -3.9 |
| EBT | -43.3 | -14.1 | -5.1 | -5.2 | -1.9 | -1.2 | -13.2 | 1.1 | 2.4 |
| Tax | -2 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Net income | -44.9 | -14.4 | -5.1 | -5.2 | -1.9 | -1.2 | -13.2 | 1.1 | 2.4 |
| 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 | 0.20 | 0.45 | ||
| Sales CAGR 2024-2028 | 8% | 11% | 32% | ||
| Total Sales 2028, SEKm | 53 | 80 | 124 | ||
| Avg EBIT margin 2024-2038 | 9% | 16% | 20% | ||
| 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's management team has broad experience and a good understanding of the company’s market. However, their conviction is somewhat low, as a majority 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 | 36.0 | 55.9 | 61.0 |
| Cost of Revenue | 1.3 | 0.46 | 0.73 | 0.53 | 0.58 |
| Operating Expenses | 79.4 | 47.6 | 39.7 | 44.6 | 48.5 |
| EBITDA | -30.0 | -7.5 | -7.3 | 7.7 | 9.1 |
| Depreciation | 0.74 | 0.47 | 0.26 | 0.40 | 0.58 |
| Amortizations | 5.2 | 3.3 | 1.3 | 2.0 | 2.2 |
| EBIT | -38.3 | -12.8 | -9.3 | 5.1 | 6.3 |
| Shares in Associates | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
| Interest Expenses | 7.0 | 11.9 | 11.9 | 11.9 | 11.9 |
| Net Financial Items | -5.0 | -1.4 | -3.9 | -3.9 | -3.9 |
| EBT | -43.3 | -14.1 | -13.2 | 1.1 | 2.4 |
| Income Tax Expenses | 1.6 | 0.33 | 0.04 | 0.00 | 0.00 |
| Net Income | -44.9 | -14.4 | -13.2 | 1.1 | 2.4 |
Rating definitions
The team
Disclosures and disclaimers