B2 Holding B2H
August 15, 2015 - 3:37pm EST by
Barong
2015 2016
Price: 11.00 EPS 0.81 0
Shares Out. (in M): 311 P/E 12.9 0
Market Cap (in $M): 3,425 P/FCF 0 0
Net Debt (in $M): 1,300 EBIT 400 0
TEV ($): 4,825 TEV/EBIT 12.1 0

Sign up for free guest access to view investment idea with a 45 days delay.

 

Description

B2 Holding (BTOH) - cheap, fast growing and an obvious take-over candidate

First things first: If you are unable or unwilling to invest in unlisted and/or relatively illiquid stocks, this write-up is not for you. But if you are willing to suspend your liquidity preference for a few months, read on.


Elevator pitch: B2 is a cheap, fast growing take-over target with a hard catalyst (full listing on the Oslo Stock Exchange) that offers 60% upside to my price target of 18 NOK within the next 12-24 months. Longer term, the upside could be considerably larger.

The investment case in bullet points: 

  • Strong leadership: A management team with a stellar track record of shareholder value creation is building a significant presence in European debt collection. B2 management has done this before - twice! They own about 10% of the company, not including a generous option package. These people are very skilled and highly incentivized to succeed. 
  • Favorable macro and regulatory environment: The company is a beneficiary of a stricter regulatory environment for European banks, who are forced to offload portfolios of debt to comply with new risk management rules. ECB's Asset Quality Review (AQR) results in more loans being classified as non-performing and leads to a capital shortcoming approaching 10 Bn Euros in total. Basel 3 means banks are forced to reduce high-risk weighted assets in many cases, and the introduction of IFRS 9 by 2018 will require more conservative calculation of loan losses. All this forces banks to sell, and B2 can take advantage of this by acquiring portfolios at attractive valuations. The flow of interesting claims portfolios should therefore be solid for some time. Record low interest rates and significant debt capacity will help B2 maximize returns going forward.
  • Growing quickly: The company is well capitalized and is also going to issue a bond loan in Q3 to fund aggressive purchases of new portfolios while this window of opportunity is open. The business is very scalable, and return on equity should improve markedly as B2 grows. And increased focus on the favorable eastern european markets will also help them achieve higher ROIs on purchased portfolios.
  • Cheap: B2 is trading at a discount to peers on most metrics.
  • Takeover target: B2 should be an attractive target for both larger Nordic peers like Intrum Justitia, US players like Portfolio Recovery Associates and private equity players. The PE industry is currently pursuing similar companies aggressively, to wit the Pemira purchase of both GFKL and Lowell Group this summer (financial terms are not disclosed at this time), and Nordic Capital's purchase of Lindorff (at EV/EBIT 18.4). Management has previously stated that a natural exit would be a sale of the company "within 3-5 years (said in 2014)." As they have done this very successfully twice before, I think one should view this as very likely. ​
  • I believe B2 is worth at least 18 NOK per share, which implies 60%+ upside from the current share price. 
  • A hard catalyst exists here since the company plans to list properly on the Oslo Stock Exchange in 2016 (Q1). This will result in higher pricing, increased attention and analyst coverage and better liquidity (note that the company is quite large for an unlisted stock with a market cap of > 3.4 Bn NOK, and lately the trading volumes have increased markedly into the millions, so it's not that illiquid anymore).

Key figures
Last price 11.00
Shares outstanding* 311.4
Market cap 3425.4
Net debt 1300
Minority interest 20
Earnout clause 40
CEO/COB exit clause 40
EV 4825.4
Gross ERC 4631
EV/gross ERC 1.0
Insider ownership 10 %
Multiples 2014 2015
EV/EBIT 19.4 12.1
P/E 27.8 12.9

* basic shares. Fully diluted incl all options the count is 325.8m shares.

 

Brief company overview

B2 Holding is a debt collection company with operations in the Nordic region and Central and Eastern Europe. The company operates in three business areas: unsecured non-performing loans, third party collection and consumer lending.

Through a series of acquisitions, the company has grown to become a serious player in the European debt collection industry. In 2014, the fairly large acquisition of Ultimo from Advent in Poland was the most important (Ultimo managed portfolios with a face value of 3840m at the time), followed by the purchase of a large portfolio in august 2014 from Hypo Aldria (about 168m EUR in face value). 

The company reported pro-forma revenue for 2014 including Ultimo of about 727m NOK (but was probably higher in reality), and cash EBITDA ( gross ERC stood at about 4600 NOK as of June this year. Pro forma EPS was 0.38 NOK. These numbers will be significantly improved upon when B2 reports full-year 2015.

Management has one of the strongest track records I've ever seen

The owners of the company I work for have had a relationship with senior management for years. We know and trust these people. This of course is not the case for the readers of this write-up, so here is some background information on two central figures, the CEO Olav Dahlen Zahl and chairman and founder Jon Nordbrekken.

B2 was started in 2011 by industry veterans Jon Nordbrekken and Olav Dahlen Zahl, who have had considerable success in this business previously. Shareholders were extremely happy with their efforts. Nordbrekken and Zahl achieved an annual shareholder return (market cap CAGR) of 62% in Aktiv Kapital under their tenure from 1998-2004. In Gothia, the annual shareholder return from 2005-2008 (market cap CAGR) was an unbelievable 94%. 

Even if this can't realistically be replicated now, their previous experience is a major asset - among the most important barriers to entry in debt collection is having good relationships with banks and creditors. Nordbrekken and Zahl have cultivated relationships with said parties over 20+ years. This leads to access to better deal flow. 

