Puuilo Q4'24 preview: Excellent cost control

Translation: Original published in Finnish on 3/10/2025 at 9:30 pm EET.

Puuilo will report its Q4 results on March 27 at 8:30 am EET. Based on preliminary figures, the company's Q4 profitability was at an excellent level. However, with the release of preliminary figures, the informative value of the Q4 report will be limited to the 2025 guidance, dividend and possible market commentary. We think that the expected 2025 guidance of strong earnings growth is supported by the opening of 7 new stores, a likely improvement in the market environment and the company's own efforts to strengthen profitability. We believe that the expected return, supported by earnings growth and the dividend, remains attractive. Therefore, we reiterate our Accumulate recommendation. Our target price rises to EUR 12.0 (was EUR 11.5) following the changes in the estimates.

Preliminary information shows Q4 was strong

In Q4, Puuilo's revenue increased by 12% to 86 MEUR. This means that like-for-like store growth had continued to be sluggish in what we estimate to be a weak market environment. We believe that the underlying factors are slower than historical growth in customer flows and a reduced basket as consumption is skewed towards low-price point and real-need products. On the other hand, their margin potential is significantly better than the rest of the selection, which we believe was the reason for the earnings beat (Q4 EBITA 14.3 MEUR). In addition, the record margin (Q4 EBITA 16.6% of revenue) has been strengthened by a well-scaled fixed cost structure. We had anticipated cost pressures for the company due to the rapid store roll-out in March, but these either did not materialize or the company managed to adjust its cost structure elsewhere in a very efficient way. We estimate the as yet unreported adjusted EPS for Q4 at EUR 0.12, with the increase mainly driven by higher EBITA. We expect the board to propose a dividend of EUR 0.45 (payout ratio 80%) per share. However, with the change in policy, part of the profit distribution may be in the form of share buybacks, which we view positively given the tax efficiency and good value creation potential of the business.

Store network expanding and maturing, strong guidance expected

Our 2025-26e earnings estimates have been raised by 2-5%
based on strong preliminary information. Puuilo opened 7 new stores in the financial year 2024 and the opening pipeline for 2025 looks similar. The expected improved market environment coupled with the new stores should support Puuilo's like-for-like revenue through a greater increase in customer flow and average customer purchase. Although like-for-like store growth in 2024 has been slower than in the past, the margin structure of the assortment has supported its earnings generation. This is because the focus of consumption has been on low-price point products, where the company has a much better margin than on higher-priced products. The dynamics may change as the average purchase increases, but we do not expect this to have a material impact on the bottom line or return on capital, as the decline in relative margin is offset by rising volumes. Based on these assumptions, we believe the company's guidance is in the range of 420-450 MEUR for revenue and 70-80 MEUR for EBITA, implying earnings growth of 4-19%.

Expected return driven by strong earnings growth and dividend yield

The company's 2025e multiples (2025e P/E 17x, EV/EBIT 14x and IFRS-16 adj. EV/EBIT 13x) are slightly elevated, although we think they are acceptable for a company with strong earnings growth. This is supported by Puuilo's valuation in line with its peers (2025e P/E 15x and EV/EBIT 14x). Even though in the big picture, the share's value development is dependent on the company's earnings growth, the investor's expected return is also supported by a dividend yield at a reasonable level (~5%). The positive view on the stock is supported by a DCF model at a level of just above EUR 12, which assumes that both revenue growth and margins will moderate from current levels. Based on these parameters, the expected return on the stock remains sufficient in our books, meaning that the risk/reward ratio of the stock is attractive.