December 10, 2022 - 11:57pm EST by
2022 2023
Price: 64.00 EPS 8.28 9.16
Shares Out. (in M): 9 P/E 7.73 6.98
Market Cap (in $M): 82 P/FCF 0 0
Net Debt (in $M): 39 EBIT 15 16
TEV (in $M): 121 TEV/EBIT 8.2 7.4

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  • Housing



TCM Group A/S (TCM) sells mostly high-end kitchens in Denmark (~90%) and Norway (~10%).  It has an enterprise value of $121M ($9.08/Share * 9.07M S/O = $82M Market Cap + $41M Debt - $2M Cash = $121M EV).  (For the remainder of the writeup, I’ll use millions of Danish Krone (MDKK).)  On average during 2022 about $100,000 worth of shares have traded per day, but it can vary substantially on a given day.

This is an understandably difficult time to look seriously at companies exposed to housing.  On Friday, the Restoration Hardware CEO warned that the US housing market was “collapsing at a level I haven't seen since 2008.” (link)  TCM executive management is preparing for a housing recession, having recently provided the requisite 3-6 month notice for 20% of the ‘white-collar’ jobs (factory jobs are easy to scale down and up, making it easy to protect the gross margin).

Still, TCM’s strong business, admirable management—most importantly in this case, heavily depressed stock price—offer an attractive +28% 3-year IRR (132 DKK/share) with substantial downside protection based on my conservative forecasting that assumes both (a) the low end of the valuation range that TCM has received since going public in 2017 (10x EV/NOPAT) and (b) that gross margins only get back to 24% (from the current 19%) rather than the 28% enjoyed pre-COVID (despite management initiating a price hike this month to return to 25% gross margins).  Assuming a return to 25% gross margins and 15x EV/NOPAT implied as 50% 3-year IRR (224 DKK/share).

Alternatively, one could also use a FCF + Growth lens to evaluate TCM.  Since organic growth is essentially costless (franchise model, low capex needs, and history of negative working capital)—and treating the recent inventory build as a one-time event—the classic FCF + Growth = Implied IRR is representative.  If TCMs gets back to 2021 earnings (which were in line with 2018-2020), then TCM’s current price implies a 5.2x P/E (580 MDKK / 111 MDKK = 5.3x).  Thus, 18.5% FCF Yield + ~5% Organic, Relatively Costless Growth = +20% IRR.  And with a multiple re-rating, that IRR figure would go higher.

TCM highlights:

  • Attractive Valuation.  TCM currently trades at less than 8x the average 2017-2021 EV/NOPAT (843 MDKK / 109 MDKK = 7.7x).  (Note I’m measuring EV/NOPAT since the capital structure changed substantially in 2021, making it overly optimistic to compare things on a P/E of P/FCF basis.)
  • Mid-Single-Digit Organic Growth.  Growth has been a bit sporadic due to COVID and recent recession fears, but TCM should be able to hit at least mid-single-digit growth.  Management had indicated it expected to achieve high-single-digit growth.  But I’m a bit more conservative for reasons discussed further down.
  • Margin Resilience.  While a housing pullback would decrease TCM’s revenues, I believe the ultimate earnings may look similar to 2022 earnings due to (a) an increased ability to restore gross margins to ~25% due to lower input costs and (b) TCM’s management already taking measure to reduce operating expenses (see “Why is TCM Cheap?” section).
  • Modest Capex Needs.  TCM has sufficient plant capacity—and the ability to turn on an overnight shift—to meet demand for the foreseeable future.
  • Negative Working Capital.  TCM’s business model has enjoyed payables-driven negative working capital for many years (Amazon-style).
  • Franchise Model.  TCM does not own its storefronts.  Instead it franchises out its 92 branded storefronts in Denmark and Sweden.
  • Strong Management.  At the moment you’ll have to take my word that capitalism is alive and well in Denmark and that TCM management are first-rate.  They speak clearly and intelligently about the business and behave like shareholders because they’re buying the stock like shareholders.
  • CEO Insider Purchases.  The CEO has been making open-market purchases in recent weeks (and also made purchases in the 120 DKK level).  The CFO and a Director bought recently as well.
  • Big-Name “Suggestivist” Investor.  A fund belonging to one of Bruce Greenwald’s big-name students, Jan Hummel, owns 9.2% of the stock.

