Kesko - Retail sector expert

[Uberhous]

Kesko’s Dahl acquisition is exactly what a long-term investor in a growth market wants to see. It is bold, visionary capital allocation at a cyclical turning point. The 1.2 billion euro enterprise value (EV) for their largest acquisition ever is not a risk but an opportunity, especially since it is partially financed by a share issue that brings in new capital to support growth rather than just relying on leverage.

Theoretically, the acquisition decision is textbook, and in practice, it is as well. The construction and building and technical trade cycle has bottomed out, interest rates are falling, and investments in infrastructure and HPAC (Heating, Plumbing, and Air Conditioning) are expected to accelerate in the Nordics. Dahl immediately brings ~€2.1 billion in net sales, a strong market position, and a leading status in a segment where Kesko can leverage its own expertise (chain management, digitalization, procurement).

The share issue of €500–700 million is not “dilution as a pure evil,” but rather the financing of growth. The growth market rewards increases in volume and market share. If new shares are issued using “undervalued” paper (as critics claim), it actually benefits EPS and value in the long run, especially once Dahl is effectively integrated. The number of shares increases, but the leap in earnings as the cycle turns is a multi-year trend, not a one-off spike.

Kesko’s Group ROCE (Return on Capital Employed) has been trending downward, but that is precisely why this deal makes sense. It diversifies away from the mature growth of the Finnish grocery trade into building and technical trade, which enjoys better structural tailwinds (green transition, infrastructure, renovation). An EV/EBITDA of ~10.4x (based on 2025 EBITDA) is not overpriced for a high-quality platform where synergies, better capital turnover, and economies of scale can be extracted.

A long-term investor does not just look at past ROCE figures, but at the future return on capital employed. If the combined entity raises returns above the WACC (Weighted Average Cost of Capital)—which is likely through better operational performance and volumes—significant value will be created. Buying revenue is easy, but Kesko has a proven ability to integrate and streamline (see previous Danish acquisitions).

The domestic grocery trade provides stable cash flow, but growth comes from elsewhere. Dahl expands Kesko significantly in Sweden, Norway, and Denmark without overlaps—a perfect complement to the current building and technical trade. This is an ambitious but logical step toward Nordic leadership in technical trade. In a bull market, such strategic moves raise valuation multiples as investors begin to price in a stronger growth profile.

Goodwill, integration costs, and synergies are naturally still open questions, but the management team has demonstrated competence in smaller acquisitions. The risks are manageable, and the upside is asymmetric: in a cyclical upswing, earnings could surprise on the upside, while the downside is limited by a strong balance sheet and a diversified business.

A brilliant strategic move at the bottom of the cycle, and as a shareholder, I look forward to the execution and the upcoming quarters where the new volumes will start to speak for themselves. Now is the time for investors to believe in the management and the vision, not to fear temporary dilution.

[JuhaR]

@Uberhous

A debt-free price of 1.2 billion for the largest deal in history is not a risk but an opportunity, especially when it is partially financed by a share issue that brings in new capital to support growth rather than just leverage.

It is a hell of a big risk, completely regardless of the fact that it might also be an opportunity. I don’t understand at all why billion-euro deals by “Hesuli” (Helsinki Stock Exchange) companies are talked about as opportunities without risk. Regardless of the company.

Despite the company being fantastic, it’s also a matter of the purchase price. In neighboring countries, the construction cycle isn’t in quite the same situation as in Finland, so in places like Sweden and Denmark, the seller has surely been able to price the already occurring turnaround into the price tag.

Another question is how and under what terms the share issue will be implemented. One would think that would interest the retail investor.

[Badwithmoney]

@Uberhous

A share issue of 500–700 million is not “dilution as a pure evil,” but rather financing for growth. The growth market rewards increases in volume and market share. If the new shares are financed with “undervalued” papers (as critics claim), it actually benefits EPS and value in the long run, especially when Dahl is integrated efficiently. The number of shares increases, but the earnings jump as the cycle turns upward is multi-year, not a single spike.

Otherwise pretty much on the same page, but when using one’s own stock in a deal, one would hope the buyer’s valuation is something other than undervalued—at least neutral, please At €26, I think Kesko is somewhere in between: slightly undervalued / neutral. I don’t see it as particularly bad that the stock is being used either It also has a committing effect on the current owners of Dahl. An interesting deal, and I’m looking forward to Inderes’ comments!

[Uberhous]

@JuhaR

It is a hell of a big risk, regardless of the fact that it would also be an opportunity. I don’t understand at all that a Helsinki-listed company’s billion-euro deals are talked about as an opportunity without risk. Regardless of the company.

