▶ Полный текст поста
A Finnish company that sells clothes, home decor items and, bags and accessories. These are my 2 cents on Marimekko.
STRENGTHS:
1. Growth and profit ratios are very good, an average 30% both ROE and ROCE in the last 10 years. An average 22% CAGR in their net income, operating income and cash flow from operations in the last 10 years.
2. A positive free cash flow. Their average Dividend Pay-Out Ratio in the last 10 years is 50%.
3. Really low debt ratio (Equity / Total Liabilities), it has been decreasing.
4. They have been in the business for 75 years. They have strong competitive advantages (global scale, popular brand, opportunities to expand and income flows from different markets).
5. Efficiency ratio is improving throughout the years.
6. Their incentive strategy focuses in the long term financial wellness (sales growth, operating income growth, earnings per share growth, etc). These objetives have been consistent in their financial reports.
7. Sales are raising (their day sales inventory ratio is improving and they are opening new stores every year).
8. Around 71% of their assets are tangible assets or cash.
9. They regularly purchase back their shares (demonstrates commitment to their shareholders).
10. There are 17 board directors and main executives, 14 of 17 have been in the company for over 4 years.
11. They are improving their sales through online stores, second-hand clothes sales, new stores in Asia and partnerships with other brands like Microsoft and Adidas.
RISKS:
1. In 7 of the last 10 years, their dividend pay-out ratio is over 50%, and, in 3 of those 7 years is over 100%. Their Capital Expenses-to-Cash Flow from Operations ratio is low as well, you may think they do not invest in the company growth too much.
2. Part if their compensation programm includes a Net debt to EBITDA ratio benchmark of 2 or less, however, their definition of "Net debt" does not consider interest-bearing debt which is half of their total debt. In the same way, part of their compensation focuses in stock price, including dividend payments, so, the more they pay in dividends the higher their bonus (actually, they did exactly this in 2019 and tried the same in 2022). The 2 points above makes you think they may create perversive incentive for the main executives.
3. Although their debt ratio is low, their costs are very high, a bad year could put the company in a bad position.
4. They are in a very competitive industry with low barriers to entry.
In my opinion, their low market value, their growth opportunities and established financial history make Marimekko a good investment. If we assume Marimekko net income will grow an average 16% CAGR (and not the actual 22% shown) in the next 10 years, try to pay their whole debt in a 20 years period to reduce it to 0, and add the book value. Their earnings after a 10 years period are higher than their current market value (389 million euros), even if you buy at a 30% margen of safety (396 million euros).
My maths is this:
24.4×(−1+1.16\^10) ÷ 0.16 = 520
520 + (74.3 − (56.1÷2)) = 566
566 − 30% = 396
Ironic Typical Disclaimer: Even when you are reading a post about investments in a investment sub-reddit, for some reason law dictates this is not considered financial advice and forces me to tell you that, regardless the fact this very same post is pointing out the profit for investing in a specific company, with the purpose of avoiding lawsuits, all readers have to be reminded investments are not free money, they could lose value, therefore, always consult with a professional financial advisor before following any recommendation you receive from strangers on internet.