Train Alliance

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Train Alliance

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Company Update Property Sweden 18 March 2021

A unique opportunity to invest in railways

We initiate coverage of the railway development company Train Alliance. The company was founded in 2009 and since then has undergone an impressive expansion journey while only scratching at the surface of the opportunities that lie ahead. With continued strong growth in rail transportation Train Alliance has in depth railway competence combined with a unique land asset from which value is to be created for many years to come.

Strong demand while barriers to entry limit supply

In our view, Train Alliance is set to continue to grow at above-industry rates.

Demand for rail travel continues to increase, driven by rising GDP and supported by environmental initiatives in both freight and passenger, and new operators have entered the market. This is causing bottlenecks in maintenance and logistics – an opportunity for Rail Alliance, which has railway-ready land in key locations. There are many obstacles to transferring raw land (usually farmland) to railway-ready and the process is time-consuming, limiting competition for the foreseeable future.

On track to realise its 2025 revenue target

Train Alliance has shown a step change in revenues in 2020, which we expect will be sustainable in 2021, despite the challenges faced from COVID-19. We expect the group to produce organic sales CAGR in 2019-23 of 17% and close in on its 2025 revenue target of SEK 250m. We also expect Train Alliance to continue to recover some of the EBIT margin that was lost in 2018/19 as profits from developments increase.

SEK 69 to SEK 75 fair value range

Train Alliance trades at a premium to its latest NAV of only 5%, despite having defensive assets with a significant valuation potential and a strong balance sheet.

We argue that a premium of 15-25% reflects the valuation potential better, which is also supported by a DCF approach. We derive a fair share price range of SEK 69- 75 per share with a mid-point value of SEK 72.

Key Data (2021E) Price (SEK)

Reuters Bloomberg Market cap (SEKm) Market cap (USDm) Market cap (EURm) Net debt (SEKm) Net gearing

Net debt/EBITDA (x) (2.7)

Shares fully dil. (m) Avg daily turnover (m)

Free float 55%

169 (97) (7%)

26.4 0.0 TRAINb.ST TRAINB SS 1,710 202 64.80

Share Price (12M)

Absolute (green) / Relative to Sweden (purple).

30 40 50 60 70

Mar May Jul Aug Oct Dec Mar

Financials (SEK)

Year end: Dec 2019 2020 2021E 2022E 2023E

Revenues (m) 126 162 166 193 233

Operating profit (m) 20 28 28 37 46

Pre-tax profit (m) 13 20 20 30 40

EPS (reported) 1.30 1.07 0.67 0.98 1.28

EPS (adjusted) 1.30 1.07 0.67 0.98 1.28

CEPS 1.91 1.58 1.00 1.32 1.64

DPS 0.00 0.00 0.35 0.50 0.70

Revenue growth (%) 35.9 29.2 2.3 16.2 20.8

Operating profit growth (%) 28.3 42.7 1.1 31.7 24.4

EPS (adjusted) growth (%) 59.9 (17.6) (37.7) 46.3 30.8

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Investment conclusion

On track for growth

Train Alliance is a Swedish company formed in July 2009 with a vision to optimise the utilisation of rail vehicles and improve rail transportation to make it as efficient as possible. The business idea is to offer train operators modern and efficient production facilities for train maintenance and logistics. Since its foundation, Train Alliance has established control of strategic land assets in Hallsberg, Sigtuna, Eskilstuna and Malmö, all important hubs for rail support in Sweden.

Train Alliance’s main revenue stream is from developing its land assets from inexpensive farmland to more attractive approved railroad-ready land. Other revenues streams are lease revenues from leasing out land and/or buildings for support and maintenance for the rail industry as well as consultancy revenues.

The company works in close collaboration with its clients to cater for all their rail service needs and. The value potential is driven by getting land approved and railroad ready and by establishing facilities with customers/partners. In our view, there are four elements to the Train Alliance investment case.

● Continued strong growth in rail transport, both passengers and freight.

● The ability to create value by transforming land to approved and railroad- ready and then further once the final use of the land is determined and agreed upon. Possibly the end game is a sale of the land or lease of the land and/or buildings.

● Continued revenue growth as Train Alliance has an increasing number of activities in the final stages of development. We estimate an organic revenue CAGR of 17% throughout our 2019-23 forecast period.

● Improved margins through operational leverage and enhanced business mix.

Train Alliance has had a declining margin in recent years but with a larger portion of property development profits in the revenue mix, margins should rebound slightly. We see the potential for an increased EBIT margin from 15.6% in 2019 to 19.9% in 2023E.

Growing market with huge capacity deficits

As the rail networks have been opened up for operators other than the state, new entrants have invested in trainsets putting pressure on storage and maintenance facilities. Despite the deficit, operators have continued to order new trainsets.

From 1995 through 2015 the CAGR in passenger kilometres was just below 4%

and looking ahead the TSA expects a CAGR of 1.7% from 2014 through 2040.

Sweden: No. of passenger kilometres by rail (millions) Sweden: Freight transport by rail tonne km (billion)

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In rail freight, there was an increase of 9% in tonne kilometres in 2018 and the TSA expect in its main scenario a CAGR of 1.5% up until 2040. All this is putting further pressure on the system to increase investments not only in rail but also in support and maintenance for the trainsets. In addition, as larger cities, like Stockholm, Gothenburg and Malmö grow, the centrally located land used for train maintenance is under pressure from other uses such as housing or offices further increasing the demand for new facilities. Train Alliance is well positioned to benefit from these trends with large railroad-ready land assets in both Hallsberg and Sigtuna.

Value potential in the asset base

Train Alliance has land and buildings at a book value of SEK 790m and in addition SEK 293m in a JV, hence the total value of the holdings is SEK 1,083m.

