Tokmanni - Increasing target price ahead of Q4

New store openings to support sales

Q4 is normally the strongest quarter in terms of both revenue and profit for Tokmanni. According to PTY, revenue of department stores & hypermarkets grew by some 6% in Oct-Nov but declined by 1.5% in December. Decline in sales was exceptionally high in clothing (-11.6%) but also in home & leisure (-4.8%), partly due to mild winter. We expect Tokmanni’s Q4’19E revenue to grow by 7.2% to EUR 288m (Q4’18 268m) driven by new store openings and increased customer flows. Two new stores were opened during Q4 with combined selling space of ~4500m2. We expect Q4’19E adj. EBIT of EUR 32.7m (Q4’18: 25.6m) resulting in EBIT margin of 11.4%.

Expecting further profitability improvements in 2020E

So far Tokmanni’s ‘19 has been strong. In Jan-Sept’19 LFL sales grew +4.9% and at the same time gross profit developed favorably as gross margin was 34.1% vs. 33.7% in Jan-Sept’18. The actions taken to improve profitability seem to work although we hope to get more color on the progress made in improving the efficiency of Tokmanni’s supply chain as the success of this is one of the key drivers for further profitability improvement. In 2020E, we expect EBIT margin to increase to 8.2%, stemming mainly from gross margin improvement and 4.4% y/y revenue growth (EUR 989m) driven by store network expansion. The company’s long-term target is to reach adj. EBIT margin of ~9%.

“BUY” with TP of EUR 16 (13.5)

We have kept our estimates intact ahead of Q4 and expect FY19E revenue of EUR 947m (FY18: 870m) and adj. EBIT of EUR 71m (FY18: 52m). We expect Tokmanni to propose a dividend of EUR 0.62 per share in ’19 (cons. EUR 0.60). We keep our rating “BUY” with updated TP of EUR 16 (13.5) due to the ~20-30% increase in Nordic non-grocery peer multiples. On our estimates, with the new target price of EUR 16, Tokmanni trades at ’20E-21E EV/EBIT multiple of 16.1x and 14.6x which still translates into ~7-10% discount compared to its international peers.