Strategy

The company's strategy is to buy portfolios of debt at a major discount to face (and fair) value, develop a strong operation platform (better scoring, analysis than competitors in their markets) and establish a pan-european player in debt collection. Their specifically stated strategic goals* going forward are:

  • Focus on financing with increased use of debt (the company is significantly overcapitalized)
  • Continue the stock listing process (planned listing in Q1 2016 on the OSE)
  • Grow in existing markets by utilising established platforms 
  • Further integrate and utilise core competencies in the group 
  • Enter into new markets

* Company presentation March 13th 2015

P&L

IFRS P&L 2014 (incl FY Ultimo from '14) 2014 2015
Interest income on loan portfolios 727 901
   
External collection (commission, fees) 91 96
   
Portfolio collection income 818 997
Other income 23 23
Total operating revenues 841 1020
IFRS writedowns on portfolios -261 -458
Total cash revenue* (add back write-downs) 1102 1478
Total opex -576 -595
Cash EBITDA** (= cash revenue - opex) 526 883
EBITDA (cash EBITDA - writedowns) 265 425
D&A -16 -25
EBIT 249 400
   
Interest expense -131  -99 
Other financial items 29  -
Net financials -102  -99 
PTP 147 301
Tax (12% from 2015) -24 -36
Net profit 123 265
# shares ( incl all options dilution) 311.4 325.8
EPS 0.39 0.81

NB: I'm using the fully diluted share count for the P&L estimates, but not in the quoted P/E multiple above. Hence the discrepancy.

Note also that I haven't bothered to try to estimate a detailed P&L for the coming years, simply because I can't see how it can realistically be done in this case: While I have some clue of what they have been able to buy this year and their costs, I don't know how much they will be able to buy in 2016 and how much debt they will have at that point. Any detailed estimates would be very speculative. Even the interest costs this year will depend on what size bond issue they do. So there's every reason to take my estimates with a grain of salt.

 I will say this though: It seems very likely that earnings will continue to grow at a solid clip for another couple of years at least. B2 is currently trading at about 12.9x 2015 EPS, which seems very low to me. To get a sense of how the market chooses to price comparables, see the table below detailing the IPO pricing recently.

So what's next for B2?

1. Aggressive portfolio purchase activity

In the coming months and years, I believe the company will grow their business aggressively, especially in Central and Eastern Europe and in the Balkans in particular. It is a very creditor friendly environment where B2's main competitors are not omnipresent, and where IRRs on debt portfolios are very high (so high in fact, that B2's Balkans representative did not want to disclose the average figure on the annual general meeting for fear of attracting more competition).

2. Optimizing capital structure

Compared to peers, B2's equity ratio is very high at 49% vs a peer average of about 30%. A bond loan of 500m NOK will be issued in Q3 this year, which will help the company fund portfolio acquisitions (management says the pipeline of deals looks excellent, and time and money are the main constraints). They could even do 1 Bn, but it will most likely be done in 2 tranches. Levering up lowers the company's cost of capital and helps increase ROE significantly as B2 will realize lower its relative cost base. As will more favorable taxation, the company will be able to lower its effective tax rate because a large number of portfolios will be held via Luxembourg (I have not given full credit to this tax scheme because it seems a little too good to be true and the details are not clear to me). B2 also recently concluded work on a new 4-year, 2 Bn revolving credit facility which replaces existing facilities in all geographical markets and provides both increased financial and investment flexibilty (the new facility allows for more types of claims to be held than the previous one did, which opens new doors for B2). 

3. Listing on the Oslo Stock Exchange - should lift valuation

B2 will list in Q1 of 2016. This is not a coincidental choice, I think the company wants to report a strong 2015 in conjunction with the listing process. Looking at the average pricing on recently completed, comparable IPOs in the Nordic markets, it seems very likely that B2 will get a valuation uplift. Note that use my estimated 2015 EPS and book value as of june 2015 for B2 which is probably unfair since I think we can safely assume book value and earnings will grow somewhat by next year's listing. Which means this is not an apples-to-apples comparison, but an added margin of safety is never a bad thing. The implied fair pricing is about 18.7 NOK per fully diluted share (including all options held by management), 

IPO pricing comparables T12 P/E T12 P/B
Hoist Finance 25.4 3.3
Collector 31.0 4.9
Nordax 18.2 3.0
Arrow 23.8 3.6
Average 24.6 3.7
Median 24.6 3.4
B2 multiples on 2015 EPS/Q1 2015 BV 13.5 2.4
B2 share price at avg peer IPO pricing: 20.0 15.8

Valuation and price target

The midpoint of the P/E and P/B values in the above table implies 17.9 NOK is a likely value for B2 after listing (identical to my price target). A fast growing, well run company with strategic value to the industry and appeal to private equity could very well see pricing at these levels. Earnings visibility is good, and debt collection is a cash machine when done right. In an energy-dominated market like the OSE, a company like this will probably be well received. 

Looking at other peers, Intrum Justitia and Kruk S.A. are the most relevant. Intrum trades at 18x 2015 EPS, while Kruk is not as aggressively valued at 13x. In terms of P/B multiples, Intrum trades at 6.8x while Kruk is at 3.6x. Doing the same excercise here, the average multiples are 15.5x EPS and 4.9x book. So other listed peer valuations imply plenty of upside as well.