The market value of this land is some SEK 329m higher taking it to SEK 1,412m or SEK 54 per share. Then there is the ongoing process of getting more land railroad ready, first up being Sigtuna where there could be a value potential in the range of SEK 300-400m (SEK 11-15 per share) realised. There are other value enhancing activities ongoing as well from which we expect further revenue and earnings support.

In the above we have only described the company’s properties, but if we examine the whole balance sheet, including other assets and debt, Train Alliance at year end 2020 had a NAV of SEK 759m (SEK 43.6 per share) and a market value adjusted NAV of SEK 1,110m (SEK 63.7 per share).

During Q1 2021 Train Alliance has agreed to acquire Stockholm Nord Kombiterminal AB from Kilenkrysset for SEK 302m, which strengthens Train Alliance’s presence in the key location Sigtuna significantly. To finance the transaction, Train Alliance has issued 2m shares (at SEK 72 per share in value) to Kilenkrysset along with a new share issue to current shareholders of 7m shares at SEK 60 per share adding SEK 480m to the company. Out of this, the remaining payment for Kombiterminalen of SEK 158m is to be made.

Adjusting the NAV and the adjusted NAV for these share issues leads to an NAV of SEK 1,322m (SEK 50.1 per share) and a market value adjusted NAV of SEK 1,672m (SEK 63.4 per share).

Long-term growth opportunities

In the past five years, Train Alliance has increased revenues by an average growth rate of 29% per annum. Despite the rapid growth, the company is still only scratching the surface with a very low market share, compared to the clear market leader, Jernhusen.

To reflect the growth opportunities, Train Alliance has set an ambitious revenue target of SEK 250m by 2023, implying a 2019-23 revenue CAGR of 19%, which we do not rule out the company reaching. We forecast a 2019-23E revenue CAGR of 17% but find further upside from selective M&A, which is currently not in our estimates. While revenue growth in Q4 2020 slowed down and H1 2021 is likely to remain slow due to COVID-19, we believe growth opportunities should arise in the aftermath of COVID-19, combined with successful planning approvals.

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Group revenue and revenue growth forecast Revenue split by segment

Source: Train Alliance, SEB Source: Train Alliance, SEB

Margin assumptions

For 2021 we expect margins to drop marginally to just above 17% but then as development of land becomes an increasing part of the revenues again in 2022 and 2023 we foresee a margins recovering again. We see potential for the company to have a sustainable EBIT margins of 18-20% in the foreseeable future.

Group EBIT Group EBIT margin

Mid-point DCF value of SEK 72 per share

Based on our NAV, Peer and DCF valuation, we derive a fair share price range of SEK 69-75 per share with a mid-point of SEK 72 per share. Based on our forecasts, we find the EV/Sales and P/E multiples demanding while the P/NAV multiple is attractive compare to its key peers.

Risks and possible concerns

● An important part of the valuation of Train Alliance is the valuation of its

(40.0) (20.0) 0.0 20.0 40.0 60.0 80.0

0 50 100 150 200 250

Total revenues Growth, total revenues (%)

Development 81%

Consultancy 11%

Facility partners 8%

0 5 10 15 20 25 30 35 40 45 50

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E

32.4 29.6

26.4 25.0

14.8 20.7

18.5

16.6 15.6 17.3 17.1 19.3 19.9

0 5 10 15 20 25 30 35

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E

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● Train Alliance has to a large extent a project-based operation with all the risks that are associated with that in terms of delays and costs overruns. In contrast to a construction company, the risks are limited as the land where development is taking place is well known to Train Alliance and the build contracts are limited in size and complexity.

● The COVID-19 pandemic poses threats, as well as opportunities. So far, Train Alliance has only experienced a limited impact from the virus outbreak, but there is a risk that there could be more of severe impact in the future, e.g. by delayed decision making among customers. Some signs of this were visible in Q4 2020.

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Estimates

Group forecasts

We expect Train Alliance to maintain solid revenue growth in the coming year, despite COVID-19, driven by the lack of capacity for maintenance and repair facilities as well as train parking in the Swedish railway system, which is constantly expanding. The timing of new development is difficult to predict and there could be a lumpy development between quarters. From 2019 through 2023 we forecast a revenue CAGR of 17%, compared with historical revenue growth of 29% in the past five years.

Group revenue Revenue growth y/y

Source: Tempest Security, SEB Source: Tempest Security, SEB

During 2022 and onwards we expect the revenues in the consultancy business to drop while the Development and Facility partners revenue stream will increase. In 2020 Consultancy represented 11% of revenues falling to 7% in 2023. The decline is, as we understand it, planned and part of Train Alliance’s strategy as the company moves forward and develops.

Forecasted revenue split 2020 Forecasted revenue split 2023

0 50 100 150 200 250

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E -40 -20 0 20 40 60 80

FY/11 FY/12 FY/13 FY/14 FY/15 FY/16 FY/17 FY/18 FY/19 FY/20 FY/21EFY/22EFY/23E

Development 81%

Consultancy 11%

Development 76%

Consultancy 7%

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Group EBIT (SEKm) Group EBIT margin

Source: Train Allinace, SEB Source: Train Alliance, SEB

Below we set out our estimates both annually and quarterly along with the historical development.

