Online Migration And Automation Will Support Long-Term Margin Expansion And Earnings Recovery

Catalysts

About BHG Group

BHG Group is a Northern European online retailer focused on home improvement, premium living and related home categories.

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

• Sustained recovery in disposable income and housing transactions in core markets is reviving demand for home-related spending. This supports continued top line growth and scale benefits that can lift EBIT margins.
• Ongoing migration from physical retail to online channels in BHG Group’s categories increases addressable market share for its digital platforms. This drives higher net sales and operating leverage over time.
• Operational excellence in assortment, pricing, customer acquisition and retention, combined with disciplined SG&A and direct selling cost control, is enhancing cost efficiency and can structurally improve net margins and earnings.
• Strategic initiatives in unique assortment, retail media and automation, including AI-driven tools, are building differentiated revenue streams and a superior cost structure. These initiatives can support gross margin resilience and EBIT expansion.
• A return to an active but disciplined bolt-on M&A strategy to fill category and geographic white spots can accelerate growth in key platforms and enhance earnings through synergy capture and scale economies.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming BHG Group's revenue will grow by 6.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from -3.2% today to 4.5% in 3 years time.
• Analysts expect earnings to reach SEK 570.0 million (and earnings per share of SEK 3.17) by about December 2028, up from SEK -336.8 million today. The analysts are largely in agreement about this estimate.
• 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 13.7x on those 2028 earnings, up from -16.3x today. This future PE is lower than the current PE for the SE Specialty Retail industry at 23.3x.
• 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 7.49%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The current recovery in disposable income and housing transactions in Sweden may not be sustained or replicated in other core markets such as Finland and Germany. This could stall or reverse the demand upswing in key home improvement categories and limit net sales growth over time, putting pressure on revenue and earnings.
• Price transparency and intensifying online competition may drive persistent price and gross margin pressure faster than BHG Group can offset through unique assortment, retail media and cost efficiencies. This would cap the scalability benefits of the model and constrain improvements in EBIT margin and net profit.
• High leverage with net debt at SEK 1.2 billion and net debt to LTM adjusted EBITDA at 3.4 times leaves limited room to absorb macro setbacks such as higher rates or a renewed consumer downturn. This could force reduced investment in growth initiatives and M&A, dampening future revenue growth and earnings expansion.
• The growth strategy depends heavily on strategic initiatives in automation, data and AI as well as bolt-on M&A to fill category and geographic white spots. Delays, execution missteps or integration challenges could mean these initiatives fail to deliver the expected scale advantages, leaving operating costs elevated and slowing improvements in EBIT margin and cash flow.
• The recent double-digit organic growth and eight consecutive quarters of earnings improvements have benefited from favorable seasonal patterns and a recovering Swedish market. Any normalization of demand, reversal of tax subsidies such as the ROT-avdrag or slower recovery in lagging markets like Finland could reduce growth momentum and weaken both revenue trajectory and long term profitability.

Valuation

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

• The analysts have a consensus price target of SEK35.0 for BHG Group based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be SEK12.6 billion, earnings will come to SEK570.0 million, and it would be trading on a PE ratio of 13.7x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of SEK30.62, the analyst price target of SEK35.0 is 12.5% 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.