The most visited Finnish online retailer
Verkkokauppa.com’s Q3 result came in soft as expected. The current market includes a significant portion of uncertainty, and we find it better off to wait for the first signs of market recovery. We downgrade our rating to SELL (HOLD) and adjust TP to EUR 2.2 (3.5).
Topline came in above expectations, but EBIT was modest
Due to the challenging market, Verkkokauppa.com’s Q3 result came in modest. Net sales declined by 2.3% y/y to EUR 137.8m. The decline was mostly driven by the consumer segment and core categories. Sales grew in the Export and B2B segments. B2B growth pace slowed down to 5% with reduced activity of SMB clients and Export growth was mostly supported by new customers gained. Evolving categories performed well in a challenging market and managed to grow by 3.1% y/y. Unfavorable sales mix and increased price competition showed in a weaker gross margin of 14.6%. The profitability was further harmed by increased cost pressures through investments in personnel and elevated logistics costs. Q3 adj. EBIT amounted to EUR 2.1m (1.5% margin).
2023 going to be challenging as well
The company guides for 2022: net sales of EUR 530-560m and adj. EBIT of EUR 5-9m. Lots of tasks must be done to reach the guidance since the weak market doesn’t provide much support. At this moment, large inventory burns cash, and the company has pressures to release capital from expanded inventories. A side effect of inventory clearance, namely margin investments possibly hurt profitability. We expect the inventory clearance to continue also in 2023. With low sales volumes and existing cost pressures, we expect the profitability to lag also in H1’23.
Negative view with elevated valuation
We decreased our estimates after the Q3 result. We see the upcoming year as challenging and our previous 2023 estimates seemed quite optimistic. With decreased topline estimates our 23 EBIT estimate saw a ~50% drop. We see it challenging for the company to stay profitable in H1’23, but EBIT to notably improve in H2’23. However, we find the current market as too uncertain. With our revised estimates, uncertain market environment and high valuation, we downgrade our rating to SELL (HOLD) and adjust TP to EUR 2.2 (3.5).
Preliminary figures given, Verkkokauppa.com’s Q3 report included no large surprises. Net sales continued in decline and profitability was hit by lower volumes, weaker sales mix, price competition and elevated cost levels. Guidance intact (revised ahead of Q3 result).
Verkkokauppa.com publishes its Q3 result on Thursday, 28th Oct. In addition to the consumer segment and contrary to its performance in H1, we expect the B2B segment to see some softness in H2. Due to no signs of market recovery yet, we adjusted our short-term estimates downwards ahead of Q3 result.
With lower volumes, increased fixed costs, and higher price competition, Verkkokauppa.com’s profitability faced a notable headwind in Q2. The development of consumer demand contains a large amount of uncertainty and the H2 result is likely below what we earlier expected.
Market continued challenging
Verkkokauppa.com’s topline faced an expected decline y/y, and with lower volumes, increased costs, and softer gross margin EBIT fell negative. Group revenue decreased by 3.7% y/y to EUR 125.7m driven by soft development of the consumer segment with the record low consumer trust and reduced consumer purchasing power. B2B segment and evolving product categories brought light with their y/y sales growth of 12.6% and 4.8% respectively. Q2 inventory was significantly above the level that of the comparison period and hence logistics costs faced a notable increase y/y which with a help of a softer gross margin resulted in an EBIT of EUR -0.9m (adj. EUR -0.2m), implying an EBIT margin of -0.7% (adj. -0.2%). Q2 EPS amounted to EUR -0.02.
Guidance was revised downwards
The company lowered its guidance for FY’22, now expecting revenue between EUR 530-570m (prev. 530-590m) and an EBIT of EUR 8-14m (prev. 12-19m). The downgrade of the upper bound of the sales guidance was a result of weaker outlook for the consumer segment while EBIT guidance was decreased due to lower expected sales volumes and increased price pressures. In addition to rising price competition, a high level of inventory forces the company to either lower product margins to increase the inventory turnover or store products over a season both potentially resulting in weaker profitability.
HOLD with a target price of EUR 3.7 (4.3)
In the light of guidance revision and Q2 result, we adjusted our estimates downwards. We now expect 2022 revenue to amount to EUR 556.0m and adjusted EBIT to land at EUR 7.9m (1.4% margin). 2022 result will be record soft; hence, we value the company with 23E multiples. With the company trading above its peers, we retain our HOLD-rating and adjust the TP to EUR 3.7 (4.3).
Verkkokauppa.com’s Q2 EBIT fell short of our expectations. Simultaneously, the company lowered its FY’22 guidance, which was driven by weak consumer trust, impaired consumer purchasing power, and increased operative costs.
The consumer demand for durable goods in the Nordic markets has continued softly in Q2 and hence we have made no changes to our estimates. We expect Q2 revenue to decline and profitability to weaken. We retain our HOLD-rating and TP of EUR 4.3 ahead of Q2’22.
The market environment continued challenging and Verkkokauppa.com’s Q1 sales declined mainly driven by the consumer and export segments. With the company’s valuation stretched, we retain our HOLD rating and adjust TP to EUR 4.3 (4.7).
Verkkokauppa.com’s Q1 topline topped, but EBIT fell short of our expectations as well as consensus estimates. Volumes suffered from a weak demand stemming from lower consumer trust.
Verkkokauppa.com publishes its Q1 result on April 28th. Transitory softness in the consumer segment will restrict the company’s growth during H1 and Q3’22. We retain our HOLD-rating and TP of EUR 4.7.
Early guidance revision
In mid of March, the company downgraded its FY’22 guidance. Now the company guides a revenue of EUR 530-590m and an EBIT of EUR 12-19m, which implies a decline in the earnings. Demand for consumer goods has been soft since Q4’21 and Russia’s attack on Ukraine further lowered the consumer trust in Finland. Increased consumption of services has also diminished the demand for durable goods. In addition, the stop of Russian exports will cut approx. EUR 20m of Verkkokauppa.com’s annual sales.
Soft market cuts growth opportunities
The company’s management noted that the market environment hasn’t changed since the guidance revision. We expect the company to suffer from weak demand in H1 and Q3, but in our estimates, Verkkokauppa.com sees a clear upward drift in Q4 driven by a weak comparison period and improved demand in the consumer segment. In Q1, we expect revenue to decrease by 10.4% y/y to EUR 120.1m due to the weak performance of consumer and exports segments. Driven by increased price competition, we expect softer gross margin to be the main driver of weak profitability, an EBIT of EUR 2.1m (1.8% margin), alongside decreased net sales.
HOLD with a target price of EUR 4.7
Verkkokauppa.com’s peer groups’ valuation levels have continued the trend of decline and we see the valuations as quite modest given their solid EPS growth expectations; online-focused peers are now trading with 22-23E P/E and EV/EBIT multiples of 14-12x and 14x-11x respectively while omnichannel peers trade with corresponding multiples of 11-10x and 12-10x respectively. Meanwhile, Verkkokauppa.com trades with 22-23E P/E and EV/EBIT multiples of 19-14x and 12-9x. With the current valuation elevated, we retain our HOLD-rating and TP of EUR 4.7 ahead of the Q1.
Verkkokauppa.com downgraded its 2022 guidance. Now, the company expects revenue of EUR 530-590m and adj. EBIT of EUR 12-19m. We retain our HOLD-rating and adjust our TP to EUR 4.7 (6.0).
Weak market and war behind the guidance revision
Verkkokauppa.com downgraded its FY’22 guidance from expecting revenue of EUR 590-640m and adj. EBIT of EUR 19-25m to revenue of EUR 530-590m and adj. EBIT of EUR 12-19m. The start of the year 2022 has been tough and consumer demand has been lacking in durable goods. Russia’s military attack on Ukraine has further decelerated consumer activity. Furthermore, Verkkokauppa.com decided to stop export deliveries to Russia which in 2021 represented roughly EUR 20m, half of the Exports segment’s sales. According to the company’s management, B2B segment has continued its good performance, and in our understanding, the geopolitical situation hasn’t affected the business. Softness in the Finnish consumer electronics market has also infected the demand for evolving product categories, but we expect the evolving categories to recover faster than the main categories. The component shortage has continued and is expected to impact on product availability throughout the year. The company’s management has indicated that possible material cost increases could be shifted to consumer prices. If the uncertainty diminishes during H1 or early H2’22 and consumer demand picks a bit up, the guidance is, in our view, quite cautious.
Normalization of the demand in H2’22 seems uncertain
Before the profit warning, we expected H1’22 to be tough and the demand to recover during H2’22, but now the recovery seems uncertain and H1’22 is clearly weaker than we and markets were expecting. A wide guidance range also indicates the uncertainty among Verkkokauppa.com’s management. In addition to uncertainty, low attractivity of consumer goods is also explained by consumer demand’s shift to services. Moreover, during the pandemic, consumers invested in expensive electronics devices that drove strong sales development in that time.
We made significant downgrades to our estimates
As a result of the profit warning, we have downgraded our estimates. With the exit of Russian exports, the company expects the Export segment not to recover during 2022. Given the fact that B2B has performed well during 2022, the hardest hit was taken by the consumer segment. Thus, we expect a double-digit decline both in consumer and exports segments while B2B is expected to grow strongly during H1’22. We expect consumer demand to start to recover during Q3 and the topline to get back on a clear growth bath in Q4’22. In Q1’22 we expect net sales to decline by 10.4% to EUR 120.1m, driven by weak consumer demand and the end of Russian exports. In our estimates, Q1 operating profit is weak, totaling EUR 2.1m (1.8% margin). Weaker profitability is driven by decreased revenue and a relatively weak gross margin. 2021 full-year estimates lands to bit over the midpoint of the guidance, revenue to EUR 565.1m and EBIT to EUR 15.8m (2.8% margin). During 2023-24E, we expect Verkkokauppa.com’s topline to grow by 7.6% and 8% respectively as well as the company to reach an EBIT margin of 3.4% and 3.8% respectively.