Interim financial statement (annual)

(SEKm) FY/11 FY/12 FY/13 FY/14 FY/15 FY/16 FY/17 FY/18 FY/19 FY/20 FY/21E FY/22E FY/23E

Total revenues 47 50 40 70 76 88 90 92 126 162 166 193 233

Direct costs (26) (28) (21) (48) (56) (59) (62) (65) (93) (117) (120) (137) (167)

Other external costs (6) (6) (8) (3) (5) (5) (6) (4) (4) (5) (5) (5) (5)

Personel related costs (2) (3) (4) (4) (5) (5)

EBTDA 16 15 11 19 15 25 23 21 25 36 37 46 56

Depreciation (1) (1) (1) (2) (4) (6) (6) (6) (6) (8) (8) (9) (10)

EBIT 15 15 11 18 11 18 17 15 20 28 28 37 46

Net financial items (2) (2) (9) (9) (5) (4) (6) (6) (7) (8) (8) (7) (7)

Pre-tax profit 14 12 2 8 6 14 10 9 13 20 20 30 40

Taxes (3) (4) 0 1 (1) 10 (3) (2) (1) (3) (3) (5) (6)

Net profit 11 9 2 9 5 24 7 7 12 17 17 26 34

Operating margin EBITDA (%) 33.7 31.2 28.5 27.5 20.3 27.9 24.9 22.8 20.2 22.1 22.0 24.0 24.0

Pre-tax margin (%) 29.2 25.2 4.8 12.2 7.8 15.7 11.4 9.8 10.1 12.3 12.0 15.7 17.0

Growth, total revenues (%) n.a. 4.3 (18.9) 74.1 8.7 16.3 2.2 2.3 35.9 29.2 2.3 16.2 20.8

Growth, operating profit (%) n.a. (3.5) (25.9) 68.4 (20.0) 60.4 (8.9) (6.3) 20.1 41.7 1.8 26.7 20.8 Growth, pre-tax profit (%) n.a. (10.0) (84.6) n.m (29.9) n.m (25.9) (11.8) 39.6 57.9 (0.0) 51.4 30.7 Source: Train Alliance, SEB

Interim financial statement (quarterly)

(SEKm) Q1/19 Q2/19 Q3/19 Q4/19 Q1/20 Q2/20 Q3/20 Q4/20 Q1/21E Q2/21E Q3/21E Q4/21E

Total revenues 25 18 24 59 50 46 44 22 32 34 50 50

Direct costs (18) (12) (17) (46) (38) (34) (31) (14) (23) (25) (36) (36)

Other external costs (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1)

Personel related costs (1) (1) (1) (1) (1) (1) (1) (2) (1) (1) (1) (1)

EBTDA 6 4 6 12 10 10 11 5 7 7 11 11

Depreciation (1) (1) (1) (1) (3) (4) (4) 2 (2) (2) (2) (2)

EBIT 5 3 4 11 6 6 7 8 5 5 9 9

Net financial items (2) (1) (1) (2) (2) (1) (3) (2) (2) (2) (2) (2)

Pre-tax profit 2 2 3 9 4 5 5 6 3 3 7 7

Taxes 0 0 0 (1) (0) (1) (1) (2) (0) (1) (1) (1)

Net profit 2 2 3 8 4 5 4 4 2 2 6 6

Operating margin EBITDA (%) 23.8 24.4 24.5 20.5 19.2 21.7 24.9 23.8 20.7 20.5 22.9 22.9

Pre-tax margin (%) 9.2 9.2 12.6 14.7 8.7 11.1 10.3 27.0 8.5 7.8 14.7 14.7

Growth, total revenues (%) 6.7 (7.9) 0.3 n.m 99.6 n.m 83.6 (62.3) (34.9) (26.8) 13.3 n.m

Growth, operating profit (%) 29.1 (10.6) 0.2 47.2 61.4 n.m 86.6 (56.3) (30.0) (30.9) 4.3 n.m

Growth, pre-tax profit (%) 63.2 (44.5) 80.1 57.4 90.6 n.m 49.6 (30.8) (37.0) (48.4) 61.6 22.0

Source: Train Alliance, SEB 0

5 10 15 20 25 30 35 40 45 50

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E

32.4 29.6

26.4 25.0

14.8 20.7

18.5

16.6 15.6 17.3 17.1 19.3 19.9

0 5 10 15 20 25 30 35

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E

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Assets

We do not have any estimates on value enhancement specified per asset, although value enhancement from Train Alliance’s assets (land) is an important driver for revenues and earnings. It is very difficult to estimate the timing of project completions. What we can conclude is that, after the new share issues in Q1 2021, Train Alliance has a book value of SEK 1.3bn (SEK 50.1 per share) to be compared to an NAV adjusted for the external valuation of its land of SEK 1.7bn (SEK 63.4 per share), primarily in railroad-ready land in Hallsberg.

This difference will materialise over time and most likely also increase as the final use of the land becomes clearer.

In addition, Train Alliance owns land in Sigtuna and Eskilstuna. It also rents land in Malmö. In the land Train Alliance have owned and developed in Sigtuna they are close to making it railroad-ready as it is in the last stages of the planning and zoning process. As the land overcomes the final hurdles Train Alliance expects a significant value enhancement, possibly in the range of SEK 300-400m or SEK 11-15 per share. Like Hallsberg this value is then gradually passed through the P&L and in addition has potential to further increase as Train Alliance agrees with the end customer on the final use of the land and constructs the necessary buildings, which then could be sold or leased out.

In Q1 2021, Train Alliance also agreed to acquire additional land in Sigtuna included in the company Stockholm Nord Kombiterminal AB, which is already railroad ready and operational. Revenues in 2020 were SEK 12.3m with an operation net of SEK 6.5m. Train Alliance paid SEK 302m for the assets, a price that is supported by an external valuation by Svea AB issued 2021-01-26.

Because of the acquisition and the potential that lies ahead in developing it, Train Alliance has further issued 9m new shares, of which 2m are issued directly to the seller, Kilenkrysset.

