Leading online retailer of rugs in Europe. Should grow 15-20% as a) category grows, b) online penetration increases and c) Rugvista takes share in a fragmented market and enters new countries. Long runway for growth. Profitable and trading at 17x 2023 EPS or 11x 2025 EPS. 50-100% upside to share price
Down 75% from 2021 high together with other e-commerce companies. Significant discount to online peers on earnings/EBIT/EBITDA multiples
Description
c. $90m market cap and EV, net cash position
Leading D2C online retailer of rugs and carpets in Europe
Webshop in 20 different languages; 30,000 SKUs, 5x range of most comparable online peer, 10x avg. for store-based retailer
25% of sales in the Nordics and 75% in rest of Europe
6% market share in Nordics, 1% in rest of Europe
c. 60% of traffic from paid channels (mainly Google) and 40% organic/direct
Avg. order value 3k SEK, gross profit per order 1800 vs. 800 SEK marketing
60s gross margin allowing business to be profitable
Sources rugs directly from India and Turkey (roughtly half from each country); doesn't use wholesalers as many others do
Mgmt. targets:
Grow 20% p.a.
15% EBIT margin
0-50% dividend payout
Market
European rug market growing mid-single digit
18-20% of market is online – penetration will increase over time so online growth c. 10-12%
Good product to sell online due to
Weak traditional distribution/customer experience in stores; difficult to showcase many products in store given size and weight; limited selection in store
Easy to assess sizes online which means lower return rate at 15% (not like clothing)
The absence of strong brands gives retailer more bargaining power
Doesn’t fit into the standard logistic system given size
Transportation is required if customer doesn’t have a car
Market is fragmented, with many traditional resellers
Competitive advantages
Rugvista to become category killer
Vertically integrated D2C; controls entire value chain - dedicated warehouse, order fulfillment, marketing, customer service
Inhouse product development and sourcing, broad and deep assortment
Own tech infrastructure
Deep focus on customer satisfaction; NPS 68, Trustpilot score 4.8/5
Fast and free delivery – better than any of direct competitors
Deeper and broader range than competitors
Competitors include traditional retailers like Bauhaus and Jysk, multichannel home interior retailers like Ikea and mio, online based: Benuta, Nain Trading, online based warehouses: Alibaba, Amazon
Risks:
Cycle – 2023 could be tough if we have a deep recession, but that’s already in the stock and business should rebound after
Significant part of traffic is generated through google which does carry some risk
I do not hold a position with the issuer such as employment, directorship, or consultancy. I and/or others I advise do not hold a material investment in the issuer's securities.
Catalyst
Recovering revenue and profitability from tough market in 2022/2023
2022 growth/margin looked weak given very strong comps in 2021 due to covid/lockdown
2023 will likely be tough given weak consumer/recession
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