What do forum users think about Tokmanni’s future?
What kind of investment is Tokmanni?
Recently, Tokmanni has been popular among private investors. Could this even be a company where Finnish small investors might have better visibility than international investment firms?
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Sometime after the IPO, I tried to get to know the company and even bought some shares. I haven’t owned the stock for a long time now. The stock took off well after the listing, and Anttila’s bankruptcy removed some competition. Honkkar’s corporate restructuring scared the market (because it didn’t file for bankruptcy). Competition in the discount retail market is tough. But then, poor figures were explained by either a warm winter or a cold summer, whether that was true, I don’t know. I couldn’t be bothered to speculate on the next year’s weather, so I sold. In addition, the company was aggressively pursuing growth mostly by opening new stores. The problem might be that in growth centers, competition is at least cutthroat, and in remote areas, customers are decreasing anyway. The company operates only domestically, so its business is dependent on the development of Finnish retail. Almost the entire profit is distributed as dividends, even though new stores were opened at a rapid pace and debt was still a burden. The company didn’t seem to have any competitive advantages.
But Tokmanni revamped its management team, and the bucket sale concept has done well. I haven’t really followed the company much anymore, but it seems to have found the “right tune” in a challenging market. Has the company revamped its product selection, focused on efficient distribution, and streamlined operations? Comment if you know more. Everyone has probably seen the renewed marketing on TV. If growth is based on opening new stores, it’s worth checking the comparable store sales growth in connection with earnings reports. This has also shown growth. The company’s profitability is in good shape, and the business is ultimately quite defensive. Acquisitions and thus eliminating competitors could be a tough challenge if the company could afford it. However, Tokmanni is overwhelmingly larger than many competitors (Bauhaus, Clas Ohlson, Hongkong, Puuilo, and whatever else there is). But I haven’t really followed the company much anymore, so comment those of you who know more.
Should this company be added to Inderes’ coverage?
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I have a small amount of Tokmanni in my holdings. Here are my thoughts:
- A fundamentally good dividend stock
- Growth has been good in terms of numbers, and the appearance of their stores has also improved in the last couple of years
- If the economy takes a dive, Tokmanni is likely on the defensive side as it’s a discount chain
- An interesting observation from Google Trends is that Tokmanni’s search volumes have increased by ~50% in two years relative to “Prisma” and “Citymarket” search terms
- Expanding into areas with population decline is, in my opinion, the biggest risk to the business, but apparently, growth has been quite affordable (store premises bought/rented at almost zero cost). In a way, I do trust Tokmanni’s management and their ability to calculate the profitability of that strategic move.
- The stock’s reasonable valuation (I still believe this holds true)
In my opinion, the sustainability of the current valuation (+10€) in either direction compared to the previous level largely depends on the Q3 results. Q2 was a stunning 60% better than last year, primarily due to process improvements (reduced waste) and a revamped spring portfolio. However, H2 is the decisive half of the year, meaning the market is pricing based on the previous earnings report, estimating how much of the improvement scales to the full year – i.e., whether waste will decrease at a full-year level. On the other hand, if this is the case and the portfolio and sales have also improved in the autumn, there is room for further upside.
Before the earnings report, I believe there’s an opportunity to get a view on the portfolio, processes, and probably the macro situation as well. After the earnings, we’ll have a better idea if this year’s targets will be met, and a major internal uncertainty about the share price, at least in my mind, will disappear.
Evli follows and publishes analysis on Tokmanni: https://www.evli.com/erp-analyysikirjasto#tokmanni.
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I had positions in Tokmanni at around 7.5 euros several times myself, then I cashed out the last one at ten euros. I severely underestimated Tokmanni’s potential because I hadn’t overweighted it when I could have gotten it cheap. That, in turn, was based on the fact that I visit a Tokmanni in the Helsinki area about once a week, and it felt like there were hardly ever many customers, so this personal observation went badly wrong 
I’m considering taking a new position, but I think I’ll wait until after Q3, because there’s so much nervousness in the market.
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I’ve also held a position in Tokmanni a couple of times and even made a profit. Like @NukkeNukuttaja, I also sold all my Tokmanni shares at the last peak and thought I’d wait to see if the stock would get a bit cheaper so I could take a new position.
In my opinion, Tokmanni seems like a pretty good and reasonably priced investment target. However, with the current market situation, I didn’t dare to hold Tokmanni any longer, as I don’t believe Tokmanni’s stock price will rise if the general market situation deteriorates significantly from here. Of course, the positive thing is that Tokmanni has already improved its profitability this year compared to last year. In addition, Tokmanni has recently expanded its store network, which may strain profitability in the short term. If all goes well, results might start to improve in the longer term.
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Here are some small calculations about Tokmanni and its acceptable P/B ratio.
Tokmanni’s ROE is 25.5% and its current P/B is 4.0x.
The required rate of return used in the calculations is 9.0%.
Tokmanni’s growth rate is assumed to be 4.2%, which is the five-year average of the annual earnings growth.
