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Tokmanni - Good momentum expected to continue

Tokmanni delivered good Q2 earnings. The company focuses on improving profitability in 2019E but will also strengthen its store network in H2 and launch two own brands. Tokmanni reiterated its guidance and expects revenue and EBIT margin to improve from last year. We upgrade to “BUY” with TP of EUR 10.2 (prev. EUR 9.0).

Strong Q2 earnings

Tokmanni delivered strong Q2 earnings. The company’s revenue increased by 10.2 % and was EUR 240m vs. EUR 236m/234m Evli/consensus. The sales were boosted by new store openings and the timing of Easter. The company was also able to reduce the dependence of weather during the spring season. The company’s gross margin was EUR 84.5m (35.2 %) which was close to our expectation of EUR 83.9m (35.6 %). Gross margin improvement was mainly driven by the structure of sales and reduced waste in groceries. Tokmanni’s Q2 EBIT was 18.7m (7.8 %) vs. EUR 15.8m (6.7 %) Evli and 15.0m (6.4 %) consensus. Operational efficiency improvements impacted positively on the company’s profitability in Q2.

Focus on profitability improvements

Tokmanni’s target in 19E is to improve its profitability through improved gross margin and more efficient operations. The company stated that it will keep its customer promise of low prices thus gross margin improvements are made by increasing the share of own brands and direct import as well as by reducing waste in groceries. The profitability improvements of the company’s supply chain are on the right track, although most of the benefits will be seen later in the future.

Upgraded to “BUY” with TP of EUR 10.2 (prev. EUR 9)

Based on the Q2 result, we have raised our 19E-20E estimates and expect 19E revenue of EUR 946m (prev. EUR 936m) and EBIT of EUR 68m (prev. EUR 62m) resulting in EBIT margin of 7.1 %. We expect 20E revenue of EUR 984m and EBIT of EUR 78m (7.9 %). On our estimates, Tokmanni trades at 19E-20E EV/EBIT multiple of 13.4x and 11.4x which translates into ~28 % discount compared to the international discount peers but is valued at par to its Nordic peers. The company also offers attractive dividend yield (~7 %) in 19E-20E. We upgrade to “BUY” with TP of EUR 10.2 (prev. 9.0).

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