Tikkurila: Well positioned ahead of tough quarters – Danske Bank

Impact on the investment case. Q1 was decent, with good sales (+4% y/y local FX) and EBIT increasing by 4% y/y, but below our estimates, mainly due to exceptional FX-related items. Going forward, COVID-19 is likely to affect Tikkurila, but the company did not provide a clear outlook or comments on April trading. Tikkurila has low visibility because it has no order book and customers place orders at short notice. The outlook differs by country, with the toughest restrictions currently in Russia, while in Finland and Sweden retail outlets have been open as normal. Construction projects are not disrupted much and demand from the professional segment looks set to weaken with a lag if volume of new projects declines.
DIY trend may be stronger than we thought. We have noted from several sources (e.g. Danske Bank spending data and Kesko’s Q1 report) that Nordic consumers tend to spend more on home improvement and this trend has continued in April. We expect this to benefit Tikkurila too and have reduced our assumptions for a Q2-Q4 volume drop.

Estimate changes. We have increased 2020E EBIT significantly from low levels, assuming a somewhat smaller volume decline. For 2021-21E, we increase EBIT by 6% and 2%, respectively. We continue to expect a strong EBIT recovery in 2021, driven by higher volumes, lower raw material costs (benefit of lower oil and titanium dioxide prices to be visible from H2 20 onwards, we estimate) and ongoing efficiency improvements. The shares are down more than 20% over 3M, underperforming the local market and main peers. Valuation on P/B and EV/Sales remains at historical lows. We estimate 2020E EV/EBIT of 10.7x, which is 17% below paint peers’ median and 15% below Tikkurila’s own historical average multiple. We increase our 12M fair value range from EUR12-14 to EUR13-15, valuing Tikkurila at 12.1-13.4x 2021E EV/EBIT.

Valuation. The shares are down more than 20% over 3M, underperforming the local market and main peers. Valuation on P/B and EV/Sales remains at historical lows. We estimate 2020E EV/EBIT of 10.7x, which is 17% below paint peers’ median and 15% below Tikkurila’s own historical average multiple.

We increase our 12M fair value range from EUR12-14 to EUR13-15, valuing Tikkurila at 12.1-13.4x 2021E EV/EBIT.