Verkkokauppa.com - Eyes on competitive outlook

Name: Evli
Price range: $

Verkkokauppa.com will report its Q3 earnings on next week’s Friday. As before, our interest is on how the competition has developed over the last months and what impact this has had on margins. We have kept our estimates intact and retain our rating “HOLD” with TP of EUR 3.3 ahead of Q3.

Profitability pressures expected to continue

Verkkokauppa.com was able to beat the market growth in H1’19 but the growth did not come for free as the company’s profitability development has been lagging behind. We expect the continuing growth investments (e.g. increased marketing expenses) to further hamper Verkkokauppa.com’s profitability in 2019E. Verkkokauppa.com has guided EBIT of EUR 11-17m in 2019E while our expectation is at the lower end of the guidance, at EUR 12.2m (EBIT margin of 2.3%). We expect the competition to remain fierce adding to pressure on profitability. Depending on Q3 earnings, guidance revision for 2019E EBIT might be needed.

H2 has considerable impact on total year-end sales

We expect the competition in the consumer electronics market has continued tight and price driven also in Q3’19. However, Verkkokauppa.com’s historical ability to grow faster than the market and the ongoing growth investments create positive outlook for the future sales development. H2 is normally stronger for Verkkokauppa.com as the holiday season and campaigns are likely to boost sales. Therefore, we expect H2 to have a considerable impact on Verkkokauppa.com’s total sales in 2019E. We expect H2’19E sales of EUR 295.6m (8.4% y/y). Verkkokauppa.com’s guidance for FY2019E total sales is EUR 500-550m while our FY2019E sales expectation is at EUR 519.3m (8.7% y/y).

“HOLD” with TP of EUR 3.3

We have kept our estimates intact ahead of Q3 earnings. We expect Q3’19E sales of EUR 126.7m and EBIT of EUR 3.7m resulting in EBIT margin of 2.9%. We keep our rating “HOLD” with TP of EUR 3.3 ahead of Q3.

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