To get a sense of whether B2 is too cheap from another angle, one could estimate the a reasonable price/book multiple like this: (assumed sustainable ROE - growth rate) / (discount rate - growth rate). Assuming a ROE in line with industry median (25%) is sustainable going forward after optimizing the capital structure and paying lower taxes, a 10% discount rate and a long term growth rate in earnings of 4% (in line with the long term historical growth rate in earnings in the stock market overall), this works out to a fair P/B multiple of 3.5. Using the current BV of 1405m NOK, that implies a fair value per fully diluted share of 15.1 NOK. So B2 looks cheap from this point of view as well, even if assuming normal growth only in perpetuity.

Recent M&A support 18 NOK as a share price target.

Finally, there's a good chance the company is acquired in a couple of years, but I don't think it is for sale just yet -management is probably going to want to keep building critical mass before they sell out. They sold too soon in 2008, when Herkules Capital bought Gothia. This was partly because of pressure from other leading shareholders. Herkules sold the company for over double sum paid only five years later when selling it to Arvato. Considering this was a levered purchase, the returns were obviously very good. I think this was rather painful for Nordbrekken and Zahl to watch, and thus believe they will be more patient this time around if they think that's better for B2's shareholders.

Like I said previously, the company should be interesting to several industry players because of its geographical exposure. There are also likely other buyers: Debt collection is a cash generative business with fairly stable margins. Just the thing you might want to buy and lever up in this climate if you're a private equity guy. The average pricing over the last couple of years indicates that a reasonable expectation is somewhere around EV/cash EBITDA (=EBITDA+portfolio amortizations) of 6-7. Assuming B2 can grow 2015 cash EBITDA at a 10% pace through 2017, 883m*1.10^2=1068m in 2017. If somebody were to pay EV/cash EBITDA 6-7 at that point, it implies a valuation of 18-19 NOK per fully diluted share. 

This is an imprecise but interesting excercise, because if you do that for another couple of years, the value of B2 increases to 25 NOK and so on. And with size comes increased cost efficiency and ROE, so should a buyer not materialize, it's not a great loss to me. This is the kind of business I would like to own forever, and the dividend capacity will likely be significant over time.

Conclusion

Buy B2 Holding before this opportunity is recognized by the broader market. (At least start looking at it now, even if you can't buy before the listing. By the time it's listed and the major local brokerages have initiated coverage, it will probably be too late to start work on this. As of today, only Fondsfinans has some coverage, and that was initiated this week). 

In the interest of full disclosure I should say that this is by far our largest position. We run a concentrated portfolio, but even by our usual standards we are being aggressive here. While the company is not dirt cheap on multiples, it is a great business run by great management with a promising growth runway. This is, in my opinion, a fat pitch and we are acting accordingly.

Pre-mortem -a summary of risks: if something were to kill the investment case, what could it be?

  • Regulatory changes could impact B2 negatively. Central and Estern Europe is very creditor friendly. This is good for B2 now, but future reforms would likely favor debtors. 
  • Capital intensive business, if something goes wrong with funding, it's a major problem. But this looks unlikely.​ However, if the credit markets crack up before their bond issue, that will impact near term growth negatively, obviously.
  • Supply of claims could dry up for a number of reasons. The company is dependent on finding interesting portfolios to buy. If supply does dry up, growth stops or goes in reverse. If private equity steps on the gas in the industry, it could be positive for valuations of B2 and comparables, but it could potentially also increase competition in B2's markets and lead to fewer opportunities faster.
  • Sharply rising interest rates would impact future cash flows negatively because of the debt dependence of B2. 
  • Key man risk: Nordbrekken, Zahl or both could leave the company. But given their significant exposure, I don't think so.​
  • Effing up by buying the wrong competitor and/or paying too high a price. Hasn't been the case historically, but you never know how the show will go, as the old folks say.
  • Currency risk: NOK could strengthen​ markedly against other European currencies. Hedging may not mitigate this completely.

Sources: Management, company presentations and reports.

I hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

Listing

Bond issue

incressing analyst coverage 

    sort by   Expand   New

    Description

    B2 Holding (BTOH) - cheap, fast growing and an obvious take-over candidate

    First things first: If you are unable or unwilling to invest in unlisted and/or relatively illiquid stocks, this write-up is not for you. But if you are willing to suspend your liquidity preference for a few months, read on.


    Elevator pitch: B2 is a cheap, fast growing take-over target with a hard catalyst (full listing on the Oslo Stock Exchange) that offers 60% upside to my price target of 18 NOK within the next 12-24 months. Longer term, the upside could be considerably larger.

    The investment case in bullet points: 

    Key figures
    Last price 11.00
    Shares outstanding* 311.4
    Market cap 3425.4
    Net debt 1300
    Minority interest 20
    Earnout clause 40
    CEO/COB exit clause 40
    EV 4825.4
    Gross ERC 4631
    EV/gross ERC 1.0
    Insider ownership 10 %
    Multiples 2014 2015
    EV/EBIT 19.4 12.1
    P/E 27.8 12.9

    * basic shares. Fully diluted incl all options the count is 325.8m shares.

     

    Brief company overview

    B2 Holding is a debt collection company with operations in the Nordic region and Central and Eastern Europe. The company operates in three business areas: unsecured non-performing loans, third party collection and consumer lending.

    Through a series of acquisitions, the company has grown to become a serious player in the European debt collection industry. In 2014, the fairly large acquisition of Ultimo from Advent in Poland was the most important (Ultimo managed portfolios with a face value of 3840m at the time), followed by the purchase of a large portfolio in august 2014 from Hypo Aldria (about 168m EUR in face value). 

