Deep Dive - Puuilo

Best-in-class Finnish discount retailer poised for continued success

Introduction

This new deep dive will cover Puuilo, one of the leading Finnish discount retailers, listed on the Helsinki stock exchange under the ticker PUUILO. Alternatively, shares can also be traded on the German exchange at the same prices (but with lower volume).

Exhibit I - One of Puuilo’s Stores

This marked our 14th in-depth report. After this, we’ll start writing our first e-book on “Return on Capital Uncovered” (exclusive to annual members) - a practical guide you won’t find anywhere else (at least, that’s our goal). There’s a lot of misunderstanding on what Return on Capital is, when it makes economic sense, and why there’s no perfect calculation.

With that, let’s jump into Puuilo.

In some (maybe many) ways, Puuilo reminds us of the competitive dynamics in the US automotive aftermarket: AutoZone & O’Reilly versus Genuine Parts and Advance Auto Parts. We’ve got similar dynamics: a wide gap in profitability, ROIIC, balance sheet strength, growth in customer traffic, and the post-COVID volatility. Perhaps this report can be read in conjunction with our O’Reilly write-up published in August 2024.

Deep Dive - O'Reilly Automotive

The deep dive will cover:

• Part I - Puuilo’s Business Model

• Part II - Financial Performance

• Part III - Competitive Landscape

• Part IV - Puuilo’s Updated Financial Targets

• Part V - Leases and Puuilo’s Reconciled ROIIC

• Part VI - One of Puuilo’s Main Peers’ ROIIC

• Part VII - Valuation Model

• Part VIII - Conclusions

Executive Summary

If we had to summarize the investment case for Puuilo in five key bullet points, we’d take these:

1. Growing market share in a growing industry;

2. Growing at high-teens to low-twenties percent ROIICs, outpacing all competitors;

3. Best-in-class same-store sales growth;

4. Below-average risk (reflected in leases and interest expense as % of EBITDA and good working capital management leaving room for optimization (e.g., matching trade payables more with inventory);

5. Paying all excess cash out to shareholders