This letter smells a bit like a pump attempt, even though it has valid points in itself.
There’s a reason why Kronans Apotek is valued much lower than in the letter. Kronans Apotek has lost market share in previous years, and its online store isn’t performing at all. At the time of the merger, its market share was 25%, and it has since dropped closer to 20%. With the increasing importance of e-commerce, it can almost be said that the last one to leave will turn off the lights, and the current 100 million euro valuation given by Inderes for this is optimistic.
Everything depends on what Kronans’ operating profit would be in the future. The letter estimates Kronans’ value at a high Ev/sales = 0.75. Juva estimates around 0.2, assuming an achievable operating profit of 2%. For Kesko, the figure is 0.86. It is somewhat surprising that the grocery business is more profitable than the pharmacy sector, although Kesko is the most profitable in its field globally Suomalaiset ruokakaupat ovat maailman kannattavimpia, sanoo asiaa tutkinut työelämäprofessori | Talous | Yle. Just over 20 years ago, Kesko’s P/B was 0.5 and it was not very profitable. This is how situations in different sectors can change..
“The share of e-commerce in Finnish pharmacy sales is not yet very large, but it is constantly growing. One example is Yliopiston Apteekki, whose online pharmacy’s share of consumer sales was 9% in 2024”.
The customer base consists mainly of over 60-year-olds; if a local pharmacy is available, will a 10-euro jar be ordered online, and don’t pharmacists also act a bit like doctors, one can complain about ailments to them and ask what might help..
Pharmacists are unlikely to act as doctors, and only OTC products would be available anyway. I understand that the comment was made somewhat tongue-in-cheek.
I agree with @kimsku that these are very relevant points, but that valuation seems outrageously high. Kronans’ IPO is by no means timely with the current poor results, and investors would hardly be very enthusiastic about a dwindling brick-and-mortar pharmacy. In that regard, the most sensible and likely option is the sale of Oriola’s half to its partner Euroapotheca, which we have considered likely within a few years’ horizon.
Better communication and splitting/selling the company to create value are relevant points that I agree with. And I believe/hope that these have already been considered by the board – if not, it would be high time.
I’ve sometimes bought this for as little as 2 euros, but it doesn’t really appeal now, even though the stock chart shows signs of recovery.
As can be read from Inderes’ report: Oriola’s equity ratio is already at a very low level of 12%, and we see it as possible that the company needs to strengthen its balance sheet, e.g., with a hybrid bond or a share issue. Oriola is also making a group-wide IT system investment by the end of the decade and likely renewing its logistics center in Finland. In addition to investment costs, these may cause short-term disruptions and inefficiencies in operations.
If the joint venture were sold for Inderes’ estimated price of 80 million (that might even be too much? before achieving 2% operating profit) and its value is marked as 216M in the balance sheet, then it would wipe out the entire equity (now 115M). And high dividends are still being paid. Is the board out of touch?
Mostly along the same lines. But someone could explain how it could follow from someone giving Oriola 80 million in hard cash that their own equity would go into negative and they would have to do a share issue or a hybrid loan? I mean, I know you can’t operate with negative equity, but it just doesn’t make sense that receiving money would trigger the need for more money
The group’s negative equity does not affect the operations of separate companies. A hybrid bond/share issue is only needed if debt financiers were to stop financing the company without additional funding from the owners.
In the 2024 financial statements, the group’s parent company had equity of EUR 301 million and a total balance sheet of EUR 649 million. These figures can withstand write-downs. The parent company had
Hi!
As usual, Oriola will have a CEO interview coming up in connection with the results. Not much has been heard from the company lately, but would there be any questions for Katarina here?
Here are Rauli’s preview comments as Oriola publishes its Q3 results on Thursday.
We expect adjusted EBITDA to improve slightly from the comparison period, thus raising the cumulative full-year result above the comparison period. We believe the company will reiterate its guidance for an improvement in full-year adjusted EBITDA. However, in our forecasts, the improvement remains quite limited.
One might, with some deliberation, ask about the following topic. How do digitalization and artificial intelligence manifest in Oriola’s services and processes, and how does the upcoming / ongoing ERP project take this into account now, and how will the potential it brings be considered in the project?
Well, we’ve pondered it a few times with the guys. Buyers could be, for example, the Herlins and some private equity investor. Like Ahlström-Munksjö.
But as long as the business is shrinking like a grouse before the end of the world, is it realistic? I would see that the pharmacies in Sweden should be divested first, and then the wholesale business might be sold after that. Even the current Chairman of the Board was, in my opinion, such in terms of his skill profile that he would certainly be a good man to sell the whole of Oriola, but what if no interested parties are found?
And this has also been speculated for at least 10 years. There was even some ‘hehku’ or ‘ihku’ chain. But nothing happened? Kesko might also be waiting for the deregulation of pharmacy regulations. BUT what kind of logistics/distribution expertise does Oriola have that Kesko wouldn’t have better? (I genuinely don’t know, so it’s a sincere question. It could be that the distribution of medicines is a whole different ball game.)
Two share classes have been one obstacle to the acquisition. Now it has been removed. Oriola’s dismal performance has been another obstacle. The trend is now turning. The pharmacy situation has been resolved, although the joint venture’s success has been dismal so far. Soon the time will be ripe.
Pharmaceutical distribution is its own beast, but some synergies can always be found in logistics. Kesko also has capital for sensible investments to develop Oriola.
We’ll probably get a decision from the government on the removal of pharmacy regulation quite soon. As for whether Kesko is the top buyer candidate, everyone can consider that for themselves. Definitely not the worst guess.
Well, maybe we could get it, but this has been speculated about in the exact same way already last decade. Why would now be the moment?
And it’s not going to be very soon - if the government were actually preparing this, someone (an opponent?) would surely have leaked it to Helsingin Sanomat (Hesari).
