Teqnion’s earnings disaster | A buying opportunity or a red flag?

Teqnion just released it's Q4 FY2024 earnings. A quarter so bad, even their own CEO gave it an F. The Swedish serial acquirer, saw its EBITA collapse 58%, EPS drop 62%, and free cash flow crater 34%. The stock got hammered, down over 16% in a single day and then recovering a little bit.

So, what went wrong? Is this just short-term noise, or are there deeper cracks in Teqnion’s foundation? In this episode, we break it down.

3 of the 4 analysts at The Dutch Investors own Teqnion, and we’re taking a hard, honest look at whether this is a rare buying opportunity, or a warning sign of worse to come.

Tune in now to find out.

You can find the entire free fundamental analysis of Teqnion AB here: https://www.thedutchinvestors.com/post/teqnion

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Disclaimer:
Nothing in this podcast can be considered financial advice. This is for educational purposes only. We may hold positions in the businesses discussed. Do your own research.

Transcript

Today, a closer look at Teqnion. If you’ve been following the company, you know it had a painful day, initially dropping over 16% after releasing terrible earnings. Three of the four analysts from The Dutch Investors own Teqnion, and we’d like to share our thoughts. Is this a buying opportunity, short-term noise, or are there deeper cracks in the foundation? Let’s find out.

Back in June 2024, our analyst Mathijs conducted a full fundamental analysis on Teqnion AB. It’s free to listen to or read on thedutchinvestors.com.

Teqnion is one of those companies that has all the traits of a perfect company. A Swedish serial acquirer focused on niche industrial companies. Transparent and honest management, a strong acquisition track record, and a history of doubling earnings per share every five years. They’re inspired by Berkshire Hathaway’s success, by the one and only Warren Buffett, so there’s a lot to like about the business itself.

But the machine appears to be sputtering.

Before we dive into the earnings report, the problems, and what to do about them, here’s a quick overview for those unfamiliar with Teqnion and what makes it unique.

Teqnion was founded in 2006 by Johan Steene and two other partners. The company focuses on acquiring private companies, making it a classic serial acquirer. Their strategy is to integrate these companies into their portfolio and reallocate resources to maximize value.

Teqnion invests in industrial niche companies with a high degree of profitability and strong management teams. The goal is to double earnings per share every five years, using a decentralized model.

Since Teqnion focuses on “boring” companies, it enjoys a natural advantage, many investors overlook these businesses, meaning Teqnion faces less competition. A unique and personal style is maintained within Teqnion; it does not let companies go bankrupt, does not relocate subsidiaries, and allows companies to allocate their own money. This is a huge advantage when it works but, as we’ll find out later, it can also be a risk.

There’s a lot to like about the company, but now, let’s get to the bad news.

The Elephant in the Room

The annual report scored an F. Literally. That’s the grade CEO Johan Steene gave the quarter. And he didn’t sugarcoat it.

• EBITA down 58%
• EBITA margin shrank to a weak 3.25% (down from a healthy 9.6% last year)
• EPS down 62%
• Free cash flow? Cratered 34%

The stock is getting punished badly, and perhaps rightfully so. Investors don’t like seeing acquisition-driven companies hemorrhaging profitability because it raises a scary question: Are they just buying revenue without improving the bottom line?

Johan Steene’s brutal honesty is refreshing. Here’s what he said:

“With such a poor result, we don’t even deserve to compete in the game of capitalism.”

But this is what makes Teqnion interesting. Management isn’t in denial, they know the problem, and they’re acting on it:

• Installed four new CEOs in underperforming subsidiaries
• Renegotiated supplier contracts to cut costs
• Merged two manufacturing units
• Made tough staff cuts

They’re taking action. But is it enough, or is it too late?