Despite the company’s excellence, it’s also a question of the purchase price. In neighboring countries, the construction cycle isn’t in quite the same situation as in Finland, so in Sweden and Denmark, for example, the seller has certainly known how to price that already occurring turnaround into the price tag.

Another question is how and under what terms the share issue will be implemented. One would think it interests the retail investor.

To be honest, there’s a perfectly valid point here: this is a big risk. Billion-euro deals always are, regardless of the company. No serious investor would claim there is no risk; that would be naive. The question is whether the risk/reward ratio is attractive right now, in the growth market dynamics.

The seller has certainly priced the slightly more advanced turnaround in Sweden and Denmark into the price; you hit the nail on the head there. Dahl won’t come “for free from the bottom.” Still, the overall package looks sensible. The enterprise value (EV) relative to revenue and EBITDA is not particularly expensive for a high-quality, leading technical trade platform in the Nordics.

Kesko isn’t just buying revenue, but market positions, distribution networks, and expertise that it can enhance with its own concept (chain management, purchasing power, digital customer experience). If Finland is at the bottom of the cycle and the neighbors are a bit ahead, Kesko gets diversification across the entire Nordic portfolio. The cycle isn’t a single country, but the whole region—and the green transition + renovation building + infrastructure create structural tailwinds for several years.

This is a good and important question for retail investors. The terms of the share issue (price, subscription rights, discount) will determine a lot. If the issue is carried out at a reasonable discount to the current share price and existing owners have priority, it is an acceptable way to finance growth without overleveraging the balance sheet. A growth market usually favors this kind of growth financing when faith in future earnings is high.

Dilution is real, but it isn’t a permanent destruction of value if the deal generates productive growth. Historically, many of the best companies have conducted large share issues at exactly the right time. If Dahl raises the group’s growth rate and ROCE in a few years, the EPS dilution caused by the issue will be absorbed by the growth.

Integration can drag on, goodwill can be large, synergies can fail, and if the turnaround in construction is delayed, the debt + issue will tie up capital longer than the market expects.

Dahl diversifies Kesko away from the mature phase of the Finnish grocery trade, strengthening the technical trade just as interest rates fall and investments accelerate. High-quality management + a strong balance sheet provide room to maneuver.

All billion-euro deals are risky, that’s true. But doing nothing is also a risk: staying stationary in a mature home market while competitors expand. Kesko chose growth. In a growth market, these kinds of moves are exactly what raise valuation multiples when earnings start to surprise positively as the cycle rises.

I’m not claiming the deal is risk-free. I’m claiming that the risks are priced in and the asymmetry is positive for a long-term investor. The terms of the share issue should be followed closely; they will matter a lot. If the terms are reasonable and you believe in the management, this is exactly the kind of bold capital allocation that is worth supporting in a growth market.

Time will tell which wins, the risk or the opportunity. For now, I’m leaning toward the latter.

[N.K]

Will Onninen’s position in Finland also improve now that Dahl Finland is left here alone? Or will Dahl Finland be sold to someone else? Ahlsell or similar?

Saint-Gobain +5%

Kesko -10%

[ViljamiC]

Based on the news feed, S-G appears to have been divesting itself of other distribution businesses around the world and will focus more on manufacturing in the future. I would consider it likely that a deal for Dahl’s Finnish operations is also forthcoming. Ahlsell is unlikely to get permission to buy them, as their market share is too large.

[Raharambo]

If the share price slides just a bit further, the entire acquisition will already be financed for those buying today for free compared to Friday’s trade. Or, considering that it’s otherwise a green day, we are already getting very close to that situation. In other words, if Friday’s price level was correct, those buying today are getting Dahl’s operations almost “for free”.

[Monte_Cristo]

And what is Ahlsell’s market share? Source, please!!!

[R_Ankka]

Suomi kävi Keskolle pieneksi – Jorma Rauhala kertoo nyt, mitä jättikauppa...

According to a previous article, Kesko has been looking for acquisition targets for years and wants to grow. Why hasn’t the balance sheet been strengthened earlier? And what on earth is the point of promising to continue dividend payouts at 60-100% of earnings? So, a taxable dividend rain is being maintained by planning a half-billion-euro share issue… such typical Finnish satisfaction of dividend lust…

[Monte_Cristo]

Can you explain what Kesko has done wrong historically regarding acquisitions (e.g., Onninen) and what you personally would have done besides stopping dividend payments? It would be a learning experience for me so that I no longer invest in such incompetent companies.

[Mamma94]

I Googled Dahlia in Swedish. I found out that Dahl is a reliable and good business partner with a wide selection. On the downside, they have high staff turnover.

