Verkkokauppa.com - Ambitious plans for growth

Verkkokauppa.com delivered a strong Q4 result which was in line with expectations. The company introduced its refined strategy for 2021-2025 and targets EUR 1bn of sales and EBIT margin of 5% by the end of 2025. We keep our rating “BUY” with TP of EUR 9.5 (8.3).

Solid Q4 result

Verkkokauppa.com’s Q4 result was strong, as expected. Revenue grew by 10% y/y to EUR 176m (171m/170m Evli/cons.). Revenue was boosted by good growth in mid-sized categories (especially MDA and sport equipment). Gross margin (15.1% y/y vs. our 14.6%) was driven by strong performance of mid-sized, higher margin categories. Adj. EBIT amounted EUR 6.2m (6.6m/6.3m Evli/cons.). 2020 dividend proposal of EUR 0.45 (0.23 plus additional dividend of 0.22) was clearly above expectations (0.23 Evli & cons.).

Targeting sales of EUR 1bn by the end of 2025

The company introduced its refined strategy for 2021-2025 and highlighted five pillars on what the growth will be built. These pillars are: excellent customer experience & strong brand, efficient fulfilment, superior technology backbone, extensive assortment and cost competitiveness. The company targets to reach sales of EUR 1bn and EBIT margin 5%. Growth is sought e.g. through core product categories and new categories with attractive margin potential, especially online. Further, the company aims to double its B2B and private label business by 2025. Also, new business and M&A opportunities are on the table. However, the growth will mainly be organic and stem from the transition from brick-and-mortar to e-commerce. The company is also investing to its warehouse in Jätkäsaari. The automation investment program (capex of EUR ~4m) is expected to be completed by the end of 2022. The investment supports further growth and creates cost efficiencies, boosting profitability development.

“BUY” with TP of EUR 9.5 (8.3)

The company expects 21E sales of EUR 570m-620m and adj. EBIT of EUR 20m-26m. Improved brand image, high customer satisfaction and investments into growth and more efficient operations reinforce our view of the company’s ability to grow profitably. We have increased our 21E-22E sales expectations by 4-7% and expect 21E sales of EUR 592m. Our adj. EBIT expectation is EUR 22m. On our estimates, the company trades with 21E-22E EV/EBIT multiple of 16.0x and 14.2x, which translates into a discount compared to the peers. We keep our rating “BUY” with TP of EUR 9.5 (8.3).

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