Maxeda - What's the New Normal?
All,
Please find our updated analysis of Maxeda here.
Results were mixed on the Q1 call. The cost position had improved remarkably, but primarily due to lower energy cost, which we had weighted towards the back-end of the year. The savings made in expenses, however, were offset by a bigger fall in the topline - despite stronger promotional activity. So Maxeda fell short of our expectations in Revenues and Gross Profit - once again due to persistently bad weather and persistently weak consumer confidence. Maybe it’s just the new normal.
Investment Rationale:
- We are holding a 5% position in the SSNs which we bought following the Q4 results for 80.5%. We had previously been ambiguous on the name due to its geographical confinement between bigger countries with bigger players and therefore an apparent lack of growth stories. The company is expensing what it earns to service its debt and defend its market share. There is little value accumulation. Thus if below-discussed expense reductions fail, there is a tangible chance of an A&E or even the break-up of the business with a partial A&E that's only marginally attractive.
- While the company’s top line is an unleveraged bet on Benelux consumer confidence and housing transactions, this investment is predicated on endogenous drivers. The company should benefit from €10m lower energy cost this year, which has been on display in Q1 and should again become visible in Q4. The lower cost position has however been offset by lower GM, which is why following Q124/25 we have had to adjust our projections downwards slightly. The €25m benefit from a purchasing alliance with Leroy Merlin should stabilise gross margin or slightly lift it.
- Having had to take our projections down a notch following Q1, chances of an A&E transaction late next year have slightly increased. However, it is too early to abandon the position. June weather should again have been slightly disappointing. If July also turns out to be miserable along with dim guidance in September and it may become time to accept a "New Normal" for summer sales and even take some of the risk off again.
Q124/25:
- Consumer confidence is improving and Inflation falling materially in both countries. LTM market growth remains nominally positive although in real terms it's only about breaking even again. Maxeda is lagging the market and particularly in Belgium. Compare Dutch March CPI of 3.1% (4.4%) vs. 5.8% Q1 LfL Growth. Likewise Belgian March CPI of 3.2% (6.7%) vs. -0.8% Q1 LfL Growth.
- Better weather: 10.8% LfL in weather-related products (lawnmowers garden furniture, swimming pools and BBQs.
- Consumers are postponing larger projects, which is why the Belgian business is lagging the Dutch. Belgium: Revenues down by €3m. Mid-box stores + 1.3%, but Big Box down -3.5%. In the Netherlands consumers have begun to respond to promotion. As a result, revenues are up 5.8% LfL although the net GM effect remains negative (Promotions -70bps and mix effects -40bps).
- Selling and Distribution cost came down despite inflation. Fewer stores, lower energy cost by -4m and increased labour efficiency (lay-offs) for 1m etc.
- Liquidity: The company drew its RCF during the quarter for €15m to cover its spring WC peak - like last year. Despite the healthier liquidity level per quarter end, this suggests that minimum liquidity headroom lies around €50m.
Q224/25 Guidance:
- May weather was again disappointing with monthly sales down -6.7% (-12.4% weather and -3.3% non-weather related). However, June has started a little better and at the time of writing the Netherlands at least are still in the European Cup. Q2 was the strongest quarter in FY23/24. So soft LfL sales were already built into out model. Still, we have dropped expectations a little further.
- Cash was €53m in May, some €12m higher than the year before. However, compared to a year earlier, Q1 WC inflow had contributed materially to the €30m Q124/25 balance already, so we anticipate a similar cash balance to last year of around €70m at Q2 end.
Next steps:
- We look forward to paying attention to the weather over the coming two months and to Q2 results in September. The company the countries it is operating in are stabilising, but not quite at the rate we had expected. It’s early days and we are sticking around to gather more evidence.
Here to discuss with you,
Wolfgang
E: wfelix@sarria.co.uk
T: +44 203 744 7003
www.sarria.co.uk