Verkkokauppa.com - Expecting normalizing growth in H2

Strong growth in both, revenue and profitability
E-commerce took a big leap during H1 as consumers moved online quickly once the movement restrictions came into force. This boosted Verkkokauppa.com’s Q2 result. Sales were up by ~14% y/y (EUR 123m), outpacing the consumer electronics market growth of ~9% (GfK). Adj. EBIT totaled EUR 4.8m (Q2’19: EUR 0.2m) and was driven by improved gross margin (17.4% vs. our 16.4%). The improvement in gross margin was due to the sales mix, improvements in category management and declining wholesale sales. The preliminary Q2 figures were already given in connection with the positive profit warning issued last week thus there were no surprises with the result. The company expects 20E revenue of EUR 520-545m and adj. EBIT of EUR 13-18m.

Expecting normalizing demand in H2
It is clear that Verkkokauppa.com has benefited from the epidemic situation. The company has a low cost base which is supported by small physical footprint and that has been a major advantage during this time. Category management has been successful and as the demand of consumer electronics has increased, the competition hasn’t probably been as price-driven as normally. On the other hand, we expect that the strong growth in demand of consumer electronics during H1 will be shown as weaker sales growth and profitability development in H2E. Thus, we see this only as a momentary market change. In addition, consumers are likely to become more price aware, especially ahead of the campaign season in Q4 which will add pressure on margins.

“BUY” with TP of EUR 6.3 (6.2)
We have kept our estimates largely intact and expect 20E revenue of EUR 535m and adj. EBIT of EUR 17.1m. Thus, our estimates are at the higher end of the given guidance. On our estimates, Verkkokauppa.com trades at 20E-21E EV/sales multiple of 0.4x, ~17% below its online-focused Nordic & European peers. We keep our rating “BUY” with TP of EUR 6.3 (6.2).