Verkkokauppa.com - Soft market weakens Q4 figures

Soft market environment seems to continue
After strong H1’21 the consumer electronics market turned soft and the market participants have indicated that the trend has continued also in Q4. Part of the consumer expenditure has moved from consumer goods to services as COVID restrictions were removed during H2’21 and Finland’s decreased consumer trust might indicate the lower attraction for consumption in general. In our understanding, market performance was below expectations during important campaigns and the new Omicron variant has increased the uncertainty during higher-margin Christmas sales.

Estimate revision ahead of Q4
Based on the weakened market conditions, we have tweaked our near-term estimates, expecting Q4 net sales of EUR 184.3m (prev. 194.5m) vs. 188m cons. and an EBIT of EUR 5.5m (prev. 6.5m) vs. 5.9m cons. Our Q4 growth estimate of 4.7% is driven by strong performance in B2B and evolving categories. The increased share of evolving categories partially offsets the decline in the margin caused by price-driven competition. In 2021, we expect net sales of 589.8m vs. 594m cons. and an EBIT of EUR 20.5m vs. 21m cons. For 2022-23E, we are expecting a net sales growth of 7.2% and 8.1% respectively as well as an EBIT margin of 3.7% and 4.2% respectively. We expect the soft market to continue, lowering the growth pace during H1’22. We estimate a dividend proposal of EUR 0.25 vs. 0.25 cons.

HOLD with a target price of EUR 6.5
With our revised estimates, the company is trading with a P/E multiple of 17.5x (22E), which is above its peer group median. Given the weakened market environment, we have taken more cautious stand. We don’t see room for upside in the valuation, and the expected return is not met with a 3.7% dividend yield. We downgrade our rating to HOLD (BUY) and adjust TP to EUR 6.5 (10).