Maxeda - Not a DIY job
All,
Please find our new analysis of Maxeda here.
We previously missed the trade on Maxeda when they traded off sharply in the early days of the pandemic, only to rebound sensationally as people flocked to the stores and bought every BBQ in stock, as well as being fully focussed on home improvement from there onwards. We just came slightly late. In a way that had formed our expectations for this time round. However, to spoil it upfront, we are not as positive now and will have to hold back for a while.
Investment Considerations:
- For lack of any credible growth story (not even management are pedalling one) we struggle to see Maxeda grow back into its capital structure on a sustainable basis. It is perfectly possible there will be a strong year between now and 2026, but from today's perspective, we are still missing the drivers for that. With the results from current cost savings programs set to be handed on to consumers, we see no idiosyncratic drivers from Maxeda and therefore see the bonds as a leveraged bet on Benelux consumer confidence - which remains stubbornly negative in Belgium and has been extremely negative, albeit rapidly improving in the Netherlands.
- Retailers without a growth story are only so valuable. The Belgian business should command a premium, but the pressured Dutch business should be making up for that. If we look through our 2026 model forecast, we arrive with goodwill back at a €90m+ EBITDA, and only when we multiply that at a currently - or in the absence of growth - unjustifiable 7x do we arrive at a financeable scenario. Both from an LTV and yield perspective the bond price justifies our view and we don't see a particular urge to pick these up now.
- We see LTM performance drop some more before regaining in the latter half of the year - slowly if consumer sentiment remains where it is, more quickly if it improves. Note that there is considerable room for such improvement. We will monitor it and if either sentiment picks up or Maxeda significantly outperform our uninspired projections, then we may have some of it after all.
Store and market share attrition:
- Particularly in the Netherlands, the company has been continuously shedding stores over the last five years. Maxeda are not the only DIY chain in the Netherlands to be slowly losing stores. Hubo, the Netherlands' largest chain (there is also a Belgian Hubo, but they no longer belong together) has been following a similar trend.
- In Belgium, the formats Brico and BricoPlanit have a commanding lead over the competition. However, they have been losing market share at approx. 1% p.a. for as long as we can look back. The Belgian business has been for sale too, but no adequate suitor has yet arrived.
Value Drivers:
- Consumer sentiments in both countries have only been competing on how low they can go. The Dutch have been winning that dubious race with the sentiment indicator reaching -40 last year. Both countries' indicators (the Belgian coming from -30) are now on the path to normalisation, but therefore still at -20. There is certainly a chance that sentiment improves this summer - in time for the big July quarter. But we have found no reason to wager that this would be the case.
- Other indicators include housing transactions, disposable income and weather. But it is important to know that in the Netherlands the effect is compounded by a 2021 change in tax law that raised levies on secondary homes. This depressed housing transactions in the country, which had a strong knock-on effect on DIY chains
- Maxeda’s problem is not so much idiosyncratic, but simply market-related. Refinancing is not a DIY job for management.
What’s required / Exit?
- For Maxeda to refinance in 2026 the business has to grow topline. The competitive situation in a mature DIY market does not seem to allow any one player to take home any savings. So we do not see cost cutting as a solution in so far as it is not achieved in some form that would not be replicable by the competition. For instance, we are not adding the planned €25m purchase price savings to EBITDA, but instead expect those savings to be passed on to the consumer. This should in time position the company at a slightly lower price point, allowing it to capitalise on any growth in demand - for instance from improved consumer sentiment (see above).
- We think the current shareholders (predominantly former Mezz holders), have an exit problem. The large DIY chains of France and Germany are not interested in buying themselves into small nuggets of markets and into positions that do not allow for much growth. As for selling the stores to each other, there will soon be competition regulators blocking any significant deals. One idea is to sell the chain to franchisees. However, the company seems to have mostly small Ma&Pa franchisees who hold only one store. They just don’t have the financial muscle to buy sufficient stores from Maxeda.
Happy to discuss,
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk