SEB Investigates

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SEB Investigates

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Footway Group

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Company Update Retail Sweden 19 May 2021

The online specialist

Footway Group, including Sportamore since 2020, has built a strong position in the online footwear and sportswear markets. On its highly automated AI-based platform, Footway operates seven retail concepts in 24 European markets. We expect it to outgrow its peers with strong margin progression. We initiate coverage with a midpoint DCF value of SEK 39. The peer discount – the equity value is 1x 2022E EV/Sales – is excessive because Footway is under-analysed.

Footway Group: built on scale for a SEK 10bn vision

Following several acquisitions in recent years, notably of Sportamore in 2020, Footway Group today operates seven online retail brands in 24 markets across Europe. Its automated technology platform – with all brands using one backend and one front-end system – allows for a dedicated focus on customer contact and satisfaction, where the company is consistently highly ranked. We estimate Footway Group’s total addressable market at EUR 360bn a year (of which the Nordics represent about 4%) and we reckon accelerating online migration could drive a CAGR of 13-14% in the online segment to 2023. In 2023 we estimate sales of almost SEK 3bn, while its vision remains SEK 10bn in total platform revenues.

Earnings forecasts reflect strong growth and margin progression

We forecast 2021 sales of SEK 1.6bn growing to SEK 2.9bn in 2023, equal to a CAGR of 32%, the highest in its online peer group. Adding synergies of SEK 100m from Sportamore’s acquired assets to this sales growth, we expect operating leverage to bolster EBITA margins too: from 2% in this year to 4% in 2023.

Coverage initiated with a SEK 33-45 equity range – midpoint of SEK 39 Based on a CoE of 6.5%, a WACC of 6.1% and a steady-state EBIT margin of 4%, we arrive at a fundamental midpoint DCF-based equity value of SEK 39 (range of SEK 33-45) per Footway Group share. At our midpoint valuation, Footway Group would trade at 1.6x 2022E EV/Sales putting it at a reasonable 30% discount to its peer group average, which is appropriate due to its small market capitalization.

Key Data (2021E) Price (SEK)

Reuters Bloomberg Market cap (SEKm) Market cap (USDm) Market cap (EURm) Net debt (SEKm) Net gearing

Net debt/EBITDA (x) 7.8

Shares fully dil. (m) Avg daily turnover (m)

Free float 28%

206 239 39%

87.2 0.0 FOOTb.ST FOOTB SS 2,085 252 23.90

Share Price (12M)

Absolute (green) / Relative to Sweden (purple).

10 15 20 25 30 35

May Jul Aug Oct Dec Mar May

Financials (SEK)

Year end: Dec 2019 2020 2021E 2022E 2023E

Revenues (m) 991 1,089 1,639 2,203 2,868

Adj. EBIT 26 7 (12) 26 68

Pre-tax profit (m) 6 (23) (31) 13 62

EPS 0.07 (0.26) (0.31) 0.13 0.55

Adj. EPS 0.41 (0.24) 0.08 0.52 0.94

DPS 0.00 0.00 0.00 0.00 0.00

Revenue growth (%) 30.4 9.9 50.5 34.4 30.2

Adj. EBIT growth (%) 70.0 (74.3) n.m. n.m. 161.4

Adj. EPS growth (%) 15.6 n.m. n.m. 586.8 80.1

Adj. EBIT margin (%) 2.6 0.6 (0.8) 1.2 2.4

ROE (%) 1.9 (4.7) (4.3) 1.9 7.4

ROCE (%) 6.5 0.9 (1.2) 3.0 8.7

PER (x) 48.1 n.m. n.m. 45.9 25.5

Free cash flow yield (%) (7.7) (9.9) 5.3 8.5 2.6

Dividend yield (%) 0.0 0.0 0.0 0.0 0.0

P/BV (x) 5.28 3.35 3.35 3.31 3.10

EV/Sales (x) 1.47 2.32 1.42 0.98 0.73

EV/Adj. EBITDA (x) 33.7 86.2 75.8 31.1 18.9

EV/Adj. EBIT (x) 57.3 384.4 (188.9) 83.0 31.0

Operating cash flow/EV (%) (6.6) (7.5) 5.0 8.7 3.1

Net debt/Adj. EBITDA (x) 5.18 18.38 7.81 0.96 0.16

Marketing communication commissioned by:

Footway Group

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Investment conclusion

Coverage initiated: DCF value of SEK 39

We initiate coverage of online specialist Footway Group with a midpoint DCF- based equity value of SEK 39 (range of SEK 33-45). We expect strong sales growth over our forecast period of 2021-2023 (CAGR of 32% p.a.). From this sales growth and by leveraging its highly automated technology platform, we expect EBITA margins to improve from about 2% in 2021, a year that will be burdened by investments, to 4% in 2023. This corresponds to EBITA growing from SEK 30m in 2021 to SEK 110m in 2023 (CAGR of 91%).

