Kesko’s Q3 result was good. Operating profit was overall in line with our forecasts. P&T’s EUR 93.5 MEUR vs forecast EUR 86.9 MEUR was again clearly better than our high expectations, while the old hardware store business fell short of our forecasts. Onninen and Car Trade were in line with our expectations. Lower financing costs than expected and a smaller minority interest in Senukai explained the clear EPS beat relative to our forecast.
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I just noticed that SEB raised Kesko’s target price to 70 euros today and recommended buying.
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How are people feeling about next week’s earnings call? There are differences in analysts’ recommendations, at least. I had my sell trigger very sensitive when it broke 65, but I still held onto the shares.
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Keskos as a whole delivered a very good performance, and its comparable operating profit was in line with consensus expectations. Grocery Trade and Car Trade exceeded forecasts, while Building and Technical Trade fell short.
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What are the effects of the coronavirus on Kesko? At least grocery store sales have certainly been much higher than usual in recent days.
The share price has fallen from €70 to €50 in a month.
If this continues, it will surely hit other operations harder than daily grocery shopping. In grocery stores, it can influence people’s purchasing behavior, leading them to pick up cheaper food items than usual.
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Sales were still strong in February. Keskon myynti oli helmikuussa jälleen vahvaa - Inderes
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It will surely have a negative impact on the car and hardware trade.
It will be interesting to see what kind of effects the closing of schools and the shift to remote work will have on the daily goods trade. K-Group’s director of daily goods trade has said that sales have still been at a higher than usual level precisely because of these factors.
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And the profit warning is here, and I was wondering where it was – sales are collapsing completely.
However, according to Kesko’s own forecast, sales will not completely collapse, but instead: “Due to the coronavirus and global economic uncertainty, we estimate that we will fall somewhat short of the record operating profit of 2019,” meaning about 10%. This may change later, but for example, food demand will remain unchanged, according to Kesko’s estimate.
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Well, the guidance is for a comparable operating profit of €400-440 million, which is €60 million less, or 13% less than last year. I’m rounding the numbers to clarify the calculations.
Food trade approx. 330 million
Building approx. 140 million
Car trade 25 million
Specialty trade 10 million
Eliminations -35 million
Approx. €460 million.
A pretty mild negative in my eyes. Car trade and specialty trade already make €20 million, plus €40 million from building. Kesko would get by with very little if this guidance holds.
Edit: Oh, and that only applied to the lower end of the guidance.
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Huh, I wouldn’t believe their predictions at all now, the reality is somewhere around -30% and that’s probably where it will be priced eventually. It’s okay even if it goes down more than I assumed, it might create a buying opportunity for a company that is consistently overpriced.
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@Olli2 Perhaps you could shed some light on/explain how one would assess a grocery store during exceptional times? The share of other discretionary goods is decreasing, but the grocery store’s share is growing. It’s difficult for me to grasp this structure (electronics, etc.).
Of course, if discretionary spending grows, it mitigates the impact, meaning that the aforementioned figures for construction, car sales, and specialized retail could and should be lowered from what I mentioned earlier.
I agree with the previous writer on that; my figures are heavily on the high side.
This is logical, as discretionary spending forms a large share.
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Today’s morning review’s macro section accurately described what is currently happening. “Especially the demand for services and durable goods may experience a hard hit in the current situation, and they form an essential part of household consumption expenditure. The demand for short-lived goods, such as necessities like food, on the other hand, is more stable.” I will update our view on Kesko after the stock market closes.
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What are forum users’ thoughts on Kesko? Kauppalehti’s and Vilppo’s analyses were still relatively confident. It’s clear that the car and hardware trade will slump, but will the grocery trade really get through this epidemic so dry? People always need food, but sales will still decrease, and only essentials will be bought, with “extra” purchases remaining on the shelves. Will tough times drive consumers more towards S-Group’s and Lidl’s “cheaper” stores? From my own shopping experiences, it’s been quite quiet at Citymarket (Cittari) and Prisma.
Thoughts?
S-Group: “On the busiest days, sales grew by 60–70 percent.”
Yes, my view is that the construction and car businesses have already been priced into the stock. If you look at the 2019 earnings distribution, about 70% came from grocery retail. While the construction and car businesses are temporarily slumping, grocery stores are performing better than usual due to quarantines. Even if people save more than usual on groceries, they still eat just as much as before. And once this crisis is over, other businesses will pick up again and the stock’s value will rise sharply. If things go really well, Kesko will take advantage of the situation and make a couple of profitable acquisitions so that it can grow even better during the economic upturn 
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Steady growth even in exceptional circumstances. As perhaps expected, grocery sales grew clearly, and building and building services also produced nice growth. Car trade and restaurant business, on the other hand, decreased. With this note, you can be at ease even in exceptional circumstances
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The drop in car sales (-12.6%) was surprisingly small compared to forecasts. All in all, a surprisingly strong March for Kesko. I recall reading that S Group’s daily consumer goods sales decreased in March. Maybe I remember incorrectly.
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