AOJ: 1-page pitch
Mcap: $280m
TL;DR:
- ev/ebit ~7-8x on depressed earnings, 6-7% dividend & real estate +50% of market cap as a valuation cushion
- extensive investments through 2018-2023: entering the next up-cycle (2024-2027?) highly efficient, peak market share, peak capacity and no major capex needs
Business:
- Market leading B2B Heating, Plumbing, Electric & Water Supply distributor in Denmark (+28 000 business customers)
- global peers: Ferguson (US), Ahlsell (SE), Onninen (FI), Wesco (US), Dahl (DK)
- Market leading B2C Online Plumping/Heating/Sanitary in Denmark (+430 000 private customers)
- global peers: BHG Group (SE), Victoria Group Plc (UK)
- EU Taxonomy aligned assortment
- Approx. 70% of revenue is towards repair, maintenance and renovation i.e. low-mid cyclical
- Customers (schools, industrials, residentials, commercials, etc.) face asset impairment without maintenance & repair
Distribution 101:
- Academic literature names it a "Fortress Position" to be #1-2 in a single country (almost impossible to dismantle)
- Provides +28 000 tradesmen (plumbers, electricians, carpenters, etc) with +600 000 SKUs from +2 500 manufacturers
- 101: Wholesalers offer economic benefits by consolidating goods from various manufacturers, allowing tradesmen to access a wide range of products in one place. Their bulk purchasing power enables cost efficiencies, providing tradesmen with competitive prices while also offering manufacturers a streamlined distribution channel, ultimately contributing to a more efficient and cost-effective supply chain.
Tech Leadership:
B2B:
- Automated central warehouse (2018 & exp. 2022) enabling 60 minute delivery to the largest cities.
- SSI Schaefer Shuttle state-of-the-art equipment inside i.e. scale without additional manpower
- Revenue per full-time employee up +36% 2018-2021
- 2015-2022: 6 years of market share gains & 2% p.p. operating-margin improvement
- 'AO365' = +51 unmanned big box stores open 24 hours per day 7 days a week
- 'AO365' covers 95% of Denmark within 30 minutes drive
- 'AO365' plumber gets a immediate water-leak job: drives by a AO365; scans all the installation supplies he needs with an app; puts it on credit; carry the supplies to his truck; done
- 'AO365' removes the need for most installers to carry inventory i.e. high switching costs/moat
B2C:
- AOJ B2C passed +2 million visits in November 2023, ATH & +25% YoY.
- Denmark B2C:
BilligVVS.dk
LavprisVVS.dk
LavprisEl.dk
LampeGuru.dk
Greenline.dk
CompletVVS.dk
LavprisVaerktoej.dk
- Sweden & Norway B2C:
VVSochBad.se
LampeGuru.no
BilligVVS.no
Hard Assets:
- +$160-180m (+50% of mcap) of owned land, buildings & tier-1 equipment inside
- +30 locations
- Acquired plots throughout the 90s & 00s thus extremely good locations
- Competitors are now taking huge rental increases and/or closing down stores = AOJ Win/Win
Owners, Misc & End Game
- Owner & Operator model, family owned 4th generation
- Outsider-type CEO: history of substantial share buybacks, cancellation of shares, increased dividends and most importantly never diluted
- Swedish giant Ahlsell spent fortunes for 10 years trying to enter & compete in Denmark, but failed and left
"Why so cheap?"
- Low free float
- AO had its first ever Analyst Coverage (BUY 55% upside) 2 months ago (October 2023)
- AO had its first ever Investor Presentation in Q1 2022
- AO had its first ever Conference Call in Q1 2022
(Why did a majority owner start with all this, at age 84? Does he maybe want to get interest and prices up for a sale...)
"Buyout?"
- The owner/CEO is 84 years old and have moved (tax & residency) to the US.
- The only son quit all operational roles, and the board, 14 years ago (no interest).
- The only son moved out of Denmark, sold his house in DK and is now a US resident.
- Family owners almost always want to settle company transition before passing
Summary:
- Consumers have been reserved with discretionary spend for ~2 years
- Upturn 2024-2027?
- Falling interest rates in Denmark, Sweden & Norway throughout 2024-(?) - huge stock of floating rate mortgages
- Buy a market leader at approx. 8-9x depressed net earnings (40-50% global peer discount) & 6-7% yearly dividend. Assuming the up-cycle arrives, you will have positive sentiment change for the sector AND actual earnings driving the shares upwards: multiple expansion + EPS growth.
- Huge efficiency and capacity investments 2018-2023 that now are complete will most likely pave way for another step-up in margins the coming years, as per management guidance.
- Optionality that Mr. Johansen decides to sell his company as there is no natural hier. Break-up value for PE (B2C, B2B & hard assets) should be absolutely massive - making a sizeable premium possible.
= Great R/R.