HOLD with a target price of EUR 4.7 (6.0)
Our 22E EBIT estimate was downgraded by some 28% and 22E EPS by some 24%, and we find significant pressure to downgrade our target price after the company’s profit warning. Currently, Verkkokauppa.com trades with 22-23E P/E multiples of 20-15x while with our current target price of EUR 6.0 the corresponding multiple is 23-17x. At the same time, the company’s omnichannel peers are valued with 22-23E P/E multiples of 11-10x, indicating that the company is valued with ~70% premium over its peers. We find it difficult to accept a premium of 70%, given weak market conditions and uncertain near future. However, with a dividend yield of ~5%, it’s reasonable to stay on the company’s ride. In addition, the annual EPS growth of 24% (CAGR 2022-25) is supporting the long-run return potential. Our new target price implies 22-23E P/E multiples of 18-14x which are still quite stretched compared to peer group median. We retain our HOLD-rating and adjust our target price to EUR 4.7 (6.0).
Online pioneer Verkkokauppa.com has shown strong growth figures over the years and with its new strategy, the company targets strong, profitable growth by expanding to new categories and utilizing its strong online platform.
The slowdown of consumer electronics market pushed Verkkokauppa.com’s Q4 net sales down by 4% y/y. We expect the softness in the market to continue also during H1’22. We retain our HOLD rating and TP of EUR 6.5.
Tough quarter behind
The company’s net sales decreased by 4% y/y to EUR 168.9m driven by weak demand for its core categories. The growth was good in the B2B segment as well as in Computers, Games, Sports, and Toys products categories. The online transition continued and e-commerce represented 63% of total net sales. Despite tough market conditions, gross margin improved to 15.5% (15.1%), mainly driven by category mix and wise pricing decisions. Adj. EBIT declined by 14% y/y to EUR 5.3m (3.2% margin) due to lower sales. EPS amounted to EUR 0.09 and BoD proposed a dividend of EUR 0.246.
Guidance implies growth to continue
The company guides net sales growth and possible profitability improvement during 2022. Revenue is estimated to reach EUR 590-640m and EBIT EUR 19-15m. Driven by weakened visibility to the consumer electronics market, we have made some adjustments to our estimates. In 2022, we expect net sales of EUR 610.0m and EBIT of EUR 22.3m (3.7% margin). The growth is driven by online transition and good development of the evolving categories. In Q1’22, we expect the core categories to still suffer from weak demand and net sales amount to EUR 133.6m and EBIT totaling EUR 3.9m (2.9% margin). Jätkäsaari’s automated warehouse is estimated to be in production until the end of Q1’22 and we are expecting cost savings to kick in during H2’22 as the utilization rate of Vantaa rental warehouse will decrease.
HOLD with a target price of EUR 6.5
With our revised estimates, the company valuation is still slightly elevated. The company’s peers trade with 22E P/E 14-17x, while Verkkokauppa.com is trading at the upper bound of the range. We retain our HOLD rating and TP of EUR 6.5.
Verkkokauppa.com’s Q4 topline fell short of our expectations. Net sales declined by 4% y/y to EUR 168.9m, while adj. EBIT amounted to EUR 5.3m (3.2% margin). The company acquired e-ville.com online store to strengthen its private label offering.
• Q4 revenue declined by 4% y/y, totaling EUR 168.9m vs. 183.4m/183.7m Evli/cons. Growth was good in B2B, Computers, Games, Sports and Toys, while core categories suffered from weak demand. Gross margin improved to 15.5% (prev. 15.1%).
• Online sales represented 63% (prev. 62%) of total sales.
• Consumer segment represented 72% of total sales. B2B sales increased by 11% y/y, representing 20% of total sales. Exports segment is still lacking and represented 7% of total sales.
• Adj. EBIT amounted to EUR 5.3m (3.2% margin) vs. 5.5m/5.5m Evli/cons.
• EPS was EUR 0.09 vs. 0.09/0.12 Evli/cons.
• Board of Directors proposes dividend of EUR 0.246 vs. 0.25/0.25 Evli/cons.
• 2022 guidance: Net sales of EUR 590-640m and EBIT of EUR 19-25m.
• Last night, the company announced its acquisition of Finnish e-retailer e-ville.com. The acquisition supports Verkkokauppa.com's strategy to strengthen and expand its assortment in its own brands. E-ville.com generated net sales of EUR 10m and EBIT of EUR 0.5m (5% margin) during 4/2020-3/2021. The preliminary purchase price amounts to EUR 5.3m and is financed with cash (EUR 3.3m) and a special offering (EUR 2.0m). The parties have also agreed to additional purchase price installments of up to EUR 6.7m if certain sales-related terms are met. The preliminary purchase price is valued at approx. same multiples as Verkkokauppa.com is trading (EV/S: 0.5x vs. 0.5x and EV/EBIT: 11x vs. 14x). We will open the acquisition more in our company update (published tomorrow).
Verkkokauppa.com reports its Q4 result next Thursday. We have made some revisions to our near-term estimates as a result of soft market condition in consumer electronics goods. We downgrade our rating to HOLD (BUY) and adjust TP to EUR 6.5 (10).
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).
With strong growth figures, Verkkokauppa.com achieved its 33rd consecutive quarter of growth, but the competitive environment pressed margins below our estimates. We retain our BUY-rating and adjust target price to EUR 10 (10.8).
Sales mix and increased costs pressed the margins
Verkkokauppa.com delivered strong growth figures, but decreased gross margin, additional warehousing, and marketing costs pressed the profitability below our estimates. Top line grew by 9.1% y/y to EUR 141m (Evli: 139.7m). Online sales grew at an 18.7% y/y pace, while B2B sales were up 22% y/y. Export business returned to the growth path with a sales increase of 4.5% y/y. Gross profit remained even y/y and amounted to EUR 20.9m (Evli: 23m). Gross margin weakened to 14.8% (Evli: 16.5%) and was affected by stronger sales in lower-margin categories. Increased price competition pressed the margins further down. EBIT fell short of our expectations (EUR 6.8m) and decreased by 17% to EUR 4.7m (margin of 3.3%).
We made minor adjustments
While core categories performed well, growth was also seen in evolving categories. Despite the softened markets, the company also gained some market share in traditional consumer electronic markets. The Q4 has usually been price-driven, meaning that coming campaigns might have an impact on the company’s margins. Considering the increased cost pressures, marketing investments, and changes in warehousing, we made only minor adjustments to our FY’21-22 estimates.
BUY with a target price of EUR 10 (10.8)
Verkkokauppa.com reiterated its FY’21 guidance and expects revenue of EUR 570-620m and adj. EBIT of EUR 20-26m. We expect revenue of EUR 600.1m and an adj. EBIT of EUR 21.4m (3.6% margin). Our view on the company’s growth path remains bright, but increased competition made us tweak the profitability down for 21-22E. On our adjusted target price, the company’s valuation is approximately in line with its peer group. We retain our BUY-rating and adjust TP to EUR 10 (10.8).
Verkkokauppa.com’s Q3 earnings fell short from our estimates, while revenue growth topped the estimates. Top line grew by 9.1% to EUR 141m, gross profit remained steady y/y at EUR 20.9m and adj. EBIT amounted to EUR 4.7m.
• Net sales topped our estimates (EUR 139.7m) and grew by 9.1% y/y to EUR 141m, driven by all business segments.
• The strategic growth area, B2B, grew strongly by 22% in quarter. Growth came from the customer segments of large as well as small and medium sized enterprises. The export business returned to the growth path once travel restrictions were relieved, and export sales increased 4.5% during the period, representing 6% of total sales. The company succeeded well in converting many online visitors to regular buying customers during the comparison period, with an improvement of conversion rate.
• Gross margin was 14.8% and fell below our estimates (16.5%). Gross profit ultimately amounted to EUR 20.9m and was on the same level as in comparison period. Gross margin was affected by tightened competition in lower-margin categories like phones, computers, and home appliances. Also, the share of low-margin products was increased in Q3.
• Adj. EBIT was below our estimates (EUR 6.8m) and was mostly affected by tightened gross margin. The EBIT saw a decline of 17% and amounted to EUR 4.7m (margin of 3.3%).
• Adj. EPS amounted to EUR 0.08 (Evli: EUR 0.12) and saw a decline of 15%.
• The company guides EUR 570-620m revenue and EUR 20-26m adj. EBIT for FY ’21 (unchanged)
Verkkokauppa.com reports its Q3 results on Fri, the 22nd of Oct. Preliminary figures show a solid third quarter and our attention will concentrate on the comments regarding end of the year as crucial campaign season arrives and temporary supply chain problems still exist.
Q2 figures topped estimates
Verkkokauppa.com’s strong Q2 result topped estimates. Top line grew by 6% y/y to EUR 131m, driven by strong B2B sales and online transition. Growth in consumer sales was moderate and export sales decreased due to COVID-19 restrictions. The pandemic restrictions still strengthened online sales share, not to mention the positive effects of consumer purchase behavior. Profitability was boosted by increased gross margin through strong sales in higher margin evolving categories like Sports, Home & Lighting, and BBQ & Cooking. EBIT eventually amounted to EUR 5.1m (EBIT margin of 3.9%).
Waiting for further evidence on strategy execution
The company guides EUR 570-620m revenue and EUR 20-26m adj. EBIT for FY ‘21. We expect Q3 net sales to grow by 8% y/y to EUR 139.7m (EUR 138.6m cons.) and an adj. EBIT margin of 4.8% (4.5% cons.). Our FY ‘21 net sales estimate is approx. at the midpoint of the company’s guidance, at EUR 599m (EUR 592m cons.), and adj. EBIT estimate at the upper bound of the guidance, at EUR 24.8m (EUR 23.5m cons.). Verkkokauppa.com’s CMD elaborated on its strategy execution. The execution plans sound reasonable on paper, but further evidence is needed before we raise our estimates nearer the company’s long-term targets.
