Unified Nordic Platform And Logistics Will Redefine Long Term Beauty Retail Potential

Catalysts

About Matas

Matas Group is a Nordic beauty and well being retailer operating the Matas and KICKS banners across physical stores and online channels.

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

• The rollout of a single digital platform across four Nordic markets gives Matas scale benefits in e commerce, data, app development and retail media. This can support higher conversion, larger baskets and, over time, a more attractive earnings profile.
• Growing customer activity, with 500,000 more transactions in the first half and 100,000 new loyalty members in one quarter, points to stronger traffic and a younger customer mix. This can support revenue and lifetime value per customer.
• Completed investments in two automated logistics centers for Matas and KICKS, with early efficiency gains and stable operations, create room for better fulfillment economics and staff productivity. This can support net margins and cash generation.
• Being a unified Nordic group helps Matas secure exclusive brands like Charlotte Tilbury and scale its own brands such as Nilens Jord into Sweden, Norway and Finland. This can support premium mix, gross margins and brand driven revenue growth.
• Ongoing cost discipline, pricing work and synergy realization from the KICKS acquisition, including shared assortment and cross market best practices, point to potential operating leverage as sales grow. This can support EBITDA margin and earnings.

Assumptions

This narrative explores a more optimistic perspective on Matas compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts. How have these above catalysts been quantified?

• The bullish analysts are assuming Matas's revenue will grow by 6.5% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 3.3% today to 7.2% in 3 years time.
• The bullish analysts expect earnings to reach DKK 744.1 million (and earnings per share of DKK 20.77) by about January 2029, up from DKK 287.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as DKK576.2 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 12.0x on those 2029 earnings, down from 13.4x today. This future PE is lower than the current PE for the GB Specialty Retail industry at 14.1x.
• The bullish analysts expect the number of shares outstanding to decline by 0.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.94%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The KICKS banner is positioned more toward high end beauty, which management describes as more cyclical than the core Matas business. A prolonged period of weak consumer confidence in Sweden or Norway could weigh on discretionary beauty spending and limit like for like growth in KICKS, putting pressure on group revenue and earnings.
• Foreign exchange headwinds are already visible in KICKS, where buying in Swedish krona and selling in Norwegian krone is described as unfavorable for margins. If FX remains adverse or becomes more volatile, it could erode gross margin and EBITDA margin even if underlying unit sales remain healthy.
• The group has built up inventories ahead of Black Week and Christmas and is running with wider assortments and two new automated logistics centers. Any weaker than expected peak season or operational issues in these facilities could leave Matas with elevated working capital, softer cash generation and gearing that stays above the long term target.
• The rollout of the single digital platform across KICKS markets is intended to improve conversion and upsell, but management already acknowledges a roughly 1% drag on group sales during the transition. Further technology related disruption, slower customer adoption or execution issues could cap online growth and weigh on revenue and earnings.
• Competitive intensity in Nordic beauty retail, including peers planning a large expansion of physical stores, increases the risk of price competition, higher promotional activity and the need for continued investment in assortment and customer experience. This could pressure net margins and limit future earnings growth.

Valuation

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

• The assumed bullish price target for Matas is DKK185.0, which represents up to two standard deviations above the consensus price target of DKK162.5. This valuation is based on what can be assumed as the expectations of Matas's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of DKK185.0, and the most bearish reporting a price target of just DKK140.0.
  
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be DKK10.4 billion, earnings will come to DKK744.1 million, and it would be trading on a PE ratio of 12.0x, assuming you use a discount rate of 8.9%.
  
• Given the current share price of DKK102.8, the analyst price target of DKK185.0 is 44.4% 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.