Trention AB (TRENT)

Trention AB is a Sweden-based company that invests in and provides credit to companies. Within credit operations, Trention AB offers various types of financing solutions. In the investment business, the Company invests directly in both listed and unlisted, primarily Swedish small and medium enterprises. Trention AB is listed in Sweden (NASDAQ Stockholm) under the ticker TRENT.

Below I present my key arguments for why each margin of safety criteria is considered to be fulfilled. At the end of the write-up, I also include some “other factors and characteristics” that I consider to be of importance for the idea.

Margin of safety

1) Selling below liquidation value?

• TRENT is currently trading at a price-to-net-current-asset multiple of 0,71x.
  • Market capitalization = 182M SEK
  • NCAV = 255M SEK
    • The company’s current assets consist mostly of short-term loans and cash.
• Not included in the NCAV amount stated above is TRENT’s 26,4% ownership in the Swedish publicly-traded company Saxlund Group. At the current share price of Saxlund that position has a market value of 10M SEK. Although this position is stated as a non-current asset, one might argue that it can be considered to be more of a “readily ascertainable asset” nature.
  • Together with the NCAV amount stated above, a fairer liquidation value multiple would then be 0,69x
    • Edit 18/9-2019: A day after posting this write-up TRENT reported that they had sold all of their shares in Saxlund Group. In other words, the position was of a more readily ascertainable asset nature than what I had first expected.

2) Proven business model?

• As of the latest financial report (Q2 2019), TRENT has posted ten consecutive quarters with positive net income.

3) Sound financial position?

• TRENT currently carries 20M SEK of debt on the books. That is a small and financially sound amount considering TRENT’s debt-to-equity ratio of 0,1x.
• TRENT has a Z-score of 7. That’s well above the cut-off for the indication that financial troubles could lie ahead (i.e. risk of bankruptcy).
• From an income statement perspective, TRENT has shown that the amount of debt they carry is not an issue (i.e. they have had no problem covering their interest payments).

4) Responsible management?

• From my research on the current management team, I have not found anything that indicates that they are fraudulent or irresponsible.
• Considering some recent events related to a reservation of 26M SEK for potential credit loss one might argue though that their track record as capital allocators has its weak spots. On the other hand, the fact that they have recently formulated a dividend policy of 30% of the net income demonstrates that they at least are to be considered somewhat shareholder-friendly in their capital allocation decisions.
• The chairman of the board (Mats Gabrielsson) has considerable skin-in-the-game as he owns 40,95 % of TRENT.
  • When the 30% ownership threshold was reached back in 2018 a mandatory offering for all TRENT shares was made at the price of 59,20 SEK per share. Only 119 shareholders representing about 37K shares accepted the offer.
  • Mats Gabrielsson has added to his position during 2019.

Other factors and characteristics

• TRENT is an illiquid, nano-cap market capitalization company (182M SEK = $19M).
• P/E = 11x.
• Dividend yield = 3%.
• TRENT is not only trading at a 52-week low but at an all-time low.
• TRENT has accumulated 370M SEK of net operating loss carryforwards.

Disclosure: The author is long Trention AB (STO:TRENT)

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