Loihde - Cautiously heading into 2024
04.03.2024 | Company update
Loihde’s Q4 came with no larger P&L surprises. Expectations for 2024 are slightly more conservative than we previously estimated but margin improvement potential remains on the weaker comparison figures.
Q4 quite in line with expectations
Loihde’s net sales came in line with our expectations, with net sales growing by 3% to EUR 37.3m (Evli: 37.3m). The growth was driven by Security Solutions, up 5% y/y to EUR 26.7m (Evli: 26.8m), while net sales in Digital Development declined by 2% to EUR 10.4m (Evli EUR 10.6m). The adj. EBITDA came in below our expectations, at EUR 3.8m (Evli: EUR 4.4m), largely driven by an EUR 0.4m write-down of receivables. The guidance was in our view arguably on the softer side, with revenue expected to be on par with 2023 or grow and the adjusted EBITDA to improve from 2023. The BoD proposes a dividend of EUR 1.0 per share (Evli EUR 0.15), in our view likely the last exceptionally high dividend compared with financial performance.
Fairly modest expectations for 2024
With the guidance and market situation providing limited signs of growth, along with growth in the cost base in comparable terms due to wage inflation, the expectations for 2024 appear moderate at best. We still expect a notable improvement in profitability due to weaker comparison figures and slight growth (2024e: 2.8%) but our 2024e EBITDA-margin estimate of 7% still lags clearly behind the long-term target of 15% (by 2027). While H1 will likely remain somewhat on the softer side, we assess that with a more likely improvement in the demand situation, as opposed to further degradation, as well as internal strategic work and shift in operating models, growth should be more favourable during H2.
HOLD with a target price of EUR 11.5 (ex-div)
Although upside potential remains quite considerable on the long-term targets, with the elevated current multiples and assessed improvement pace valuation in our view remains on relatively fair levels. We adjust our TP to EUR 11.5 (ex-div, prev. EUR 12.3) and retain our HOLD-rating.
Loihde - Guidance on the softer side
01.03.2024 | Earnings Flash
Loihde’s Q4 results were in line with our estimates on topline figures, with growth of 3% while the adj. EBITDA came in below our estimates at 3.8m (Evli EUR 4.4.). Group revenue is expected to be flat or grow in 2024 and adj. EBITDA to improve.
- Group results: Loihde’s net sales came in line with our expectations. Net sales grew by 3% to EUR 37.3m (Evli: 37.3m). The growth as expected came from SeSo. Profitability continued to improve but the adj. EBITDA came in below our expectations, at EUR 3.8m (Evli: EUR 4.4m), reflecting a rather healthy margin of 10.1%.
- Security Solutions (SeSo): Net sales came in in line with our expectations and grew by 5% to EUR 26.7m (Evli: 26.8m). Q4 was as typical seasonally stronger, with customers pushing to complete project before the year-end and Loihde performed well in several customer and offering segments. Two important framework agreements were signed towards the end of the year, valued in total at over EUR 10m.
- Digital Development (DiDe): Net sales declined by 2% to EUR 10.4m and came in roughly in line with our estimates (Evli: EUR 10.6m). The decline was due to continued demand challenges in bespoke software development in particular, stemming from market uncertainty. No significant improvement towards the better is seen in early 2024. The market situation in data and analytics services remains slightly more positive.
- 2024 guidance: Group revenue is expected to be on par with 2023 or grow (Evli +6.6% y/y). The Group’s adjusted EBITDA is estimated to improve from 2023 (Evli +EUR 3m y/y).
- Dividend proposal: Loihde’s BoD proposes a dividend of EUR 1.0 per share (Evli EUR 0.15).
Loihde - Ambitious plans for profitability
17.11.2023 | Company update
Loihde is under its updated strategy seeking to grow 10% annually and achieve an adj. EBITDA of 15% by 2027 for which Loihde, despite a confidence boosting CMD, still has quite a lot to show for.
Loihde had an eventful week, posting a profit warning, deciding on an additional dividend, updating its strategy and hosting its CMD on November 16th. The profit warning was not very surprising given the high expectations set for Q4, with the main change being the lowered 2023 adj. EBITDA guidance to EUR 7-9m (prev. >EUR 10.3m), but still a disappointment given the reiterated guidance just two weeks prior. Loihde decided on the payment of an additional dividend of EUR 1.0 per share, with the record date being November 21st.
