I remember last year’s Panel Discussion 101 where some Latvian companies CEO’s debated whether more Latvian companies should go public. Fast forward just nine months in, and here we are—Grenardi launched a new 3-year bond at 10% annually, Delfin Group issued 4-year bonds at 10%, and the latest news—on October 8th, Eleving Group went public.
But just how much capital has flowed into the Latvian stock and bond market this year? Delfin Group successfully raised 15 million euros at a fixed interest rate of 10% in a public bond offering. Grenardi raised 5 million euros. BluOr Bank issued 10-year bonds at 10%, raising 20 million euros. Eleving Group IPO raised 33 million euros (this is the largest IPO in Latvian history). Interestingly, the total demand for these bonds was significantly higher than the supply. So, maybe, after all, the Latvian market is not as dead as everyone thought?
Exciting, right? Who wouldn’t want to be a part of this action? You can be, but be cautious about where you invest your money. Here, I’ll guide you through my process when I see a new offer in the market, especially Latvian ones (since there aren’t many and every new one is interesting to look at). This is just my humble opinion as someone who has studied for one year at SSE Riga, didn’t quite get the balance sheet balanced on the exam, and loved the MAF course. (Disclaimer: This is not financial advice.)
For a quick analysis (since we don’t have a report to write here), I usually look into these three metrics: Debt situation, Profitability, and Long-term financial sustainability (this includes not only financial data but also their business strategy and targets). Let’s go through Eleving Group analysis, to understand whether we need to invest in it.
Debt situation is extremely important. Taking on debt can be good for a company’s growth, but sometimes companies take on so much debt that they need to issue more bonds just to repay old ones. For Eleving Group, they are heavily leveraged, with a debt-to-equity ratio of 5.18, indicating that the company relies significantly more on debt than equity to finance its operations (uuhh this sounds risky). The interest coverage ratio is 0.76, meaning the company currently earns less than is needed to cover interest expenses with its cash reserves, meaning they are reinvesting active cash flow rather than keeping it in the safe.
Next, I check whether the company is actually making money. A high return on equity (ROE) of 37.37% suggests effective utilization of shareholder capital to generate profits, making it attractive for shareholders, albeit with a high risk due to leverage. The EBITDA Margin of 41.39% reflects strong operational profitability, indicating a healthy core business before non-operating costs.
Pro tip: To better understand these ratios, check industry benchmarks. Sometimes comparing makes even more sense than looking at the numbers in isolation. Use ai chat for fast calculations and use your brain to outweigh the risk.
I also look into long-term financial sustainability and the company’s goals. Eleving Group is planning to expand further into the African market (at least they say so). Free cash flow (FCF) is positive at €9.19 million, indicating that Eleving Group can generate enough cash from operations to cover capital expenditures, which is a positive sign for meeting debt obligations, reinvestment, and providing value to shareholders (this one is important for us!). Liquidity ratios (Current ratio of 1.89 and quick ratio of 1.84) indicate a strong ability to meet short-term obligations, suggesting that the company has sufficient liquidity in the short term to handle immediate liabilities.
Overall, Eleving Group’s focus on providing loans, particularly consumer and car loans, partially explains the high level of debt on their balance sheet. In the financial services sector, especially for companies involved in lending activities, it is common, to maintain high leverage.
I cannot advise whether to invest or not, and it is not a full analysis, more like food for thought, always make a decision based on your opinion. For now, let’s wait until September 16, 2024, when we’ll be able to see the stock price on Nasdaq!
Know this—companies rarely (almost never) go public just because they have so much profit that they want to share their wealth with you. They need your money, but the question is—what for? To cover debts, to grow, or to repay other bondholders? Acquiring new businesses, buying diamonds, or creating a monopoly—we’ll only know in time.
– Alise Kuzmina