Current valuation leaves long-term upside potential
Verkkokauppa.com’s absolute valuation has slightly increased since our last update, but the company is still valued at a discount compared to its Nordic and European online-focused peers. On our FY ‘22 estimates the company trades at an EV/EBIT of 12.6x (12% discount to online-focused Nordic and European peers). We retain our TP of EUR 10.80 and BUY-rating.
In its first-ever Capital Markets Day, Verkkokauppa.com presented details on its new (revealed in Feb 2021) strategy’s implementation. The company’s target is to achieve EUR 1bn revenue, EUR 50m operative profit (>5% EBIT margin), and to lower its fixed costs to <10% of revenue by the end of 2025. We retain our TP of EUR 10.80 and BUY-rating.
New sources for growth and improved margins
The management introduced factors to accelerate growth rate: a focus on the assortment (core, evolving, and untapped categories), improved customer experience, the capture of shift to online, and new business through acquisitions or new private label products. Moreover, the company aims to speed up delivery performance to maintain its market-leading position and offer new financial, near-product, and standalone services to generate more profitable growth.
By improving its gross margin and lowering fixed costs the company expects to reach EUR 50m in operative profit by the end of 2025. According to the company, the focus on increasing the amount of the evolving and untapped categories in its assortment is set to contribute to higher gross margins. Fixed costs will be lowered through the enhancement of logistics, the automation of supply chain and product management, in addition to the improvement in marketing performance as well as segmentation. These initiatives are also set to deliver better operational efficiency and scalability.
No changes in the big picture
The CMD revealed further details on strategy execution, but the process is still in the early stages and the event didn’t change the big picture. Outlook remains bright and the management has confidence on strategy implementation. We keep our estimates intact, expecting revenue in 21E-22E to reach EUR 599m and EUR 644m respectively, and an adj. EBIT margin of 4.1% and 4.3% respectively. With our estimates intact we retain our TP of EUR 10.80 and BUY-rating.
Verkkokauppa.com’s Q2 marked a sixth consecutive earnings improvement. In our opinion the company remains well positioned to improve plenty more long-term.
Earnings a small positive surprise, retains FY ’21 guidance
Verkkokauppa.com’s Q2 revenue increased by 6% y/y to EUR 131m, compared to the EUR 130m/130m Evli/cons. estimates. Growth was driven by wide positive development as traditional product categories like computers and cameras sold well but evolving categories such as sports and home & lighting were also popular. Online sales grew at a 15% y/y pace while B2B sales were up by 38% and thus made up 22% of total revenue. Overall top line, excluding export sales, advanced some 160bps faster than the market and in our view highlights the strength of the Verkkokauppa.com brand. The 17.2% gross margin topped our 16.8% estimate, and the resulting EUR 0.6m difference in gross profit helped the EUR 5.1m Q2 adj. EBIT beat our EUR 4.6m estimate (same as the consensus) and reach a record high.
We believe strong positioning will deliver further results
Verkkokauppa.com has performed strong and steady for a while. Export sales have been the only soft area, due to the pandemic, and according to the company will probably not bounce back sharp this year. The company has recently built inventories to buffer up for the busy autumn season and important Q4. Verkkokauppa.com retains a strong position in the Finnish B2C channel but has also gained traction in B2B, where volumes stem from many SME customers. The EUR 4m small-item logistics investment is relatively small and will only have a negligible operative impact in H2’21 when inventories have to be moved to accommodate the Jätkäsaari construction phase. We make small revisions to our estimates and expect Verkkokauppa.com to achieve 8% growth and 4.1% EBIT margin this year. We also make some upward revisions to our long-term estimates.
Overall valuation picture is still attractive
In our opinion Verkkokauppa.com’s valuation remains attractive considering the steady performance and long-term potential. We see solid high single-digit CAGR performance for the coming years and potential for positive surprises. We continue to view current valuation picture overall very reasonable against this backdrop. We retain our EUR 10.8 TP and BUY rating.
Verkkokauppa.com reported Q2 results that were overall somewhat above estimates. Top line was close to the expected levels, while the strong gross margin helped adj. EBIT to surpass estimates by some EUR 0.5m.
Verkkokauppa.com reports Q2 results on Fri, Jul 16. We leave our estimates unchanged ahead of the report and continue to view current valuation levels attractive.
Q1 met expectations, FY ‘21 growth seen around 7-8%
Verkkokauppa.com had a strong Q1. Top line grew by 7% y/y, in line with estimates, and was driven by many product categories. Online sales grew by 33% while B2B sales advanced by 12%. Gross margin amounted to a strong 16.2% (a bit above our 15.9% estimate), driven by good contribution from higher margin categories. The company thus achieved a small profitability beat with its EUR 5.2m adj. EBIT (3.9% margin), compared to the EUR 5.0m/4.8m Evli/cons. estimates. We made only minor revisions to our Q2 estimates following the Q1 report and we leave our estimates unchanged for now. We expect Verkkokauppa.com to post EUR 130m in Q2 revenue (5.5% y/y growth) and EUR 4.6m in EBIT (3.6% margin).
Strategy is ambitious, but initial moves have been laid out
Verkkokauppa.com reiterated its FY ’21 guidance in connection with the Q1 report. The company guides EUR 570-620m top line and EUR 20-26m adj. EBIT. Our EUR 594m revenue estimate touches the midpoint and thus we see the company reaching above 7% growth this year. Our EUR 24m EBIT estimate (4% margin) is a bit above the respective midpoint. The company has also announced a EUR 4m investment in fully automated small item warehouse in Jätkäsaari, Helsinki. In our opinion the plan seems a relatively low risk and efficient way to help organic expansion. We expect Verkkokauppa.com will continue to grow at a high single-digit rate for years to come, however the company’s own very ambitious target is to achieve EUR 1bn top line and 5% EBIT margin by ’25.
12-15x EV/EBIT for FY ’21-23 isn’t high given the potential
Verkkokauppa.com trades ca. 15x EV/EBIT on our FY ’21 estimates. This level represents a 25% discount compared to the Nordic & European online peer group. The 14x EV/EBIT level on our FY ’22 estimates however turns into a 10% peer premium and reflects the fact that we have taken a conservative approach to our long-term estimates. We view the overall valuation picture undemanding given the company’s growth potential. We retain our EUR 10.8 TP and BUY rating.
Verkkokauppa.com’s Q1 result was as expected. Strategy implementation has started well, and the outlook remains bright. We have made only small adjustments to our estimates and keep our rating “BUY” with TP of EUR 10.80 (10.5).
Q1 result in line with expectations
Verkkokauppa.com delivered a solid Q1 result which was in line with expectations. Q1 revenue increased by 7% y/y to EUR 134m (vs. EUR 135m/134m Evli/cons.). Growth was good especially in major domestic appliances, small domestic appliances, office & supplies, gaming & entertainment and sports. Online sales (excl. export) increased by 33%, representing 64% of total sales. Further, sales to B2B customers increased by 12%. Export continued to be in a lower level due to the travel restrictions (6% of sales). Gross profit totaled EUR 21.7m (16.2% margin) vs. our EUR 21.4m (15.9% margin). Gross margin was driven by increased share of higher margin categories in total sales. Adj. EBIT amounted EUR 5.2m (3.9% margin) vs. our EUR 5.0m (3.7% margin) and consensus of EUR 4.8m (3.6% margin).
Everything is right on track
The market has continued to be favorable for Verkkokauppa.com as the COVID-19 situation has prolonged and consumer behavior is changing (shift to online). In early 2021, the company published its refined, rather ambitious strategy for 2021-2025. The company targets a giant leap in revenue while improving profitability. As a part of the strategy, the company will invest in the logistics automation of the warehouse located in Jätkäsaari. The first stage of the investment is to build a fully automated small item warehouse and the building process will start this summer and is expected to be completed in early 2022. The total investment is expected to be completed by the end of 2022 and the estimated capex is approx. EUR 4m.
“BUY” with TP of EUR 10.80 (10.5)
Verkkokauppa.com reiterated its guidance and expects revenue of EUR 570m-620m and adj. EBIT of EUR 20m-26m in 2021. We have made only minor adjustments to our estimates after the result and expect 21E revenue of EUR 594m and adj. EBIT of EUR 24.0m (4% margin). Implementation of the strategy has started well, and the outlook remains positive. On our estimates, the company trades with 21E-22E EV/EBIT multiple of 16.8x and 15.8x which is 15% discount compared to the Nordic & European online peers in 21E and 16% premium in 22E. We keep “BUY” with TP of EUR 10.80 (10.5).
Verkkokauppa.com’s Q1 result was in line with expectations. Q1’21 revenue grew by 7% y/y and was EUR 134m vs. Evli EUR 135m and consensus of EUR 134m. Adj. EBIT was EUR 5.2m vs. EUR 5.0m/4.8m Evli/consensus. EPS was EUR 0.09 vs. EUR 0.08 Evli and consensus. Verkkokauppa.com reiterated its guidance.
Verkkokauppa.com reports its Q1 result on this week’s Friday, 23rd of April. We have made small estimate adjustments and expect Q1 sales to grow by 7.5% y/y to EUR 135m. We expect adj. EBIT of EUR 5m. We retain our rating “BUY” with TP of EUR 10.5 (9.5).
We expect sales growth of 7.5% in Q1
We expect Verkkokauppa.com to report strong Q1 figures on Friday. The coronavirus situation remained severe during the first quarter and due to the restrictions people have stayed more at home. This should continue to support online sales, benefiting Verkkokauppa.com. Additionally, most of Finland had a proper winter which we expect to boost sales of sport and outdoor equipment. Lower level of wholesale sales should also have a positive impact on gross margin. We have slightly increased our H1’21E estimates ahead the Q1 result. We expect Q1’21E sales to grow by 7.5% y/y to EUR 135m (cons. EUR 134m) while we expect adj. EBIT of EUR 5.0m (cons. EUR 4.8m).