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Valuation

We use DCF, Peer and NAV valuation

Our combined view is a price range of SEK 69-75 per share

Train Alliance has assets that it expects to develop and create value from over a long period of time. It is difficult to estimate when these values will be realised and at what prices. We are getting some support for the valuation from using external third party valuations on Train Alliance assets where the market value adjusted NAV currently is SEK 63.4 per share.

Based on a combination of the NAV, peer and DCF valuations below we find support for a fair value range for Train Alliance of SEK 69-75 per share where the DCF supports a range of SEK 65-70 per share while the NAV valuation supports SEK 75-80 per share.

DCF valuation

DCF fair share price range of SEK 65-70

We derive a fair share price range of SEK 65-70 for Train Alliance based on a mid-point DCF value of SEK 67 with +/- 5% relative change to our EBITDA assumptions being the upper- and lower end. Our weighted average cost of capital is 5.2% We use explicit forecasts for 2020-40 and then make the following assumptions:

● Revenues to grow at 2% long term and beyond our forecast period.

● A steady state EBIT margin of 20% beyond our forecast period.

● Working capital to stabilise at around 5% of sales.

Midpoint DCF valuation

Source: SEB

Sensitivity analysis I Sensitivity analysis II

Source: SEB Source: SEB

DCF valuation (SEKm) Weighted average cost of capital (%)

NPV of FCF in explicit forecast period 1,110 Risk free interest rate 2.5

NPV of continuing value 548 Risk premium 3.0

Value of operation 1,658 Cost of equity 5.5

Net debt (97) After tax cost of debt 1.8

Share issue/buy-back in forecast period -

Value of associated companies - WACC 5.5

Value of minority shareholders' equity -

Value of marketable assets - Assumptions

DCF value of equity 1,755 Number of forecast years 20

DCF value per share (SEK) 67 EBIT margin - steady state (%) 85.0

Current share price (SEK) 65.70 EBIT multiple - steady state (x) 13.0

DCF performance potential (%) 1 Continuing value (% of NPV) 33.1

4.5 5.0 5.5 6.0 6.5

80 99 90 82 76 70

Equity capital 90 89 80 73 68 63

weight (%) 100 80 73 67 61 57

100 80 73 67 61 57

Cost of equity (%)

-20% -10% 0 +10% +20%

-20% 51 55 59 63 67

Rel. change in -10% 54 58 63 67 71

sales growth - 0 57 62 67 71 76

all years +10% 61 66 71 76 81

+20% 64 70 75 81 86

Relative change in EBITDA margin - all years

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Peer group valuation

NAV valuation indicates SEK 75-80

It is very difficult to find a direct peer to Train Alliance as it is a part project development business, partly real estate and partly rail specialist/consultant.

As a developer, traditionally companies like JM and Bonava are valued on a multiple of earnings, but also on their NAV in which the market value of the landbank forms a base for the valuation. Occasionally, in difficult end markets their shares have traded at a discount to the NAV, but most commonly they trade at a premium as the companies are able to create value on the land bank.

Looking at our real estate companies, low interest rates and a long period of strong economic growth have been positive for the sector and it is currently trading at a small premium to NAV on average. We note that defensives, such as residential and community service properties are trading at a significant premium while retail, Hotel and Stockholm offices trade at a large discount.

As Train Alliance is significantly smaller and in a unique asset class where the realisation of the assets is further out int the future than the peers we mention above, we would argue that a peer comparison offers limited accuracy.

However, it serves as a guidance and in our view, the most relevant multiples to look at would be EV/GAV, Price/NAV and P/E ratio.

Based on 2023E EV/Sales of 7.0x and a PE ratio of 48.6x Train Alliance is trading at a significant premium to development peers such as JM and Bonava which also include a construction operation. Peers in the real estate sector with defensive properties such as residentials and food retailing properties, trade on PE ratios closer to those of Train Alliance, but still below. These peers also use NAV as an important valuation metric and are trading at a premium in the range of 21% to 42% exemplified by Wallenstam, Balder and Cibus in the table below.

Train Alliance has an NAV based on the balance sheet at year end of 2020 adjusted for the new share issues of 9m new shares during Q1 2021 of SEK 1,672m or SEK 63.4 per share. At a share price of SEK 67 the premium is only 5%. In addition, as we have elaborated upon in the above, Train Alliance has significant potential to enhance the value in its many holdings, where Sigtuna most likely has the largest short term potential as the zoning of that property is approved and additional tenants have been found for the newly acquired Kombiterminalen.

We find that valuation on EV/Sales and P/E is demanding but that NAV valuation, which in real estate is a more important metric to use, leaves room for upside potential. We are looking for a premium of around 15-25% to Train Alliance’s NAV which would reflect the true potential. At a 15-25% premium, Train Alliance would have a valuation range of SEK 75-80.

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P/NAV

Source: SEB

Real estate summary

Share Price Current EPRA NAV P/Current P/EPRA EV/GAV LTV Equity ratio Valuation Implied

Company Last report (ccy) NAV (ccy) (ccy) NAV (x) NAV (x) (x) (%) (%) yield (%) yield (%)

