Tokmanni - CMD: strategy and targets reaffirmed

Tokmanni’s CMD provided an update into the company’s strategic focus areas and targets. The CMD reaffirmed that the sourcing improvement potential, which has been key to our investment case, remains intact and is of high importance in management’s agenda. We continue to expect margins to improve in upcoming years and hence retain “Buy” rating with TP of EUR 9 for the shares.

Targeting EUR 1bn in sales by 2020E

Tokmanni targets EUR 1bn in sales by 2020E with further store network expansion and LFL growth. After the recent Ale- Makasiini acquisition the store count is now 186 stores vs. the target of 200 stores. At the targeted expansion pace (12,000m2 or ~5 stores annually) the target of 200 stores will be reached within the next few years. Growth plans beyond this were not addressed.

EBITDA to 10% via improved sourcing and OPEX scalability

Tokmanni continues to target 10% adj. EBITDA margin. This does not include impact of upcoming IFRS 16. The target implies 2- 3% margin improvement compared to the level reached in recent years. 1-2% of this is to come from the gross margin, which is to improve primarily driven by increased direct sourcing and by increased share of private label products in the mix. The targeted gross margin improvement is in line with what we had already incorporated into our estimates and it reaffirms the validity of further sourcing improvement potential. OPEX scalability should contribute the remaining 1-1.5%. Positive LFL growth is expected to be a key driver behind OPEX scalability.

Maintaining “Buy” on margin improvement potential

We have included the acquired Ale-Makasiini into our estimates, but for other parts our estimates remain broadly intact. We expect earnings to improve in 2019-2020E driven primarily by gross margin improvements via more efficient sourcing. We consider valuation moderate against the margin improvement potential and hence retain “Buy” rating for the shares.

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