Tokmanni - Focus on improving profitability in ‘19E

Name: Evli
Price range: $

Tokmanni’s focus in 2019E is to increase profitability and profit margin. Tokmanni’s revenue and LFL growth grew well in Q1 driven by campaigns and clearance sales. We see valuation of being moderate. Hence, we retain TP of EUR 9.0, but downgrade our rating to “HOLD”

LFL growth was clearly above expectations

Tokmanni’s Q1 revenue grew by 8.3% and was EUR 188m vs. EUR 186m our expectation. LFL growth continued to be high with 4.1 % growth vs. 1 % our view. Sales was driven by clearance sales, Nettopäivät campaign and the change in assortment of newly-aqcuired Ale-Makasiini stores. Sales development was particularly good in clothing and tool products categories. At the same time, discounted prices weighed down gross margin (31,2% vs. 33,3% our view). Tokmanni’s target is to increase its gross margin and profitability and reduce the relative share of fixed costs in 2019E.

Focus on new store openings and increase in profitability

Tokmanni’s target to expand its store network has been efficient. In Q1’19 Tokmanni’s store network was 188 stores (175 stores in Q1’18). Tokmanni reiterates its guidance and targets to increase its retail space by some 12,000 square meters annually which means approximately five new store openings per year. Tokmanni has agreed on opening of seven new stores and two relocated stores during 2019, hence, Tokmanni will exceed its targets in 2019E.

Retaining TP of EUR 9 with “HOLD”

Tokmanni’s figures were impacted by the changes of IFRS 16. We have updated our figures to reflect the changes. Based on Q1 results, we have slightly adjusted upwards our estimates. We now see revenue of EUR 936m and EBIT of EUR 63m for 2019E compared to previous estimates of EUR 921m and EUR 58m. In 2019E Tokmanni trades at 13x EV/EBIT which is some 18% discount to Nordic grocery focused peers. We retain our TP of EUR 9, but downgrade our rating to “HOLD”.

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