Verkkokauppa.com - Shifts focus towards profitability

Verkkokauppa.com’s Q4 result didn’t meet the expectations as sales were negatively impacted by the postal strike and the changed timing of tax refunds. Q4 sales were EUR 159.9m (Evli 168.9m) while EBIT amounted to EUR 4.5m (Evli 6.0m). We keep our rating “HOLD” with TP of EUR 3.5 (3.3).

Q4 result hampered by the postal strike

Verkkokauppa.com’s Q4 result missed expectations as sales growth of 2.6% y/y remained below market growth (Gfk: 4.4%), amounting to EUR 159.9m vs. our EUR 168.9m (cons. 164m). Headwind from the postal strike was stronger than anticipated and the changed timing of tax refunds hampered December sales. Black Friday sales were however better than ever. Gross profit was down by 3% y/y due to heavy campaigning during Black Friday. EBIT was EUR 4.5m vs. our EUR 6.0m (cons. 5.6m) resulting from weakened gross profit. ’19 dividend proposal was in line at EUR 0.21 vs. our EUR 0.21 (cons. 0.21).

Prioritizing profitability in ‘20E

Verkkokauppa.com has normally prioritized growth over profitability, which has weighed down margins, as the competition in the consumer electronics market has been extremely tight and price driven. In ‘20E, the company shifts its focus towards profitability and aims for more moderate growth. We thus expect the growth to be somewhat in line with the market growth (GfK ’19 estimate: 2.9% y/y). In order to strengthen efficiency especially in logistics, the company has commenced to seek opportunities within drop shipping (direct delivery from manufacturer to the customer). This allows Verkkokauppa.com to expand its product assortment without logistical pressures. The company also aims to launch a new subcategory in H1’20E and to increase its private label assortment during 20E, which should have a positive impact on profitability, as private labels normally provide better margins. We expect ‘20E-‘21E sales growth of 3.2-3.5% y/y and EBIT growth of 12-18% y/y.

“HOLD” with TP of EUR 3.5 (3.3)

Verkkokauppa.com guided ‘20E revenue of EUR 510m-530m and EBIT of EUR 12-15m. We have lowered our ‘20E sales estimate by some 5% and expect ‘20E sales of EUR 520m (3.2% y/y), which is at the midpoint of the guidance. Our view of EBIT development is rather conservative as the market is highly competitive and price driven. Despite of the good control over costs we expect to get more visibility on the actions to be taken for more efficient operations. We expect EBIT to grow by ~18% y/y in ‘20E, amounting to EUR 13.3m. On our estimates, Verkkokauppa.com trades at ‘20E-‘21E EV/EBIT multiple of 10.1x and 9.0x, which translates into ~60-70% discount compared to the peers. We keep our rating “HOLD” with TP of EUR 3.5 (3.3).

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