    The company reported pro-forma revenue for 2014 including Ultimo of about 727m NOK (but was probably higher in reality), and cash EBITDA ( gross ERC stood at about 4600 NOK as of June this year. Pro forma EPS was 0.38 NOK. These numbers will be significantly improved upon when B2 reports full-year 2015.

    Management has one of the strongest track records I've ever seen

    The owners of the company I work for have had a relationship with senior management for years. We know and trust these people. This of course is not the case for the readers of this write-up, so here is some background information on two central figures, the CEO Olav Dahlen Zahl and chairman and founder Jon Nordbrekken.

    B2 was started in 2011 by industry veterans Jon Nordbrekken and Olav Dahlen Zahl, who have had considerable success in this business previously. Shareholders were extremely happy with their efforts. Nordbrekken and Zahl achieved an annual shareholder return (market cap CAGR) of 62% in Aktiv Kapital under their tenure from 1998-2004. In Gothia, the annual shareholder return from 2005-2008 (market cap CAGR) was an unbelievable 94%. 

    Even if this can't realistically be replicated now, their previous experience is a major asset - among the most important barriers to entry in debt collection is having good relationships with banks and creditors. Nordbrekken and Zahl have cultivated relationships with said parties over 20+ years. This leads to access to better deal flow. 

    Strategy

    The company's strategy is to buy portfolios of debt at a major discount to face (and fair) value, develop a strong operation platform (better scoring, analysis than competitors in their markets) and establish a pan-european player in debt collection. Their specifically stated strategic goals* going forward are:

    * Company presentation March 13th 2015

    P&L

    IFRS P&L 2014 (incl FY Ultimo from '14) 2014 2015
    Interest income on loan portfolios 727 901
       
    External collection (commission, fees) 91 96
       
    Portfolio collection income 818 997
    Other income 23 23
    Total operating revenues 841 1020
    IFRS writedowns on portfolios -261 -458
    Total cash revenue* (add back write-downs) 1102 1478
    Total opex -576 -595
    Cash EBITDA** (= cash revenue - opex) 526 883
    EBITDA (cash EBITDA - writedowns) 265 425
    D&A -16 -25
    EBIT 249 400
       
    Interest expense -131  -99 
    Other financial items 29  -
    Net financials -102  -99 
    PTP 147 301
    Tax (12% from 2015) -24 -36
    Net profit 123 265
    # shares ( incl all options dilution) 311.4 325.8
    EPS 0.39 0.81

    NB: I'm using the fully diluted share count for the P&L estimates, but not in the quoted P/E multiple above. Hence the discrepancy.

    Note also that I haven't bothered to try to estimate a detailed P&L for the coming years, simply because I can't see how it can realistically be done in this case: While I have some clue of what they have been able to buy this year and their costs, I don't know how much they will be able to buy in 2016 and how much debt they will have at that point. Any detailed estimates would be very speculative. Even the interest costs this year will depend on what size bond issue they do. So there's every reason to take my estimates with a grain of salt.

     I will say this though: It seems very likely that earnings will continue to grow at a solid clip for another couple of years at least. B2 is currently trading at about 12.9x 2015 EPS, which seems very low to me. To get a sense of how the market chooses to price comparables, see the table below detailing the IPO pricing recently.

    So what's next for B2?

    1. Aggressive portfolio purchase activity

    In the coming months and years, I believe the company will grow their business aggressively, especially in Central and Eastern Europe and in the Balkans in particular. It is a very creditor friendly environment where B2's main competitors are not omnipresent, and where IRRs on debt portfolios are very high (so high in fact, that B2's Balkans representative did not want to disclose the average figure on the annual general meeting for fear of attracting more competition).

    2. Optimizing capital structure

    Compared to peers, B2's equity ratio is very high at 49% vs a peer average of about 30%. A bond loan of 500m NOK will be issued in Q3 this year, which will help the company fund portfolio acquisitions (management says the pipeline of deals looks excellent, and time and money are the main constraints). They could even do 1 Bn, but it will most likely be done in 2 tranches. Levering up lowers the company's cost of capital and helps increase ROE significantly as B2 will realize lower its relative cost base. As will more favorable taxation, the company will be able to lower its effective tax rate because a large number of portfolios will be held via Luxembourg (I have not given full credit to this tax scheme because it seems a little too good to be true and the details are not clear to me). B2 also recently concluded work on a new 4-year, 2 Bn revolving credit facility which replaces existing facilities in all geographical markets and provides both increased financial and investment flexibilty (the new facility allows for more types of claims to be held than the previous one did, which opens new doors for B2). 

    3. Listing on the Oslo Stock Exchange - should lift valuation

    B2 will list in Q1 of 2016. This is not a coincidental choice, I think the company wants to report a strong 2015 in conjunction with the listing process. Looking at the average pricing on recently completed, comparable IPOs in the Nordic markets, it seems very likely that B2 will get a valuation uplift. Note that use my estimated 2015 EPS and book value as of june 2015 for B2 which is probably unfair since I think we can safely assume book value and earnings will grow somewhat by next year's listing. Which means this is not an apples-to-apples comparison, but an added margin of safety is never a bad thing. The implied fair pricing is about 18.7 NOK per fully diluted share (including all options held by management), 

    IPO pricing comparables T12 P/E T12 P/B
    Hoist Finance 25.4 3.3
    Collector 31.0 4.9
    Nordax 18.2 3.0
    Arrow 23.8 3.6
    Average 24.6 3.7
    Median 24.6 3.4
    B2 multiples on 2015 EPS/Q1 2015 BV 13.5 2.4
    B2 share price at avg peer IPO pricing: 20.0 15.8

    Valuation and price target

    The midpoint of the P/E and P/B values in the above table implies 17.9 NOK is a likely value for B2 after listing (identical to my price target). A fast growing, well run company with strategic value to the industry and appeal to private equity could very well see pricing at these levels. Earnings visibility is good, and debt collection is a cash machine when done right. In an energy-dominated market like the OSE, a company like this will probably be well received. 

