Tokmanni - Towards EUR 1bn of sales

Tokmanni’s Q4 result was in line with expectations and the company executed well its strategy to improve profitability. We expect further improvement in profitability, driven by gross margin increase. We expect Tokmanni to reach EUR 1bn (6.2% y/y) of sales in 20E and adj. EBIT increase of ~17% y/y (EUR 82m). We keep our rating “BUY” with TP of EUR 16 intact.

Good performance continued

Tokmanni’s Q4 result was broadly in line with expectations with revenue of EUR 284.8 (+6.1% y/y) vs. our EUR 287.7m (cons. 287.0m). Revenue was driven by successful campaigns whereas the timing of tax refunds, late winter in certain areas and the postal strike weighed down sales. Gross margin increased to 35.2% (Q4’18:34.4%) vs. our 35.5%, reflecting the increase in direct import (28.6% vs 26.4% of total sales in Q4’18). Costs were well controlled and the decreased relative share of operating expenses (18.9% vs. 19.8% in Q4’18) impacted positively on adj. EBIT, which improved by ~26.5% y/y to EUR 32.0m vs. our EUR 32.7m (cons. 31.8m). Proposed ’19 dividend is EUR 0.62 (EUR 0.62/0.60 Evli/cons).

Expecting profitability to further improve and sales of EUR 1bn

Tokmanni successfully executed its strategy to improve profitability in ’19 as adj. EBIT margin rose from 6.0% (2018) to 7.5%. In our view, there is still potential for further profitability improvement, especially through gross margin improvement. The company targets to increase its adj. EBIT margin gradually to ~9% and indicated that gross margin improvement potential is some 0.5-1.5% while the operating expenses improvement potential is ~0.5-1.0%. We expect gross margin (34.4% in ’19) to improve to 34.8% in ‘20E and to 35.1% in ‘21E, boosted by increased share of direct import (and own products). We expect the relative share of operating expenses to decrease by 30-40bps in ‘20E-21E, driven by more efficient supply chain. Tokmanni targets to reach revenue of EUR 1bn (timeline not specified) which we expect to be reached during 20E, as increased customer flows and new store openings are boosting revenue growth. We expect LFL sales growth of 2.0% and 1.7% in 20E-21E.

“BUY” with TP of EUR 16 intact

Tokmanni expects good revenue growth in ‘20E and slight growth in LFL sales. The adj. EBIT margin is expected to increase from the previous year. We have slightly increased our estimates and expect 20E sales of EUR 1bn (6.2% y/y) and adj. EBIT of EUR 82.1 (~17% y/y), resulting in adj. EBIT margin of 8.2%. On our estimates, Tokmanni trades at 20E-21E EV/EBIT multiple of 14.6x and 13.7x which is on par with its Nordic non-grocery peers and 25-27% discount compared to the international peer group. We keep our rating “BUY” with TP of EUR 16.

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