Atrium Ljungberg Q4 2020 160 206 218 0.78 0.73 0.84 40 46 4.4 5.2

Balder Q4 2020 405 334 387 1.21 1.04 1.02 52 32 4.5 4.4

Castellum Q4 2020 197 202 214 0.98 0.92 0.96 44 44 5.0 5.2

Cibus Q3 2020 162 116 111 1.40 1.46 1.21 54 37 5.8 4.8

Fabege Q4 2020 117 148 155 0.79 0.76 0.84 35 52 3.9 4.6

Fortinova Q1 2020/21 40 38 40 1.04 1.01 1.01 11 156 4.5 4.5

Hufvudstaden Q4 2020 120 174 184 0.69 0.65 0.72 19 60 3.7 5.2

Klövern Q4 2020 12.8 19.6 19.9 0.65 0.64 0.89 57 36 5.3 6.0

Kungsleden Q4 2020 87 95 97 0.91 0.89 0.94 45 43 5.1 5.4

Nyfosa Q4 2020 81 83 80 0.98 1.02 1.01 57 42 6.0 6.0

Pandox Q4 2020 150 176 168 0.85 0.89 0.94 48 37 5.5 5.9

SBB Q4 2020 26 43 28 0.61 0.94 0.97 46 43 4.5 4.7

Wallenstam Q4 2020 118 96 98 1.23 1.21 1.11 46 42 3.7 3.3

Wihlborgs Q4 2020 163 141 152 1.16 1.08 1.04 48 40 5.1 4.9

Average 0.93 0.89 0.94 45 45 4.7 5.1

Median 0.91 0.89 0.94 46 46 5.0 5.2

Source: SEB

Peer group valuation

P/NAV (x) CEM (x) EBITDA/EV (%) Dividend yield (%)

2020 2021 2022 2020 2021 2022 2020 2021 2022 2020 2021 2022

Atrium Ljungberg 0.82 0.79 0.78 22.2 17.1 19.1 3.6 3.8 3.5 2.9 3.2 3.2

Balder 1.15 0.90 0.84 20.0 17.8 17.9 4.0 4.1 0.0 0.0 0.0

Castellum 1.04 0.95 0.93 18.8 18.1 18.4 4.0 4.3 4.2 3.3 3.6 3.6

Cibus 1.41 1.29 1.31 17.9 14.5 14.2 3.8 4.7 4.9 5.6 6.2 6.5

Fabege 0.90 0.80 0.79 27.6 25.8 24.8 2.8 3.0 3.1 2.8 3.2 3.2

Fortinova n.a. n.a. 1.02 n.a. n.a. 29.0 n.a. n.a. 3.8 n.a. n.a. 1.2

Hufvudstaden 0.78 0.69 0.68 27.5 21.8 23.5 3.4 4.1 4.2 1.8 2.3 2.5

Klövern 0.81 0.65 0.63 17.2 13.4 12.3 4.0 4.7 4.9 1.7 2.2 2.3

Kungsleden 0.94 0.86 0.86 15.6 14.7 14.5 4.3 4.5 4.5 2.0 2.5 2.6

Nyfosa 1.13 1.11 1.08 12.5 11.1 10.6 5.2 5.2 5.4 4.9 3.8 3.9

Pandox 0.92 0.92 0.89 41.8 18.9 16.4 3.0 4.5 5.0 0.0 1.3 2.0

SBB 1.01 0.89 0.88 17.1 17.5 16.8 4.2 4.8 5.0 3.5 4.0 4.2

Wallenstam 1.44 1.27 1.23 39.4 33.1 32.7 1.9 2.1 2.2 0.9 1.3 1.5

Average 1.00 0.90 0.88 22.90 18.72 18.42 3.6 4.1 4.2 2.3 2.8 3.0

Median 0.82 0.79 0.79 20.1 17.5 16.8 3.7 4.3 4.9 1.8 2.7 2.9

Source: SEB

1.40

1.21 1.21 1.16

0.98 0.91 0.98 0.93

0.79 0.78 0.85

0.65 0.69

-40 -30 -20 -10 0 10 20 30 40

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60

2020E P/NAV (x) 10y average P/NAV (x) Current premioum discount to 10y P/NAV (%, RHS)

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Company overview

Train Alliance in brief

Founded in 2009

Train Alliance was founded in 2009 and has since become a listed company which offers investors the opportunity to invest in the growing rail industry.

Train Alliance’s business idea is to offer train operators modern and efficient production facilities for train maintenance and logistics.

The business model relies on three pillars of which the largest and most important for the long-term value of Train Alliance is Property Development.

The other two are Competence and Concept and Facility Partner (including recurring rental income). These three pillars combine to create value for Train Alliance shareholders as the company takes part as an advisor/consultant in the pre study regarding localisation as well as technology selection and thereby is initiated into the long term needs for the Swedish rail industry. With that knowledge land is acquired and developed for future needs and in the end also operated in the most efficient way.

Property development

Within this segment Train Alliance aims to acquire strategically located plots of land and develop them in order to make them ready for various rail related purposes. In a second step they could also take part in building facilities for maintenance, logistics and other rail related infrastructure. The main aim is to increase the value of the land held and on occasion sell it as this value has been realised. Today the largest value relates to its holding in Hallsberg, but there is also a large part of the value in the recently acquired Kombiterminalen in Sigtuna outside of Stockholm. In Sigtuna, Train Alliance also owns land with a large future value potential as they are in the final stages or the zoning process with should make sure the land is railroad-ready, hopefully already during 2021.

Competence and Concept

In this segment, Train Alliance offers consultancy advice related to planning, building and operation of rail facilities. As we understand it, the company sees this revenue stream as complementary and not an area in which it aims to expand.

Facility Partner

In this segment, Train Alliance acts as a financial and operational partner in connection with the construction of rail facilities. In the longer term, Train Alliance, with its deep knowledge in rail technology and rail facilities, becomes a complete facility partner to its customers. They could both develop to divest and develop and retain while the premises are rented out.

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The main drivers and competitive advantages for Train Alliance are:

● That the Swedish railway tracks lack capacity and are in need of significant investments in the coming years. This is acknowledged by the government and there are currently discussions about investments in a new high-speed railroad from Stockholm and southbound.

● The number of trains is constantly increasing and there is a lack of room for maintenance and parking.

● Infrastructure is a critical asset for society thus there are high prerequisites for operators, which creates barriers of entry.

● Train Alliance has a high competence and unique expertise combined with attractive landholding making it a reliable partner.