Key risks include:

  • Mega Housing Recession.  I worry that the world is headed for a mega housing recession, driven in large part by interest rate dynamics (i.e., this sort of thing (link) drastically reducing people’s inclination to move).  TCM management has not yet observed weakening demand; however, as mentioned above, they are preparing for it.  I believe this is largely priced into the stock (as if that sort of recession is a near certainty).  Still, I may be too early suggesting TCM today.  TCM management highlights that Danish consumer confidence is statistically very poor at the moment—though they highlight that’s not observable in TCM’s store activity—and it may pay to wait until earnings truly bomb out during a potential full-blown housing recession.
  • Gross Margin Impairment.  The recent inflation trends could permanently impair the gross margin by setting a sort of new Nash equilibrium at the lower pricing.  I expressed this fear to management, and they emphasized that they are already repricing to their prior 25% gross margin (more detail below).

That’s the short, VIC-friendly summary.  Forgive the length, as I did a lot of research that you won’t find in their reports.  And I’m happy to field questions in the messages.

TCM Excel model: Google Drive Excel Model Link

om730 wrote up TCM on July 13, 2021. 


  1. Business Overview
  2. Inflation and Pricing Policies
  3. Growth
  4. Returns on Capital
  5. Capital Allocation
  6. Competition
  7. Valuation
  8. Insider Purchases
  9. Why is TCM Cheap?
  10. Why Now?
  11. Buying TCM Stock


TCM manufactures branded customized kitchens in Scandinavia.  It operates a franchise model with 92 branded stores and ~140 total distribution channels (owns none of the storefronts).  Compared to its competition, TCM’s production processes are more complex, higher skill, and less efficient.  But the mid-to-high end customers are willing to pay for the benefits since, in a standard Danish house, you have a single room for both the kitchen and living room.  Since Danes do not eat out as much as in Southern Europe, guests the kitchen, and the kitchen becomes a symbol of expression and status—much like furniture.  So while most cabinets are standard, there may be one special thing that determines whether TCM wins business over its principal competitor, Nobia AB (NOBI:SS; ~$400M market cap).

TCM operates 3 brands in both B2C and B2B segments within Denmark (~90%) and Norway (~10%).

Brands: Svane, Tvis, and Nettoline

TCM operates three brands:

  • Svane.  Acquired in 2005, Svane represents TCM’s high-end brand sold through franchised branded stores.  Svane’s brand recognition is 96% in Denmark (and maybe 20% in southern Norway). (
  • Tvis.  Developed in 1952 by TCM’s ultimate founder, Paul Frandsen, Tvis represents TCM’s middle-market sold through franchised branded stores.  (
  • Nettoline/Kitchn Sweden.  Acquired in 2017, Nettoline represents TCM’s DIY option for more cost-conscious customers.  Nettoline customers tend to take advantage of the financing option more than Svane or Tvis customers.  (

To provide a bit more orientation, in Q4 2019 when TCM had 68 Svane and Tvis single-branded stores, an analyst report broke out the following: Svane = 37 (29 Denmark + 8 Norway); Tvis = 31 (24 Denmark + 7 Norway).  It appears there are about 20-25 Nettoline-branded stores.

Customer Segments: B2C and B2B

TCM’s B2C business is more profitable, but the B2B business is more frequent and reliable.  A typical B2C customer may wait 10-15 years before buying again.  On the other hand, a B2B customer will return year after year, making it a stabler business that doesn’t fluctuate to the same extent as the B2C business.  In a deep recession, the first customers that stop buying are the B2C customers.

The B2B segment consists of four subsegments:

(1) Homebuilders (i.e., those that build family homes 1-by-1).  They have had good times in the last 2-3 years and have been a growing part of TCM’s business.  They have been selling fewer new houses.  So TCM can already see this will suffer a decrease next year.

(2) Building companies that do renovations.  Maybe they build a house or a house with 4 apartments.  They are loyal customers and have a discount agreement.

(3) Social housing.  Social housing includes new builds or renovations.  Some of this activity has currently paused because of high labor costs, but during a recession this will tend to rebound.

(4) Big projects.  Big projects may include a developer with a building of, say, 1,000 new apartments.  The competitive tender leads to low margins.  Projects can run for years and they are structured in phases.

