In this equity research report, analysts Victor Feilberg and Chayada Hirunburana take a closer look at the Danish wholesaler group Brødrene A&O Johansen A/S (AOJ B). The Company’s recent investments in digitalizing the physical stores, instant deliveries and automatizing its central warehouse are expected to increasingly drive sales, resulting in higher margins. The analysts estimate an EBIT margin expansion from 6.6% in 2021A to 7.5% in 2023E, and project a revenue CAGR of 8.8% for the same period. Based on a weighted peer valuation, a target multiple of 10.6x EV/EBIT is justified, motivating an upside of 81.2% and a share price of DKK 154.0.
Investment highlights:
- Investments in digitalization and automatization are expected to increasingly drive sales and reduce future CapEx.
- Economies of scale advantages resulting in decreasing delivery- and staff costs in relation to sales
- Strong pricing power, as a result of a historically growing ROIC from 11.5% in 2018A to 18.1% in 2021A.