Some numbers

A large landowner of railroad related land

Train Alliance controls land of around 2.5m sqm of which around 2m sqm is owned directly and the remaining through JVs. The land is located in strategic railroad hubs such as Hallsberg and Sigtuna and valued by an external valuer at SEK 1.1bn. This compares to a book value of SEK 0.6bn. The SEK 0.4bn in difference relates to the property Hallsberg Rala 4:29 and the value is gradually released as customer discussions are initiated. In addition to the above value we expect a significant value increase in market value in Sigtuna as that land is set to become railway-ready during 2021.

The company has set a number of operational and financial targets including;

● To establish Train Alliance as a leading facility partner in Sweden.

● Develop strategic location in Sweden with efficient and appropriate facility technology.

● Revenue of at least SEK 250m by 2025.

● Operating margin of at least 10%.

● Long term equity ratio of 60%.

● Dividend of 50% of net profit.

Below we set out the revenue and earnings development for Train Alliance

Revenues (SEKm) EBIT (SEKm) and EBIT margin (%)

0 50 100 150 200 250

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E

0 5 10 15 20 25 30 35

0 5 10 15 20 25 30 35 40

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E EBIT EBIT margin

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Revenues by segment (2020E)

Source: Train Alliance, SEB

Train Alliance’s activity has remained high throughout 2020 and despite a slightly lower activity within personal transportation the transport of goods has increased. Interest in investment in rail remains high. The strong demand is evidenced by revenues taking a significant step up in Q4 2019 and they have remained at that level since up until Q4 2020 when there was a slowdown.

Recent events

Examples of significant event during 2020 include:

● In April 2020, because of a lack of space, Region Stockholm parked regional trains at Train Alliance operations in Hallsberg. Some 800m of train were taken in and parked.

● In April 2020 Siemens Mobility signed a land assurance agreement to establish a train workshop in Rala Hallsberg. Together Siemens and Train Alliance are now investigating how to go forward to set up a modern train maintenance facility.

● In June 2020 Euromaint signed a rental agreement with Train Alliance to do train wheel maintenance in a facility owned by Train Alliance. Euromaint is owned by the European train manufacturer CAF. It already has activities in Malmö, Stockholm and Luleå but is now expanding its presence in Hallsberg.

● In July 2020 Train Alliance entered an agreement to secure the delivery of air fuel to Arlanda Airport. The agreement is worth SEK 20m and is to be delivered upon during Q3 and Q4 in 2020.

● In September Train Alliance performed a site control for Norrtrain and in October Train Alliance was rewarded one order of SEK 20-30m to expand the freight depot operations in Sigtuna. Later in October the company said

Property development Competence &

concept

Facility partner

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Owners

The two founders (Otto Persson and Sven Jernsten) remain large shareholders with a combined ownership of 14% of the capital and 36% of the votes as they are holders of A shares in the company. Other holders of A shares are Polar Structure AB and Ingenieur Tief und Gleisbau. Since the listing of Train Alliance new shareholders have been added and the larger ones are AB Hvalfisken (Fam Wahlström), Investment AB Spiltan, Banque Pictet & Cie and PriorNilsson Realinvest. In addition, it is worth highlighting that most of the executive management and board members are shareholders in the company.

Shareholder structure

Shareholder structure (as of 31 December 2020)

Name Share of capital Share of votes Number of shares

Sven Jernsten 11.08% 24.25% 1,929,421

Polar structure AB 5.77% 18.85% 1,005,027

Otto Persson 2.87% 12.08% 499,238

Ingenieur Tief und Gleisbau 2.63% 6.63% 457,363

AB Hvalfisken 10.07% 4.96% 1,755,787

Investment AB Spiltan 8.35% 4.11% 1,454,221

Banque Pictet & Cie 7.93% 3.90% 1,381,697

Sädesärlan Fastighets AB 5.74% 2.82% 1,000,000

PriorNilsson Realinvest 4.65% 2.29% 810,586

Natpec Holding AB 3.10% 1.53% 540,191

Top 10 62.19% 81.41% 10,833,531

Other 37.81% 18.59% 6,585,725

Total 100.0% 100.0% 17,419,256

Management and board

Executive management team

Joakim Weijmer holds 16,000 B-shares shares in Train Alliance and has been CEO since 2018. He has been employed by the company since 2011 and before that worked within the rail industry his whole career. Among his previous employers are EuroMaint and SJ Maskindivision. He is also on the board of Joakim Weijmer Förvaltning AB.

Mattias Modén holds 23,544 B-shares in Train Alliance and has held the position of CFO since 2020. He has earlier experience from auditing and consultancy in the rail industry. He is a member of the board of Hotell och restaurang Stadskällaren in Skara and MJ Moden Förvaltning AB.

Pierre Starck holds 16,000 B-shares in Train Alliance and has held the position as responsible for construction since 2016. He has earlier experience from the rail industry as both an employee and consultant.

Board of directors

Otto Persson owns 420,000 A-shares and 79,238 B-shares in Train Alliance and has been a board member since the beginning in 2009 and chairman since 2019. He has also been President and CEO of Serneke Group AB from 2009 through 2018. In addition, he is also a member of the board of Lagerhuset ABC I Svedala AB, Lupinia AB and Taste of Scandinavian Food and Beverage Sweden AB. He also has experience as CFO at BE group. Mr Persson is one of the founders of the company. He has an MBA from Kristianstad University

Conny Bjärnam holds 18,000 B-shares in Train Alliance and has been a member of the board since 2012. Mr Bjärnman is also COB at Testamentsregistret TB Conclavia AB, TB Testaments byrå AB and Lupinia AB.