Ambitious plans for profitability
Loihde’s updated strategy and CMD did not show any major deviations from the current business operations, but emphasis was put on further structural efficiency, service area and industry focus, as well as growth in continuous services. Loihde is also looking to utilize its strong balance sheet slightly more aggressively through the use of leverage for continuing acquisitions. The new financial targets are on the more ambitious side, at least given the recent performance, looking to grow around 10% annually, also including inorganic growth, and to reach an adj. EBITDA-margin of 15% by 2027. ROI is sought to be above 10% while retaining a quite modest net debt/EBITDA of 0-2x. The CMD for us was a slight confidence booster when looking at expectations for coming year profitability improvement, but Loihde still has quite a lot to prove when it comes to the long-term target.
HOLD with a target price of EUR 12.3 (ex-div)
Despite the guidance downgrade and as such lowered 2023 estimates, the elements behind it were not game-changing and Loihde is still set for an overall decent year-end, and we keep our coming year estimates largely intact. We adjust our TP, excluding the additional dividend, to EUR 12.3 (prev. 13.0 pre-div).
Loihde - Looking for a solid finish to 2023
02.11.2023 | Company update
Loihde’s Q3 saw profitability improve while lacking growth. With the reiterated guidance, Loihde will be looking for a solid Q4 in terms of profitability. We retain our HOLD-rating with a target price of EUR 13.0 (13.5).
Profitability improved but lackluster growth
Loihde’s Q3 results showed favourable profitability development but were somewhat below our estimates. The net sales development y/y was essentially flat, with net sales amounting to EUR 29.9m (Evli EUR 32.3m). The Group’s adj. EBITDA amounted to EUR 2.9m (4.0m), at a margin of 9.7%. Net sales in Security Solutions (SeSo) and Digital Development (DiDe) was EUR 21.4m (Evli EUR 23.6m) and EUR 8.5m (Evli EUR 8.8m), with sales growth of 1% and -1% respectively. SeSo’s development was affected by some project postponements and the slowdown in the construction market adding price competition in other areas. The ERP renewal project also continued to cause some challenges, but clearly less than in H1. The market situation in DiDe overall continues to be challenging but utilization rates were fairly good in Q3.
Expectations for a solid finish to 2023
Loihde kept its guidance for 2023 impact, implying expectations of a strong Q4 in terms of profitability. SeSo is expected to have a larger contribution given project delivery timings, but still requires good performance across the board. Following some revisions due to the Q3 results, our 2023 estimates remain more or less barely within the guidance. The guidance still appears challenging, but confidence appears quite high given the reiteration of the guidance at this point of the year. Our views for the upcoming year are largely intact, having slightly lowered our growth expectations given the continued market uncertainty along with recruitment challenges in some key growth areas.
HOLD with a target price of EUR 13.0 (13.5)
With the minor downward revisions to our estimates, we adjust our target price to EUR 13.0 (13.5). Based on estimated coming year earnings capacity and peer multiples, current valuation levels still appears reasonable, and we retain our HOLD-rating.
Loihde - Profitability developed favourably
01.11.2023 | Earnings Flash
Loihde’s Q3 saw adj. EBITDA improving 30% y/y, but was below our estimates, at EUR 2.9m (Evli 4.0m). Growth was flat y/y, with net sales at EUR 29.9m (Evli EUR 32.3m). Profitability development is expected to continue favourably also during the end of the year.
- Group results: Loihde’s net sales were slightly below our expectations. Net sales grew by 1% y/y to EUR 29.9m (Evli: 32.3m). The growth slowed down compared with H1 partly due to a lower impact of acquisitions but the market demand situation has also fluctuated, affecting the net sales development. Adj. EBITDA amounted to EUR 2.9m (Evli: 4.0m), reflecting a margin of 9.7%.
- Security Solutions (SeSo): Net sales came in somewhat below our expectations, growing by 1% to EUR 21.4m (Evli: 23.6m). Growth was anticipated to slow down compared with the clear double-digit figures during H1, with the lower impact of acquisitions. The uncertain market situation is also showing, with for instance the slowdown in the construction sector being one negative driver.
- Digital Development (DiDe): Net sales declined by 1% to EUR 8.5m and came in slightly below our estimates (Evli: 8.8m). The market demand has posed challenges for growth during this year, with the decrease in demand for software development having shown, although demand in other areas such as cloud services, data and analytics, and AI have supported net sales.
- 2023 guidance intact (revised on 22nd Aug): SeSo to grow by over 10% and DiDe to be flat or grow. Adj. EBITDA to improve from EUR 10.3m. Given the YTD adj. EBITDA of EUR 3.8m, the profitability guidance puts a lot of pressure on Q4.