[Uppo-Nalle]

The revenue for Ahlsell’s and Dahl’s Finnish operations has been approximately EUR 350 million in recent years.
In that press conference, Rauhala stated that Onninen’s market share is over 40%. If sales have been around EUR 1.1 billion, it would imply a market with an annual volume of approximately EUR 2.5 billion. In this case, Ahlsell’s and Dahl’s shares would be in the 10-15% range.
Source: Superficially read financial statements and back-of-the-envelope calculations.

If we assume Dahl’s cash conversion is in the same range as the entire St. Gobain Group, i.e., slightly under 60%, one could assume this would bring an annual operating profit of about EUR 100-120 million to Kesko. The EV/EBIT for the deal would therefore be around 14, meaning Kesko is actually buying this at multiples similar to its own (by the same logic, the P/E would be somewhere between 15-20).

Personally, I am not at all against share issues to finance growth (that is what they originally exist for), but the fact that the scale is only equivalent to a year or two of dividends does feel a bit strange.

[JuhaR]

@Monte_Cristo

Can you elaborate on everything Kesko has done wrong historically regarding acquisitions (e.g., Onninen) and what you would have done yourself besides stopping dividend payments. It would be a lesson for me so that I don’t invest in such incompetent companies anymore.

Kesko’s history also includes plenty of failed acquisitions, most obviously Anttila, which formed a long-term loss-making pit. In the grocery trade, they have also withdrawn from foreign markets with their tails between their legs, and the expansion of the hardware trade to the East did not go according to expectations either.

Among examples other than acquisitions, more recent ones include the Hehku wellness chain from the last decade and the foolish K-Pikkolo setups from the beginning of the millennium, which competed against the retailer-entrepreneurs.

Kesko’s history in acquisitions and divestments is exceptionally high-quality, but a certain degree of caution is always warranted when a company expands massively through high-priced acquisitions or otherwise expands / changes its concept.

[JBulli]

The acquisition is fully in line with Kesko’s strategy, which has been reiterated for a long time. It is worth listening to what the CEOs have openly repeated.

Whether the price was good, bad, or neutral is a separate matter. At first glance, it seems to be on the neutral side. Of course, there could be a hidden “bomb” in the business, but Kesko certainly conducts better due diligence than many other companies; one could compare, for example, Huhtamäki’s Elif acquisition to Kesko’s purchases in Denmark.

Financing the deal partially through a share issue is quite sensible; one can calmly observe on what terms and to whom the issue is directed.

[Kryptoniitti]

Based on the information currently available, I consider the deal to be in the best interest of the shareholders. Of course, the purchase price can be criticized, but it is by no means outrageous. The coming years will show just how excellent a strategic move this is. If we can get anywhere close to the growth brought by Onninen, we can be very satisfied.

[Kaupantekija]

Someone already mentioned earlier that Kesko has stated for years that its goal is to expand in the building and technical trade. That is why the share price reaction feels exaggerated. A growing company is always better than one that stands still and only monitors costs. Growth creates dynamism and forward momentum.

[TJT]

What is this narrative that we’ve managed to buy at the bottom of the cycle and that the purchase price is cheap? Today, the markets have shown directly who the winner is in the short term, as the French get a bag of cash while Kesko gets a bag of debt and sets the printing press singing.

I took a quick look at the cycle bottoms, and it doesn’t look like that in the other Nordic countries, assuming that Dahl’s Finnish operations have been in the red, driven by the domestic market.

As for capital allocation, this doesn’t seem like a once-in-a-lifetime deal that justifies dipping into the shareholders’ pockets; if there was a desire for acquisitions, the balance sheet should have been strengthened long-term instead of pushing dividends out year after year at 80% of net profit. Or, if there is genuine belief that this is a value-creating deal, then borrow the necessary amount from the markets.

In Denmark, Kesko has made excellent deals, though the combined turnover of those two deals was less than half of this massive Dahl acquisition, and those were overseen by Helander (the latter one to a lesser extent), who did an excellent job regarding capital allocation.
Time will tell if this was an excellent buying opportunity, but sometimes it’s worth reflecting in front of the mirror whether it’s you or the market that is wrong.

[Chris_Champ]

I see that Nordic direction as positive. Previously, eyes were set on the east, south, and central Europe, even though the Nordic countries are a very natural and sufficiently large region. Following in Nordea’s footsteps, with the language and culture already mastered.

[Hammer1]

Shouldn’t Kesko be releasing today’s Q&A session with analysts soon? If information has already been provided to various parties, wouldn’t it be fair for retail investors to receive the same information while the stock exchange is still open? The event already took place this morning.

[jjh]

In my opinion, the timing of this deal was good; the price would likely have been higher if the construction cycle were better. If you have been following the news and data center projects start taking off across the Nordics, the price would certainly have been different after that. In those projects, the share of building services (technical wholesale) is exceptionally high compared to normal construction projects.