Puuilo - The newest player in the discount store market

[Hurde]

https://www.kauppalehti.fi/lehdistotiedotteet/kl/ffc99618-2546-3493-a301-58943d4902b3

Briefing

Puuilo is organizing a webcast in Finnish today, 7 June 2021, at 11:00 AM.

The company and its plans will be presented by Puuilo’s CEO Juha Saarela and CFO Ville Ranta. After the presentation, participants will have the opportunity to ask questions to the company’s representatives.

The event can be followed as a webcast at:

https://puuilo.videosync.fi/itf

The goal of the initial public offering (IPO) is to enable Puuilo’s strong growth to continue, improve Puuilo’s financial flexibility, and strengthen Puuilo’s recognition and brand awareness among its customers, employees, and investors. These goals aim to improve Puuilo’s competitiveness and enable its access to capital markets, as well as broaden its shareholder base with both domestic and foreign investors, which is expected to increase the liquidity of the Company’s shares. The listing of shares and increased liquidity are also expected to give Puuilo a better opportunity to use its shares in remuneration.

The planned IPO is expected to consist of a share issue of approximately EUR 30 million (gross proceeds) by the Company, as well as a share sale in which certain Puuilo shareholders sell their shares. The proceeds from the share issue are intended to be used to strengthen the Company’s capital structure, including the repayment of Puuilo’s existing bank loans.

Certain funds managed by Capital World Investors, selected funds managed by Evli Fund Management Company Ltd, funds managed by DNCA Finance, certain funds managed by Sp-Fund Management Company Ltd, certain funds managed by Svenska Handelsbanken AB, Conficap Oy, and certain funds managed through Creades AB (publ.)'s endowment insurance arrangement (together “Cornerstone Investors”) have, under certain conditions, committed to subscribe for shares in the Company for a total of approximately EUR 96 million in the planned IPO, assuming that the valuation of the Company’s entire share capital after the IPO is a maximum of EUR 560 million.

The Company’s Board of Directors has set the following financial targets in connection with the IPO. Financial targets are forward-looking statements and are not guarantees of future financial performance. All financial targets presented in this announcement are targets only and not forecasts or estimates of Puuilo’s future financial performance, and should not be regarded as such.

Puuilo has set the following targets for the period 2021-2025 (financial years ending 31 January 2022 – 31 January 2026):

• Net sales to exceed EUR 400 million by the end of the financial year ending 31 January 2026, and to grow organically by more than 10 percent annually.
• Adjusted EBITA to be between 17–19 percent of net sales.
• The company aims to distribute a dividend of at least 80 percent of the profit for each financial year, depending on its capital structure, financial position, general economic and business environment, and future outlook.
• The ratio of the company’s net debt to adjusted EBITDA to be below 2.0x.

A few images of Puuilo’s (and competitors’) growth from Tokmanni’s presentation:

[StockTycoon]

@Hurde

The company’s total share capital valuation after the IPO is a maximum of 560 million euros.

That sounds like a pretty high valuation, considering Tokmanni’s P/S is under 1.3 and Kesko’s is 1.1.

[Hurde]

While waiting for the report

[Olli_Vilppo]

In the retail sector, there are clear differences in operating profit margins depending on the industry and capital commitment, so it’s better to look at earnings-based multiples.

[Perttu_Hamalainen]

Here’s what I think is a prime example of a company that should change its name. It would be interesting to know how much the company has had to spend on marketing, just on marketing that tells people they don’t sell wood.

[Badwithmoney]

I was thinking the same thing. Just this past weekend, I drove past a big store and a giant sign caught my eye, advertising that they offer more than just wood

On the other hand, it has been successfully turned into a humorous advertising slogan that will likely stick in people’s minds once they see it. Many others are also trying to do the same: Stark, Bauhaus, K-rauta. To some extent, also Tokmanni and Rusta, even though they don’t specialize in construction.

In the construction and DIY category, if anywhere, there’s a lot of the growth from the COVID years baked in. I’ll have to keep an eye on this. Could Puuilo join Mr. Tokmanni in the portfolio?

