Verkkokauppa.com - Expecting softness to continue

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.