The mix of B2C vs B2B (and mix within the 4 B2B subsegments) can cause the gross margin to wiggle around, as TCM may price some B2B projects at, say, 15% gross margin and B2C projects at +30% gross margin.  For instance, in the most recent Q3 2022, within the B2B segment TCM saw a disproportionate rise in the subsegment that historically has had the lowest gross margin and—on top of that—that segment had not yet received the latest price increases (perhaps not a coincidence).

80-85% Remodel; 15-20% New Construction

Typically TCM’s business consists of approximately 80-85% renovations and 15-20% new construction.  Many of the renovations result from people moving, knowing they’ll stay for a while, and deciding to remodel the kitchen.

New builds have exceeded their normal share in recent years, but TCM is aware from talking with some of the bigger home builders that they haven’t sold as many new homes since the February Russian invasion of Ukraine.


By nature, TCM’s business is particularly stung by inflation—much of which has come in the form of increased raw materials costs, labor costs, and energy/transportation costs.  The franchise agreements stipulate rules regarding how and when TCM can increase the prices to its dealers.  If TCM increases prices too quickly, then it hurts the dealers because they cannot necessarily pass through the full effect of the price hikes to the customers (bear in mind customers place orders, and then it takes a while to complete those orders).  So TCM faces these lags that make it hard to raise prices quickly in response to higher costs—such as raw material and transportation price increases that TCM has faced recently.  During 2022, TCM aimed to raise prices faster and more quickly, frustrating some dealers.  TCM advised franchisees to pass the price increases onto customers, since the competition faced similar economic pressures and had passed on the increases.

The inflation sting differs by customer segment.  With private customers (B2C), TCM can implement price increases relatively quickly.  With the biggest homebuilders on, say, a 1-year or 3-year contract, TCM cannot adjust prices quickly, but relatively quickly.  And for the mega multi-phase projects (e.g., building 1,000 new apartments) taking multiple years, it’s hardest to pass through price increases in a timely manner.

During 2022, TCM has instituted 3 price increases: +5% in April, + 7.5% in June, and +2% in December.

Despite the painful lag in implementing price increases, I think we can expect the TCM management has demonstrated that it intends to price to a ~25% gross margin.  (Two things to note: (1) the actual gross margin will continue to wiggle due to quarter-to-quarter differences in business mix, with B2C business carrying a much higher gross margin than, say, 1,000 RFP; (2) the 28% gross margin observed historically included one large store that TCM owned and operated—which it has since divested, making it a pure manufacturer at this point.)


In Denmark, TCM has 18% market share (vs Nobia’s 25%).  TCM has gradually taken market share over the years—hence the often double-digit growth rates that have exceeded the low-to-mid-single-digit market growth rate.

The Svane brand has blanketed Denmark (i.e.,  not much remaining white space).  Still, TCM opened another flagship Svane store in the Copenhagen area this year, and management believes Svane has substantial runway in the B2B segment.  Tvis and Nettoline, which focus mainly on B2C business, have several white spots in Denmark.  And TCM management believes there remains B2B potential for those brands—though not on the same scale as Svane, which makes intuitive sense to me since Svane is such a recognizable high-end brand.

TCM hopes to “copy-paste” its model to Norway.  The Norwegians invest even more than the Danes in renovating their homes and second homes.  They appreciate Danish kitchen and furniture design, and most Danish furniture and kitchen brands have even more success in Norway.

TCM opened 3 new Norway stores this year, one of which is outside Oslo, big, and visible from the highway (opened September).  TCM management aims to try to replicate the brand strength in Norway—which sounds like a tall task but seems to be working to some degree at least based on early signs.  At the moment B2C constitutes nearly all of the Norway business.  However, one of the new store owners comes from the building industry and has shown early B2B success—with impressive speed for a new store.

Does TCM need to invest to grow?  At the moment, not particularly.  Currently TCM has 3 production factories.  2 are more utilized than the 3rd, and TCM has focused on driving more volume at the 3rd factory (e.g., building up the Nettoline brand, merging the eCommerce business, etc.)  Given all these considerations, TCM has the productive capacity to produce roughly 1.7 billion DKK of goods at today’s prices.  In other words, TCM can grow roughly 50% under today’s setup.  Part of the reason for that excess capacity is the availability of an optional night shift.  Additionally, TCM maintains the possibility of outsourcing certain functions.  In sum, TCM has production capacity well covered for the foreseeable future and expects to continue to spend 2-3% of revenue on capex.