Loihde - Year-end profitability has to be stronger
31.08.2023 | Company update
Loihde reported two-folded Q2 figures. Net sales came in strong with 15% growth, despite soft digital development sales. Profitability was weak, which leaves a lot to catch up in H2.
Sales growth was driven by good demand for security solutions
In total, Loihde group’s net sales grew by 15% y/y to EUR 34.2m. Demand for security solutions remained strong and acquisitions boosted the unit’s expansion further. SeSo grew by 25% y/y to EUR 24.1m. Our view is that Loihde’s consistent work on its continuing services has supported SeSo’s organic growth as well as profitability, despite a notable decline in locking services within the construction sector. Although Loihde succeeded in data, analytics, and AI sales during the quarter, the decrease in software development caused a 4% decline in DiDe’s revenue. In our view, the decline in software development was significant as well-succeeded data and analytics represent a notable share of DiDe’s business. DiDe’s net sales amounted to EUR 10.1m. Low utilization rates as well as additional costs from SeSo’s ERP project hurt Loihde’s profitability. Adj. EBITDA amounted to EUR 1.0m which was clearly below our expectations.
Outlook for SeSo remains solid, DiDe very uncertain
The outlook for SeSo’s H2 seems bright, although the impact of the acquisition of Turvakolmio will fade away in H2. We expect the digital development market to continue as soft through 2023. Loihde revised its DiDe’s sales estimate recently with the divestment of Sweden's operations and soft market. Geographical expansion sees a temporal stop with the company now trying to fine-tune its operations in home markets. Although the management is confident in reaching the profit target of EUR 10.3, with soft Q2 and elevated uncertainty in topline and cost development, our 23E adj. EBITDA lands slightly below the company’s target at EUR 10.1m.
HOLD with a target price of EUR 13.5
With only minor revisions made in our 2024 estimates, our TP remains at EUR 13.5. Loihde’s valuation seems slightly elevated with a 24E P/E of 14x, which is above its peers. Although 24E EV/EBIT of 8x sounds not expensive, considering the uncertainty in the markets and ongoing internal challenges, we retain our HOLD rating.
Loihde - Two-folded quarter
31.08.2023 | Earnings Flash
Loihde released Q2 result with strong topline growth. Net sales grew in line with our expectations, with strong SeSo sales, while DiDe was negatively impacted by the soft market. Profitability fell short of our expectations and was weak with market issues. Year-end seems brighter, but uncertainty remains high, especially in DiDe.
- Group results: Loihde’s net sales came in line with our expectations. Net sales grew by 15% to EUR 34.2m (Evli: 34.2m). The growth was driven by strong demand for security solutions. With soft utilization rates in DiDe and one-time costs from SeSo’s ERP program, Loihde’s profitability came in softer than we expected. Adj. EBITDA amounted to EUR 1.0m (Evli: 2.2m), reflecting a margin of 2.9%. Challenges in ERP program are seen to fade away in H2 and cost savings are expected to boost H2 profitability.
- Security Solutions (SeSo): Net sales came in roughly in line with our expectations and grew by 25% to EUR 24.1m (Evli: 23.8m). The growth was driven by strong demand for both physical and digital security solutions. Acquisitions had also a positive impact on the growth rate. An important concept of One Security has grown driven by both new client acquisitions as well as up-selling. ERP challenges limited SeSo’s profitability, and the company sees it fading away during H2.
- Digital Development (DiDe): Net sales declined by 4% to EUR 10.1m and came in roughly in line with our estimates (Evli: 10.4m). The decline was due to decreased demand for software development while the demand for cloud services, data and analytics, and AI grew during the quarter. DiDe’s low utilization rates pushed the unit’s profitability down. Cost savings should improve DiDe’s profitability going forward despite the uncertain market environment.
- 2023 guidance intact (revised on 22nd Aug): SeSo to grow by over 10% and DiDe to be flat or grow. Adj. EBITDA to improve from EUR 10.3m.
Loihde - Strong security drives Q2 growth
29.08.2023 | Preview
Loihde reports its Q2 result on Thursday. While SeSo is expected to drive strong Q2 growth, the current market environment has continued weak and uncertain in DiDe. In addition to the soft utilization rates of DiDe, we expect SeSo’s ERP project to bring additional costs that together limit Q2 and 23E profitability.
