Info på AOJ.

Labredoor

AOJ: 1-page pitch

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:

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.

c3po

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