What does it cost TCM to open a new store?  Virtually all customers are handled via the stores, and it costs TCM hardly anything to launch a new store since the money made from the display models (sold to the franchisee) tends to cover the startup costs attributable to TCM.

Of the +90 stores, about 10 stores specialize in handling large projects.  Since TCM encounters competition on the big projects, TCM maintains a dialogue with the stores regarding the project tenders that the stores go after.  TCM management also explained that the 80-20 Rule surfaces to some extent, with a limited number of the stores doing much of the volume.


The negative working capital drives a negative tangible capital employed in many years, so I found it hard to reliably calculate ROIC.

By my calculation, the ROE averaged 24% during 2017-2021: 2017 = 15%, 2018 = 29%, 2019 = 25%, 2020 = 20%: 2021 = 21% (with 2021 artificially boosted a bit by the repurchases above book value)).  Thus someone buying in today at 1.1x net book value should expect a strong return if the ROE holds up.


TCM management received inspiration from Bruce Greenwald’s protégé Jan Hummel of Paradigm Capital (Columbia Value Investing with Legends Podcast: link) on the share repurchase program that was executed during Q2 2021 through Q1 2022—where TCM spent 150 MDKK buying in about 9% of the shares at a weighted average price of 162 DKK/share.  The timing was unfortunate.  TCM was flush with net cash because, despite 2020 being a good year, TCM opted not to pay its usual dividend.  Then, with inspiration from Hummel and perhaps others, TCM enacted a sort of dividend + repurchase recap program in 2021—paying out double the dividend and aggressively repurchasing shares to get back to their target capital structure.

Despite the unfortunate timing, I’m sympathetic to the repurchase program.  Investors saw a steady grower trading at around 15-17x earnings with excellent growth economics that looked as though it was being undervalued in the market due to the accumulating cash.  Management and the board listened to what the shareholders wanted.

Management doesn’t rule out a similar repurchase in the future, but reading between the lines, I sense it’s probably not occurring anytime soon.  They also mentioned that the lack of abundant stock liquidity tempers their enthusiasm for renewed buybacks.


Nobia AB (NOBI:SS; ~$400M market cap) is TCM’s principal competitor.  Over the years, Nobia has drifted downmarket, reducing SKUs and engaging in cobranding.  Just within the past 2 years, Nobia launched a program to reduce its SKUs by over 30% and has focused a lot on automation and efficiency.  Some view this as an irreversible misstep, devaluing the Nobia brand and placing it in more direct competition with the IKEA juggernaut.  Now Nobia is trying to retarget the high-end customer, emulating how TCM has succeeded with the Svane brand.

Nobia likely derives something like 80% of its revenue from the B2B segment, as they are strong in standard products.  During a tender, if the RFP seeks the cheapest price, Nobia will win.  If the architect wants something specific, then TCM has the advantage—as Nobia would otherwise seek a workaround that might not work for the architect.  And when the developer wants to sell the units, the Svane branding helps because Svane is the top brand in Denmark.

This general DNA shift in the Nobia brand placed it in less direct competition with TCM.  TCM has even recruited former Nobia employees who are relieved that they no longer need to say “no” to the customer.


The “TCM IRR” sheet of my model will provide a good sense of how I value the stock.  My main assumptions for my conservative-case modeling (resulting in the 28% IRR, or 132 DKK/share in 2025) are the following:

  • 2023 looks a lot like 2022, with similar revenues and keeping the gross margin at 21%.  This is pessimistic, as management has baked in price hikes that should foster a 25% gross margin at the beginning of 2023.  Note, however, that revenue-wise this could be way too optimistic if we see a 2008-style housing recession.  TCM’s revenues dropped 30% in 2008.  But what happens in 2024-2025 drives most of my IRR estimate.
  • Revenues grow by 5% in Denmark and 20% in Norway.
  • 24% gross margin (lower than TCM’s 25% target).
  • 14% EBIT margin, in line with pre-COVID levels.  (Increased operations will drive operating leverage; however, because I’ve gone conservative on the gross margin, that leads to the EBIT margin not expanding.)
  • 10x EV/NOPAT (vs the more typical 13x or so).  A business with TCM’s economics deserves more than a 10x EV/NOPAT multiple (in fact, I’d bet that prior to the buyback, TCM’s value investors were telling management and the board that the prevailing ~15x multiple was too low!).  But I’m sandbagging the multiple for conservatism.  At 15x, which will be warranted in a better environment, I model the 2025 value of the stock at over 200 DKK/share.  (Side note: Due to the big 2021 levered dividend + buyback, it seemed appropriate to do historical comparisons on an EV/EBIT or EV/NOPAT basis.)


