Risk takers take a chance on the expensive Hemnet

Unlike real estate firms, builders and home designers, Hemnet’s operations are completely digital and thus the business model is highly scalable. Since revenues are transactions dependent, the business is a bit like selling spades, trains and services to gold prospectors, to use a slightly outdated metaphor.

The subscription range is unfortunately large, 95 SEK to 115 SEK. This means that there is a difference in valuation between the highest and the lowest subscription price of 21 percent. Not knowing the price of the investment naturally increases the uncertainty.

No new shares are issued when new capital is not required, but the entire offering is larger, with 17.7 percent of the existing shares sold. The major shareholder who is not selling is Mäklarsamfundet Bransch i Sverige AB, which holds 10 percent of Hemnet.

It is sometimes said that the danger is that the brokers can change the platform or something similar, but as long as a large number of visitors to the service stay, all the brokers will still be there as well. Conversely, the opportunity for ad rates to rise is likely to be greater than for brokers to switch to another platform.

It’s reinforced in our assessment that this is the case when we look at average revenue per posted object. The trend is impressive as the price of Hemnet increased from 1,079 SEK in 2018 to 1,414 SEK in 2019, reaching 1,760 SEK per item last year. There are no weak spots there.

At the same time, operating profits rose from SEK 73 million to SEK 110 million, and the operating margin is around 20 percent. Net sales in 2020 increased by 23 percent to 544 million SEK.

Hemnet appears to be a growing company with feelings of monopoly. Then the evaluation. The market value will range from 9.6 to 11.6 billion Swedish kronor, which is at least 15 times sales this year and maybe 70 times this year’s operating profit. Then we still expect 25-30 percent growth.

Aside from the subscription period, it’s only the rating that raises some doubts, while everything else makes Hemnet emerge as another hot digital share. There will definitely be significant equity interest in the bid, which is worth 1.7-2.0 billion SEK. This is despite the fact that, oddly enough, there are no primary investors.

Our advice is that you are ready to risk anticipating and hoping for a short-term rally in order to be able to sell. The potential is not particularly great in terms of evaluation.

Alternatively, you can hold it if you have the space to share IT with exposure to the housing sector. Regardless, keep in mind that the stakes are high, so any trades in the stock should not be very large.