Mcap: $280m

TL;DR:

• ev/ebit ~7-8x on depressed earnings, 6-7% dividend & real estate +50% of market cap as a valuation cushion
• extensive investments through 2018-2023: entering the next up-cycle (2024-2027?) highly efficient, peak market share, peak capacity and no major capex needs

Business:

• Market leading B2B Heating, Plumbing, Electric & Water Supply distributor in Denmark (+28 000 business customers)

• global peers: Ferguson (US), Ahlsell (SE), Onninen (FI), Wesco (US), Dahl (DK)

• Market leading B2C Online Plumping/Heating/Sanitary in Denmark (+430 000 private customers)

• global peers: BHG Group (SE), Victoria Group Plc (UK)

• EU Taxonomy aligned assortment

• Approx. 70% of revenue is towards repair, maintenance and renovation i.e. low-mid cyclical

• Customers (schools, industrials, residentials, commercials, etc.) face asset impairment without maintenance & repair

Distribution 101:

• Academic literature names it a "Fortress Position" to be #1-2 in a single country (almost impossible to dismantle)
• Provides +28 000 tradesmen (plumbers, electricians, carpenters, etc) with +600 000 SKUs from +2 500 manufacturers
• 101: Wholesalers offer economic benefits by consolidating goods from various manufacturers, allowing tradesmen to access a wide range of products in one place. Their bulk purchasing power enables cost efficiencies, providing tradesmen with competitive prices while also offering manufacturers a streamlined distribution channel, ultimately contributing to a more efficient and cost-effective supply chain.

Tech Leadership:

B2B:

• Automated central warehouse (2018 & exp. 2022) enabling 60 minute delivery to the largest cities.

• SSI Schaefer Shuttle state-of-the-art equipment inside i.e. scale without additional manpower

• Revenue per full-time employee up +36% 2018-2021

• 2015-2022: 6 years of market share gains & 2% p.p. operating-margin improvement

• 'AO365' = +51 unmanned big box stores open 24 hours per day 7 days a week

• 'AO365' covers 95% of Denmark within 30 minutes drive

• 'AO365' plumber gets a immediate water-leak job: drives by a AO365; scans all the installation supplies he needs with an app; puts it on credit; carry the supplies to his truck; done

• 'AO365' removes the need for most installers to carry inventory i.e. high switching costs/moat

B2C:

• AOJ B2C passed +2 million visits in November 2023, ATH & +25% YoY.

• Denmark B2C:

BilligVVS.dk
LavprisVVS.dk
LavprisEl.dk
LampeGuru.dk
Greenline.dk
CompletVVS.dk
LavprisVaerktoej.dk

• Sweden & Norway B2C:

VVSochBad.se
LampeGuru.no
BilligVVS.no

Hard Assets:

• +$160-180m (+50% of mcap) of owned land, buildings & tier-1 equipment inside
• +30 locations
• Acquired plots throughout the 90s & 00s thus extremely good locations
• Competitors are now taking huge rental increases and/or closing down stores = AOJ Win/Win

Owners, Misc & End Game

• Owner & Operator model, family owned 4th generation

• Outsider-type CEO: history of substantial share buybacks, cancellation of shares, increased dividends and most importantly never diluted

• Swedish giant Ahlsell spent fortunes for 10 years trying to enter & compete in Denmark, but failed and left

"Why so cheap?"

• Low free float
• AO had its first ever Analyst Coverage (BUY 55% upside) 2 months ago (October 2023)
• AO had its first ever Investor Presentation in Q1 2022
• AO had its first ever Conference Call in Q1 2022

(Why did a majority owner start with all this, at age 84? Does he maybe want to get interest and prices up for a sale...)

"Buyout?"

• The owner/CEO is 84 years old and have moved (tax & residency) to the US.
• The only son quit all operational roles, and the board, 14 years ago (no interest).
• The only son moved out of Denmark, sold his house in DK and is now a US resident.
• Family owners almost always want to settle company transition before passing

Summary:

• Consumers have been reserved with discretionary spend for ~2 years

• Upturn 2024-2027?

• Falling interest rates in Denmark, Sweden & Norway throughout 2024-(?) - huge stock of floating rate mortgages

• Buy a market leader at approx. 8-9x depressed net earnings (40-50% global peer discount) & 6-7% yearly dividend. Assuming the up-cycle arrives, you will have positive sentiment change for the sector AND actual earnings driving the shares upwards: multiple expansion + EPS growth.

• Huge efficiency and capacity investments 2018-2023 that now are complete will most likely pave way for another step-up in margins the coming years, as per management guidance.

• Optionality that Mr. Johansen decides to sell his company as there is no natural hier. Break-up value for PE (B2C, B2B & hard assets) should be absolutely massive - making a sizeable premium possible.

= Great R/R.