Alexandria extensive report: Time for asset management to prove itself

Translation: Original published in Finnish on 03/20/2025 at 10:00 pm EET

We revise our target price for Alexandria to EUR 10.5 (was 10.0) on the back of our raised earnings estimates, and upgrade our recommendation to Accumulate (was Reduce). The company's strategy has progressed in the right direction and we believe that for the first time in its history, the company has credible building blocks for success in asset management. Even with our cautious estimates, the stock looks cheap, and the sector's highest dividend yield provides a backbone for the current valuation.

Domestic investment service company

Considering its size, Alexandria has an exceptionally large sales team and the company's focus has historically been on product sales. The company’s main target group is private investors and at the end of 2024, it had some 37,000 active customers. The company has some EUR 50k of investment assets under management per average customer. The company's main competitors, in our view, are local banks in particular. Unlike key peers, structured products play a significant role in the company's product offering, accounting for some 40% of 2024 commissions. As a result, the share of recurring revenue is clearly lower than for peers. Funds have been at the core of the company's strategy for a long time, and their share has grown strongly (2024: 33%). The third product group is insurance (24% of commissions). In recent years, the company has also invested in asset management services, but so far the track record has been thin. The company's absolute strength is its strong sales machinery, thanks to which the commission margins earned by the company are among the highest in the peer group. A key challenge is the low customer-specific revenue, which clearly weakens scalability.

We expect reasonable earnings growth and abundant profit distribution

We have revised our estimates upward for the next few years by 5-12%. This is mainly due to sales of insurance products, which we expect to be slightly higher than before. We consider it more important that our confidence in their sales volume has increased than these estimate changes. We have also added a small commission income flow from asset management to our estimates for the first time. Although the commission level from asset management is small in our estimates, its impact on earnings growth is clear.

We expect stable earnings growth from Alexandria, and the average adjusted EBIT growth in our estimates is about 8% in 2025-2029. A key challenge for Alexandria is still the dominant revenue share of insurance and structured products with a weak growth profile. We find it difficult to see these products being viable growth drivers in the coming years, and thus, growth rests entirely on the funds and asset management. As a result, Alexandria's structural growth potential is lower than for several listed peers, which weighs on the acceptable valuation. Profit distribution remains abundant, as is typical for the industry, and we expect the company to distribute all of its earnings as dividends in the coming years.

Valuation is favorable

We examine Alexandria's valuation through a peer group, absolute valuation multiples and a cash flow model. Both the peer group and the DCF model indicate that the shares are slightly undervalued, and the absolute multiples also support this view. With our current estimates, we feel the stock already offers a quite attractive expected return, and the sector's highest dividend yield provides a backbone for the current valuation.

The required return we apply to Alexandria is high and elevated by the low proportion of recurring revenues, lower structural growth potential than among peers, and uncertainty about the scalability of the business. All factors that elevate the risk level are more or less related to the company's product mix. If the company succeeds in ramping up its asset management business, there would be room for the required return to decline from the current level, and this would raise the stock's expected return to an excellent level.