Store Remodels And Digital Upgrades Will Expand Market Presence

Key Takeaways

• Expansion of IKEA stores and partnership with Foot Locker are key to revenue growth and geographical diversification, enhancing market reach.
  
• Advancements in logistics and digital transformation are set to boost efficiency, profitability, and support growth in both revenue and net margins.
  
• Rising operational costs and market challenges, including cybersecurity threats and external trade uncertainties, pose risks to Fourlis Holdings' future revenue and profitability.

Catalysts

Engages in the retail trading activities in Greece, Romania, Bulgaria, Cyprus, and Turkey.

• The expansion and remodeling of IKEA stores, including the opening of the new store in Heraklion and future urban format stores, are expected to drive future revenue growth by increasing market reach and customer accessibility.
  
• The agreement with Foot Locker to expand operations in additional countries offers potential revenue growth and geographical diversification, likely enhancing earnings from the broader sportswear market.
  
• The evolution of the company's logistics arm, Trade Logistics, into a profit center with third-party logistics services could improve net margins by enhancing operational efficiencies across the group.
  
• The deconsolidation of Trade Estates and its continued contribution through high dividend payouts and strong profitability are expected to boost future earnings and cash flow for Fourlis Holdings.
  
• Digital transformation and omnichannel capability enhancements, including expanding e-commerce, are projected to support revenue growth and improve customer service efficiency, potentially leading to better net margins as digital channels become more prevalent.

Fourlis Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fourlis Holdings's revenue will grow by 11.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.1% today to 6.4% in 3 years time.
• Analysts expect earnings to reach €47.2 million (and earnings per share of €0.91) by about May 2028, up from €-538.0 thousand today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.0x on those 2028 earnings, up from -375.9x today. This future PE is lower than the current PE for the GB Specialty Retail industry at 11.6x.
• Analysts expect the number of shares outstanding to grow by 0.77% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 17.65%, as per the Simply Wall St company report.

Fourlis Holdings Future Earnings Per Share Growth

Risks

• The cybersecurity attack in late 2024 had a significant negative impact on Fourlis Group's sales, primarily in December, leading to a financial hit of €15 million. This indicates a risk to future revenue and operational continuity if such incidents recur.
  
• Despite a reported annual increase in revenue, IKEA's volume growth was below expected levels, pointing to potential market saturation or weakening demand in the home furnishings segment, which could impact future earnings.
  
• The deconsolidation of Trade Estates, previously a fully consolidated part of Fourlis Group, may introduce volatility in reported financials, creating uncertainty around consistent revenue from this subsidiary.
  
• The increase in operating expenses grew at a faster rate than revenue in some areas, which could impact net margins if cost efficiency measures are not effectively managed long-term.
  
• The potential impact of tariffs and international trade disputes involving the U.S., China, and Europe remains uncertain, which could affect supply chain stability and costs, impacting future profitability.

Valuation

• The analysts have a consensus price target of €5.7 for Fourlis Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €733.2 million, earnings will come to €47.2 million, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 17.6%.
• Given the current share price of €3.98, the analyst price target of €5.7 is 30.1% 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.