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- Tokmanni - Upgraded to “BUY”
Tokmanni - Upgraded to “BUY”
Solid Q3 performance
Tokmanni’s upswing continued in Q3 as the company beat the already high Q3 expectations. Sales grew by 9.9% (of which LFL growth of 4.9% vs. our 3.0%) to EUR 231.5m vs. EUR 231.3/228.4m Evli/consensus. Sales were supported by increased number of customer visits and higher average purchases but also by tax refunds. Tokmanni’s adj. gross profit was EUR 82.0m (35.4%) vs. EUR 82.1m (35.5%) our view. Gross margin improvement was driven by the structure of sales, private labels and increased direct import. Improved profit margin and lower relative share of costs reflected to the company’s operating result as Tokmanni’s adj. EBIT increased to EUR 21.9m vs. EUR 19.4m/18.7m Evli/consensus.
Positive earnings outlook – estimates upgraded
Tokmanni updated its 2019E outlook for revenue and expects strong revenue growth for 2019 based on the revenue from the new stores acquired and opened in 2018 and new stores to be opened in 2019, as well as on good growth in LFL revenue (prev. Tokmanni expects good revenue growth for 2019, based on the revenue from the new stores acquired and opened in 2018 and new stores to be opened in 2019, as well as on slight growth in LFL revenue.). The company reiterated its guidance for profitability and expects comparable EBIT margin to improve from the previous year. We expect 2019E revenue to grow by 8.8% to EUR 947m and EBIT to improve to EUR 71m (prev. estimate of EUR 68m) resulting in EBIT margin of 7.5% (2018: 6.0%). In our view, Tokmanni has succeeded in appealing more customers by wide selection of products and low prices and the actions taken towards improved profitability are working, creating positive outlook for the earnings development also in the future. The company’s long-term comparable EBIT margin target is about 9% which we believe to be achievable. We have increased our 2020E-2021E revenue expectation by 0.5%-1% and adj. EBIT expectation by 3-4%. We expect 2020E-2021E LFL growth of 1.5% and EBIT margins of 8.2% and 8.6 %.
Seasonally strong final quarter ahead
Tokmanni will open two new stores during Q4’19 in Vääksy and Virrat, which will increase the store network to 191 stores (Tokmanni targets to increase its store network to above 200 stores). The new store openings as well as Christmas sales should support the sales growth in the last quarter of the year, which is normally the strongest quarter of the year for Tokmanni. The company indicated that many of the “easy” ways of improving profitability have already been used but the company continues to take actions towards improved operational efficiency for example by continuing profitability improvements of its supply chain. Margin expansion is also supported by increasing the share of direct import and private labels (the current private label’s share of sales is 31.8%).
Upgraded to “BUY” with TP of EUR 13.5 (10.2)
Tokmanni’s EBIT margin levels in 19E-20E are at the same level with the company’s international discount peers. We see that Tokmanni is able to achieve and maintain higher margins than the Nordic peers, which justifies higher multiples similar to our international discount peer group median. On our estimates, Tokmanni trades at 19E-20E EV/EBIT multiple of 15.0x and 13.1x which translates into 16-25% discount compared to the international discount peers and to ~10% premium compared to the Nordic peers. Our target price translates into EV/EBIT of 16.4x and 14.3x on our 19E and 20E estimates, which still are below the EV/EBIT multiples of Tokmanni’s international discount peers. The company also offers attractive dividend yield (~6%) in 19E-20E. Based on our estimates increase, we upgrade to “BUY” with TP of EUR 13.5 (prev. EUR 10.2).