    Looking at other peers, Intrum Justitia and Kruk S.A. are the most relevant. Intrum trades at 18x 2015 EPS, while Kruk is not as aggressively valued at 13x. In terms of P/B multiples, Intrum trades at 6.8x while Kruk is at 3.6x. Doing the same excercise here, the average multiples are 15.5x EPS and 4.9x book. So other listed peer valuations imply plenty of upside as well.

    To get a sense of whether B2 is too cheap from another angle, one could estimate the a reasonable price/book multiple like this: (assumed sustainable ROE - growth rate) / (discount rate - growth rate). Assuming a ROE in line with industry median (25%) is sustainable going forward after optimizing the capital structure and paying lower taxes, a 10% discount rate and a long term growth rate in earnings of 4% (in line with the long term historical growth rate in earnings in the stock market overall), this works out to a fair P/B multiple of 3.5. Using the current BV of 1405m NOK, that implies a fair value per fully diluted share of 15.1 NOK. So B2 looks cheap from this point of view as well, even if assuming normal growth only in perpetuity.

    Recent M&A support 18 NOK as a share price target.

    Finally, there's a good chance the company is acquired in a couple of years, but I don't think it is for sale just yet -management is probably going to want to keep building critical mass before they sell out. They sold too soon in 2008, when Herkules Capital bought Gothia. This was partly because of pressure from other leading shareholders. Herkules sold the company for over double sum paid only five years later when selling it to Arvato. Considering this was a levered purchase, the returns were obviously very good. I think this was rather painful for Nordbrekken and Zahl to watch, and thus believe they will be more patient this time around if they think that's better for B2's shareholders.

    Like I said previously, the company should be interesting to several industry players because of its geographical exposure. There are also likely other buyers: Debt collection is a cash generative business with fairly stable margins. Just the thing you might want to buy and lever up in this climate if you're a private equity guy. The average pricing over the last couple of years indicates that a reasonable expectation is somewhere around EV/cash EBITDA (=EBITDA+portfolio amortizations) of 6-7. Assuming B2 can grow 2015 cash EBITDA at a 10% pace through 2017, 883m*1.10^2=1068m in 2017. If somebody were to pay EV/cash EBITDA 6-7 at that point, it implies a valuation of 18-19 NOK per fully diluted share. 

    This is an imprecise but interesting excercise, because if you do that for another couple of years, the value of B2 increases to 25 NOK and so on. And with size comes increased cost efficiency and ROE, so should a buyer not materialize, it's not a great loss to me. This is the kind of business I would like to own forever, and the dividend capacity will likely be significant over time.

    Conclusion

    Buy B2 Holding before this opportunity is recognized by the broader market. (At least start looking at it now, even if you can't buy before the listing. By the time it's listed and the major local brokerages have initiated coverage, it will probably be too late to start work on this. As of today, only Fondsfinans has some coverage, and that was initiated this week). 

    In the interest of full disclosure I should say that this is by far our largest position. We run a concentrated portfolio, but even by our usual standards we are being aggressive here. While the company is not dirt cheap on multiples, it is a great business run by great management with a promising growth runway. This is, in my opinion, a fat pitch and we are acting accordingly.

    Pre-mortem -a summary of risks: if something were to kill the investment case, what could it be?

    Sources: Management, company presentations and reports.

    I hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    Listing

    Bond issue

    incressing analyst coverage 

    Messages


    SubjectInsider buy
    Entry09/16/2015 03:21 AM
    MemberBarong

    Stenshagen Invest, who has put Kjetil Garstad on the board of B2, increased their position by about a million shares in the last weeks/months. They now hold around 20m shares of B2 Holding out of a total of 311m shares.


    Subjectdebt collection industry seminar
    Entry03/14/2016 11:07 AM
    MemberBarong

    Carnegie arranged an industry seminar for clients last week. KRUK (B2's closest peer), Intrum Justitia, Arrow and Hoist presented. Highly recommend taking a look if you can.

    Reading through the material, it seems like the general outlook for the industry is very promising. The NPL portfolio pipeline seems pretty rich still. There's no telling how long it will last, but it doesn't seem to be much of a stretch to assume growth opportunities are extraordinarily good for a couple of more years at least. B2 also said they are investing aggresively in their latest presentation, which I highly recommend reading.

    Estimating earnings for B2 with precision even a couple of years ahead is difficult because of several variables that are difficult to forecast (investments, opex increases, portfolio amortization). I currently estimate EPS for 2017 and 2018 around 1.4 and 1.6 NOK, which leaves B2 trading at less than 10x 2017 earnings. I think a more reasonable valuation is 14x, which would mean a stock price of 19-20 NOK. <10x EPS also looks cheap compared to peers Intrum and Kruk trading at at 14x and 15x 2017 bloomberg consensus earnings respectively. 

