Description

KID INTERIOR

Kid ASA (listed on the Oslo Stock Exchange under the ticker symbol KID) operates as a home textile retailer through Kid Interior in Norway with 153 stores, and under the Hemtex brand in Sweden, Finland and Estonia. 

It operates 133 stores (per year end 2021). The Kid Group offers a full range of home and interior products, including textiles, curtains, bed linens, smaller furniture, accessories and other interior products. KID designs, sources, markets and sells its products through stores and online sales platforms. In May 2019, KID acquired the leading interior and textiles chain Hemtex in Sweden, which provides access to the Swedish, Finnish and Estonian markets. The two brands have a combined customer club membership of 1.8 million people in the Nordic / Baltic regions.

KID is currently trading at a very attractive valuation; less than 9x 2022 EPS and 8x 2023 EPS, which I think is too cheap and a very attractive entry point despite a relatively weak outlook for retail sales in the second half of ‘22 and into 2023.

KID has an impressive track record of steady, albeit moderate growth and strong profitability:

NB: Hemtex acquired in 2019. 

Longer term I expect KID to continue to grow at a modest pace, say 3% per year. KID has a solid track record of delivering steady growth, only 2007 and 2011 were negative growth years over the last 25. KID is a continuous improvement type of company, refining existing product categories and adding new ones successfully, historically speaking. I think this will continue to be the long term tendency, and at a truly low valuation, I can’t resist buying KID here. 

KID is the market leader in the Norwegian textile market, and has only strengthened that position in recent years. Its market share is about 40%, followed by Princess at around 20%. Otherwise, the market is otherwise quite fragmented across lots of different participants, 95% of companies have annual sales below 15m NOK. KID has steadily outperformed the market in terms of growth, at around a 6-7% higher CAGR over the last decade.

Valuation

I won’t try to value KID exactly - it doesn’t look like it’s necessary: a shorthand DCF with a zero growth assumption shows that expectations are extremely low for the future, and I believe anyway, that the company is quite undervalued currently. Consensus calls for dividend payments of 8.1 NOK for 2022 and 9.2 per share for 2023, which means a dividend yield of 11.3% and 12.1% respectively at the current price. 

PS: Changing the growth assumption to 3% yields a fair value of 135 NOK/share. 

In conclusion I think KID is a compelling long here. Cheap valuation, high dividend yield and very low market expectations.

Catalyst

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