Low utilization rates and additional costs limit profitability
With soft market news stemming from lower investment activity of private sector customers, we slightly downgraded DiDe’s growth and profitability, meanwhile, we increased SeSo’s growth estimates by expecting strong security demand to continue. We expect Q2 group net sales of EUR 34.2m with y/y growth of 15%. SeSo’s organic growth is further supported by inorganic expansion made in 2022. Meanwhile, we expect DiDe to decline. Continued issues in the ERP program and soft utilization rates translate to a decreased profitability expectation. We expect adj. EBITDA of EUR 2.2m (6.3% of net sales) and adj. EPS of EUR 0.06 in Q2’23.
Revised guidance with divestment and soft market
Several digital development peers have issued profit warnings or noted a weak market in digital development. Software development has been an area of soft performance with private customers withdrawing or postponing their new investments. To our understanding, the market has however slightly improved from that seen in Q1, but high uncertainty is still present. With lately issued profit warning and divested Sweden operations (see page 2), we have downgraded our 23E EBITDA (adj.) to EUR 10.2m, which is equivalent to a ~3% decline from what we earlier expected. With estimate revisions, our expected profitability is approx. on par with the previous year, but below the company’s guidance. This is explained by our weaker expectations of sales growth and softer OPEX development. With an uncertain market, we also lowered our estimates for 2024, which mainly reflects the decline in our target price.
No significant room for an upside in the share price
Loihde is valued at 23-24E EV/EBITDA and EV/EBIT (adj.) of 5-4x and 15-8x. We don’t see short-term upside potential in the share price with uncertainty concerning DiDe high. In addition, by measuring valuation with 23-24E P/E, Loihde trades with a notable premium to its peers. We retain our HOLD rating but lower TP to EUR 13.5 (15.0) with estimate revisions and uncertainty.
Loihde - Earnings poised to soar towards year-end
02.05.2023 | Company update
Q1 profitability came in soft. While growth is expected going forward, the extent of profitability remains uncertain due to challenges affecting margins. We downgraded our 23E EBIT, but expect earnings growth remaining robust for 2023-25.
Mixed quarter; solid topline but soft EBITDA
Loihde faced temporal challenges impacting its Q1 performance. SeSo grew by a solid 22%, but DiDe struggled due to tough market conditions, leading to a decline in net sales. Despite this, Q1 group net sales showed a y/y growth of 13%, amounting to EUR 31.3m. Loihde's key strategic pillars, One Security and continuing services, continued on a strong growth trajectory. However, internal integration challenges resulted in negative margins, raising concerns about future integration processes. The company expects challenges to ease towards the end of the year which should positively drive Loihde’s profitability.
Getting better towards the end of the year
ERP project challenges have persisted into Q2, but we anticipate a lesser impact moving forward. Utilization rates are expected to recover and improve in H2, that should provide some year-end scale. While we have reduced growth estimates for both businesses due to a more pessimistic view of Q2 and H2, we believe that DiDe's demand will improve and SeSo's temporal challenges affecting margins will fade away in H2. We view the demand for SeSo's offering continuing solid with acquisitions supporting the overall growth. Despite a significant downgrade in Loihde's 23E adj. EBITDA estimate by combining a very soft Q1 and reduced estimates, the downgrade for the 2024 adj. EBITDA estimate was relatively small, but still notable at approx. 10%.
HOLD with a target price of EUR 15.0 (16.5)
With our revised estimates, Loihde’s current valuation turns out to be quite elevated. The company trades with 23-24E EV/EBITDA and P/E multiples of 4.8-4.6x and 37-17x respectively. Considering elevated valuation, but also highlighting robust estimated earnings growth during 2023-25, we retain our HOLD rating. With significant decline in 23-24E EBIT estimates, our TP is now EUR 15.0 (16.5).
Loihde - Q1 performance was colored by challenges
28.04.2023 | Earnings Flash
Loihde’s Q1 result came in below expectations. While net sales increased by 13%, adj. EBITDA fell below zero due to challenges faced. Guidance intact: double-digit growth and improving profitability.
- Group results: Q1 net sales fell short of our expectation by net sales amounting to EUR 31.3m (Evli: 33.7). In total, net sales grew by 13% y/y. The growth was strong in SeSo, while DiDe decreased from that of the comparison period due to soft demand. Adj. EBITDA decreased to EUR -0.1m, coming in below our expectations (Evli: 2.1). Profitability was negatively impacted by challenges in ERP launch and utilization rates as well as postponed projects. The company expects such one-timer challenges to fade away. Q1 EPS amounted to EUR -0.35 (Evli: 0.06).