    I remain convinced this is a great investment and it's still our largest position. While the lack of earnings visibility is probably an obstacle in terms of the stock reaching its fair value quickly, the listing on the OSE is now planned for April 2016, which is just around the corner and should increase awareness, analyst coverage and liquidity.

     


    SubjectRe: Re: IPO set for early june
    Entry05/25/2016 04:06 AM
    MemberBarong

    Hi - I'm not familiar enough with Kruk's purchase to be helpful there, but I will look into it.

    The company just published the IPO prospectus this morning on its website. In it there is also an update on recent activity. with regard to low hanging fruit, I think the NPL opportunity in Europe now is still huge. There is some very interesting info on this in the prospectus as well.


    SubjectRe: Re: Re: IPO set for early june
    Entry05/25/2016 04:18 AM
    MemberBarong

    With regard to the Kruk purchase, it is hard tor me to say anything intelligent on the economics of the purchase without knowing much about the quality of the portfolio. But I would say that seeing larger NPL portfolio sales (this one constituted unpaid balances of 597m EUR and was bought from Romanian units of Eurobank for 46m EUR) in Romania is bullish for BTOH (who also just bought a company to use as a growth platform in Romania), it supports the notion that the NPL supply in eastern europe is accelerating. 


    SubjectB2Holding ASA - First day of the Offering - applications from primary insiders and lock-up undertak
    Entry05/25/2016 05:05 AM
    MemberBarong
    The following primary insiders of B2Holding applied 
    for Offer Shares at the commencement of the Offer 
    Period:
    
    - Jens Harald Henriksen has applied for Offer Shares 
    for a total amount of NOK 250,000; and
    
    - Rasmus Hansson has through his related party RMH 
    Invest AS, applied for Offer Shares for a total amount 
    of NOK 500,000.
    
    In addition to the primary insiders mentioned above, 
    Stenshagen Invest AS, one of the largest shareholders 
    of B2Holding, has applied for 1 million offer shares 
    and Steel City AS has applied for 200,000 offer 
    shares. Stenshagen Invest AS was until 19 May 2016 
    represented on the Board of Directors through Kjetil 
    Garstad. Steel City AS is an entity controlled by 
    Kjetil Garstad. 
    
    As set out in the prospectus and except for shares 
    offered in the Offering, B2Holding, the Company's 
    Board of Directors, shareholders represented on the 
    Board of Directors and the Selling Shareholders are 
    subject to a 6 month lock-up period for the shares 
    currently held by them. The lock-up period for members 
    of the Company's management is 9 months. The lock-up 
    agreements are subject to certain exceptions and may 
    only be waived with the consent of the Joint 
    Bookrunners. The prospectus is, subject to regulatory 
    restrictions in certain jurisdictions, available at 
    www.b2holding.no, www.abgsc.com, www.arcticsec.no and 
    www.nordea.no/b2. Hard copies of the Prospectus may be 
    obtained free of charge at the offices of B2Holding 
    ASA at Stortingsgaten 22, N-0161 Oslo, Norway, or by 
    contacting one of the Joint Bookrunners (defined 
    below).
    
    ABG Sundal Collier ASA and Arctic Securities AS are 
    acting as Joint Global Coordinators and Joint 
    Bookrunners in the IPO, and Nordea Markets a part of 
    Nordea Bank Norge ASA, is acting as Joint Bookrunner. 
    Advokatfirmaet Thommessen AS is acting as legal 
    advisor to the Company and Wikborg Rein & Co 
    Advokatfirma DA is acting as legal advisor to the 
    Joint Bookrunners. 
    
    Investor relations and media contacts 
    
    Olav Dalen Zahl, Chief Executive Officer, B2Holding 
    ASA +47 909 86 386
    
    J.Harald Henriksen, Chief Financial Officer, B2Holding 
    ASA, +47 913 92 873
    
    Erik Just Johnsen, Chief Group Controller, B2Holding 
    ASA +47 415 77 055

    http://www.newsweb.no/newsweb/search.do?messageId=402713


    SubjectRe: Re: IPO set for early june
    Entry05/25/2016 05:49 PM
    MemberBarong

    Recent developments review from prospectus: 

     

    11.12 Recent development and change

    The information in this chapter is based on internal management accounts and represents the Group’s preliminary assessment of the results for the period from 1 January 2016 to 31 March 2016, and for cash collection and portfolio purchases in the period from 1 April to the date of this Prospectus. The assessments have been prepared by management and have not been reviewed by an auditor, and investors should not rely on them. While the assessments are deemed to be reasonable and management’s best estimate, the actual results can deviate and the differences can be material see Section 4.3 "Cautionary note regarding forward-looking statements".

    Cash collections for the three months ended 31 March 2016 of NOK 413 million have been somewhat lower than expected, which has been primarily driven by the Group's secured portfolios in the Balkans and also partly by new laws passed in Poland and Romania. Collections in Sweden, Finland and the Baltics have been in line with the Group’s expectations. In management’s opinion, the lower collections in the Balkans than expected is primarily driven by a delay relative to the forecasted collection curve for portfolios with secured claims, as collections on these will typically be more uneven than purely unsecured portfolios, as the average claim is larger and there is uncertainty with regards to timing for e.g. realization of the underlying security. As the delay in collections is not considered to be an indication of a lower collection potential, management does not expect to record any significant negative portfolio revaluation on an aggregate basis. In Poland and Romania new bailiff regulations have temporarily delayed legal collection.

