Finland's Aging Demographics And Rising Costs Will Erode Value

Key Takeaways

• Slow e-commerce adaptation and demographic shifts threaten core revenue growth, while geographic concentration increases vulnerability to local economic and market risks.
  
• Regulatory pressures and rising operating costs are likely to compress margins further, putting sustained pressure on group profitability.
  
• Ongoing integration, private label growth, expanding store network, and supply chain improvements are set to bolster efficiency, market share, and long-term profitability.

Catalysts

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

• The persistent migration of retail spending to online channels exposes Tokmanni's heavy reliance on brick-and-mortar locations, and the company's slow adaptation to e-commerce will likely cause foot traffic and traditional revenue streams to stagnate or decline in the long run. This threatens the company's ability to deliver sustainable revenue growth.
  
• Finland's aging population and structural demographic stagnation point to a shrinking long-term customer base for discount variety goods, reducing addressable market size and limiting future sales growth for Tokmanni's core segments.
  
• The intense regulatory and societal pressure for environmental sustainability is expected to increase operational and compliance costs, especially as Tokmanni's low-cost supply chain may be forced to adapt or limit its product mix, compressing net margins over time.
  
• Tokmanni's geographic concentration in the Finnish market heightens its vulnerability to local economic downturns and weakens its ability to diversify risks across markets, increasing earnings volatility and potentially suppressing long-term profits.
  
• Persistently rising costs due to sector-wide wage inflation, higher rents, and more complex logistics undermine margin stability; these costs are exacerbated by Dollarstore's higher operating expenses and ineffective margin management, suggesting group earnings are at heightened risk of continued compression.

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 €62.9 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 12.1x 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 successful integration of Tokmanni and Dollarstore through the One Company strategy is already yielding tangible synergy benefits, with a raised annual synergy target of over €20 million by end-2025, and continued progress in joint procurement and private label development, which may improve gross margins and long-term earnings.
  
• Positive sales momentum is emerging at Dollarstore, with like-for-like sales growth, increased average basket size, and strong uptake for new, higher-margin joint private-label products such as Kotikulta and Barbecue King, suggesting potential for sustained revenue and gross profit improvement as the new assortment and pricing strategy matures.
  
• Management expects consumer confidence in Finland and Sweden to recover due to salary increases and stable interest rates, which could boost demand for non-grocery and higher-value categories, thus supporting group-wide revenues and improving operating leverage in the coming years.
  
• The expansion of the store network in Sweden and Denmark, combined with ongoing urbanization and regional demand for value retail, positions Tokmanni Group to increase its market share and benefit from scale, which would likely strengthen top-line growth and overall profitability.
  
• Tokmanni's collaboration with SPAR International is enhancing operational processes and supply chain efficiency, while direct importing and digital/IT investments are designed to lower unit costs, boost efficiency, and support higher operating margins and net income over time.

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 €62.9 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 €8.59, the bearish analyst price target of €8.2 is 4.8% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• 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.