In our opinion, Footway Group is under-analysed and thus misunderstood within the investment community: we believe the equity is now being valued at about 1x 2022E EV/Sales. This equals a discount of almost 60% versus its Nordic online retail peer group average. At our SEK 39 midpoint equity valuation, Footway would trade at 1.6x EV/Sales, implying a more reasonable discount of 30% to reflect its small market cap and lesser liquidity.

Valuation summary based on DCF-based equity range

Mid-point DCF value (SEK) 39.00

Share price (SEK) 23.70

2022 EV/Sales (x) 1.00

2022E adj. EV/EBITA (x) 32.3

2021E DPS 0.00

Valuation potential Low High Mid-point

DCF valuation range (SEK) 33.00 45.00 39.00

Equity potential (%) 39 90 65

2022 EV/Sales at DCF valuation range (x) 1.37 1.84 1.61

2022 EV/EBITA at DCF valuation range (x) 44.1 59.4 51.7

2021E DPS yield (%) 0.0 0.0 0.0

Total return potential 39 90 65

Source: SEB

In summary, the following key points outline our investment case in Footway Group:

● Large market opportunity: The European clothing and footwear market is estimated at EUR 360bn, of which the Nordic market equals about EUR 14bn a year (4% of the total addressable market for Footway Group).

Having launched all seven online retail concepts in all 24 markets across Europe, we argue Footway carries significant growth potential: in 2021 we estimate its non-Nordic markets to contribute sales of below SEK 0.5bn.

● Accelerating online migration: The apparel and footwear segments are popular online categories Europe-wide. In 2021, we estimate the online share of total sales at 23%, implying over 30% growth compared with 2019. We believe online penetration will approach 28% in 2023, equal to 13.5% sales CAGR in the period 2019-2023

● Built on scale: We believe Footway Group’s highly automated technology platform, launched in November 2021, distinguishes it from many of its sector peers. In addition to integration with suppliers that manage their own fulfilment of stock positions (about 90% of order approvals are automated), this allows for AI-based algorithms to optimize marketing spend. We expect Footway Group to launch additional online store fronts on its platform (own and eventually external merchants), capitalizing on one common backbone, one front-end system and, importantly, without adding to costs

We initiate coverage of online specialist Footway Group with a midpoint DCF-based equity value of SEK 39 (range of SEK 33-45)

Footway Group is under-analysed and misunderstood: we believe the equity is now being valued at about 1x next year’s EV/Sales

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● Customer-centric at its core (LTV/CAC): Having automated its backbone and front-end systems, Footway Group has always prioritized customer contact and satisfaction. Its sites record premium scores in satisfaction indices such as NPS (net promoter scores) and Google. We believe this creates a solid margin opportunity from optimizing customer lifetime value (CLV) versus customer acquisition costs (CAC). In the last 12 months, the group attracted over 1m new customers and had 1.6m active customers at the end of Q1 2021.

● Capital management and margin gains to bolster ROCE: Including stock- in-trade from its recent acquisition of Sportamore – a leading Nordic online retailer of mainly sports apparel – we believe focus at Footway Group will now be on improving turnover rates (from inventory/trailing sales at 70.4%

in Q1 2021). Including the impact from increasing EBITA margins, bolstered by SEK 100m in expected synergies from the integration of Sportamore, we also expect ROCE to reach about 14% at the end of our forecast period in 2023. This would be on par with its online apparel and footwear retail peer group median.

● M&A likely to deliver on its SEK 10bn vision: CEO Daniel Mühlbach has a strong track record as entrepreneur. He founded and exited Lensway – Europe’s largest contact lens company – and has orchestrated a string of acquisitions at both Lensway and at Footway Group. The most recent example was Footway’s acquisition of Sportamore in 2020. While our financial forecasts do not include future acquisitions, we reckon there are several potential M&A targets on the group’s agenda that could fit well with its automated and scalable platform once the balance sheet allows. The group’s vision is to reach SEK 10bn in total platform revenues.