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Sven Jemsten holds 740,000 A-shares and 1,189,421 B-shares in Train Alliance and has been a member of the board since 2010. He works with his investment vehicle Lupinia AB and is a member of the board and CEO of Euroforest AB. He is also member of the board of Axesipwiljem AB, FPTK Arena AB and Solid Group Europe AB. He holds a financial graduate degree

Patrik Lingårdh holds 544,605 B-shares in Train Alliance and has served as a member of the board since 2020. He has long experience from the forestry industry, as head of procurement at Södra Timber and CEO at Baro Wood AB. He is on board of Bluehand AB and Euroforest AB. He holds an MSc in Forestry.

Staffan Brandt holds 58,000 B-shares in Train Alliance and has been a member of the board since 2012. He has previous experience as lawyer at the law firm Lindahl were he has been a partner since 2006. He is also on the board of Koenigsegg Automotive AB among other assignments. He was CEO of Skanska Industrial Solutions and held several other positions in Skanska both in Sweden and Internationally.

Barbro Wihlborg holds 174,000 B-shares in Train Alliance and has been a board member since 2010. She founded Miljögården, wholesaler in interior decoration. She is also on the board of W-Garden Trading AB.

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Market overview

The Swedish rail market

The Swedish rail network is huge, around 15,600km of track of which 14,200km is maintained by the Swedish Transport Administration (STA) and some 80% is electrified. The STA handles all four modes of transport: road, sea, air and rail. STA has a budget to distribute and therefore rail competes with the other transport systems, although road is the main competitor as most of the money is allocated here.

The Swedish market for rail transportation has gradually been deregulated from a monopoly as recently as in 1996 when the market for freight transport was opened up. In 2010 passenger rail was also deregulated. Today there are a large number of operators as well as infrastructure managers.

In passenger transport there are a number of operators both private and public.

There are some with a local focus and some with a long-distance focus.

Examples of those with a local focus are Öresundstågen and Västtrafik, while long distance examples are MTR and SJ (X2). In freight transportation examples include Green Cargo and Hector Rail.

There are just above 300 infrastructure managers in Sweden although the majority of them manage their own railroad tracks which are used solely for their own purposes.

The operators need maintenance and repair shops as well as terminals, stations and parking for the trains. The maintenance and repair shops are furnished by specialist maintenance companies of the supplier of the trains. They all need efficient access facilities in strategic locations in relation to the railroad network and this is where Train Alliance is positioned, having land in strategic places ready for use.

Passenger transportation

During 2018 there were 246m passenger journeys on Sweden’s rail network, which is the highest number recorded. Measured in train kilometres, passenger traffic increased 4% from 2017 to 2028. Since 1998 travel has doubled from 7,210m passenger km to 13,547m passenger km. The driver is both an increasing population and increased interest in traveling, in particular by train, supported by an increased environmental understanding.

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Number of passenger kilometres by rail (millions)

Source: TSA, Train Allinace, SEB

Looking ahead to 2040 and 2060, traveling by rail is estimated to increase further. The Swedish Transportation Administration in its latest prognosis expects the number of passenger kilometres to increase 57% by 2040 and 88% by 2060. This is equivalent to a CAGR of 1.74% from now to 2040 and then CAGR 0.92% from 2040 to 2060. The driver, again is population growth combined with rail gaining market share. In 2014 the TSA estimated that 10.3%

of passenger kilometres travelled were by rail and in 2040 they expect it to reach 12.2%.

Annual growth in passenger kilometres rail

7.2

13.6

21.3

25.6

0 5 10 15 20 25 30

1998 2014 2040 2060

0 5 10 15 20 25 30

CAGR 3.9%

CAGR 1.74%

CAGR 0.92%

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Freight transport on railroad, Low, Main and High scenario

Source: TSA, Train Alliance, SEB

Looking ahead freight transportation on railroad is expected ty the TSA in its main scenario to grow by 52% from 21bn tonne kilometres in 2012 to 32bn tonne kilometres by 2040 equal to a CAGR of 1.48%. If longer trains were allowed (today the maximum length is 630m) it would lead to stronger growth, equal to 1.58% per year and reaching 33.2bn tonne kilometres by 2040, an increase of 58% from 2012 through 2040.

In the national plan presented by the TSA, investments of SEK 622.5bn are to be made by 2029. Of this, SEK 333.5bn is for the development of the transportation system and 80-90% of this will most likely go to railroad investments, according to Train Allinance. Of the SEK 289bn to be invested in maintenance, SEK 125bn is for rail. The effect of these investments is that it would add 5bn tonne kilometres of freight traffic by 2040.

Maintenance and repair of rail vehicles

In the Swedish market for maintenance and repair of rail vehicles there are both private and public suppliers. The largest owner of maintenance facilities is the state-owned company Jernhusen AB. There are also facilities owned by operators, vehicle owners and repair and maintenance companies.

There are a number of repair and maintenance providers, notably SweMaint and EuroMaint, which are companies spun out of the state-owned rail operator SJ.

These are currently responsible for a large part of the repair and maintenance of vehicles. Other players in the market are Mantena, Bombardier, NetRail, MTR Tech and Alstom. Maintenance of the various components of a trainset is supplied by a large number of specialist companies, for example motor or brakes. In general, repair and maintenance is carried out in three ways, in house (LKAB), by the vehicle manufacturer as part of the delivery (Bombardier, Alstom) or by a third party (SweMaint and EuroMaint).

0 5 10 15 20 25 30 35

2012 2040 Low 2040 Main 2040 High

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The increase in rail traffic has led to a shortage of capacity for repair and maintenance facilities as well as parking, especially in the larger cities, Stockholm, Malmö and Gothenburg. In these regions there is also a shortage of land for other uses such as housing and offices, making it difficult to expand current centrally located facilities. In fact, some of these centrally located facilities are attractively valued and the use of this land for train repair, maintenance and parking is questioned. New facilities near to the cities but in less populated areas are in need and this is where Train Alliance sees its potential.

