Ekornes had a Great First Half
- By Holmes Osborne, CFA
Ekornes ASA (EKRNF) is a Norwegian manufacturer of high end furniture. Its chairs are known for their ergonomic design and retail up to $4,000. Shares have been up recently with a strong second half for 2016. The shares are held by Tweedy, Browne.
There are 36.83 million shares and the company trades at a market cap of 3.83 billion krones ($467 million). It takes 8.21 krone to buy one dollar. Earnings per share were 5 krone in 2015 and the stock traded at a price to earnings ratio of 20.8. The dividend was 4 krone and the dividend yield was 3.84%. Beginning in 2011 to 2015, earnings per share were: 7.45 krone, 6.95 krone, 6.04 krone, 4.35 krone and 5 krone. The dividend over that time frame was: 7.5 krone, 5.5 krone, 5.5 krone, 4 krone and 4 krone.
Warning! GuruFocus has detected 5 Warning Sign with EKRNF. Click here to check it out.
The intrinsic value of EKRNF
According to Bloomberg, the trailing twelve month earnings are 7.01 krone and the stock trades at a price to earnings ratio of 14.84, price to sales of 1.1 and price to book of 2.69. Return on equity is an impressive 18.6%.
Ekornes produces high end chairs and furniture. Most are covered in leather with thick foam. Name brands include: Stressless, IMG, Swane, you and Ekornes. Its Stressless line is by far its biggest seller. North America accounts for 26% of revenues, Norway 16%, Europe 44% and the rest of the world, 14%.
At the end of 2015, the balance sheet was very strong. There were 230 million krone in cash and 458 million krone in accounts receivables. The liability side showed 143 million krone in accounts payables, 309 million krone in bank debt and no long term debt. Free cash flow (by my calculation) was 292.5 million krone and the free cash flow yield was 7.6%.
Typing in "Stressless Furniture" into Google will take you to a site showing recliners that range in price from $1,500 to close to $4,000. Stressless sofas go all the way up to $6,000. Ekornes acquired fellow Norwegian furniture manufacturer IMG in 2013. Ekornes has a great reputation for designing ergonomic furniture. This link will take you to an article from the New York Times, written in May of 2015. No doubt selling $4,000 chairs is dependent upon a robust economy. You will have to figure that into your thoughts about Ekornes.
Over the last ten years, sales have increased slightly while operating margins have come down from the high teens to the high single digits. This increase in costs has hurt profitability and earnings per share. My guess is that higher commodity prices hit costs for that time frame. What is surprising is that sales were barely affected in the 2008/2009 market crash.
For the first half of 2016, sales were up 61 million krone to 1.678 billion krone. The Ebit margin was 14.3% from 10.6%. Much of this gain in margins was due to lower materials and higher unit (furniture) prices. Earnings per share were 1.61 krone versus 0.77 krone from the first half of 2015. There were also currency tailwinds as the Norwegian krone has been very weak with low oil (Norway is a major oil producer).
Ekornes is an interesting company. I'd have to learn more before I'd buy shares. My concern would be about who wants to buy $4,000 chairs in a slow economy. Stressless and Ekornes are good brand names though. On paper, it's an impressive company.
Disclosure: I do not own stock in Ekornes.
Start a free 7-day trial of Premium Membership to GuruFocus.
This article first appeared on GuruFocus.
Warning! GuruFocus has detected 5 Warning Sign with EKRNF. Click here to check it out.
The intrinsic value of EKRNF