[PeeJii]

I’ll have to comment more extensively once I get a chance to study the case better, but this perhaps initially tempts me. Below are my first thoughts on this:

• The coronavirus has certainly boosted Puuilo’s business.
• An 80% dividend from earnings sounds quite high to me if the goal is indeed to continue growing at a good pace.
• There are also quite a few competitors with slightly different styles and price points, so if they don’t expand abroad, the limits of (profitable) growth could be reached quite quickly.
• I’ve noticed that I listen to the radio for about an hour every morning, and at least on a couple of channels, Puuilo’s advertisements have been heavily played in recent months (most recently on Basso, which of course is not the most widely listened to or most expensive channel). This would indicate that they are at least investing in marketing at the moment.

[Yu_Gong]

Alright, now there’s a company page for this one too Puuilo - osake - Inderes

[Petri_Kajaani]

@StockTycoon

That sounds like a pretty high valuation, considering Tokmanni’s P/S is under 1.3 and Kesko’s is 1.1.

It’s worth noting that Tokmanni’s operating profit margin is 9% and Kesko’s is 6%.
Puilo’s operating profit margin is very high at 18%, so a higher revenue-based valuation can be accepted for the company compared to Tokmanni and Kesko.

[PeeJii]

Here are some additional thoughts from the webcast found via @Hurde’s link (plus a few screenshots) which I listened to with one ear:

In my opinion, the pros:

• E-commerce is growing well, though still a small portion of total revenue (3.3%)
• Maintaining margins through frugality: e.g., shopping carts for stores are bought used, and it was mentioned that they can even be in somewhat rougher retail spaces
• Lots of in-house production and own products – whose offerings are also being expanded (could be a minus, but generally in my books, this is a plus because usually better margins, etc.)

Questions and other observations:

• If the offering is 30 million, how does the anchor investors’ 96 million commitment relate to that? I didn’t quite understand this dynamic.
• It was asked if the 80% dividend payout and the pursuit of strong growth are contradictory: they don’t think so due to strong profitability, but I personally find this concerning.
• Expanding abroad is not currently in their sights. They mentioned that they are already a big company in Finland, which still raises some questions about the limits of growth (profitability, etc. can, of course, still be optimized and results improved).
• An interesting observation from web analytics: according to the presentation, the online store had 8 million unique visitors in the financial year ending 01/2021. Considering this is only a Finnish store, can that possibly be true

[VoitonTavoittelija]

Quote * Interesting observation from web analytics: according to the presentation, the online store had 8 million unique visitors in the fiscal year ending 01/2021. Considering this is only a Finnish store, can that really be true

I can’t comment on the 8 million visitors, but I do consider the ability to check product availability an absolute competitive advantage. Of course, this feature is also available from competitors, but for example, here in my hometown, where Puuilo is located next to K-rauta, the purchase decision is often easily made based on online store availability.

If you add a fast-working Click & Collect on top of that, then the customer experience is taken to the next level.

[Musti]

@PeeJii

If that offering is 30 million, how does the anchor investors’ commitment of 96 million relate to it? I didn’t quite understand this picture.

He probably meant that in the offering, the company raises about 30 million (i.e., these are new shares). In addition, the main owners sell their own shares. From these figures, one can guess that the listing is mostly a private equity investor exit, and secondarily, fundraising. Of the funds raised, some are intended to strengthen the balance sheet, which, without reading other materials, sounds like paying off debts incurred during the private equity investor’s ownership. Both of these are very typical in private equity exits.

@PeeJii

An interesting observation from web analytics: according to the presentation, the online store had 8 million unique visitors in the fiscal year ending 01/2021.

The saying “You get what you measure” applies here. That is, it is likely that the same users register as unique visitors when they use different browsers/devices/have cleared their cookies. So it’s hard to say anything about a single number; the trend in the number would provide better information.

There is a short article in Talouselämä (paywall) that reviews the company’s history quite well:

Pörssiin pyrkivä Puuilo on entinen verstas, joka myi kylillä tavaraa...

Markku Tuomaala founded Puuilo in 1982. The company started its operations as a carpentry workshop. Initially, it traded with six old buses that traveled around Finland to village and city markets.