Domestic purchases are expected to remain high during ‘21
The coronavirus situation has prolonged and even though the Finnish population is currently being vaccinated the pace is slow and it will take a while to get back to normal life. We expect the situation to normalize towards the end of the year, but we expect that for instance traveling abroad will remain in a low level throughout 2021. Thus, consumption will continue to be more focused on domestic purchases, supporting 2021 sales. The company introduced its refined strategy for 2021-2025 earlier this year and it targets to reach sales of EUR 1bn and EBIT margin of 5% by the end of 2025. We expect the company’s good momentum to continue with 21E-23E sales growth of 6-7% and adj. EBIT margin of ~4%. We however highlight that the competition is likely to continue tight after the pandemic thus profitable growth doesn’t come easy.
We keep our rating “BUY” with TP of EUR 10.5 (9.5)
We expect 21E sales to grow by ~7% to EUR 594m (cons. EUR 592m) and adj. EBIT of EUR 23.6m (cons. EUR 23m). On our estimates, the company trades with 21E-22E EV/EBIT multiple of 16.8x and 15.6x, which is 17% discount compared to the online-focused Nordic and European peers in 21E and 11% premium in 22E. We keep our rating “BUY” with TP of EUR 10.5 (9.5).
Verkkokauppa.com delivered a strong Q4 result which was in line with expectations. The company introduced its refined strategy for 2021-2025 and targets EUR 1bn of sales and EBIT margin of 5% by the end of 2025. We keep our rating “BUY” with TP of EUR 9.5 (8.3).
Solid Q4 result
Verkkokauppa.com’s Q4 result was strong, as expected. Revenue grew by 10% y/y to EUR 176m (171m/170m Evli/cons.). Revenue was boosted by good growth in mid-sized categories (especially MDA and sport equipment). Gross margin (15.1% y/y vs. our 14.6%) was driven by strong performance of mid-sized, higher margin categories. Adj. EBIT amounted EUR 6.2m (6.6m/6.3m Evli/cons.). 2020 dividend proposal of EUR 0.45 (0.23 plus additional dividend of 0.22) was clearly above expectations (0.23 Evli & cons.).
Targeting sales of EUR 1bn by the end of 2025
The company introduced its refined strategy for 2021-2025 and highlighted five pillars on what the growth will be built. These pillars are: excellent customer experience & strong brand, efficient fulfilment, superior technology backbone, extensive assortment and cost competitiveness. The company targets to reach sales of EUR 1bn and EBIT margin 5%. Growth is sought e.g. through core product categories and new categories with attractive margin potential, especially online. Further, the company aims to double its B2B and private label business by 2025. Also, new business and M&A opportunities are on the table. However, the growth will mainly be organic and stem from the transition from brick-and-mortar to e-commerce. The company is also investing to its warehouse in Jätkäsaari. The automation investment program (capex of EUR ~4m) is expected to be completed by the end of 2022. The investment supports further growth and creates cost efficiencies, boosting profitability development.
“BUY” with TP of EUR 9.5 (8.3)
The company expects 21E sales of EUR 570m-620m and adj. EBIT of EUR 20m-26m. Improved brand image, high customer satisfaction and investments into growth and more efficient operations reinforce our view of the company’s ability to grow profitably. We have increased our 21E-22E sales expectations by 4-7% and expect 21E sales of EUR 592m. Our adj. EBIT expectation is EUR 22m. On our estimates, the company trades with 21E-22E EV/EBIT multiple of 16.0x and 14.2x, which translates into a discount compared to the peers. We keep our rating “BUY” with TP of EUR 9.5 (8.3).
Verkkokauppa.com’s Q4’20 revenue grew by 10% y/y and was EUR 176m vs. Evli EUR 171m and consensus of EUR 170m. Adj. EBIT was EUR 6.2m vs. EUR 6.6m/6.3m Evli/cons. Dividend proposal was EUR 0.45 (incl. additional dividend of EUR 0.22) vs. EUR 0.23/0.23 Evli/cons.
Verkkokauppa.com reports its Q4 result on Friday, 12th of February. We have slightly increased our Q4E estimates ahead the result and keep our rating “BUY” with new TP of EUR 8.3 (6.5).
Expecting sales growth of 7% in Oct-Dec
Year 2020 has so far been an excellent year for Verkkokauppa.com and it has benefited from the changed environment and customer behavior (rapid shift into online). The final quarter is normally the most important one for Verkkokauppa.com in terms of both, sales and profitability and we expect the company to reach strong figures in Oct-Dec, driven by campaigns and Christmas. We have increased our Q4E sales expectation by ~1% and our adj. EBIT expectation by ~6%. We expect Q4E sales of EUR 171m (+7% y/y) and adj. EBIT of EUR 6.6m (+47% y/y). We expect 20E dividend of EUR 0.23.
Well positioned for the future
Last year was eventful not only due to the COVID-19 and its impacts on the consumer behavior but also due to Amazon which launched its operations in Sweden at the latter half of the year. In our view, the impacts of the launch on Finland were negligible but it is clear that the presence of the online giant will increase in Finland in the long run. Online sales have grown significantly which has benefited Verkkokauppa.com but the company has also taken right actions towards better profitability which reinforces our view that the company is able reach profitable growth even after the pandemic.
“BUY” with TP of EUR 8.3 (6.5)
We expect 20E sales of EUR 549m (+9% y/y) and adj. EBIT of EUR 20.8m (3.8% margin). Thus, our expectations are at the higher end of the given guidance (sales of EUR 525-550m and adj. EBIT of EUR 17-21m). On our estimates, the company trades with 20E-21E EV/EBIT multiple of 14.5x and 15.2x which translates into 40-50% discount compared to the peers. We keep our rating “BUY” with TP of EUR 8.3 (6.5).
Once again, Verkkokauppa.com delivered a strong result as revenue increased by ~7% y/y (EUR 129m) while adj. EBIT totaled EUR 5.6m. We have slightly increased our estimates and keep our rating “BUY” with TP of EUR 6.5 (6.3).
Revenue increased by 7% y/y
Verkkokauppa.com’s good momentum continued throughout Q3, driven by strong consumer web sales. Growth was particularly good in mid-sized and evolving categories (MDA, BBQ, sports as well as office & supplies). Revenue increased by ~7% y/y amounting to EUR 129m (vs. our EUR 126m). Gross margin developed favorably as well due to the sales mix, strong consumer sales as well as lower level of wholesale sales but also due to operational improvements. The company’s adj. EBIT was EUR 5.6m (vs. our 5.3m) in Q3.
The current environment supports further growth
Online migration has continued strong throughout the year partly due to the COVID-19 and as the virus situation seems to be prolonging, we expect the same trend to continue. Even though the company is known for its strong presence in the consumer electronics market in Finland, the growth has been strong in other product categories as well boosting the company’s sales and profitability development. This also benefits the company’s growth in the future since the consumer electronics market is extremely competed and price driven. The final quarter is normally the most important for Verkkokauppa.com and it is driven by campaigns (e.g. Cyber Monday and Black Friday) and the Christmas season. We expect the good momentum to continue also in Q4E. Due to the travel restrictions, wholesale sales should remain in a lower level also in Q4E, having a positive impact on margins.
“BUY” with TP of EUR 6.5 (6.3)
We have slightly increased our estimates and expect 20E revenue of EUR 546m and adj. EBIT of EUR 20.4m. Hence, our estimates are at the higher end of the given guidance (revenue between EUR 525-550m and adj. EBIT between EUR 17-21m). On our estimates the company trades at 20E-21E EV/EBIT multiple of 10.7x and 11.0x, which translates into ~50% discount compared to the peers. We keep our rating “BUY” with TP of EUR 6.5 (6.3).
Verkkokauppa.com’s Q3’20 revenue grew by 7.3% y/y and was EUR 129m vs. Evli EUR 126m and consensus of EUR 127m. Adj. EBIT was EUR 5.6m vs. EUR 5.3m/5.3m Evli/cons. 2020 guidance: the company expects revenue to be 525-550 million euros and comparable operating profit to be 17-21 million euros.
Verkkokauppa.com issued a positive profit warning and expects 20E revenue of EUR 525-550m and adj. EBIT of EUR 17-21m. We have slightly increased our estimates and keep our rating “BUY” and TP of EUR 6.3 intact.
Guidance upgrade due to better than expected development
Verkkokauppa.com issued a positive profit warning and upgraded its 2020 guidance. The upgrade is due to a better than expected development during Q3 and improved outlook for the remainder of the year. The company now estimates that the revenue in 2020 is in a scale of EUR 525-550m while adj. EBIT is EUR 17-21m (prev. revenue of EUR 520-545m and adj. EBIT of EUR 13-18m). This is the company’s second positive profit warning within a short period of time as the previous one was given in July.
Consumers still on the move
According to the company, sales and the consumer demand have continued stronger than expected throughout Q3. Against the expectations, the strong demand in many of the key product categories (e.g. consumer electronics) in Q2 has not resulted in a weakened demand in these categories in Q3. It is however likely that the growth in the consumer electronics market hasn’t continued as strong but rather that Verkkokauppa.com has been able win market shares. The management indicated that the demand has continued strong also in other smaller product categories. We expect the lower margin wholesale sales to remain relatively low throughout the year, boosting gross margin development. If the same momentum continues, Verkkokauppa.com’s campaign season in Q4 is likely to be very strong. However, there are still significant uncertainties due to the COVID-19 situation.
“BUY” with TP of EUR 6.3
We have only slightly increased our 20E revenue expectation (EUR 543m) while increasing our adj. EBIT expectation by ~11% (EUR 19.8m). On our estimates, the company trades at 20E-21E EV/EBIT multiple of 10.1x and 10.4x, which translates into a 60-70% discount compared to the peers. We keep our rating “BUY” with TP of EUR 6.3 intact.
