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Verkkokauppa: Finnish mini-Amazon trading below brick & mortar multiples - Danske Bank started selling computer parts online in 1992 and now has four mega stores. ‘First online then omni-channel’ is a different mindset and provides a clear competitive advantage in our view. grew sales at a 10% CAGR in 2015-19 in a market that grew 3%. We believe online-driven growth with a low-risk profile, net cash and sector-best dividend yield warrants a valuation above the sector median.

Growing faster than the market. grew sales at a 10% CAGR in 2015-19, significantly above Finnish electronics market growth of 3%. We believe this is a result of a strong foothold online, strong brand recognition and successful expansion into new categories such as ball sports, the barbeque segment and strollers and car seats for children. is a digital native retailer building on in-house developed IT capabilities, which already drives higher traffic to sites than for peers.

Stable gross margin with upside from consumer finance and new categories.
Gross margins have been flat, which is due to stiff competition in electronics, still comprising 80% of sales. Nevertheless, the toolbox is not empty and could lift gross margins by increasing sales of higher-margin categories and growing in consumer finance. Mobile phones are a 5% gross margin business compared to sporting equipment’s 30-40%. Selling its products with consumer finance could lift the gross margin by 3-6%.

WFH effect hiking not just electronics sales.
2020 should be an exceptional year as work from home (WFH) lifted Q2 sales alone by 14% y/y. We believe growth has continued in Q3 with many people still working from home. In Q2, the sales boost did not only come from the electronics segment but also some emerging categories that saw 40%+ growth. We believe has capitalised on consumers shopping for electronics and realising they can find many other items, including a BBQ range, sports equipment and bicycles.

Valuation below brick & mortar multiples.
The share price is up 42% YTD but valuation multiples are still decent. We believe is a good place to be in Nordic retail as it offers higher-than-average growth with 5% dividend yield from a debt-free balance sheet. We set a 12M fair value range of EUR5.9-6.7 for, where the mid-point implies an EV/EBIT of 13.4x compared to the Nordic retail median of 12.5x. The mid-point of our fair valuation range offers 26% upside potential from the current share price.
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