The result gives an acceptable P/B ratio of 4.43x. However, a value investor would ideally want the growth premium “for free”, in which case they would only be willing to pay a price corresponding to the P/B without growth (2.83x).
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Tokmanni’s latest major acquisition is Ale-Makasiinit. It’ll be interesting to see how business goes in these smaller towns, when for example, Saarijärvi now has two Tokmanni stores and the Äänekoski region has as many as three. Of course, with the acquisition, they also got stores in good locations where there wasn’t a Tokmanni yet.
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What’s Tokmanni’s moat, and where does its growth come from?
Sales growth mainly comes from opening new stores and expanding existing ones. The company aims to open 200 stores. At the end of 2018, it seems there were 186 stores. Operating profit can also be increased by potentially improving efficiency further.
The 2018 financial statements detail competitive advantages. In short, competitive advantages stem from differentiation from competitors through product selection, price image, location, etc. The company has a nationwide store network. The company also strives to, for example, get large quantities of goods to stores as cheaply as possible and sell them at a lower price than competitors. This is probably part of the efficiency measures that many smaller companies cannot achieve.
Still, I would be careful with the concept of competitive advantage (in principle, no matter which company is in question). I don’t know if Tokmanni has any (sustainable) competitive advantages. I was sure it didn’t when I last invested in it. Strengths can always exist, of course. Regarding risks: How long can Tokmanni grow in Finland? And how has Tokmanni positioned itself for the disruption in the retail sector? One also needs to be careful when choosing new locations. I personally haven’t had a need for Tokmanni; in Pirkkala, I looked for renovation items at Bauhaus, car items at Motonet someday, and the rest at Citymarket. Everything was next to Tokmanni. This doesn’t mean anything yet, of course, and it would be easier to get all items under one roof. Tokmanni’s business has a long list of risks and uncertainties, some naturally greater than others.
P.S. It’s a really good sign when the operating profit margin can be increased even though a new store only reaches profitability in about 12 months. It’s definitely worth reading the 2018 financial statements.
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I should probably read that financial statement. You had a lot of good points and I feel like I think the same way. I don’t really buy much from Tokmanni either, especially not anything I could get elsewhere. The food section, in particular, is completely unfamiliar to me. Somehow these low-margin businesses, which are based on efficiency, scare me. Efficiency somehow seems to disappear at some point.
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I noticed a couple of three years ago that the local Tokmanni store, from a customer’s perspective, was like a traditional discount store, meaning items were displayed somewhat haphazardly, “less refinedly” – yet the price tags on the products showed at least the same price as in other stores. I stopped using Tokmanni when I noticed that the prices for the same products in the Citymarket next door were even cheaper.
I don’t know if anything has changed since I haven’t shopped there in years. Because I don’t like paying extra for a “discount store experience”.
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Our garden chairs are sustainable.
No need to go to Tokmanni for those either.
The photo is from our garden pergola from last summer.
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Contrary to @Masse’s expectations, Tokmanni’s winning streak continued, with strong growth and a positive change in guidance! Now I’m celebrating!
Addition: It should be noted that tax refunds were timed for the reported quarter, which may be reflected in Christmas season sales.
Addition 2: So I’m not celebrating that @Masse can sometimes be wrong, although it’s rare, but the good result.
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Yes, yes… It’s really looking good now.
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Uncle Masse seems to be quite a legend here on the forum, and fortunately, he keeps the flag flying high when he’s right :)!
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I myself lightened up a bit after the Q2 earnings report, as I didn’t trust the stock’s staying power and wasn’t sure about Q3. I should have, of course, taken into account the impact of tax refunds. But Q4 will also be strong and the stock has held its level, so there’s no need to lighten up in the near future.
I went to grab more shares. Tokmanni has increased its revenue by 10% this year compared to the reference period, and has now raised its guidance for improving profitability for the entire year. Profitable growth!
I crunched the numbers and it already looks cheap for 2019e, let alone 2020e. Evli usually publishes its next report quite soon, so I don’t have to rely on my own numbers then.
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In the short term, Tokmanni still has something to prove for Q4, meaning Christmas sales must succeed, but with increased revenue, I don’t see a problem here. Of course, it largely depends on what kind of multiples the market accepts, but if revenue and profit improve quarter after quarter, acceptable multiples will also increase. I see seasonality as a slightly negative factor.
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I decided to do some test shopping at Tokmanni. It’s been years since the last time I happened to need nothing more than a bucket and a lid.
The basic feeling was good. The products were neatly shelved and plentiful. I almost couldn’t find any buckets until I finally located 30-liter moonshine buckets next to the beer shelf. The selection was basically the same as in a larger Prisma, but without food. In the end, I only bought one can of lemonade.
Tokmanni is now on the pulse of time. Price and trend-conscious youth are reinvesting their dividends on the soda shelf.
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My sea (pun intended) explanation is accepted by Uncle @Masse 
I’m just wondering where I can fit all those plastic buckets full of banknotes, since in Tokmanni’s case, getting rich seems unavoidable. Luckily, a bucket is multi-purpose; you can, for example, cut eyeholes in it, put it on your head, and go celebrate Halloween
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