Verkkokauppa.com’s growth story has continued over the years and the company’s revenue CAGR in 2010-2019 was 12.6 percent. Now the company has started to put more emphasize on profitability. We keep our rating “BUY” with TP of EUR 6.3.
Focusing on profitable growth
Verkkokauppa.com’s revenue CAGR in 2010-2019 was 12.6 percent. The growth has been mainly supported by competitive pricing, strong online positioning and new product categories. The competition in the consumer electronics market has continued fierce and price driven. The company’s efficient and scalable cost base driven by small physical footprint enables competitive pricing and strong reliance against competition. The company has a strong net cash position which enables investments in growth. The company has started to put more emphasis on profitability of which the first evidences have already been seen.
Better profitability improvement via gross margin increase
Verkkokauppa.com’s future growth is depended on the online migration. According to the company, online sales represent some 12-13 percent of the total Finnish retail market. The company’s extremely good performance in H1’20 has been partly driven by the COVID-19, as sales grew by 11 percent and adj. EBIT grew by over 240 percent. It is challenging to estimate how permanent the market changes will be. However, increased online demand benefits e-commerce players such as Verkkokauppa.com. At the same time, risks related to the overall economic outlook and declining purchasing power have increased. Due to the low and scalable cost base we expect the company’s profitability to improve together with revenue growth. However, we see that better profitability improvement stems from higher gross margin levels.
“BUY” with TP of EUR 6.3 intact
We have slightly increased our estimates and expect sales in 20E-21E to grow by ~7 percent and ~4 percent, respectively. We also expect profitability to improve and adj. EBIT margin of 3.2-3.3 percent in 20E-21E. We value Verkkokauppa.com by using our scenario analysis which indicates a fair value of EUR 6.3. On our estimates, Verkkokauppa.com trades at 20E-21E EV/EBIT multiple of 10.9x and 10.7x, which translates into ~60 percent discount compared to the peers. 20E-21E EV/Sales multiple is ~30 percent below peers. We keep our rating “BUY” with TP of EUR 6.3.
Verkkokauppa.com benefited from the lockdown and was able to increase its Q2 sales by ~14% y/y. At the same time profitability development was strong as adj. EBIT totaled EUR 4.8m (EUR 0.2m in Q2’19). We keep our rating “BUY” with TP of EUR 6.3 (6.2).
Strong growth in both, revenue and profitability
E-commerce took a big leap during H1 as consumers moved online quickly once the movement restrictions came into force. This boosted Verkkokauppa.com’s Q2 result. Sales were up by ~14% y/y (EUR 123m), outpacing the consumer electronics market growth of ~9% (GfK). Adj. EBIT totaled EUR 4.8m (Q2’19: EUR 0.2m) and was driven by improved gross margin (17.4% vs. our 16.4%). The improvement in gross margin was due to the sales mix, improvements in category management and declining wholesale sales. The preliminary Q2 figures were already given in connection with the positive profit warning issued last week thus there were no surprises with the result. The company expects 20E revenue of EUR 520-545m and adj. EBIT of EUR 13-18m.
Expecting normalizing demand in H2
It is clear that Verkkokauppa.com has benefited from the epidemic situation. The company has a low cost base which is supported by small physical footprint and that has been a major advantage during this time. Category management has been successful and as the demand of consumer electronics has increased, the competition hasn’t probably been as price-driven as normally. On the other hand, we expect that the strong growth in demand of consumer electronics during H1 will be shown as weaker sales growth and profitability development in H2E. Thus, we see this only as a momentary market change. In addition, consumers are likely to become more price aware, especially ahead of the campaign season in Q4 which will add pressure on margins.
“BUY” with TP of EUR 6.3 (6.2)
We have kept our estimates largely intact and expect 20E revenue of EUR 535m and adj. EBIT of EUR 17.1m. Thus, our estimates are at the higher end of the given guidance. On our estimates, Verkkokauppa.com trades at 20E-21E EV/sales multiple of 0.4x, ~17% below its online-focused Nordic & European peers. We keep our rating “BUY” with TP of EUR 6.3 (6.2).
Verkkokauppa.com’s Q2’20 result was extremely strong. The report did not offer surprises as the company issued a positive profit warning and released preliminary information on April-June figures earlier this week. Revenue grew by 14.1% and was EUR 123m. Gross profit was EUR 21.4m (17.4% margin) vs. our EUR 20.2m (16.4% margin). Adj. EBIT was EUR 4.8m (3.9% margin). 2020E guidance: The company expects revenue to be EUR 520-545m and comparable operating profit to be EUR 13-18m.
Verkkokauppa.com issued a positive profit warning and gave preliminary information on April-June figures. The company now expects 20E revenue of EUR 520-545m and adj. EBIT of EUR 13-18m. The company’s Q2 result is due on Friday. We keep our rating “BUY” with TP of EUR 6.2.
Strong performance during spring & summer
Verkkokauppa.com issued a positive profit warning as its spring/summer sales and profitability have developed better than first anticipated but also due to the brighter H2’20E outlook. The company now expects 20E revenue of EUR 520-545m (Evli prev. 525m) and comparable operating profit of EUR 13-18m (Evli prev. 14.3m). The company previously expected 20E revenue of EUR 510-530m and comparable operating profit of EUR 12-15m. Verkkokauppa.com also provided preliminary Q2 figures. April-June revenue is approx. EUR 123m, growth of ~14% y/y (Evli 113m/cons. 113m) while adj. EBIT is approx. EUR 4.8m (EUR 0.2m in Q2’19) vs. EUR 1.3m/1.4m Evli/consensus. According to the company, comparable operating profit improved as a result of strong sales and improved gross margin.
Consumers have been active during Q2
Based on the preliminary second quarter figures, it seems that the demand of consumer electronics has continued strong. Due to the increased demand, we expect less price driven competition in the consumer electronics market which impacts positively on gross margin. However, we see this only as a temporary change. Also, good demand in other smaller categories (offering higher margins) supports gross margin development. We now expect Q2E gross margin of 16.4% (14.2% in Q2’19). According to the management, the pandemic might not have as big impact on consumer demand as first anticipated which is also likely to impact on H2’20E.
“BUY” with TP of EUR 6.2
We have increased our estimates as a result of the positive profit warning. We expect sales to grow also in H2’20E, although the growth is expected to normalize from H1’20. We now expect 20E revenue of EUR 535m (6% y/y) and adj. EBIT of EUR 17.1m (51% y/y). On our estimates, the company trades at 20E-21E EV/sales multiple of 0.4x, ~20% below the online focused Nordic & European peers. We keep our rating “BUY” with TP of EUR 6.2.
Verkkokauppa.com reports its April-June result on next week’s Friday, 24th of July. We expect Q2E sales of EUR 113m (5% y/y) and adj. EBIT of EUR 1.3m. We keep our rating “BUY” with TP of EUR 6.2 (4.5).
Expecting a strong Q2
Verkkokauppa.com had a strong start for the year as Q1’20 sales increased by over 8% y/y, boosted by exploded online sales caused by the COVID-19. Remote working has become the new normal during this time thus we expect good growth in the consumer electronics market. The management indicated that the demand of several other categories has developed favorably as well (e.g. sports, home). We also expect the good weather in the early summer to have a positive impact on sales. We have increased our Q2’20E sales expectation by 3% to EUR 113.2m. We expect Q2’20E adj. EBIT of EUR 1.3m (Q2’19: EUR 0.2m).
Targeting improved brand awareness
Verkkokauppa.com transferred to the main list of Nasdaq Helsinki in early June as the company is targeting to increase its brand awareness and to improve its liquidity. The total expenses related to the listing are EUR ~0.8m. According to the listing prospectus, some 16% of total sales in Q1’20 came from outside of Finland (2019: 12%). Due to the global movement restrictions, we expect significantly lower international sales during Q2E. We expect gross margin to improve in Q2E (14.9% vs. 14.2% in Q2’19) as the consumer electronics market should ease temporarily but also due to the good development of other smaller categories (offering higher margins). We expect good control over costs, supporting earnings development.
“BUY” with TP of EUR 6.2 (4.5)
We have increased our 20E adj. EBIT expectation by ~5% (EUR 14.3m) while slightly increasing our 20E sales expectation (EUR 525.4m). The company expects 20E sales of EUR 510m-530m and adj. EBIT of EUR 12-15m thus our estimates are at the higher end of the given guidance. We have also increased our 21E-22E sales expectation by 1-1.5% and adj. EBIT expectation by 6-7%. On our estimates, the company trades at 20E-21E EV/sales multiple of 0.4x, which translates into ~25% discount compared to the online focused Nordic and European peers. We keep our rating “BUY” with TP of EUR 6.2 (4.5).
Verkkokauppa.com delivered a strong Q1 result as revenue increased by 8% y/y to EUR 125m (121m/118m Evli/cons). Adj. EBIT increased by 63% y/y to EUR 3.8m (2.7m/2.5m Evli/cons). The management had a good control over the business despite of the challenging times. We have slightly increased our estimates and upgrade our rating to “BUY” (“HOLD”) with TP of EUR 4.5 (3.5).
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).
Verkkokauppa.com’s Q1’20 result beat our and consensus estimates. Revenue grew by 8.2% and was EUR 125m vs. Evli EUR 121m and consensus of EUR 118m. Gross profit was EUR 19.4m (15.5% margin) vs. EUR 18.3m (15.1% margin) Evli view. Adj. EBIT was EUR 3.8m vs. EUR 2.7m/2.5m Evli/cons. 2020E guidance reiterated: The company expects revenue to be EUR 510-530m and comparable operating profit to be EUR 12-15m.
Verkkokauppa.com will report its Q1’20E result on Friday. We expect the coronavirus to boost online sales but expect decreasing sales in the physical stores. We have made small adjustments to our 20E estimates and retain our rating “HOLD” with TP of EUR 3.5 ahead of Q1.
