Tokmanni: Customer flows hampered by COVID-19 – Evli Research

Coronavirus hampering customer flows

Tokmanni withdrew its guidance for 20E due to the situation around coronavirus. According to the company, after the emergency restrictions that came into force in March, the customer flows have clearly declined in stores. At the current stage, the company doesn’t give a guidance for the year 20E but expects that the coronavirus and the restrictions on movement will affect at least Q2’20E sales. As stated by the company, it is very challenging to estimate the development in H2’20E. Based on the guidance given in February, Tokmanni expected good revenue growth and slight growth in LFL-sales for 20E and profitability (adj. EBIT margin) to increase from the previous year.

Expecting declining sales in Q2’20E

We expect a clear decline in Q2’20E sales (-27% y/y) as the movement restrictions are likely to last for several weeks. Tokmanni aims to keep all the stores open during this unexpected time. We expect the consumer demand for grocery to remain stable but at the same time demand for non-grocery products is expected to decline. We expect online sales to increase but the contribution to the total sales is still expected to remain marginal. As the visibility is very weak it is difficult to estimate the total impacts on H2’20E sales. We expect the lockdowns in China, occurred in Q1’20, to have a negative impact on Tokmanni’s direct import, which will hamper gross margin development. As most of Tokmanni’s employees work in stores (85%), the company should be able to adjust its workforce in some level. We expect only limited adjustment possibilities in other operations, hampering profitability in Q2’20E.

“BUY” with TP of EUR 12.5 (16)

We have decreased our 20E sales expectation by ~8% and adj. EBIT estimate by ~30%. We now expect 20E sales to decline by 2.7% y/y (EUR 919m) and adj. EBIT of EUR 55.3m (-21% y/y), resulting in adj. EBIT margin of 6.0%. We note that there are significant uncertainties with our short-term estimates. We expect the customer flows and demand to normalize relatively fast after the situation and expect Tokmanni is able to return back to its growth path. On our estimates, Tokmanni trades at 20E-21E EV/EBIT multiple of 16.7x and 10.4x, which translates into 4% premium in 20E and 29% discount in 21E compared to the int. discount peers. We keep our rating “BUY” with TP of EUR 12.5 (16).

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