market folly

We're posting up notes from the Sohn London conference 2017.  Next up is Reade Griffith, co-founder of Tetragon and CIO of Polygon's European Event-Driven Fund who pitched a long of EVRY.


Reade Griffith's Sohn London Presentation

EVRY is a Norwegian IT services company. It’s a leader in financial services in the Nordic area. On the positive side, EVRY has historically had a high market share and good quality products. The problem with EVRY was that it was predominantly government owed and had low margins. That has been fixed.

APAX, the private equity firm, took EVRY private in 2014 when the government sold its 75% shareholding. APAX took EVRY back to market just 18 months later. That was very quick with the IPO falling in June this year. One of the opportunities is that investors do not yet the believe that the business could have been fixed that quickly.

If the restructuring charges are stripped out - they should be gone by 2019 - EVRY looks cheap compared to its best competitor, Tieto. Judged against Tieto, EVRY should have 50% upside. EVRY is the Nordic leader in IT services and larger than Tieto.

APAX has strengthened and improved the quality of EVRY:

-    They entered a strategic partnership with IBM that allowed them to reduce the fixed cost base. They have a 10-year agreement with a 3-year extension to take services from IBM. The partnership with IBM is also creating new opportunities to sell their services to big players like Google, Microsoft and Amazon.

-     They made a couple of important small acquisitions

-    In the first year EBITDA margins were up from 6.4% to 10.6%

This is a high-quality industry with good margins and cash conversion rates. It should attract investors. Griffith expects margins to get better as the impact of the IBM deal works its way through. He expects 12% margins in the full year 2017. By 2018 and 2019 expect margins to hit 14% which is close to best in class.

IT services in Norway are not a high growth industry – 1% or 2% growth per year. EVRY can grow faster than this, maybe 5% to 6%. They are expanding in Finnish banking which is a new sector for them with a contract to service 50 banks.

APAX did not sell much stock at the IPO. They still own 54%. EVRY IPOed at 31 and the shares are currently trading at 33-34. Griffith thinks APAX were hoping for an IPO price in the upper 40s. He expects APAX to reduce their ownership next year.


Be sure to check out the rest of the presentations from Sohn London 2017.