Online sales boosted by COVID-19
The exceptional situation due to COVID-19 has pushed retailers online as the demand in physical stores slumped quickly when the movement restrictions came into force. This is likely to have a positive impact on Verkkokauppa.com’s sales development in Q1’20E as the company has a strong online presence and only four physical stores in Finland. According to the management, the demand for instance in home office supplies has increased as people have switched their working spaces to their homes.
Expecting good market growth in Q1’20E
We expect the market growth in consumer electronics to be relatively good in Q1’20E but in the near future, consumers might become more cautious due to the weakening economy, especially if the situation is prolonged. Despite of the good online sales outlook we expect to see decreasing sales in Verkkokauppa.com’s physical stores during this situation. We have slightly increased our Q1’20E estimates. We expect Q1’20E revenue to increase by 4.5% y/y to EUR 121m (cons. EUR 118m) and EBIT of EUR 2.7m (cons. EUR 2.4m).
“HOLD” with TP of EUR 3.5 intact
We have made small adjustments to our 20E estimates and expect revenue of EUR 518m (2.7% y/y) and EBIT of EUR 13.0m (~15% y/y). According to the guidance given for 20E, the company expects revenue to be between EUR 510-530m and EBIT of EUR 12-15m, thus our estimates are at the lower end of the guidance. COVID-19 might speed up the more permanent leap into online in long-term which should benefit players such as Verkkokauppa.com. At the same time, the rumors of Amazon entering the Nordic market have once again increased. On our estimates, Verkkokauppa.com trades at 20E-21E EV/sales multiple of 0.3x which translates into ~50% discount compared to the peers. We keep our rating “HOLD” with TP of EUR 3.5 intact ahead of Q1 result.
Verkkokauppa.com’s Q4 result didn’t meet the expectations as sales were negatively impacted by the postal strike and the changed timing of tax refunds. Q4 sales were EUR 159.9m (Evli 168.9m) while EBIT amounted to EUR 4.5m (Evli 6.0m). We keep our rating “HOLD” with TP of EUR 3.5 (3.3).
Q4 result hampered by the postal strike
Verkkokauppa.com’s Q4 result missed expectations as sales growth of 2.6% y/y remained below market growth (Gfk: 4.4%), amounting to EUR 159.9m vs. our EUR 168.9m (cons. 164m). Headwind from the postal strike was stronger than anticipated and the changed timing of tax refunds hampered December sales. Black Friday sales were however better than ever. Gross profit was down by 3% y/y due to heavy campaigning during Black Friday. EBIT was EUR 4.5m vs. our EUR 6.0m (cons. 5.6m) resulting from weakened gross profit. ’19 dividend proposal was in line at EUR 0.21 vs. our EUR 0.21 (cons. 0.21).
Prioritizing profitability in ‘20E
Verkkokauppa.com has normally prioritized growth over profitability, which has weighed down margins, as the competition in the consumer electronics market has been extremely tight and price driven. In ‘20E, the company shifts its focus towards profitability and aims for more moderate growth. We thus expect the growth to be somewhat in line with the market growth (GfK ’19 estimate: 2.9% y/y). In order to strengthen efficiency especially in logistics, the company has commenced to seek opportunities within drop shipping (direct delivery from manufacturer to the customer). This allows Verkkokauppa.com to expand its product assortment without logistical pressures. The company also aims to launch a new subcategory in H1’20E and to increase its private label assortment during 20E, which should have a positive impact on profitability, as private labels normally provide better margins. We expect ‘20E-‘21E sales growth of 3.2-3.5% y/y and EBIT growth of 12-18% y/y.
“HOLD” with TP of EUR 3.5 (3.3)
Verkkokauppa.com guided ‘20E revenue of EUR 510m-530m and EBIT of EUR 12-15m. We have lowered our ‘20E sales estimate by some 5% and expect ‘20E sales of EUR 520m (3.2% y/y), which is at the midpoint of the guidance. Our view of EBIT development is rather conservative as the market is highly competitive and price driven. Despite of the good control over costs we expect to get more visibility on the actions to be taken for more efficient operations. We expect EBIT to grow by ~18% y/y in ‘20E, amounting to EUR 13.3m. On our estimates, Verkkokauppa.com trades at ‘20E-‘21E EV/EBIT multiple of 10.1x and 9.0x, which translates into ~60-70% discount compared to the peers. We keep our rating “HOLD” with TP of EUR 3.5 (3.3).
Verkkokauppa.com’s Q4’19 revenue grew by 3% and was EUR 159.9m vs. Evli EUR 168.9m and consensus of EUR 164.0m. Gross profit was EUR 22.2m (13.9% margin) vs. EUR 24.7m (14.6% margin) Evli view. EBIT was EUR 4.5m vs. EUR 6.0m/5.6m Evli/cons. 2020E guidance: The company expects revenue to be 510-530 million euros and comparable operating profit to be 12-15 million euros.
• Q4 revenue was EUR 159.9m vs. EUR 168.9m Evli view and EUR 164.0m consensus. Sales grew by 3% while market growth was 4.4% (GfK estimate). Revenue growth in Q4 was boosted by record sales during Black Friday, additional marketing activities and campaigning. Tax refund changes and Posti’s strike had a negative impact on sales during the Christmas season.
• Q4 gross profit was EUR 22.2m (13.9% margin) vs. EUR 24.7m (14.6% margin) Evli view. Gross profit weakened due to heavy campaigning during Black Friday.
• Q4 EBIT was EUR 4.5m (2.8% margin) vs. EUR 6.0m (3.6% margin) Evli view and EUR 5.6m (3.4% margin) consensus. EBIT decreased mostly due to a lower gross margin.
• Q4 eps was EUR 0.07 vs. EUR 0.10/0.09 Evli/cons.
• 2020 guidance: The company expects revenue to be 510-530 million euros and comparable operating profit to be 12-15 million euros.
• The company also decided on a quarterly dividend of EUR 0.048 per share. Total ’19 dividend is EUR 0.21 vs. our EUR 0.21 and EUR 0.21 consensus.
Verkkokauppa.com reports it’s Q4’19 earnings on 14th of Feb. We expect the competition has remained tight and price driven. We expect Q4E sales of EUR 168.9m (8.4% y/y) and EBIT of EUR 6.0m. We keep our rating “HOLD” with TP of EUR 3.3 intact ahead of Q4.
Black Friday and Christmas sales boosting Q4 growth
During ‘19, Verkkokauppa.com has faced ups and downs in the highly competitive and price driven consumer electronics market. After a relatively weak H1’19, the company was able to show a positive turn in earnings development in Q3, despite of weaker sales growth. For Verkkokauppa.com, Q4 is critical, as most of its sales and profit are generated during this quarter, driven by Christmas sales and Black Friday. We expect only limited impacts resulting from the postal strike but the changed timing of tax refunds might have a negative impact on December sales compared to last year. We expect 8.4% y/y increase in Q4 sales (EUR 168.9) and EBIT to be on par with the previous year at EUR 6.0m (Q4’18: 5.9m).
No ease of competition ahead
We don’t expect the consumer electronics market in ‘20E to grow much from last year thus the management of sales mix plays an important role of supporting further sales and profit development. We expect the growth investments (e.g. increased marketing) to bear fruit in 2020E, resulting in new customers. We also hope to get more color on the new plans regarding B2B sales with the Q4 result. Due to the price driven competition and growth investments, we don’t expect profitability (EBIT%) to improve from last year, although the company’s cost base is scalable. We expect sales in ‘20E to increase by 7% y/y (EUR 549.1m) and EBIT increase of ~10% y/y resulting in EBIT margin of 2.6%..
“HOLD” with TP of EUR 3.3 intact
We have kept our estimates intact ahead of Q4. Verkkokauppa.com guides ‘19E sales of EUR 500-525m and EBIT of EUR 11-15m. Our estimates are in the mid-point of the guidance with ‘19E sales of EUR 513m (7.4% y/y) and EBIT of EUR 12.8m (FY18:13.3m). We continue to expect a growing dividend of EUR 0.21 (cons. EUR 0.21) vs. EUR 0.20 for ’18. We keep our rating “HOLD” with TP of EUR 3.3 intact ahead of Q4.
Verkkokauppa.com was able to make a turnaround in profitability in Q3 but at the same time sales growth decreased. Profitability improvement was mainly due to sales mix and better terms with suppliers. The management had a good control over the business in Q3. We keep our rating “HOLD” with TP or EUR 3.3.
Profitability improvement driven by sales mix
In Q3, Verkkokauppa.com focused more on profitability and achieved EBIT of EUR 4.3m vs. EUR 3.7m/3.0m Evli/cons. EBIT margin increased to 3.6% vs. 2.9%/2.4% Evli/cons driven by higher gross margin (15.7% vs. 14.7% our expectation). Gross margin improvement was mainly due sales mix (smaller product categories with higher gross margins) and better terms and conditions from suppliers. The company’s sales in Q3 were below expectations and the growth (3%) was only slightly above the market growth of 2.5% (GfK), reflecting the tight and price driven competition in consumer electronics. The company was also able to keep good control over the costs (~8% y/y) in Q3.
Support from other product categories
Verkkokauppa.com has sought growth over profitability and as the company has aggressively competed in a highly competitive consumer electronics market, the company’s earnings development has been weak. In Q3, the company shifted more focus towards other categories with higher margins. We see this as a positive change as the aggressive competition in consumer electronics market is expected to remain tight, and the growth might become too expensive. After Q3, the pressure on EBIT has eased, although Q4 is critical for the business as Black Friday and Christmas are important sales drivers for the company.
“HOLD” with TP EUR 3.3
Verkkokauppa.com updated its outlook for FY19 and expects sales of EUR 500-525m and EBIT of EUR 11-15m (prev. sales of EUR 500-550m and EBIT of EUR 11-17m). We expect 19E sales of EUR 513m and EBIT of EUR 12.8m. As we expect the aggressive competition to continue we have decreased our 20E-21E sales expectation by 3-5%. On our estimates Verkkokauppa.com trades at 19E-20E EV/EBIT multiple of 9.0x and 7.8 which translates into ~80% discount compared to the peer group. We keep our rating “HOLD” with TP of EUR 3.3.
