Verkkokauppa.com - Focus on sustainable growth
Strong sales growth without forgetting profitability
Verkkokauppa.com delivered a strong Q1 result. Revenue increased by 8.2% y/y to EUR 125m (121m/118m Evli/cons). Good sales growth was driven by strong online sales and effective marketing. Development was good in all the major product categories but strong performance was also seen in evolving categories such as sports and home. Gross profit improved by 12% y/y to EUR 19.4m (15.5%) vs. our EUR 18.3m (15.1%), resulting from good control over sales mix. This impacted positively on adj. EBIT which was up by 63% y/y, totaling EUR 3.8m (2.7m/2.5m Evli/cons).
A strong online presence offering competitive advantages
Verkkokauppa.com’s small physical footprint and strong online presence offer the company competitive advantages amid the coronavirus and the movement restrictions. The company’s agile business model and a strong cash position support the company during these challenging times and it enables the company to develop its business as planned. We don’t expect the coronavirus to have significant negative impacts on Verkkokauppa.com’s operative business, although some availability issues might occur in some product categories later in H2. The increasing uncertainties are more related to the economic outlook and declining purchasing power. The company has introduced new delivery methods and sub-categories to enhance customer experience. Going forward, we expect the sales mix and broad product assortment to be the key drivers behind sustainable growth as the competition in the consumer electronics market is likely to remain tight, meaning that seeking growth in this category might become too expensive.
“BUY” (“HOLD”) with TP of EUR 4.5 (3.5)
We have slightly increased our estimates after the Q1 result. We expect 20E revenue of EUR 523m and EBIT of EUR 13.6m. Thus, our estimates are slightly above the midpoint of the given guidance (revenue of EUR 510-530m and adj. EBIT of EUR 12-15m). The outlook in the market remains blurry due to the weak visibility of the coronavirus and its full impacts but it is likely that the current situation speeds up the more permanent shift into online which benefits players like Verkkokauppa.com. On our estimates, the company trades at 20E-21E EV/sales multiple of 0.3x which translates into ~40 discount compared to the peers. We upgrade to BUY (HOLD) with TP of EUR 4.5 (3.5).