Train Alliance expects that the train fleet will increase by over 200 trains in the next 10 years which would result in at least SEK 10bn in investments just to maintain and repair the additional trainsets. Most of these investments will have to be made in locations were Train Alliance is currently present. Already today Train Alliance is supporting its customers in parking trainsets (for a fee) due to the lack of space in the system.

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Assets

Hallsberg Rala

In Hallsberg, Train Alliance has some 900,000sqm (book value SEK 168m), railroad-ready land. Railroad-ready land means that the land is next to the current rail infrastructure and has the appropriate zoning approval. Train Alliance acquired the land in 2011 and the work to get all necessary approvals in place was done in 2016. This was unusually fast as the process normally takes eight to 10 years. The reason for the fast process is most likely that Hallsberg municipality is very much associated with and dependent on the railway. Other municipalities with less of a railway focus are normally not as supportive.

It is in Hallsberg Train Alliance currently find its opportunities for growth and expect additional agreements of establishment to be signed during 2021.

Hallsberg is already a significant rail link and set to develop further as rail transport continues to grow. Hallberg has the largest “rangerbangård” in the Nordics with increasing traffic year after year. 70% of the population in Sweden is in a radius of 250 kilometres and rail activities are prioritised in the region.

Train Alliance has the goal to create a national centre for train maintenance here and that in the area there should be all necessary functions to support owners of rail vehicles in all their needs as cost efficiently as possible.

Hallberg Rala area

The transport of goods is especially important for Hallsberg as 70% of all freight traffic passes this point. Hallsberg is therefore a logistics centre and companies such as Ahlsells and Volvo are established here. Train Alliance and the Swedish Transport Administration “Trafikverket” have signed a letter of intent regarding future developments in the area in order to support STA in its activities in Hallsberg.

Logistic centre

Train Alliance Railroad ready land

Trainterminals

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Train Alliance area in Hallsberg

Source: TSA, Train Alliance, SEB

Train Alliance has so far built two facilities in Hallsberg Rala of which one was divested in 2018 and the second one is currently being separated as its own property and will when that work is finalised be sold.

Train Alliance’s land in Hallsberg has been market valued by a third party at in total SEK 614m. The land referred to is the property Hallsberg Kronan 20 and Hallsberg Rala 4:29. In total the area is around 930,000 sqm with a book value of SEK 168m hence the overvalue is SEK 446m or SEK 25.6 per Train Alliance share.

Siemens currently has an option to get access to some 8,000 sqm of land here and is paying SEK 520,000 per year for that right. The next step here is for Siemens to develop concrete plans for its construction needs on the land, which would increase the value of the land further for Train Alliance. Train Alliance could sell the land but most likely it will take part in the construction and then lease out land and building as a unit.

The TSA also has a land option, but it has yet not been activated. Once activated Train Alliance will receive some SEK 2.8m annually for the option until the TSA has finalised its plans and the construction can start here. Also here the TSA could buy the land or rent the land or lease (in a long term contract) the building from Train Allaince. In either case significant values are released through Train Alliance’s P&L.

1 miljon m²

Trainservicehall Euromaint Combihall

Siemens TSA land option

Siemens Land option

Wervice and maintenance Logistics

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Sigtuna

In Sigtuna, Brista/Krogsta Train Alliance as of year end 2020 had some 300,000 sqm land for railroad activities but the land is not yet “railroad-ready”. Train Alliance, together with Kilenkrysset, is working to get the zoning in place and then all approvals necessary to make the land railroad-ready. There is a significant need to expand in the Stockholm region as there is high growth in passenger volume but also in freight. In addition there is pressure to utilise attractive railroad land close to the city for other uses putting further pressure on finding alternative locations.

If Hallsberg has the biggest potential in the short term, Sigtuna has the greatest potential in the longer term.

Train Alliance acquired land in the area as far back as 2012 but later (in 2014 and 2015) divested parts of it into a JV with Kilenkrysset where Train Alliance owned 30%. In 2020 Train Alliance has increased its holding in the land from 30% to 45%., which consists of 121,069 sqm of the land in Sigtuna (owned together with Kilenkrysset) which has been externally valued by a third party to SEK 7m. It is very likely that the land will be railroad-ready during 2021 or 2022 at the latest which would trigger a substantial value enhancement. If we only compare with the market value in Hallsberg (SEK 660 per sqm), Train Alliance’s share of the market value would be SEK 36m. With its proximity to Stockholm it is most likely not valid to compare the market value with Hallsberg but rather transactions made in the area and where Train Allinace has seen transactions being made at SEK 3,200 per sqm which would generate a market value of SEK 387m. That transaction is for land nearby TrainAlliance’s holding but not railroad-ready hence there could be an even higher value potential.

In the beginning of 2021 Train Alliance acquired Kombiterminalen from Kilenkrysset, a 140,000 Sqm large facility for off and on loading of freight between train and trucks. Train Alliance paid SEK 302m for the asset which also is in line with a recently conducted external valuation. The total market value for the Sigtuna holding including the recently acquired Kombiterminalen is SEK 354m, which we believe also is close to the book value.

Kombiterminalen Sigtuna, Stockholm

Train Alliance

Train Alliance

A unique opportunity to invest in railways

Contents

Investment conclusion

On track for growth

Estimates

Group forecasts

Assets

Valuation

We use DCF, Peer and NAV valuation

DCF valuation

Peer group valuation

Company overview

Train Alliance in brief

Some numbers

Shareholder structure

Management and board

Market overview

The Swedish rail market

Assets

Hallsberg Rala

Sigtuna