Tokmanni - Expecting a good quarter

Market pick up providing tail wind

Tokmanni’s H1’19 was strong as the company was able to increase its revenue (9.4% y/y) and keep a good EBIT level, particularly in Q2. We expect the good momentum to continue throughout the year as we enter the seasonally stronger H2. According to PTY, revenue of department store and hypermarket chains increased by 5.3% and 7.4% in July-August (3% y/y in H1’19) which indicates good for Tokmanni in Q3’19. We expect Q3’19E revenue of EUR 231.3m (9.8% y/y, LFL growth 3.0%) vs. EUR 229.6m/cons and EBIT of EUR 19.4m vs. 18.7m/cons. In Q3, Tokmanni strengthened its existing private label assortment with a new label Pisara (beauty and cleansing products). The current share of Tokmanni’s own brands as of sales is ~30% and it plays an important part in Tokmanni’s earnings improvement.

Efficiency improvements ongoing

Tokmanni targets to increase its store network to cover more than 200 stores. The company currently has 189 stores and two new stores will be opened during Q4’19. Tokmanni’s long-term target is to achieve comparable EBIT margin of ~9% by improving gross margin and reducing the relative share of current opex. Some results of the efficiency improvement actions were already shown during H1’19 and we expect further gross margin improvements in H2’19E (35.5% H2’19E vs. 34.3% H2’18). We also expect the profitability improvements of the company’s supply chain to be on the right track, although most of the benefits will be fully seen in midterm.

“HOLD” (prev. “BUY”) with TP of EUR 10.2

We have kept our estimates intact ahead of Q3 earnings and expect 2019E sales of EUR 945.9m (8.7% y/y) and EBIT of EUR 67.6m resulting in EBIT margin of 7.1%. With the share price increase, our rating is now “HOLD” (prev. “BUY”) while our target price remains unchanged at EUR 10.2.