Since I don’t own Teqnion myself, but my three colleagues do, I asked for their opinion. Based on what they said and after checking the report myself, it comes down to a few things:

• Teqnion is struggling with legacy acquisitions made before Daniel Zhang joined in 2021, especially Grimstorps, one of their largest holdings. This company makes wooden house frames and roofs, and with the real estate market slowing down, businesses like these face enormous challenges, dragging down Teqnion’s profitability.
• The newer acquisitions in the UK appear more profitable, which could help Teqnion long-term. In fiscal year 2023, they made three acquisitions, with an average EBITA margin of 25%+, much higher than their legacy companies.
• Management is honest and aware of the poor results. They are taking serious actions, as mentioned earlier.

So it’s really about looking into the future, which we can’t predict. But if you’re interested in Teqnion, it’s about having faith in Daniel Zhang making the right acquisitions. Meanwhile, Johan Steene, the founder and CEO, has taken on a different role and is working to improve the underperforming subsidiaries.

Teqnion is aware of the problems. The real question is: What will they do about it?

A Worrying Comparison

What’s concerning is that the stock market and businesses have been operating in a favorable economic climate over the past 5–10 years. Many serial acquirers have performed well in recent years, yet Teqnion continues to lag behind.

• Teqnion stock has declined 36% over the past 12 months.
• Meanwhile, other serial acquirers performed far better:
  • Constellation Software: +33%
  • Topicus: +29%
  • Lifco: +48%
  • Indutrade: +19%

It’s not an exact apples-to-apples comparison, since these companies invest in different industries, but it does suggest they’ve been able to acquire new companies and grow revenue and profits, while Teqnion has struggled. That worries all of us.

What Separates a Great Serial Acquirer From a Mediocre One?

To answer that, we need to zoom out.

A serial acquirer grows primarily by buying other companies rather than expanding its own operations.

Great acquirers buy high-margin businesses at attractive multiples. Teqnion follows this playbook, typically acquiring niche businesses at 4–6x EBITA, which is fair.

Another characteristic? Decentralization. Berkshire Hathaway and Constellation Software are prime examples.

This is where Teqnion is struggling. A great acquirer buys businesses that can run independently. Constellation Software’s subsidiaries are completely autonomous. Teqnion, on the other hand, is stepping in to fix a third of its portfolio. That’s a problem. It suggests either:

• They’re buying lower-quality businesses than expected
• Or they aren’t letting them run independently as they claim

They could sell off these businesses, but that would mean abandoning their core strategy. Berkshire Hathaway, for example, has always emphasized in its annual letters that it aims to own companies forever while allowing them to operate independently.

Another critical factor? Compounding cash flow into more deals.

• The snowball effect: Buy profitable companies → use cash flow to buy more companies → repeat.
• But Teqnion’s free cash flow is dropping.
• Less cash flow = fewer acquisitions and potentially more debt.

A snowball rolling downhill gains momentum, but once it slows, getting it moving again takes much more effort.

Teqnion is walking a fine line. They aren’t falling apart yet, but the warning signs are there.

The Biggest Underestimation? Cyclicality.

Teqnion promised an "all-weather portfolio" of niche industrial businesses. But in reality, their earnings are more tied to the economy than even they expected.

What hit them the hardest?

• Housing-related subsidiaries: The weak Swedish housing market crushed companies like Grimstorps and Hem1.
• Manufacturing & construction segments: Higher interest rates slowed down industrial spending.

Ironically, many of Teqnion’s worst-performing businesses were acquired between 2018 and 2021, when interest rates were near 0%. Fast-forward to 2025, and those same businesses are struggling.

This is a reality check for Teqnion and its investors. They aren’t immune to downturns.

Final Thoughts

Despite these terrible numbers, there’s hope.

1️⃣ Management has skin in the game, Johan Steene and Daniel Zhang own a ton of shares, roughly 127x and 20x their annual salaries, respectively. They win if shareholders win.
2️⃣ They’re still buying high-quality companies, the latest acquisition, Midlands Special Fasteners, is a niche market leader with strong margins.

The stock will likely be volatile in the short term, but for long-term investors who trust management, this could be an interesting research opportunity.

Until next time, stay curious, keep learning, and happy investing.

4o