Description

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

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