LHV Institutional Baltic Insight, April 14th, 2020

* Tallinna Kaubamaja (TKM1T ET; ‘TKM’) posted somewhat stronger than predicted results for Q1 2020. The total revenues were mostly driven by continued strong car sales, while earlier market data indicated a potential setback. The supermarkets segment generated good sales numbers, as expected, backed by rapidly expanding e-store sales amid the current “stay-at-home” advice effective in Estonia.
* On 12th March 2020, to limit the spread of the coronavirus, the government declared a state of emergency with an initial validity until 1st May. From 27th March, all shopping malls must remain closed, except for grocery stores, pharmacies, and other essential shops located in the shopping malls. Thus, TKM’s two department stores, as well as its footwear stores, have remained closed since 27th March. Although the company’s core profit margins declined compared to the same period last year, they came in stronger than anticipated. Consequently, in combination with the higher-than-projected sales, TKM has beaten our EBITDA estimates by EUR 3.5m, with a similar deviation running down to the bottom line.
* Although TKM reported relatively good figures for Q1 2020, we remain quite concerned regarding the company’s near to medium term outlook. During the closure of shopping malls, TKM may lose around 90% of revenues of the department stores segment, also facing a sharp decline in car sales, due to significantly deteriorating consumer confidence and potentially more conservative car financing policies imposed by the banks. The company is making strong efforts to quickly expand the capacity of its e-channels, especially in terms of packaging and delivery of groceries. Supermarkets are expected to continue the relatively steady performance, but other operating segments remain vulnerable even after the trade restrictions are lifted. The longer the period of the coronavirus situation, the longer the anticipated recovery of the economy after that. Given the uncertainty ahead, we placed the stock under review until further notice, effective from 23rd March 2020. Please also refer to the tables in the attachment.