Timeline: (asset) acquisitions, expansions and net sales 2011-2023E (SEKm)

Source: SEB

Today, Footway Group operates seven online retail concepts in 24 European markets, with 168 country-specific stores. Most brands focus on sportswear and footwear for any occasion or within a specific niche, such as streetwear and basketball wear. In all it offers about 1,000 brands and 70,000 products. The acquisition of Sportamore in 2020, adding about SEK 600m in run-rate sales (post-restructuring) in mainly the Nordic markets (France was launched in mid- 2019), has increased Footway’s exposure to the sports segment substantially.

3 27 89 222 260 344

505 760

991 1,089 1,639

2,203 2,868

0 500 1,000 1,500 2,000 2,500 3,000 3,500

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E

Net sales (SEKm) Nordic-4

expansion

7 new markets

13 new markets

Today Footway Group operates seven online retail concepts in 24 European markets, with 168 country-specific stores

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A significant growth opportunity based on accelerating online migration From this base we see significant growth opportunities for Footway Group to expand its sales over our forecast period to 2023. Footway offers an exposure to online segments that we estimate will continue to gain share of the total market spend. Clothing and footwear and sports apparel are popular online shopping categories for consumers across the Nordic region and in Europe as a whole.

Bolstered by the marked increase in online consumption in 2020, Euromonitor estimates cited by Zalando suggest the online share of clothing and footwear sales is about 23% or EUR 83bn. This implies growth of 30%-35% y/y from 2019, from a penetration level of between 16-17% of total European apparel spend.

European online clothing and footwear sales forecasts (EURm and %)

Source: SEB, Eurostat, Euromonitor, Zalando

We estimate the European market for apparel and footwear, including sports apparel – equal to the total addressable market for Footway Group – calculated at constant currency and excluding VAT, to be worth about EUR 360bn in 2020.

European clothing and footwear market forecasts (EURm)

Source: SEB, Eurostat, Euromonitor, Zalando 57,383 61,955

83,267

91,378 96,434

102,806

15.5 16.5

23.1

25.0 26.2

27.6

0.0 5.0 10.0 15.0 20.0 25.0 30.0

0 20,000 40,000 60,000 80,000 100,000 120,000

2018 2019 2020 2021E 2022E 2023E

European online fashion market (EURm) European fashion market - online penetration (%)

312,830 313,528

277,197 274,133 271,635 269,679

57,383 61,955

83,267 91,378 96,434 102,806

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000

2018 2019 2020 2021E 2022E 2023E

European offline fashion market (EURm) European online fashion market (EURm)

Footway offers an exposure to online segments that we estimate will continue to gain share of the total market spend

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Sweden: online penetration in selected segments (%) Nordic vs. European cloth. & footwear sales (EURm)

Source: SEB, PostNord Source: SEB, Eurostat, Euromonitor, Zalando

Customer-centric brand to support LTV/CACs and margin development In this marketplace Footway Group has over time recorded high net promoter scores (“willingness to recommend”), typically at levels around 80. These levels compare well with other customer centric propositions in the online fashion sector, such as Boozt Group recording NPS scores of around 70.

Customer satisfaction - willingness to recommend

NPS (-100 to 100) 2015 2016 2017 2018 2019 2020

Boozt.com 65 65 67 71 69 70

Footway.com 81 80 79 80 79 n.a.

Source: SEB, Footway, Boozt group

We argue, over time, this suggests high customer lifetime values (LTV) and therefore better return on CAC (customer acquisition costs/marketing spend).

In the last 12 months, the group attracted over 1m new customers and recorded 1.6m active customers at the end of Q1 2021.

No of new customers and no of active customers, LTM

('000) Estimated LTV-to-CAC* (24 months retention rates) (x)

Source: SEB Source: SEB. *Adj. CAC = excl. EO marketing estimated at SEK 52m in Q4/20-Q1/21

Looking at traffic data in more detail, we note that Footway has a relatively high share of organic search traffic to its two main sites being footway.com and sportamore.com (weighted average of 42% in March). We reckon these numbers remain muted by its change in platform in November in last year, suggesting that the SEO-based site traffic (i.e. not paid for ad words) could improve further. We note that Zalando’s strong market position in the Nordic countries results in corresponding organic search traffic of around 68%. This represents a 25pp difference compared to the weighted average for Footway and Sportamore.