The CEO, CFO, and Board Vice-Chairman have recently bought TCM stock in the open market, with the CEO Torben Paulin buying consistently buying substantial amounts.  When asked about the stock valuation, they highlighted that the sector has a lot of uncertainty and that the stock has priced in a recession as if it is happening.  They also mentioned that the TCM analyst’s revenue projections acknowledge the multiple price increases occurring in response to inflation but then bake in 3-4% growth.  But management thinks 3-4% may be a bit too modest given both (a) TCM’s pattern of taking share in Denmark and (b) TCM’s Norwegian business taking share as well.


TCM is cheap because of the following:

  • Mega Housing Recession Fully Priced In.  As discussed, it appears a full-blown housing recession is near-fully priced into the stock.
  • Misunderstood Factory Economics and Margin Behavior.  Management expressed that some investors, especially foreign investors, misunderstand Denmark’s flexible labor model.  Requisite notice periods are short—especially with the factory workers (80% of TCM’s employees).  Thus TCM can adjust its cost base relatively quickly in response to demand, protecting the gross margin during a decrease in demand.  I have requested TCM’s annual reports dating back to 2002 to confirm this (if there’s interest, I can follow up with an update).  My understanding is that during 2008, TCM revenues decreased by ~30%.  TCM management believes that in the face of a 30% decline in business, it could maintain the gross margin (holding the B2B-B2C mix effect on gross margin constant).  On the operating expense, it’s a bit more difficult of course.  But during a recession, input costs will plummet, so it becomes easier to maintain the 25% target gross margin.  Remarkably, if you model 2023 to have a 30% decrease in revenue but a 25% gross margin—and cut operating expenses by, say, 10% (note they cut 20% of the ‘white-collar’ jobs recently so that might equate to something like a 10% decrease in expense as is)—then 2023E ends up looking a lot like 2022A (both roughly 70 MDKK of net income against a 500 MDKK market cap).
  • Too Small for Many Serious Investors.  As indicated at the outset, at the moment low turnover may make TCM will be too small for many serious investors—averaging only $100,000 worth of stock changing hands per day.  Volumes higher in prior years (e.g., $215,000/day in 2019)

(10) WHY NOW?

At the current bombed-out share price, TCM’s stock appears priced for a near-certainty, big housing recession.  And while the picture looks gloomy, it’s not certain that 2023 will be awful.

During non-recessionary periods TCM has earned a mid-20s ROE, and TCM trades for a shade above book value at the moment.  So anyone willing to hold through to the other end of the cycle should be rewarded if the ROE holds.  Based on that arithmetic, the economics of the business, and the quality of the people involved—both in management and the investor base—I don’t expect it to get that much cheaper than it is today.

But I also understand the temptation to wait until earnings bomb out and the P/E soars (from declining ‘E’).  Then, if That’s a well-trod formula for buying cycle-sensitive companies like TCM—particularly since you won’t be trying to time, say, a commodity cycle, but rather buying during the 1-in-10-or-so years that demand for TCM’s products wanes.


Buying the TCM stock is a bit of a pain as a US investor.  I could not buy it through Interactive Brokers (spoke with them on the phone).  Fidelity offers it.  I would recommend getting Fidelity’s Active Trader Pro to be able to observe more detailed TCM trading data.  Fidelity gets you a little bit on the FX transfer (I calculated 0.66% when I was doing it) and the per-trade fee was fairly high as well (can’t recall offhand).

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


  • TCM’s price hikes (suffer a contractual lag) propagating through and restoring the gross margin to ~25%.
  • A milder-than-expected housing pullback in Denmark; Or better-than-expected results despite a housing pullback.
  • Getting to the other end of the housing cycle.
  • Earnings accumulation.
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