Verkkokauppa.com’s Q3’19 revenue grew by 3% and was EUR 120.6m vs. Evli EUR 126.7m and consensus of EUR 125.8m. Gross profit was EUR 18.9m (15.7% margin) vs. EUR 18.6m (14.7% margin) Evli view. EBIT was EUR 4.3m vs. EUR 3.7m/3.0m Evli/cons. The company updated its 2019E guidance and expects revenue of EUR 500-525m and EBIT of EUR 11-15m.
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.
Verkkokauppa.com’s Q2 result fell short of expectations. The competition is expected to remain fierce and the company’s growth investments are hampering EBIT improvement in 19E. H2 has a high emphasis on the company’s total performance. We downgrade to “HOLD” with TP of EUR 3.3 (prev. EUR 4.7).
Q2 earnings below expectations
Verkkokauppa.com’s Q2 result was a disappointment as earnings fell short of expectations. However, the company was able to increase its market share despite of the declining consumer electronics market. The company’s revenue grew by 5.0% while GfK estimated 0.5% decline in the consumer electronics market in April-June. Verkkokauppa.com’s revenue totaled EUR 108m vs. EUR 111m/111.5m Evli/consensus. Revenue growth was impacted by increased marketing and campaigns. Gross profit was EUR 15.3 (14.2%) vs. our view of EUR 16.1m (14.5%). Fixed costs (incl. staff costs of EUR 8.1m) totaled EUR 14m vs. our view of EUR 14m. The increase in personnel costs was mainly due to growing personnel costs in IT, retail stores and purchasing. Low gross margin level and continuing marketing expenses dragged the company’s operating profit down, which totaled EUR 0.2m vs. EUR 0.9m/1.3m Evli/consensus.
Growth still prioritized
Verkkokauppa.com prioritizes growth and the company has made extensive investments in marketing from Q4’18 onwards. The company seeks to increase its visibility and brand recognition via tv-commercials as well as through online advertising. Increased marketing expenses are expected to continue throughout the year which will hamper the company’s EBIT improvement in 19E. Verkkokauppa.com targets to increase the share of its private labels which should increase gross margins. The company also informed that the outsourced warehouse with Posti will move to new premises during Q3. According to the company, there are no significant costs related to the moving. We expect 2019E total fixed costs of EUR 59m (9.7% y/y). The company expects the competition to remain fierce and price driven throughout the year. Declining GDP growth is also likely to have an impact on sales (the Ministry of Finance estimates 2019 GDP growth of 1.6%). As consumer electronics market is declining, other product categories are expected to support growth. H2 is critical for the company as sales and profitability are normally higher than in H1. Verkkokauppa.com reiterated its guidance for 2019E and expects revenue of EUR 500-550m and EBIT of EUR 11-17m. We expect 2019E revenue of EUR 519m (prev. EUR 522m) and EBIT of EUR 12m (prev. EUR 13m).
“HOLD” with TP of EUR 3.3 (4.7)
After a weak Q2 we have lowered our 2019E-2020E estimates. Our 19E estimates are now at the lower bottom of the company’s guidance. As continuing growth investments and fierce competition weigh down the company’s EBIT in 2019E we expect 2019E EBIT margin of 2.3% (2018: 2.8%). We expect the market outlook to remain uncertain which adds pressure on EBIT. On our estimates, Verkkokauppa.com trades at 19E-20E EV/EBIT multiple of 9.6x and 7.3x, which translates into ~53% discount compared to the peer group. Due to our weakened estimates and continuing pressure on EBIT we downgrade to “HOLD” with TP of EUR 3.3 (prev. EUR 4.7).
Verkkokauppa.com’s Q2’19 revenue grew by 5% despite of declining market and was EUR 108m vs. Evli EUR 111m and consensus of EUR 111.5m. Gross profit was 15.3m (14.2% margin) vs. EUR 16.1m (14.5% margin) Evli view. EBIT was EUR 0.2m vs. EUR 0.9m/1.3m Evli/cons. The company reiterated its 2019E guidance.
Verkkokauppa.com will report its Q2 earnings on next week’s Friday, August 9th. We expect the competition in consumer electronics market has continued tight and price driven. We expect Q2’19 revenue to grow and profitability to remain flat. We keep our rating “Buy” with TP of EUR 4.7 ahead of Q2.
Marketing expenses hampering EBIT improvement
According to Verkkokauppa.com, the company continues focusing on growth and enhancing consumer experience. The company has made extensive investments in marketing from Q4’18 onwards and has indicated that the investments will continue throughout 2019. We expect these to hamper EBIT improvement this year. Verkkokauppa.com’s guidance for 2019E revenue is EUR 500-550m while EBIT is expected to be between EUR 11-17m. We expect 2019E revenue of EUR 522m (cons. EUR 524m) and EBIT of EUR 13m (cons. EUR 13m). We expect the increased revenue from the Raisio store, which was opened in Q1’18, to stabilize Q2’19 onwards.
Tight competition expected to continue
Despite of the tight competition, the company was able to strengthen its market share in Q1’19 but as the company has indicated, Q2 is normally weaker. As we expect the competition has remained fierce and price driven, we do not expect any improvements in Q2 margins. We expect Q2 revenue of EUR 111m (8.4% y/y) while consensus is at EUR 114m and EBIT of EUR 1m (cons. of EUR 1.4m) resulting in EBIT margin of 0.8%. We expect gross margin of 14.5% in Q2’19 (Q2’18: 14.7%). Possible wholesale/B2B deliveries might further impact gross margin in Q2.
“Buy” with TP of EUR 4.7
We have kept our estimates intact ahead of Q2 earnings. On our estimates, Verkkokauppa.com is trading at 19E-20E EV/EBIT multiple of 10.7x and 7.7x which translates into ~50-70% discount compared to the online-focused Nordic and European peer group. We keep our rating “BUY” with target price of EUR 4.7 ahead of Q2.
Verkkokauppa.com is a growth story with good fundamentals and solid business model. The company continues focusing on growth and enhancing consumer experience. We see Verkkokauppa.com’s mid-term outlook remaining favorable, despite of the tightened competition.
Growth company with strong focus on consumer experience
Verkkokauppa.com’s revenue CAGR in 2010-2018 was 13.5%, which has been mainly supported by competitive pricing, strong online positioning, new product categories as well as the new Raisio store. The competition has continued fierce and price-driven, forcing the market to consolidate and smaller competitors exit the market. With a small physical footprint, the company has an efficient and scalable cost base enabling competitive pricing and strong reliance against competition. The company has strong net cash position which enables investments in growth. Verkkokauppa.com has made extensive investments in marketing from Q4’18 onwards and focuses on improving consumer experience. These investments should support further growth but will hamper EBIT improvement this year.
Growth expected to continue despite of tight competition
We see Verkkokauppa.com’s outlook for mid-term favorable and expect the company to continue growing in FY19-21E with annual growth of ~9%. We see that if consumer migration to online shopping continues strong, the company’s scalable cost base will support improvements in profitability. We expect EBIT to be flat at EUR 13m in 2019E but to improve in 2020E-2021E. The biggest concerns are related to the Finnish GDP growth which is expected to slow down in 2019-2020 and to fierce competition in the market.
“Buy” with TP of EUR 4.7
We have not made changes to our estimates. On our estimates, Verkkokauppa.com is trading ~45% EV/EBIT discount vs. peer group in 2019E-2020E. We value Verkkokauppa.com’s base case at EV/EBIT multiple of 11x. Our recommendation remains BUY with TP of EUR 4.7
As competition is likely to remain tight and price-driven, we are not expecting margins to improve in 2019E. Investments in marketing should bring more visibility and support sales growth. We retain our rating “BUY” with TP of EUR 4.7.
Attractive pricing and marketing likely to support sales
Verkkokauppa.com was able to increase its market share, driven by solid revenue growth of 13% y/y (revenue of EUR 116m) in Q1. In 2019E, the company still seeks to win market share and compete with low prices. The company has made investments into marketing and targets to reach larger audience by new campaigns and tv-commercials. Vekkokauppa.com also continuously aims to improve the user experience online and in mobile. With these investments, we expect revenue growth to continue in ‘19E.
No expectations of margin improvements in 2019E
Verkkokauppa.com’s Q1 operating profit decreased by 14% y/y and was EUR 2.3m. This was mainly due to lower gross margin and increased marketing expenses. Revenue growth in 2019E is unlikely to come for free and price-driven competition adds pressure on the margin. Gross margin is also impacted by wholesale/B2B sales which varies by each quarter. As investments into marketing are expected to continue, we believe OPEX will remain at higher level in ‘19E. The revenue from Apuraha continued to grow and was EUR 0.83m (EUR 0.67m) in Q1. Apuaraha financing is expected to continue growing and supporting margins also in 2019E.
Retaining “Buy” with TP of EUR 4.7
We have slightly adjusted our estimates with 2019E sales totaling EUR 522m (prev. EUR 519m), gross margin of 14.7% and EBIT of EUR 13m (prev. EUR 14m). The company reiterated its guidance for 2019E and expects revenue of EUR 500-550m and EBIT of EUR 11-17m. On our estimates, Verkkokauppa.com trades at 11.9x and 8.7x EV/EBIT in ’19-‘20E, which translates into 67% and 49% discount compared to the online focused Nordic & European peers. We retain our rating “Buy” with TP of EUR 4.7.
Verkkokauppa.com’s Q1’19 revenue was EUR 116m compared to EUR 114m Evli and EUR 117m consensus estimates. Sales grew by 13% y/y. Adj. EBIT was slightly below Evli/cons. estimates at EUR 2.3m. Verkkokauppa.com reiterated its guidance for 2019E.
