Luxury Retail Expansion And Omnichannel Integration Will Drive Long Term Upside Potential

Catalysts

About Dexelance

Dexelance designs and supplies premium furniture, lighting and contract solutions across luxury retail, residential and hospitality markets worldwide.

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

• Rising global demand for turnkey, design led interiors in real estate and hospitality, such as the New York luxury development partnership and hotel projects in Athens, should scale multi brand contract deployments and lift group revenue and operating leverage as pipelines convert into repeat programs.
• Continued international expansion of high end retail formats, including new MOHD stores and shop in shops in Asia, North America and Europe, positions Dexelance to benefit as premium home and lifestyle spending normalizes, supporting a recovery in organic sales growth and EBITDA margins.
• Brand relaunches and upgraded positioning for key labels like Turri and Gamma, coupled with strong reception in China and other design centric markets, can translate higher brand equity into improved pricing power and mix, enhancing gross margin and earnings quality.
• Operational normalization after one off contract issues in a furniture subsidiary and the completion of the commercial and organizational strengthening program should remove temporary profit drags, allowing EBITDA margin and net income to better reflect the enlarged revenue base.
• Integration of omnichannel assets such as the MOHD platform, with its mix of e commerce and design projects, accelerates the shift toward higher growth, digitally enabled distribution, which can drive faster top line expansion while diluting fixed store costs and supporting margin improvement.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Dexelance's revenue will grow by 7.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.4% today to 3.3% in 3 years time.
• Analysts expect earnings to reach €12.7 million (and earnings per share of €0.32) by about December 2028, up from €4.3 million today.
• 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 32.5x on those 2028 earnings, up from 24.8x today. This future PE is greater than the current PE for the IT Consumer Durables industry at 16.9x.
• Analysts expect the number of shares outstanding to decline by 0.8% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 17.92%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A prolonged downturn in global luxury spending and a structurally more conservative store-opening strategy by key luxury clients, including outright cancellations and permanent footprint reductions, could cap luxury contract sales around current levels and weigh on group revenue growth and EBITDA margin improvement over several years.
• High and rising leverage, with net financial position more than doubling year on year and covenant waivers needed on bank facilities, increases sensitivity to interest rates and execution missteps, which could constrain investment capacity and depress net income as financing costs and balance sheet risk remain elevated.
• Persistent weakness in residential furniture demand across multiple regions, combined with longer lead times and slower confirmations in soft contract projects, may signal a structurally slower growth phase for key categories, limiting top-line expansion and keeping operating leverage and net margins below targeted levels.
• Margin recovery plans rely heavily on one-off normalization, such as resolving problem projects and absorbing extraordinary costs in a single subsidiary, as well as ramping new luxury clients from lower initial profitability, creating execution risk that could delay or dilute the expected uplift in EBITDA and earnings.
• Ambitious international expansion and omnichannel initiatives, including new stores, shop in shops and real estate partnerships, require up-front commercial and marketing investments and carry geographic risks, such as ongoing weakness in China and uneven trends in Europe, which could lead to underperforming assets and pressure both revenue and net profit margins if demand does not materialize as planned.

Valuation

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

• The analysts have a consensus price target of €9.75 for Dexelance based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €12.8, and the most bearish reporting a price target of just €6.7.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €391.5 million, earnings will come to €12.7 million, and it would be trading on a PE ratio of 32.5x, assuming you use a discount rate of 17.9%.
  
• Given the current share price of €3.98, the analyst price target of €9.75 is 59.2% 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.