Teqnion Analysis and Valuation
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- Опубліковано 20 гру 2022
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You asked and here it finally is. My Teqnion valuation video.
Oh I better quickly explain Teqnion for those who don’t know what I’m talking about. Teqnion is a Serial acquirer in Sweden. One of many serial acquirers out of the Scandinavian countries. A Serial acquirer is a business that buys other businesses as a major part of their growth strategy. Sure there is some organic growth from these businesses that they acquire, and that makes a great bonus, but the idea is to buy good solid businesses at say 4-6x profit, and continue to run them. The cash flow that these businesses generate goes back to management to fund the next acquisition. 1 turns into 2 into 3 into 5 into 8 into 12 into 15 into 22 and so on. The compounding effect of the acquisitions makes more acquisitions etc. Many companies have proven this works likes Constellation software and some companies have destroyed value by attempting this strategy. You have to buy great businesses otherwise things can get ugly. A great serial acquirer has extremely competent, high integrity, not greedy management.
There are plenty out there of very high quality. I looked at Lifco, green landscaping, indutrade, lagercrantz, instalco, Vitec software, and they all are really good companies.
But the stand out was Teqnion in my eyes.
If you haven’t been following my channel, which is about 20% of the people who will watch this video, I hope you enjoy my style of investing videos. And since you are new, this is what I’m looking for.
A company that has a lot of growth with high internal rates of return.
Companies that have a long runway in front of them, so it’ll need to be a smallish cap company.
Great leadership with a high percentage of their net wealth in the business.
If you know a business that fits these three things, please share it with me. I’ll even dig into it for you and give a little feedback. Please give me a rough elevator pitch though, that will help. Thanks
Join my discord group in the description to share the idea with me and we can chat in there.
Teqnion is a very interesting oppurtunity.
Excellent . Thanks.
Since the growth is largely acquisition, wouldn’t a book value and ROE focus make more sense for valuation? Berkshire style
Idk, I think thats mostly for financials- insurance with Berkshire and depends on how asset light the businesses are. It would be silly to wait around praying for sub 2 times BV for Constellation Software for example.
@@Monopolist91 yeah, but the ROE at Constellation is like 40-50% which implies a premium of many multiples of book. I’m not saying at all to hang around for 1x
@@InvestingwithTom Teqnion's ROE was 26.5% and 18.3% in 2021 and 2020 per the annual report. Asset light too.
I thought about this too and my answer is I don't exactly know. I feel like the cumulative effect of all the cash flows from the subsidiaries of the past decade are very valuable. So I like the dcf method. But also going through each subsidiary and figuring out a fair value for each, would be a good exercise too. The issue with just looking directly at the price to book value is deciding whether I agree with the sum of the parts calculation of the accountants.
@@AndrewBrownInvesting book value largely be the sum of prices paid by management, no? Assets of the acquired businesses plus some goodwill?
Hi Andrew. How do you calculate 5 Year Target Market Cap (diluted)? Thanks 🙏
Besides Tom’s question (+1) What do you think about including share dilution as an additional layer of MOS?
I think it's a good idea. Be conservative 👍
This turned out to be a good idea I would say. I have only recently stumbled across Teqnion thru Chris Mayer holdings and podcasts.
Yes, it will be a core part of my portfolio for decades I think. Glad you found it and enjoyed this video ☺️
👍👍
What's your opinion around the quality of Teqnion communication lately? The last earnings call on 19th Feb 2024 had people shitting bricks about lack of transparency and disclosures?
no concerns, i think they explained it all in the announcement and the earnings report. Wasn't handled very cleanly, but i don't believe there is dishonesty
Good work! A bit short the video on the details of the company but overall nice
I don't know where to stop sometimes. In my brain I know what details of the company 😅
Is your free cash flow margin including or excluding M&A? If it’s excluding - would you consider ROE/COE P/B valuation to include things like goodwill etc?
good question, my estimate of free cash flow margins is excluding the M&A, so combine that with book value growth over time and ROCE and we have a good base to estimate from.
I want to buy this sub 100, Nice video!
I'll buy more there too
how do you reconcile the loss in exchange rate. not like kroner is strong compared to usd, aud. and OZ the lucky country is about to get a lot luckier wrt commodities.
commodities aren't my game, neither are interest rates. I think long term it won't matter. Value is value
@@AndrewBrownInvesting a bit myopic don't you think? this works if you're buffet in 1980. usd goes up, your stocks go up. it doesn't work in india in 1980. your stocks go up, but so lose so much value through rupee depreciation.
it's a myth that buffet didn't care about interest rates btw. or exchange rates. or he 'held forever'. his average holding period is 2 years & he wrote extensively about interest rates in his letters. when he bought japan, he hedged currency exposure through bonds. don't be so arrogant as to think macro conditions don't apply to you. seems almost like an automatic response from you. no thinking required.
@@rickfool1452 I still think long term it won't matter. Right now the company has majority SEK exposure but that's not where I believe it will be in 20 years. I also think Sweden is a strong country with a good entrepreneurial and stable business environment. I think rule of law is upheld well, corruption is low and they have a working culture.
I didn't say it wasn't important to consider exchange rates. And I didn't say I was following a Buffett approach either.
I hope that is more detailed now. It is just my opinion and I'm no expert on exchange rates. But I think the economy of Sweden will hold up over a long period of time and the fluctuations will be inevitable. I just tune them out as long as the big picture thesis remains in tact.
If Sweden go to war or something dramatic was to change, then I'll reassess.
What types of companies are they acquiring? Are the companies diverse or concentrated in specific industries?
I went out to Teqnion's "subsidiaries" tab on it's website to answer my own question. They look to be loosely focused on acquiring industrial machinery companies for engineering, electrical, healthcare, construction etc.
Correct, the criteria is, they make physical things, they have dominant market shares in durable niches, b2b markets, someone great in line to run the business
@@AndrewBrownInvestingandrew can you make an update on your portfolio holdings ? also, why is B2B BETTER than B2C?
@@rickfool1452 Hi, updates come out after each quarter, so early July will be the next one. And B2B isn't better, it can be less competitive and less trendy. I personally prefer B2B because I don't feel confident I know where consumer trends will go in the future. I have a hard time figuring that out and getting confident. But a B2B business with contracts makes it easier for my brain. Hope that makes sense :)
Could you possibly post the English translation of the financial reports? Thanks
I just get Google translate to do it for me 😊
Still trying to work out why passionate business owners want to sell to teqnion. What is teqnion’s true value proposition to them? How does teqnion keep passionate business owners motivated in their role as ceo of daughter company after they have sold to teqnion? These are the key questions for understanding whether teqnion is a truly great long term investment or not ..
Also Teqnion was founded in 2006 - it seems like a pretty small company given that it has been around for so long and it’s aim is to double earnings every 5 years. Was there a reason it was slow to grow in the first several years?
Indeed an interesting serial aquirer, but you are ignoring currency risk as most of the earnings are in swedish krona and it's been losing value compared to the dollar for a long time, not a risk if you're swedish, that's why my discount rate should be higher for foreign companies in my opinion
very good point
Why have they had 4 CFO's in the last few years. I have shares but got to be honest that is alarming.
I don't know 🤷🏻♂️
Yeah, and they say the next person they hire they're not going to call CFO. Very weird.
@@earlyretirement1459 haha that's a joke of course :)
did you lost weight?
Haha everyone keeps telling me this. Yes, but I better put some back on.
*lose