- Security Solutions (SeSo): net sales grew by 22% to EUR 20.2m (Evli: 21.7m). Loihde has succeeded in project tendering both in the public and private sectors. Cyber security and its continuing services as well as One Security were one of the growth drivers. Although uncertainty is present among customers, the outlook seems bright for the demand for security solutions. Challenges in the launch of the ERP system complicated organizing front-office work and caused some additional costs that hurt EBITDA.
- Digital Development (DiDe): net sales decreased by 1% due to soft demand and customer uncertainty. Q1 net sales amounted to EUR 11.1m (Evli: 12.1m). The rate of recruitment has been reduced which should elevate utilization rates going forward. The company believes in double-digit topline growth in 2023 with a strong order book. Cloud services grew in line with the company’s expectations.
- 2023 guidance intact: double-digit growth in both businesses. EBITDA above that of the previous year.
Loihde - Expecting a growth-filled first quarter
25.04.2023 | Preview
Loihde reports its Q1 results on Friday, April 28th. We expect the company's Q1 double-digit growth to be strongly supported by its security business. Driven by increased estimates resulting from the acquisition of Hämeen Lukko, we have raised our target price to EUR 16.5 (16.0), while maintaining our rating at HOLD.
Expecting strong topline growth
The growth prospects for Security Solutions (SeSo) remain strong. In Q1, we expect high double-digit growth for SeSo, fueled by the acquisition of Turvakolmio. On the other hand, we expect that the Q1 growth of Digital Development (DiDe) slows down due to customer uncertainty. Overall, we estimate Q1 net sales of EUR 33.7 million which reflects y/y growth of 18.6%. Considering the slower net sales development of DiDe, we expect that lower utilization rates will have some impact on margins. As a result, we foresee Loihde's adjusted EBITDA landing at EUR 2.1 million, which reflects a margin of 6.4%.
Acquisition expands SeSo’s reach
Uncertainty observed in digital services markets seems to have spilled over into the cyber security markets, where Loihde's peers have reported delayed deal closings due to customer uncertainty. However, such slowdown has only a minor impact on SeSo's 23E growth. In addition to M&A enabled growth from 2022, the acquisition of Hämeen Lukko (see page 2) will strengthen SeSo's position and inorganic revenue expansion further. We foresee DiDe stepping back on the double-digit growth path in H2. Our 23E net sales estimate for the group amounts to EUR 144.1m, reflecting a y/y growth of 17.2%. We expect that efficiency investments will bear fruit by improving adj. EBITDA margin by some 0.3%-p to 8.7%. Leverage will become more visible in 2024 when we expect a margin improvement of 0.7%-p.
HOLD with a target price of EUR 16.5 (16.0)
Loihde is valued with 23-24E EV/EBITDA multiples of 4-4.5x which reflects clear discount to peer median. However, the company’s relative valuation turns quite expensive by considering it without its net cash position (23-24E P/E of 22-15x). With ~3% increase in 23E EBIT, we adjust our TP to EUR 16.5 (16.0). Rating remains at HOLD.
Loihde - Initiating coverage with HOLD
13.03.2023 | Company report
Loihde has strong long-term growth prospects and with scalability starting to kick in, we see the company as quite interesting as an investment. We initiate the coverage of Loihde with a HOLD rating and target price of EUR 16.0.
Security and digital IT services from under the same roof
The company is currently under a large turnaround after massive organizational changes made during 2017-2021. The current business consists of two separate but complementary businesses of security and IT services. EBITDA has already seen positive development during 2021-22, but the company has still work to be done until reaching its target of a 10% EBITDA margin. We see the growth prospects as good with strong underlying megatrends supporting the market growth. In addition, Loihde has lots of up- and cross-sales opportunities within the company which consists of multiple subsidiaries which originally have been formed from acquired companies.
Comprehensive offering as a competitive factor
In our view, the company stands out from its competitors with its unique offering in which the company can utilize industry-overlapping capabilities to deliver next-gen solutions. For example, the company has delivered to Finnish Customs physical security surveillance service which is highly enforced by intelligence. Moreover, with the One Security concept, the company provides both physical and digital security services in which the data collected from physical devices is enriched by analytics to provide either stronger security or to support business decisions.
Valuation not challenging, but further evidence is needed
We view the current valuation of Loihde as not challenging, but with a sustainable profitability level still unproven, we justify multiples below the peer group median. We value Loihde with 23E EV/EBITDA and EV/EBIT multiples of 6.4x and 9.6x respectively. The near future includes some uncertainty with slowing demand for DiDe. We initiate the coverage of Loihde with a HOLD rating and TP of EUR 16.0.
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