Oponeo: A Successful Business Model Driving Market Share Growth and Potential Expansion
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Oponeo’s business model is proving its worth. The company is continuing to increase its market share, as was clearly evident in the 2Q23 results: despite the Polish market contracting by 13% y/y, Oponeo’s sales volume grew by 19.5% y/y. Admittedly, the company paid for it with a slightly lower gross sales margin (with good control of overheads), but in our opinion, it is on the right path.
Oponeo still has growth potential, given that offline sales in Poland exceed 50%. The size of the aftersales tyre market in Poland per capita is over 2x smaller than in Germany. In our view, the future trading model certainly has room for large specialised online sellers (in addition to broad marketplaces), which should continue to grow at the expense of offline sales and small players.
As a market leader, Oponeo is driving its competitive edge by investing in automation and logistics. Growing dividends and ongoing share buybacks are a confirmation of sound corporate governance. The valuation seems attractive enough to more than offset the risks associated with high business volatility (weather, consumer sentiment, high working capital).
VALUATION
Our valuation is based on the DCF model. We have additionally presented a peer valuation, taking into consideration pharmaceutical distribution companies. The DCF model consists of two phases. In the first phase (2022F-2026F), we have forecast in detail all the key parameters required for the company valuation, including, in particular, the value of revenue, capital expenditure, cost level, and balance sheet items. The second phase starts after 2027F. In it, we have assumed a constant free cash flow growth rate at the level of 2.5% per year.
We have used a WACC-based discount rate. The risk-free rate is assumed at 5.5%, which reflects the 10-year treasury bond yield. Beta is assumed at 0.9x (due to the strong balance sheet). We have adopted an equity risk premium of 5.5%. We have discounted all free cash flows for the company as at 31 December 2023 and deducted the forecast net debt (added net cash).
