Gaming Demand And PC Replacement Cycle Will Support A Fairly Valued Outlook

Catalysts

About Komplett

Komplett Group sells consumer electronics and related products across B2C, B2B and distribution channels in the Nordic region.

What are the underlying business or industry changes driving this perspective?

• Growing demand for gaming related hardware, supported by recent product launches and strong interest in graphics cards and other gaming categories, can support B2C revenue and gross profit mix as high end items usually carry stronger unit economics.
• The aging installed base of PCs and expectations around the Windows 11 transition are creating a replacement cycle in the Nordic PC market, which can support volumes in both B2C and B2B and lift group revenue and gross profit if Komplett converts that demand through its existing customer base.
• Consolidation of warehouses, back office functions and sourcing, together with cost and efficiency measures targeting 8% to 10% of the cost base, is expected to improve operating leverage over time and support net margins as gross profit develops.
• Rebalanced price and campaign policies in Sweden and a deliberate shift from low margin to higher end products are already visible in the gross margin figures, which can gradually support more stable earnings if the company can hold on to that pricing discipline while the market recovers.
• Improved net working capital through inventory reductions and better payment terms, combined with NOK 1.2b in liquidity and lower leverage, provides financial flexibility to keep investing in IT infrastructure, store upgrades and commercial initiatives that can support revenue and earnings quality.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Komplett's revenue will grow by 5.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from -4.1% today to 1.3% in 3 years time.
• Analysts expect earnings to reach NOK 235.2 million (and earnings per share of NOK 0.76) by about July 2029, up from -NOK 640.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting NOK275.8 million in earnings, and the most bearish expecting NOK174.0 million.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 9.6x on those 2029 earnings, up from -1.8x today. This future PE is lower than the current PE for the NO Specialty Retail industry at 27.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.0%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Gaming and PC replacement demand is described as recovering and supported by recent product launches. If this multi year upgrade and gaming cycle continues to build rather than flatten out, Komplett could see stronger than expected volume and mix in core categories, which would put upward pressure on revenue and earnings.
• The group has already completed warehouse and back office consolidation for Webhallen, is integrating assortments across brands, and is working through a cost program targeting 8% to 10% of the cost base. If these measures scale efficiently and more of the planned savings are realized than currently visible, operating leverage could lift net margins and earnings above what a flat share price would imply.
• Management points to an aging installed PC base in Nordic B2B and B2C markets and to expectations around the Windows 11 transition. If this replacement cycle accelerates rather than stalls, particularly in education and SME contracts, it could translate into higher unit demand and better use of the existing cost base, supporting revenue growth and group EBIT.
• Liquidity of NOK 1.2b, lower leverage with a 3.0 ratio, and ongoing IT and store investments give Komplett room to keep improving its offer and operations. If these investments translate into better customer acquisition and retention across Norway and Sweden, that could support higher long term revenue and more resilient margins than your view of an unchanged share price factors in.
• The company reports that market conditions in its core Nordic markets are gradually improving, with positive momentum and more normalized competition in Sweden. If this broader industry recovery continues and Komplett maintains its gross margin discipline and cost control, earnings and free cash flow could strengthen over time in a way that challenges expectations for a flat share price.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of NOK9.67 for Komplett based on their expectations of its future earnings growth, profit margins and other risk factors.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NOK13.0, and the most bearish reporting a price target of just NOK6.0.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be NOK18.0 billion, earnings will come to NOK235.2 million, and it would be trading on a PE ratio of 9.6x, assuming you use a discount rate of 10.0%.
• Given the current share price of NOK6.64, the analyst price target of NOK9.67 is 31.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.