Tokmanni Q4'24: Revolving doors are spinning fast

Translation: Original published in Finnish on 03/10/2025 at 08:19 am EET

Tokmanni’s Q4 progressed favorably considering the key metrics for the business. However, there was a slight softness in margin levels, which should correct over time. We believe that the Group has clear prerequisites for earnings growth thanks to its attractive concepts and a cost structure that scales with growth. The attractive expected return of the stock is supported by a moderate valuation and a good dividend yield. We reiterate our Accumulate recommendation but revise our target price to EUR 14.5 (was 15.5) due to estimate revisions.

Boost from new and old stores

Tokmanni's challenging year came to a positive end, as Q4 revenue (489 MEUR; +6%) and customer numbers (+7%) clearly increased on all of the company's main markets. Like-for-like store development also withstood industry-specific comparison, as the sales and number of customers developed in the right direction, deviating from the trend of the beginning of the year. We believe this was due to better product availability compared to the reference period, as well as successful campaigns. The strength of earnings growth (Q4'24 adj. EBIT 47.5 MEUR; 9.6% margin; +2.7%) was weakened in both segments by a decline in the relative gross margin, mainly due to campaigns, higher freight costs and a change in the sales mix. Although the Tokmanni segment managed to factor in increased freight costs in its pricing, we believe Dollarstore failed to do so due to manufacturing-related reasons. Thus, we consider the weakness in the segment's gross margin to be a short-term problem, which should improve over time as private labels grow. Fixed costs in both segments scaled nicely, which in our view highlighted the scale of comparable revenue growth. The Board of Directors proposes a maximum dividend of EUR 0.68 per share.

Brisk earnings growth expected

Tokmanni expects its revenue to be 1.72-1.82 BNEUR in 2025, while it believes its EBIT will be in the range of 100-130 MEUR. Overall, the guidance was in line with expectations, albeit slightly conservative compared to our pre-report forecasts. In our view, the lower end of the guidance, where earnings would remain practically at the comparison period level despite revenue growth, reflects a scenario where the operating environment does not improve substantially. Our forecasts decreased slightly (EBIT -3-6%) as we believe the company has faced and/or will face slight challenges in the beginning of the year (trade strikes in Finland and increased freight costs in Sweden). Towards the end of the year, we see growth accelerating and earnings improving, so our forecasts are roughly in the middle of the guidance range. H2’s faster like-for-like sales growth than its competitors and the well-scaled cost structure keep us confident in the company’s earnings growth potential mainly driven by the strong growth and scalable cost structure of the Dollarstore segment. The SPAR collaboration offers an option to accelerate earnings growth in Finland, the impact of which will not be visible for several years. Based on the above factors, we predict that the Group’s earnings will improve by 19% per year

Stock valuation is still moderate

We continue to see an attractive valuation picture for the stock. The company is priced at fairly moderate earnings multiples (2025e P/E 12x and IFRS 16 adj. EV/EBIT ~12x), where we see some upside. Especially the P/E ratio is well below the peer group median, which also supports the stock's upside. Based on the PEG ratio (2024 0.8x), the earnings growth we forecast has not been fully factored into the share price. In addition, the expected return is supported by a healthy dividend yield of ~7%. Our view of a moderately priced stock is also supported by a DCF value of good EUR 15. We feel the stock offers investors a sufficient expected return to support short-term uncertainties.