Sales focused on small hardware. The company began to build its extensive store network in the early 2000s, and at the same time, the buses were also phased out.

In 2010, Tuomaala brought in private equity investor Sentica Partners as a shareholder. In 2015, Tuomaala and Sentica sold the company to the Swedish private equity investor Adelis Equity Partners. Adelis is a private equity firm focused on medium-sized companies in the Nordic countries.

Puuilo has been hinting at the possibility of listing on the stock exchange for some time. Tuomaala mentioned the matter already in 2017.

[Jorma_Peras]

Was there any estimate as to when the IPO would be? I didn’t notice one while skimming.

[Hurde]

@Jorma_Peras

Was there any estimate as to when the IPO would be? I didn’t notice one when glancing through.

You can look at IPOs and their communications from the last year; it should be within about a month at the latest.

[saku]

Hardly any major underpricing in store.
https://twitter.com/EloHenri/status/1401827249217810437?s=19

[Molskis06]

A comparison to Motonet would be interesting. Here, too, Motonet draws in crowds, and a face mask is necessary in the aisles. The brand is definitely cooler outside of Ostrobothnia (Pohjanmaa).

[Osinko44]

Interesting company. Exact figures should be made visible before one can decide if it’s a potential investment. Somehow, “buying trolleys used” left me with a more negative than positive feeling. It’s probably because I’ve been in an organization myself where they were really (read: too) careful with money. Job satisfaction wasn’t at its best, and turnover was high. It’s not fun to work with poor tools.

[Jyvis]

This thread definitely needs to be followed. A great story that seems to be continuing, and the numbers are also commendable. I’ll be keenly following the comments of those wiser than me regarding the pricing. Based on my own customer experience, Puuilo has found a slightly different selection from other chains, not just in terms of quantity but also quality. The selection is, shall I say, a bit more “manly,” which appeals to those who, in addition to their summer cottage, have bought a few hectares of forest land for their hobbies, including hunting rights. These hobby plots have been selling like hotcakes for a long time, as have all old tractors and suitable work machines from the backyards of farms. And horse riding hasn’t been forgotten either. While Motonet and Biltema, for example, have focused on “car-caliber” tools, Puuilo also offers more robust and quality iron. If I can’t find something at Puuilo, the alternative is usually not another discount chain, but a specialized technical store or perhaps IKH. I don’t really consider Puuilo a traditional discount chain, even though it’s classified as one. We’ll hear more about this. The question then is at what point it’s worth trying to get on board.

[Average_Joe]

At least here in the East, they’re constantly looking for salespeople, and not because of expansion. It’s nice to discuss this since I’ve shopped at the store.

I could easily agree with the claims in the picture; I usually buy some offer, most often oil for the car, or look for some small part I haven’t found elsewhere. Shopping in the store is usually not pleasant due to the cramped and labyrinthine layout. The salespeople have been helpful, though, I don’t complain about that.

I laughed at the name for a long time, and the brand is unremarkable. The matter became clear after a Wikipedia article… I personally don’t like the current trend where every store sells everything from ass to outboard motor; it would be nice if Motonet only sold car/motorcycle parts and Lidl only food. At least their competitors here are Tokmanni, Biltema, Motonet? and Tavaratori. It would be interesting to know which product category sells best at Puuilo. I’m keeping an eye on this case; apparently, there’s a desire for expansion, and this “general store” isn’t in every town yet.

[Cloud_Explorer]

For these types of companies, anyone can do a Peter Lynch-style analysis – just walk into different stores and look around.
I do some shopping at these discount stores (Rusta, formerly Hong Kong), Tokmanni, and Motonet, which is a bit different. Hong Kong went completely downhill after it was sold to the Swedes. Tokmanni has a bit of everything, but somehow it just doesn’t appeal to me. Motonet is where I get almost everything related to cars. Otherwise, Puuilo is most often the place where I find the stuff I need. Visually, Motonet has the most people, followed by Puuilo. Tokmanni is often quite quiet. At Rusta, you don’t have to use your elbows much either.
This would also be interesting, but I can’t say anything about the valuation. I’ll have to read what the wiser people say about it.