I have to mildly challenge what was presented in the video. When it comes to consumer purchasing power, it is probably quite true that the purchasing power of the majority has been under pressure for several years. However, one must remember that the company sells products with a unit price of just a few euros. Even the CEO repeatedly stated in various contexts after the IPO how defensive the company is because it sells products that everyone can afford. Or something along those lines. The fact remains, however, that even though almost everyone can afford these products, sales still aren’t really growing any faster because the addressable market doesn’t seem to be expanding, at least not in the Nordics. Personally, I don’t buy the argument of purchasing power being the explaining factor.
According to my own analysis, the total addressable market for Orthex’s products is not a rapidly expanding growth market, but rather a traditional consumer goods market where growth relies on winning market share, especially from competitors outside the Nordics. However, we have already observed that even in Finland alone, cheap storage boxes imported from Eastern Europe are challenging Orthex’s significantly higher-quality boxes at a vastly lower price point. Furthermore, the company is cannibalizing its own margins through private-label manufacturing for various retail chains. Since the company possesses no sustainable competitive advantages beyond its Nordic brand, I find it highly unlikely that its sales will see a major boost in Europe driven by, for instance, recycled materials or ESG themes—which are already gradually fading from the communications of large corporations.
The list of Orthex’s largest shareholders has remained exceptionally stable in recent years, and no major upheavals have been seen since the IPO. The only significant structural change took place right at the beginning of the listing, when private equity firm Sponsor Capital, which had developed the company prior to its journey on the stock exchange, fully exited the company by selling off its remaining shares shortly after the IPO. Since then, the top of the shareholder register has practically frozen in place. The company’s management has also remained the same, and there hasn’t been much movement on the board of directors either, save for an occasional member changing over time. Therefore, in hindsight, it is fairly easy to look back into history to find explanations for why the company has been treading water for 4 years.
In my assessment, Orthex is one of those companies that would benefit from stepping down to the First North list, because for a small, corner-store-scale company, IFRS and ESG reporting are costly and cumbersome relative to the benefits. It’s hardly going to happen, though.