AI Driven Automation And Large Customer Focus Will Support A Stronger Long Term Outlook

Catalysts

About TAKKT

TAKKT is a B2B direct marketing group that supplies business equipment and integrated procurement solutions to customers across Europe and North America.

What are the underlying business or industry changes driving this perspective?

• Deepening focus on large group customers with complex procurement needs, supported by multi year preferred supplier agreements in defense, infrastructure and technology, should drive higher quality recurring revenue and improve earnings visibility.
• Expansion of AI driven process automation in ordering, catalog production and translations, together with the competence center in Hungary and FTE reductions, is set to structurally lower operating costs and lift net margins over time.
• Group wide procurement initiatives that bundle volumes globally and simplify the product range are expected to offset freight and tariff pressure, stabilizing or improving gross margins and supporting EBITDA recovery.
• Brand rejuvenation and omnichannel marketing at businesses such as NBF, Hubert and Central, including proven uplifts from targeted catalog campaigns, should enhance customer loyalty and transaction frequency, supporting top line growth and operating leverage.
• Growing marketplace activity and positioning D2G as a one stop shop for customizable display solutions taps into the ongoing shift to digital and physical marketing for businesses, which could accelerate revenue growth and scale benefits in the OF&D division.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming TAKKT's revenue will grow by 2.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -5.7% today to 4.9% in 3 years time.
• Analysts expect earnings to reach €52.8 million (and earnings per share of €0.82) by about December 2028, up from €-56.2 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as €63.7 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 9.9x on those 2028 earnings, up from -4.3x today. This future PE is lower than the current PE for the GB Commercial Services industry at 13.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.81%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent macroeconomic weakness in key European markets such as Germany, along with ongoing softness in automotive, chemicals and manufacturing, may keep investment demand from business customers depressed for longer than expected. This could limit the ability to return to positive organic growth and put sustained pressure on revenue and EBITDA.
• Structural headwinds in the U.S. office furniture and FoodService markets, including muted government, health care and education demand and cautious restaurant expansion, could mean that the current mid single digit to double digit volume declines are not just cyclical. This would weigh on divisional recovery, vendor rebates and group earnings.
• Freight and tariff headwinds in the U.S., as well as possible further trade disputes, may continue to erode gross profit margins faster than procurement savings can be realized. This could make it difficult for TAKKT to lift margins back towards historical levels and thereby constrain net margins and operating cash flow.
• Execution risk around the TAKKT Forward transformation, including FTE reductions, operating model changes and building capabilities in the competence center in Hungary, could delay or dilute expected efficiency gains. This may result in a prolonged period of low single digit EBITDA margins and elevated onetime restructuring costs that dampen earnings.
• Potential large scale impairments in the U.S. businesses, particularly in FoodService and possibly D2G where management already sees a significantly high multimillion euro risk and no remaining headroom, would signal structurally lower profitability than previously assumed. This could undermine investor confidence, weighing on both reported net income and the share price.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €6.93 for TAKKT based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €1.1 billion, earnings will come to €52.8 million, and it would be trading on a PE ratio of 9.9x, assuming you use a discount rate of 5.8%.
  
• Given the current share price of €3.79, the analyst price target of €6.93 is 45.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.