Tokmanni - Towards improving profitability in 2019E

Tokmanni’s focus is shifting towards improving profitability in 2019E. We continue to consider valuation is being moderate against the margin improvement potential and hence we retain “Buy” rating with an ex-div TP of EUR 9.

Q4 was just fine

Tokmanni’s Q4 revenue grew broadly as expected, with LFL still strong at 4.7% vs. our 4.0% expectation. However, adj. EBITDA missed estimates by EUR 3m, driven by one-off costs due to a product recall in the quarter (adj. EBITDA impact EUR -1.4m) and other one-off costs related to integration of the acquisitions carried out in late 2018. Integration costs should not have a meaningful impact on Q1’19, we understand. The negative impact of the product recall on gross profit was estimated at EUR 1.1-1.2m – excluding this the gross margin would have been in line with our estimate of 34.8%. Overall, Q4 looked just fine.

Focus shifting towards improving profitability in 2019E

Tokmanni’s 2018 was about improving customer trust by investing in prices, marketing and selections. In 2019E focus is shifting towards improving profitability by increasing the revenue share of direct imports (ie. increasing the gross margin) and pushing OPEX as % of sales down. Certain real estate - related costs have already been negotiated down.

Now targeting above 200 stores

Tokmanni updated its financial targets to reflect IFRS 16. These included no drama, but at the same time the target for the store network was revised to “above” 200 stores vs. “about” 200 stores previously. This is based on a view that demand will be sufficient.

Retaining Buy” with ex-div TP of EUR 9

We continue to consider valuation is being moderate against the margin improvement potential and hence we retain “Buy” rating with an ex-div TP of EUR 9.

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