Verkkokauppa.com will report its Q1 earnings on May 10th. As before, our interest is on how competition has developed in the beginning of the year. We have kept our estimates for 2019E intact and retain our rating “BUY” with TP of EUR 4.7 ahead Q1.
Guidance for 2019E wide
Verkkokauppa.com updated its guidance in February. The guidance seems quite wide; with 10-20% annual revenue growth, operating profit between EUR 11-17m and 2.5-4.5% EBIT margin. Our revenue estimate for 2019E is EUR 519m which lands on the lower half of the range of EUR 500-550m, guided by the company. We expect Q1 revenue of EUR 114m/116m cons. with adj. EBIT of EUR 2.5m/3.0m cons.
Launch of a new product category
In March, Verkkokauppa.com launched a new product category: sporting equipment for more than ten ball games, such as football, floorball and golf. The new range added some 1300 new products to the company’s product range. Verkkokauppa.com aims to lower the prices of the sporting equipment and accessories and be one of the market leaders within the category in the next 3-5 years. Based on Finnish Commerce Federation, Finnish online shopping 2019E growth is expected to be ~9%. Price competition is expected to remain tight and challenging throughout 2019E.
We keep rating “BUY” with TP of EUR 4.7
Verkkokauppa.com published its IFRS 16 updated figures for 2017-2018 earlier in Q1 and our estimates reflect the changes. We have kept our estimates intact. On our estimates, Verkkokauppa.com is trading at 2019-‘20E EV/EBIT multiples of 11.3x and 8.9x, which translate into 70% and 49% discount compared to the peer group. We keep our rating “BUY” with target price of EUR 4.7 ahead Q1.
While Verkkokauppa.com’s revenue growth is unlikely to come for free in 2019E either, we think normalizing OPEX growth and increasing margin support from Apuraha should support an earnings improvement after two years of flattish development, even if price pressure tightens further. We upgrade to “Buy” (“Hold”) , TP of EUR 4.7 (4.2).
Q4: strong growth via market share take, but not for free
Verkkokauppa.com’s Q4 revenue growth (+22%) remained solid from Q3 (+11%). Some part of the 22% growth was due to increased wholesale/B2B deliveries as we expected, but most of the growth was attributed to clearly increased market shares in the B2C market. Strong growth in a flattish market (+0.7% in Q4 according to GfK) did not come for free, however: the gross margin declined to 14.7% from 15.8% y/y, while OPEX grew by 22%, due to increased marketing and the Raisio store.
Guidance for 2019E EBIT is wide, reflecting uncertainties
Verkkokauppa.com guides 5-15% revenue growth and 11-17m EBIT for 2019E. EBIT was EUR 13.3m in 2018A. Vague guidance appears to reflect uncertainties related to potentially softening demand and competition. While visibility into how competition evolves remains short, we expect OPEX growth to normalize in 2019E as Raisio’s ramp-up costs will be reflected in comps.
Apuraha financing should grow further, supporting margins
Apuraha financing grew in 2018: company-financed Apuraha income was reported at EUR 3.1m in 2018 vs. EUR 1.5m in 2017. We understand the company will continue to increase Apuraha financing, which would support margins.
Upgraded to “Buy” (“Hold”), ex-div TP of EUR 4.7 (4.2)
We have converted our model to IFRS (16) reporting from 2017 onwards. Additionally, we no longer assume a 5th store opening in our 2020E estimates. On our estimates the shares trade 11.4x and 9.0x EV/EBIT in 2019-2020E. While growth will most likely not come for free in 2019E either, normalizing OPEX growth and increasing margin support from Apuraha should support an earnings improvement after two years of flattish development, even if price pressure tightens further. We upgrade to “Buy”.
Verkkokauppa.com Q4 headline financials were known before this morning’s earnings release. Hence the information content of the Q4 report is mostly in the dividend and guidance. Dividend proposal is EUR 0.198 per share, marginally above estimates. Guidance implies 5-15% revenue growth for 2019E. EBIT in 2019E is to be between EUR 11-17m (2018A with IFRS: EUR 13.3m) – this is a wide range and leaves room for weakening. It is not specified whether guidance includes estimated impact of IFRS 16, but considering the upper range it looks to be included. Guidance should not surprise estimates, in our view.
Verkkokauppa.com downgraded its guidance yesterday for 2018E adj. EBITDA. The warning came as a surprise, even if major turmoil took place in the wider retail industry in Q4. We have cut estimates for Q4 and for 2019-2020E.
Guidance downgraded for adj. EBITDA
Verkkokauppa.com downgraded its guidance yesterday and gave preliminary figures for full-year revenue and adj. EBITDA. FY18E revenue was EUR 477m, in line with the guided range of EUR 460-500m and somewhat above EUR 467-468m Evli and consensus estimates. However, adj. EBITDA landed at EUR 10.2m, below previously guided range of EUR 11-14m and below EUR 12.7m Evli and cons expectation. Full-year figures imply Q4 revenue of EUR 155m (growth 22%) and adj. EBITDA of EUR 3.4m (EUR 5.9m y/y). Adj. EBITDA for Q4 thus lands at its lowest level since 2014. Seasonally strong Q4 has thus clearly disappointed. Tight price competition and higher marketing costs were mentioned as negative contributors in 2018E.
We expect wholesale volumes to have increased y/y in Q4
Federal Customs Service of the Russian Federation announced on Dec 7th that starting from Jan 2019 the duty-free limit for private goods imports will be reduced to EUR 500 from EUR 1000 previously. We expect this to have supported wholesale volume sales for Verkkokauppa.com in Q4 and consider this as a likely contributor to the Q4 revenue beat.
Estimates cut - target price to EUR 4.2 (4.7)
We have cut 2019 and 2020E estimates by 12% and 9% respectively. We continue to expect a growing dividend of EUR 0.19 vs. EUR 0.18 for 2017. This represents 122% of EPS, but can be backed by the sizeable net cash position. We cut target price to EUR 4.2 (4.7), which corresponds to 12x 2019E EBIT. Our “Hold” rating is intact. Our estimates do not yet reflect the upcoming IFRS 16 changes.
Verkkokauppa.com returned to double-digit growth in Q3 as we expected. The company also delivered a surprisingly strong gross margin, considering active campaigning by competitors during the quarter. However, competition is seen tightening even further, which keeps the outlook somewhat uncertain when going into the seasonally strong Q4. We continue to see the shares quite fairly valued at present and hence retain “Hold” with TP of EUR 4.7 (4.5).
Back to double-digit growth, as expected
Verkkokauppa.com returned to double-digit 11% revenue growth in Q3, after only 3% growth in H1. Growth was in line with expectations. Wholesale volumes were broadly flat as guided and no longer provided headwind as in H1. Revenue growth is guided to continue at a stronger level in Q4 than in H1. We expect revenue growth of 15% in Q4, supported by both Raisio and underlying growth.
Surprisingly strong GM despite tightening competition
Verkkokauppa.com’s earnings beat in Q3 was fully driven by the gross margin, which improved to 14.9% from last year’s very low level of 13.2%. We expected 14.3%. Stronger than expected margin improvement came despite competition tightened from Q2 as we expected. The company responded to increased campaigning by competitors as expected, but managed its campaigns more efficiently and had better terms with suppliers. Also, a part of the actions to boost sales was marketing, which was visible in OPEX.
“Hold” with TP of EUR 4.7 (4.5)
Our estimates are slightly up for Q4 and FY19-20E after the Q3 report. On our base case estimates Verkkokauppa.com trades 14x,11x and 10x EV/EBIT in FY18-20E. We see valuation as fairly neutral at present and hence retain “Hold” rating with TP of EUR 4.7 (4.5) for the shares.
Verkkokauppa.com delivered a profit beat on revenues that were as expected. Compared to our estimates the beat is fully driven by better than expected gross margin. OPEX were in line. Guidance for 2018E is kept intact.
We cut estimates ahead of Q3 on anticipation of tighter competition. Peer multiples have also dropped notably since our latest update in mid-Aug. We conclude risk/reward is still not attractive enough, and keep “Hold” rating intact.
Revenue growth has been guided to improve in H2
Verkkokauppa.com reached only 3% revenue growth in H1 as wholesale volumes declined significantly compared to last year. Market growth was also limited in H1 at ~2%, according to GfK. We understand market growth in Q3 has offered no better tailwind than in H1. However, in H2 wholesale volumes should no longer give headwind as they have been guided flat in H2. We expect revenue growth to improve to 11% in Q3 from the 3% in H1, driven primarily by the new store in Raisio but also by slight underlying growth. Stronger growth has been guided for H2.
Competition seems to have intensified during Q3
Based on a talk with management intensity of competition seems to have increased during Q3 with more active campaigning by competitors. Verkkokauppa.com has repeatedly reminded that it stands ready to respond should pricing tighten and to use price as tool to speed up growth. We expect a modest gross margin of 14.1% in Q3, which is better than last year’s multi-year low of 13.1%, but slightly below 14.3% of Q2.
Raisio to continue burdening margins in H2
Verkkokauppa.com’s new store in Raisio had a somewhat disappointing start with higher than expected OPEX and slower than anticipated ramp-up. The company has stated it will continue to invest in prices and OPEX to boost the store in H2.
Estimates cut ahead of Q3 – “Hold” intact, TP EUR 4.5 (5.7)
We have cut estimates and expect Q3 revenue of EUR 117m with adj. EBITDA of EUR 2.6m. Our FY18E adj. EBITDA estimate is down by 6%. Corresponding FY19-20E estimates are down by 3%. Peer multiples for FY18-20E have also dropped by ~10-15% since our latest update in mid-Aug. We reflect lower estimates and peer valuation in our scenario analysis and conclude risk/reward is still not attractive enough, considering there is little room for disappointments in H2 for guidance to hold, and as the risk of Amazon remains an overhang on the stock.
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2022 revenue between EUR 530-560 million and comparable operating profit between EUR 5-9 million.
Targeting sales of EUR 1bn and EBIT margin of 5% by 2025.
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