    The Group’s operating expenses are developing in line with management’s expectations, and increasing as collection activities are increased. In the three months ended 31 March 2016 the Group recognised NOK 9 million in non- recurring costs related to the listing process.

    As a result of the delay in collections, and the underlying increase in operating expenses, the Group’s EBIT is lower than expectations and in line with EBIT for the three months ended 31 March 2015.

    The volume of portfolio purchases in the three months ended 31 March 2016 was significantly higher than for the corresponding period in 2015, and amounted to approximately NOK 448 million (compared to NOK 64 million in the same period in 2015). A significant part of the purchase volume was related to a portfolio purchase of approximately NOK 330 million negotiated during the fourth quarter in 2015 where signing and payment was delayed to January. The Group has also purchased significant volumes on forward flow agreements in Sweden and Finland, which have been higher than management’s expectations. The Group is currently bidding on portfolios with an aggregate estimated purchase price of EUR 400 million, which is significantly higher than at the same period in 2015. The portfolios the Company is currently bidding on also include a significant amount of secured claims, with approximately 50% of the face value related to portfolios that include secured claims.

    In the three months ended 31 March 2016 the Group's interest and currency swaps resulted in a net loss of NOK 1.4 million. In the period from 1 April 2016 until 30 April 2016, cash collections amounted to NOK 129 million. Collections in Sweden, Finland and the Baltics are performing well, and as expected the new Bailiff regulations in Poland and Romania still have some delay effect on collection. In the Balkans collection on secured portfolios is still somewhat lower than the forecasted collection curves. During the same period, the Group has acquired portfolios for approximately NOK 69 million. In the period from 1 May 2016 to the date of this Prospectus the Group has entered into a portfolio purchase agreement and expect to enter into an additional portfolio purchase agreement conditional upon obtaining the prior approval from national regulators, such approval is expected by the end of May/early June. The total purchase price for these two portfolios is approximately NOK 630 million, which will be financed through the Revolving Credit Facility.

    On 4 May 2016, B2Holding signed a sale and purchase agreement regarding the purchase of Debt Collection Agency AD, a Bulgarian entity. Debt Collection Agency AD is one of the leading players in Bulgaria, with a wholly owned subsidiary in Romania. Debt Collection Agency AD has approximately 134 employees in Bulgaria and 25 employees in Romania. Debt Collection Agency AD is a debt purchaser with collection on owned portfolios, mainly retail unsecured. Debt Collection Agency AD has an ERC of approximately 40 million EUR and the face value of its acquired portfolios is approximately 180 million EUR. In 2015, Debt Collection Agency AD had collection revenues of EUR 5.9 million and net profit of EUR 19.9 million. Through the acquisition of Debt Collection Agency AD, B2Holding will significantly strengthen its position as one of the leading players in the Balkans. B2Holding see Debt Collection Agency AD as an excellent platform for further growth in the region. The purchase price for the acquisition of Debt Collection Agency AD will be financed through the Revolving Credit Facility. Part of the total purchase price will be settled as a cash earn-out based on future results. It is expected that closing of B2Holding's purchase of Debt Collection Agency AD will take place on or about 31 May 2016, subject to certain conditions to closing being met or waived, some of which are outside of the control of the parties themselves.

    Other than as described above, there have been no significant changes in the financial or trading position of the Group since the date of the Interim Financial Information. 

    120 

     


    SubjectRe: And then Apollo showed up to the party...
    Entry06/01/2016 01:25 AM
    MemberBarong

    Agreed. Still lots do do though. 3.5 Bn is a large chunk of money, but the NPL market in Europe is BIG. 


    SubjectRe: Re: IRR
    Entry06/03/2016 03:50 AM
    MemberBarong

    Yes. The company "targets net unlevered IRRs of at least 12%" (Q4 presentation).


    SubjectRe: Re: Re: Re: IRR
    Entry06/04/2016 12:05 AM
    MemberBarong

    Hi and thx for the questions - not sure I have the answers you want. I don't see how it's shocking, Net IRR's haven't been close to the levels you describe for a long time in the industry as far as I can understand. B2 has certainly never talked about that kind of returns. As far as Poland goes, I think that's hard to evaluate beyond what the company communicates, we'll have to see how it plays out. 

    It seems to me that the company is still growing ERC at a good pace, and given the levg involved, if they can achieve 12%+ net unlevered IRRs, higher if most ofcthe growth will be in the Balkans, and increase leverage to approach a 30% equity ratio this doesn't look bad at all. Please expand on why this is so expensive if you want me to comment further on it. 


    SubjectRe: Re: IPO completed
    Entry06/13/2016 07:29 AM
    MemberBarong

    SMG: I'm hoping for 20%+ but depending on how things are going, 15%+ is ok with me. It's our second largest position and we haven't sold anything yet (we bought in at about 6.7 NOK on average).


    SubjectNPL flows in Europe
    Entry07/07/2016 03:26 AM
    MemberBarong

    The amount of NPLs on bank balance sheets in Europe is just staggering. this week we learned that Monte Dei Paschi has been instructed by the ECB to reduce NPLs by another 10 Bn Euros. There's going to be lots to do in Italy and Spain as well. I think fear of IRR pressure in B2H's markets is overdone. The pace of NPL investment is usually lower in Q1, I expect we will get word of significantly higher investments at good projected IRRs from B2 later in the year. We have been buying more shares of B2H on the dip after the IPO.


