E-commerce Surge Will Undercut Brick-And-Mortar Margins Despite Integration Gains

Key Takeaways

• Heavy dependence on physical stores and a concentrated Finnish presence heighten vulnerability to e-commerce, demographic shifts, and regional economic risks.
  
• Persistent cost pressures, rising competition, and a volatile low-margin model threaten margins and limit sustainable long-term growth opportunities.
  
• Ongoing integration, regional expansion, private-label growth, and supply chain partnerships are strengthening margins, stabilizing earnings, and supporting sustainable top-line growth.

Catalysts

Operates as a variety discount retailer in Finland, Sweden, and Denmark.

• Continued acceleration of e-commerce adoption threatens to siphon consumer spending away from Tokmanni's core brick-and-mortar formats, putting long-term pressure on store footfall and challenging the ability to drive revenue growth-even as digital investments ramp up, omnichannel offerings may not fully offset in-person declines.
  
• Demographic headwinds in Finland, including a shrinking and aging population, are likely to erode the total addressable market for value-focused physical retail, constraining future revenue potential and creating systemic barriers to sustainable growth in Tokmanni's largest geography.
  
• A low-margin, high fixed-cost operating model leaves Tokmanni acutely vulnerable to even modest sales fluctuations; earnings are likely to remain volatile, especially as persistent cost pressures from wage inflation and rising operating expenses in both Tokmanni and Dollarstore erode net margins.
  
• Heavy reliance on the Finnish market with limited geographic diversification exposes the group to regional economic downturns and market saturation, restricting avenues for material expansion and curbing long-term EBIT growth.
  
• Intensifying competition from pan-European discount retailers and global e-commerce giants is expected to further compress pricing power and customer loyalty, undermining Tokmanni's market share and putting downward pressure on both gross margins and overall profitability despite current integration and synergy initiatives.

Tokmanni Group Oyj Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Tokmanni Group Oyj compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Tokmanni Group Oyj's revenue will grow by 4.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 2.5% today to 3.3% in 3 years time.
• The bearish analysts expect earnings to reach €62.8 million (and earnings per share of €1.08) by about August 2028, up from €41.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.5x on those 2028 earnings, down from 12.2x today. This future PE is lower than the current PE for the GB Multiline Retail industry at 27.0x.
• 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 11.37%, as per the Simply Wall St company report.

Tokmanni Group Oyj Future Earnings Per Share Growth

Risks

• The ongoing integration between Tokmanni and Dollarstore, under the One Company model, is already producing synergy savings and is expected to generate over €20 million per year by the end of 2025, which could materially improve gross margins and group profitability over time.
  
• Joint private-label development is experiencing early success in both Sweden and Denmark, allowing Tokmanni to strengthen pricing power and margins through higher-margin proprietary products, supporting future earnings growth and improved net margins.
  
• Expansion of Dollarstore in Sweden and Denmark is delivering positive like-for-like sales growth and increasing market share, demonstrating the potential for sustainable top-line revenue growth driven by regional diversification and an enlarged physical footprint.
  
• The group's exposure to groceries, which are non-cyclical and have shown robust performance even amid weak consumer confidence, provides a stable revenue base and limits downside risk to overall group revenues and cash flow.
  
• The SPAR International partnership grants Tokmanni world-class supply chain expertise and access to new products, enhancing operational efficiency and supporting both revenue growth and cost control, which should improve net margins and earnings stability in the long run.

Valuation

• The assumed bearish price target for Tokmanni Group Oyj is €8.2, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Tokmanni Group Oyj's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €17.0, and the most bearish reporting a price target of just €8.2.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €1.9 billion, earnings will come to €62.8 million, and it would be trading on a PE ratio of 10.5x, assuming you use a discount rate of 11.4%.
  
• Given the current share price of €8.66, the bearish analyst price target of €8.2 is 5.7% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.