Adoption Of AI Technology Will Improve Customer Engagement And Retention

Key Takeaways

• Adoption of AI technology and supply chain integration are enhancing customer engagement, driving revenue growth, and reducing operational costs for Cheffelo.
  
• Product bundling, price adjustments, and economies of scale are expected to significantly boost profitability and net margins by increasing average order value and reducing fulfillment costs.
  
• Cheffelo faces risks to revenue growth due to market saturation in Denmark, macroeconomic uncertainty, currency volatility, and challenges in brand transition and customer acquisition.

Catalysts

Engages in the supply and delivery of meal kits to the customer's front door in Sweden, Norway, and Denmark.

• Cheffelo's adoption of AI technology and personalized customer experiences, including meal selection options and recommendation engines, is driving improvements in order frequency. This is expected to impact revenue positively by increasing customer engagement and retention.
  
• The ongoing integration of Cheffelo's Nordic supply chain is expected to generate efficiencies and sourcing opportunities across markets. These improvements are likely to enhance net margins by reducing operational costs over time.
  
• Cheffelo's expansion into new product bundling and groceries, along with enhancements in user experience, is anticipated to deliver higher double-digit growth early in 2025. This growth in add-ons and groceries, which currently contributes less than 2% of net sales, is expected to increase revenue.
  
• Recent price increases of 2% to 3% across all brands, especially the larger 7% increase for Adams in Norway, have been implemented with little observed impact on demand. This should drive an increase in average order value, potentially boosting both revenue and net margins.
  
• Increased economies of scale, reflected in improved contribution margins and reduced fulfillment costs by 2% per delivery, are expected to continue through 2025. This is likely to lead to significant improvements in profitability and earnings, with expectations to exceed a 31% contribution margin.

Cheffelo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Cheffelo's revenue will grow by 6.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.1% today to 4.3% in 3 years time.
• Analysts expect earnings to reach SEK 55.6 million (and earnings per share of SEK 4.19) by about May 2028, up from SEK 32.4 million 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 12.0x on those 2028 earnings, down from 17.3x today. This future PE is lower than the current PE for the SE Food industry at 21.2x.
• 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 4.76%, as per the Simply Wall St company report.

Cheffelo Future Earnings Per Share Growth

Risks

• Cheffelo's growth in Denmark has slowed after rapid expansion in 2023, with no strong momentum at the start of 2025, indicating potential risk to revenue growth in this market.
  
• The macroeconomic uncertainty in Norway has historically affected demand, which could again impact revenues if similar conditions arise.
  
• Currency volatility, specifically between SEK and Norwegian and Danish kroner, negatively impacted reported numbers, posing a continued risk to revenue and earnings.
  
• The discontinuation of the WeightWatchers partnership and the transition to launching their own calorie-smart recipes presents a risk of losing brand-affiliated customer segments, potentially affecting net sales.
  
• Customer acquisition in Denmark is challenged by increased competition and deteriorating consumer sentiment, which may impact revenue growth if acquisition rates fail to compensate for customer churn.

Valuation

• The analysts have a consensus price target of SEK48.333 for Cheffelo 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 SEK55.0, and the most bearish reporting a price target of just SEK43.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK1.3 billion, earnings will come to SEK55.6 million, and it would be trading on a PE ratio of 12.0x, assuming you use a discount rate of 4.8%.
• Given the current share price of SEK44.2, the analyst price target of SEK48.33 is 8.6% higher. The relatively low difference between the current share price and the analyst consensus 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.