Tokmanni - Expecting a quick recovery after the crisis

Tokmanni’s Q1 revenue increased by 5.8% y/y to EUR 199m (EUR 197m our view), while adj. EBIT was EUR 0.3m (EUR -2.2m our view). We expect sales and margins to decline in Q2 due to the movement restrictions but the situation should normalize relatively fast during the summer. We keep our rating “BUY” with TP or EUR 13.5 (12.5).

Good sales and profitability development in Q1
Tokmanni’s Q1 result was slightly above estimates as revenue increased by 5.8% y/y to EUR 199m vs. EUR 197m/194m Evli/cons. LFL growth was 4.4%. Revenue was supported by good growth in online sales while the mild winter in Southern Finland had a negative impact on sales. The movement restrictions that came into force in mid-March had also a negative impact. For the first time in the company’s history, adj. EBIT was positive in Q1 as it amounted to EUR 0.3m vs. EUR -2.2m/-1.4m Evli/cons. The positive development in EBIT was mainly due to improved adj. gross margin which was 32.1% (Q1’19: 31.2%). Due to the situation around the coronavirus, the company did not provide a guidance for 20E.

Attracting new customer groups as the economic outlook weakens
The customer numbers in stores saw a significant drop when the movement restrictions came into force in mid-March. The stores have been open during this exceptional time. We expect the customer numbers to remain in a lower level during Q2 compared to the normal levels but expect the numbers to increase relatively fast after the restrictions are removed. We expect good growth in grocery sales and as people are staying at home, the demand in categories such as leisure and gardening is likely to remain strong. As an only nationwide general discount retailer with a broad product assortment, we expect Tokmanni to attract new customer groups as it is likely that consumers become more price conscious when the economic outlook weakens and the purchasing power declines. We expect a decline in sales and margins in Q2 compared to the previous year but the situation should normalize relatively quickly after that. Due to the temporary changes in the sales mix, we expect only a slight improvement in gross margin in 20E.

“BUY” with TP of EUR 13.5 (12.5)
After the Q1 result we have increased our 20E revenue expectation by ~1% and adj. EBIT expectation by 17%. We now expect 20E revenue of EUR 931m (-1.4% y/y) and adj. EBIT of EUR 64.5m (-8% y/y). On our estimates, Tokmanni trades at 20E-21E EV/EBIT multiple of 16.0x and 11.9x, which translates into ~15-30% discount compared to the international peers. With the estimates upgrade, we increase our TP to EUR 13.5 (12.5) and retain our rating “BUY”.

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