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Samhallsbyggnadsbolaget – Hard to pronounce, harder to justify value

Viceroy Research is short Samhällsbyggnadsbolaget (STO:SBB) and listed debt instruments. SBB is a debt-fueled rollup of rent-controlled assets.

A review of the board of directors and management reveals several undisclosed, intimate relationships between the board members and/or with SBB: most directors appear to deal in property and/or invest heavily in competitors. SBB’s former head auditor & EY partner, Ingemar Rindstig, appears to have retired following an investigation by the Swedish Audit Inspectorate.

SBB fails to disclose related party and buyer support aspects as well as purchase prices, buyers and sellers and which assets are being sold. Outside of rampant roll-ups (many of which are also undisclosed related party transactions), SBB’s self-serving insider dealing is used to justify their absurd asset valuations.

Viceroy collated financial accounts of over 800 of SBB’s current and former subsidiaries. Our findings show stagnant revenues, booming operating costs, and immense fair value adjustments on SBB’s substantially rent-controlled property portfolio.

SBB has “hacked” their LTV since ~2019 by issuing hybrid bonds to finance repayment of secured debt and bond loans. Since 2019, >80% (SEK18,960m) of Net Profit Before Tax has been attributable to unrealized gains: capital structure does not support cash-conversion from its earnings.

Viceroy are of the opinion that SBB is un-investable. We do not think it is unreasonable that SBB’s financial statements are retracted to reflect findings in this report and believe there is significant downside potential to both the stocks and bonds as investors adapt to the inherent risk of SBB.

EDIT: Nordea have insisted that we point out that they no longer write commissioned reports from SBB as of mid 2019. Nordea continue to act in advisory capacity in deals.

EDIT: We have made a correction to Figure 17 upon discovery of an error. Despite this correction, this table is now completely immaterial to analysis post SBB’s cashflow restatements.

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