Tokmanni: Discount retail reflects the uncertain times - Evli Research
Benefiting from the lockdown
Tokmanni continued its solid growth in Q2 with sales totaling EUR 286m, growth of 19.2% y/y (LFL growth of 17.5% y/y). This also beat the revenue growth of department store and hypermarket chains (10.7%, FGTA). Revenue was driven by attractive pricing and growth was strong especially in leisure, gardening, home improvement products and food products, reflecting the situation where people are spending more time at home. At the same time, the demand in clothing was weaker. Tokmanni’s adj. gross margin was 34.5% (35.2% in Q2’19) vs. our 34.1%. The drop was due to cheaper prices and unusual structure of sales. Adj. EBIT totaled EUR 30.6m vs. EUR 30.9m/28.5m Evli/cons.
The success story expected to continue in H2E
Supported by the broad product assortment, attractive pricing and a wide store network, Tokmanni benefited from the situation where people are spending more time at home. On the other hand, the sales structure has been different compared to the normal conditions and the weaker share of Tokmanni’s private labels weighed down adj. gross margin. As the situation is now recovering and people are likely to return back to the offices we expect somewhat normalizing growth in H2E. We expect the sales structure to move closer to normal which supports margin development. The cost control has been successful and this is expected to continue. Tokmanni has also taken precautions to secure its most important season, Christmas (import from China has a key role) and some products are already being shipped to Finland, which is earlier than normally. The company reduced its investments during Q2 but these will continue relatively normally in H2E. Capex in 20E is expected to be EUR ~15m.
“BUY” with TP of EUR 18.4 (16.4)
Tokmanni expects strong growth in revenue and LFL revenue in 20E. Adj. EBIT margin is expected to increase from 2019. We have further increased our estimates and we expect 20E sales growth of 9.5% y/y (EUR 1034m) and adj. EBIT margin of 8.8% (EUR 90.6m). On our estimates, Tokmanni trades at 20E-21E EV/EBIT multiple of 14.7x and 14.0x, which translates into 22-25% discount compared to the int. discount peers. We keep our rating “BUY” with TP of EUR 18.4 (16.4).
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