Marimekko - Maintaining “Buy”

Marimekko had a strong Q3 and the company is now on an improved growth trajectory, following own actions that are now bearing fruit. We consider Marimekko’s outlook as being positive and retain “Buy” rating for the shares.

Guidance gives room for only EUR 1.4m EBIT in Q4

Marimekko had a very strong Q3. Performance remained solid in most markets. Despite strong Q3 guidance of max EUR 12m adj. EBIT in 2018E was kept intact. EUR 10.6m has been reached after Q3, implying guidance gives room for only EUR 1.4m for Q4. Earnings in Q4 are to be weakened by a revenue timing issue (part of revenue was timed from Q4 into Q3) and higher costs.

Shares could reach EUR 30 level if EBIT margin meets 15%

Marimekko revised its financial targets. Most notable change is in EBIT margin target, which is now 15% vs. 10% earlier. The 10% will be reached in 2018E. If 15% was reached, our DCF model and multiple exercises imply shares could reach EUR ~30 level, even without assuming higher growth than currently.

Extra dividend of EUR 1.25 to be distributed

Marimekko board proposes to distribute an extra dividend of EUR 1.25 per share, which is EUR ~10m. This corresponds to the divestment proceeds of the Herttoniemi real estate. Net cash was EUR 17m at the end of Q3. The remaining EUR 7m is reserved for general business development needs.

Maintaining “Buy” with an ex-div TP of EUR 22 (18)

We have raised FY19-20E estimates and expect a dividend of EUR 1.85 (0.60 ordinary + 1.25 extra) to be distributed for FY18E. We continue to see Marimekko’s outlook to be positive and valuation attractive. Our TP of EUR 22 (18) values the shares at 12.7x EV/EBIT with our 2019E estimates, or at 11% premium to the peer group, justified by a clear turn in sales and further margin upside upon continued growth.

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