    SubjectNew bond issued
    Entry09/20/2016 10:15 AM
    MemberBarong

     

    20/09-2016 15:53:13: (B2H) B2Holding ASA: Successfully completed bond issue

    B2Holding ASA has successfully completed a EUR 175 million 
    senior unsecured bond issue with maturity in 2021. Settlement 
    date is expected to be 4 October 2016. The proceeds will be 
    used for general corporate purposes.
    
    An application will be made for the bonds to be listed on 
    Oslo Børs.
    
    Arctic Securities, DNB Markets and Nordea Markets acted as 
    joint lead managers for the bond issue.  
    
    For further information, please contact:
    
    Harald Henriksen 
    Chief Financial Officer, B2Holding ASA
    +47 913 92 873 
    
    Erik Just Johnsen
    Chief Group Controller, B2Holding ASA			 
    +47 415 77 055
    
    This information is subject of the disclosure requirements 
    pursuant to section 5-12 of the Norwegian Securities Trading 
    Act.
    

    Ekstern link: http://www.newsweb.no/index.jsp?messageId=409839


    SubjectIntrum Justitia and Lindorff to combine. I still think B2H will be acquired. Would be easy for Intru
    Entry11/14/2016 03:07 AM
    MemberBarong

    14/11-2016 07:30:00: (IJ.ST) Intrum Justitia and Lindorff to combine, creating the industry leading provider of credit management services

    · Intrum Justitia and Lindorff announce their intention to combine to create the industry leading provider of credit management services ("CMS"). · The combined entity is, through its scale and diversification, ideally positioned to capture the strong market growth in the CMS industry. · The combination is expected to provide material benefits for all stakeholders and create significant shareholder value through annual cost synergies estimated at SEK 0.8bn and significant further revenue synergies. · An agreement has been entered into pursuant to which Intrum Justitia will acquire all the outstanding shares in Lindorff in exchange for newly issued shares in Intrum Justitia. · Intrum Justitia and Lindorff shareholders will own approximately 53% and 47% of the shares, respectively, in the combined entity. Nordic Capital Fund VIII, currently the indirect majority shareholder in Lindorff, will become the largest indirect shareholder in the combined entity. · The transaction is unanimously recommended by the Board of Directors of Intrum Justitia and Lindorff. · The transaction is subject to Intrum Justitia shareholder approval as well as regulatory and competition authority approvals. The transaction is expected to close in the second quarter of 2017.

     

    The combination of Intrum Justitia and Lindorff creates the industry leading CMS company with local presence in 23 markets across Europe and a team of more than 8,000 professional, committed and caring employees. By joining forces, both local and global clients will benefit from a strong pan-European platform, enhanced service offering, innovative solutions and best in class compliance.

    "Together we have the scale and unique position to capture the unprecedented opportunity for growth and expansion presented by ongoing structural trends in the banking sector. We share the ambition to lead the industry and the belief that we can contribute to a sound economy in Europe. Both companies have, each in their own right, pioneered efforts to transform how our industry does business with a focus on compliance and fair and respectful collection", said Mikael Ericson, President and Chief Executive Officer of Intrum Justitia.

    "This combination is a great fit both geographically and from a segment expertise and clientele perspective. It will strengthen our local presence and give us the international platform to continue to further improve our services to both small and large clients. Together with Mikael, I look forward to combining our employees' skills and industry expertise to create the leading credit management services organization in the industry," said Klaus-Anders Nysteen, President and Chief Executive Officer of Lindorff.

    "I am very pleased that this industrially strong combination has been agreed. The combined business has the potential to deliver significant value to clients, shareholders and society going forward," said Lars Lundquist, Chairman of the Board of Intrum Justitia.

    "We are really excited about this combination of the two longest standing credit management companies in Europe and recognize the strength of the companies and the opportunities in the industry. Given the growth trajectory of both businesses and the benefits that will come from the combination Nordic Capital looks forward to continue supporting the combined business as a listed company and sees significant potential for further value creation", said Kristoffer Melinder, Managing Partner, NC Advisory AB, advisor to the Nordic Capital Funds.

    "These two companies are a great fit with complementary strengths and will become a leading force in shaping the future of credit management. In addition to creating a strong platform for growth, this company has the potential to drive consolidation in a fragmented industry. The two teams are impressive in their commitment and dedication", said Per E Larsson, Chairman of the Board of Lindorff.

    Press conference and analyst calls

    There will be a joint press conference on 14 November at 10.30 am CET.

    Participants: President and CEO Mikael Ericson, Intrum Justitia, and President and CEO Klaus-Anders Nysteen, Lindorff together with Chairman Lars Lundquist, Intrum Justitia and Kristoffer Melinder, Managing Partner, NC Advisory AB, advisor to the Nordic Capital Funds.

    Location: Scandic Anglais, Humlegårdsgatan 23, Stockholm, Sweden

    The Press Conference can be followed live via:

    https://wonderland.videosync.fi/pressconference-2016-11-14 (webcast)

    To participate by phone, please dial +46 8 5664 2690 (SE), +47 23 50 02 54 (NO) or +44 20 300 898 01 (UK). The conference will be held in English, no registration in advance is required. The press conference will be available afterwards via www.financialhearings.com or www.intrum.com or investor.lindorff.com


    SubjectRe: Intrum Justitia and Lindorff to combine. I still think B2H will be acquired. Would be easy for I
    Entry11/14/2016 03:47 AM
    MemberBarong

    Presentation:

    https://www.intrum.com/globalassets/corporate/ir/combining/2016-11-14-investor-presentation.pdf

     

     

      Back to top