Lindex: Things to unfold soon

This report is a summary translation of the report “Lähiaikoina pitäisi tapahtua” published on 9/23/2024 at 8:10 am EEST.

We expect progress on both the last restructuring dispute and the strategic review of the department stores in the coming months and believe these will support the unlocking of value in the stock. With the fall in the share price, we raise our recommendation to Buy (was Accumulate), while the target price remains at EUR 3.5.

News on the latest restructuring dispute coming soon

Since the spring, the company has had only one disputed claim (LähiTapiola) related to the restructuring process, on which we expect a decision from the district court soon. It is unlikely that the dispute will be fully resolved in the district court, but we believe that the decision will provide the basis for some form of amicable settlement before the end of the year. This would allow the restructuring process to be completed, which in turn would allow, for example, the payment of dividends and facilitate financial and structural arrangements. In connection with the dispute, a provision of 16 MEUR has been made in the balance sheet, which we expect the company to pay this year. However, the amount of compensation may still change.

Year-end deadline for strategic review of department stores approaching

The company announced almost a year ago that it would launch a strategic review of its department store business, the Stockmann division. The results of this review are expected to be announced later this year. The timing may be partly related to the above dispute, i.e. Lindex may want to wait until the end of the restructuring process is in sight before publishing the results of the strategic review. In practice, we believe the review means that the process of selling department stores is in progress. In addition to the restructuring timeline, the main question is likely to be whether Lindex can find a buyer/taker for the department stores at a reasonable price. We believe the company will announce the divestment of the department stores in the coming months, which should have a clear positive impact on the stock.

Swedish fashion market grew slightly in July-August, but Finnish market remains difficult

In Sweden, the Lindex segment's main market, the clothing market grew by around 2% in July-August, slightly better than our previous expectations. On this basis, we have slightly raised our Q3 forecasts for the Lindex segment. In Finland, on the other hand, we see the market continuing to be sluggish and have lowered our revenue forecasts for the Stockmann division to slightly negative. Overall, however, forecast changes at the group level remained marginal. The company expects 2024 revenue to change by +/- 2% in local currencies and adjusted EBIT to be 70-90 MEUR
(80 MEUR last year). In H1, revenue dropped by 2% and adjusted EBIT also decreased, so the guidance indicates a slightly better H2 than last year. Our forecast is closer to the lower end of the range for both revenue and adj. EBIT.

The potential of the restructuring offers a good expected return

After the company announced the strategic assessment of the Department Stores business, we find the sum of the parts to be the best valuation method. We estimate that the value of the company without department stores is over EUR 4 per share. However, this should consider the uncertainties related to the manner and schedule of the possible structural changes in department stores. As a whole, we feel the expected return is good, considering the change in the Department Stores business that is likely this year. With the current structure, our estimate for the company's 2024 P/E ratio adjusted for lease liabilities and cash is around 15x and EV/EBIT 10x. These are relatively high for the company, so the return potential comes mainly from the possible restructuring.