Gaming Exposure And PC Refresh Cycles Will Create Unsustainable Earnings Recovery

Catalysts

About Komplett

Komplett Group is a Nordic retailer focused on consumer and business technology products, including gaming, PCs, telecom and related electronics, supported by a distribution arm.

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

• The push toward gaming and PC hardware as key growth areas leaves Komplett heavily exposed to product cycles and supplier controlled allocations. Any weaker availability of graphic cards or gaming launches could strain revenue and limit gross profit progress.
• The aging PC base and coming Windows 11 related refresh may pull demand forward into a relatively short window. This could be followed by a long replacement lull that makes it harder to sustain revenue and keep EBIT near current levels.
• Ongoing consolidation efforts, including shared functions and warehouse integration between Webhallen and NetOnNet, still carry execution and cost overrun risk. This could delay expected efficiency benefits and keep operating costs elevated as a share of sales.
• The deliberate shift in Sweden from volume to higher margin categories, and a pullback in very aggressive telecom and campaign driven sales, could structurally cap B2C market share. It may also limit top line expansion even if gross margin in percentage terms holds up.
• The cost program that targets 8% to 10% of the cost base is being implemented against 3% to 4.5% annual salary inflation and other general inflation. This could erode much of the intended savings and hold back improvements in net margins and earnings.

Assumptions

This narrative explores a more pessimistic perspective on Komplett compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Komplett's revenue will grow by 7.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -1.1% today to 1.9% in 3 years time.
• The bearish analysts expect earnings to reach NOK 361.9 million (and earnings per share of NOK 2.06) by about January 2029, up from NOK -174.0 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as NOK542.8 million.
• 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 7.5x on those 2029 earnings, up from -14.3x today. This future PE is lower than the current PE for the NO Specialty Retail industry at 18.3x.
• The bearish 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 8.99%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The company is already reporting a quarter with NOK 3 million EBIT compared to a loss of NOK 46 million in the same quarter last year, and management describes this as clear progress on key financial metrics. This could point to a more resilient profit trajectory than a persistent decline in earnings.
• Management highlights that markets in core Nordic geographies are gradually recovering after challenging years, with broadly based category progress and positive market momentum. This could provide a more supportive backdrop for revenue than a thesis that assumes continued pressure.
• Gaming related categories are described as a core strength, supported by recent product launches and strong demand, including into the key commercial period. Sustained interest in gaming hardware and related electronics could support revenue and gross profit more than a bearish view implies.
• Ongoing cost and efficiency measures, including warehouse integration, shared functions and workforce reductions, are already keeping operating costs stable in the face of inflation and are framed as a program addressing 8% to 10% of the cost base. If these efforts continue to gain traction, they could lift net margins and earnings beyond a pessimistic outlook.

Valuation

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

• The assumed bearish price target for Komplett is NOK12.0, which represents up to two standard deviations below the consensus price target of NOK14.67. This valuation is based on what can be assumed as the expectations of Komplett'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 NOK16.0, and the most bearish reporting a price target of just NOK12.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be NOK18.9 billion, earnings will come to NOK361.9 million, and it would be trading on a PE ratio of 7.5x, assuming you use a discount rate of 9.0%.
  
• Given the current share price of NOK14.2, the analyst price target of NOK12.0 is 18.3% lower. Despite analysts expecting the underlying business to improve, they seem to believe the market's expectations are too high.
  
• 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.