14,308

360,464

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000

Nordic-4 - clothing & footwear market, const. ccy (EURm) European fashion market, const. ccy, 2020E (EURm) 2020

Nordic market size of about 4%

of total European fashion market

1,592 1,706

2,305 2,989

1,050 1,262

1,659 1,967

0 500 1,000 1,500 2,000 2,500 3,000 3,500

Q2/18 Q3/18 Q4/18 Q1/19 Q2/19 Q3/19 Q4/19 Q1/20 Q2/20 Q3/20 Q4/20 Q1/21 Q2/21E Q3/21E Q4/21E Q1/22E Q2/22E Q3/22E Q4/22E 2023E

No. of active customers, LTM ('000) No of new customers, LTM ('000)

4.4 5.8

5.2 5.7

5.0 4.6

4.1

4.9 4.8

4.5

0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0

2017 2018 2019 2020 2021E 2022E 2023E

LTV incl. GM (24M)/adj. CAC (x) LTV incl. GM (24M)/CAC (x)

In this marketplace Footway Group has over time recorded high net promoter scores (“willingness to recommend”), typically at levels around 80

We note that Footway has a relatively high share of organic search traffic to its two main sites being footway.com and

sportamore.com

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Organic share of search traffic (%) Footway vs Sportamore: organic share of search (%)

Source: SEB, Similarweb Source: SEB, Similarweb

A highly automated technology platform brings scale to Footway Group Footway has developed and launched a highly automated and data driven e- commerce technology platform. This strategy reflects the company’s vision of becoming a consumer platform, enabling more peer-to-peer recommendations over corporate marketing. The group’s vision is to have over 1bn visitors and generating SEK 10bn in platform revenue.

In addition to integration with suppliers that manage their own fulfilment of stock positions (about 90% of order approvals are automated), this allows for AI-based algorithms to optimize marketing spend. In Q4 2020 and in Q1 2021, the group charged its P&Ls with SEK 52m in additional investments relating to populating its new market sites with local data. Also adding to our margin forecasts, Footway Group expects to generate SEK 100m in annual synergies from the integration of its acquisition of Sportamore.

We expect Footway Group to launch additional online store fronts on its platform (own and eventually external merchants), capitalizing on one common backbone, one front-end system and, importantly, without adding to costs.

Seven store fronts today using same backbone and front-end systems

Source: Footway Group, SEB

26.5 40.1 40.2 40.6 42.0

64.7 67.8

86.4 88.8

0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0

Amazon.se Na-kd.com Boozt group total (weighted) Nelly.com Footway & Sportamore total (weighted) CDON group total (weighted) Zalando Nordic total (weighted) Boohoo.com Amazon.com

Organic search as % of search Mar-21

Well-established =>

<= New market entrant

36.1

47.0

42.0

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0

Footway.com Sportamore.com Footway & Sportamore total (weighted)

Organic search as % of search Mar-21

The group’s vision is to have over 1bn visitors and generating SEK 10bn in platform revenue

We expect Footway Group to launch additional online store fronts on its platform (own and eventually external merchants), capitalizing on one common backbone, one front-end system and, importantly, without adding to costs

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Capital management forecasts (%) EBITA and EBIT margin forecasts (%)

Source: SEB Source: SEB

ROCE forecasts (%) Online peer groups median ROCE forecasts (%)

Source: SEB Source: SEB, Factset

Capitalization and valuation

Capitalization forecasts and valuation

(SEKm) 2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E

Ordinary no of shares, f. dil., avg, adj. (m) 51.495 56.253 61.011 62.671 63.073 63.751 79.466 86.891 87.230 87.230

Share price (SEK) 23.70 23.70 23.70 23.70 23.70 23.70 23.70 23.70 23.70 23.70

Market cap 1,220 1,333 1,446 1,485 1,495 1,511 1,883 2,059 2,067 2,067

Net debt/(cash) n.a. (14) (1) (16) 76 169 371 239 67 17

EV 1,220 1,320 1,445 1,469 1,571 1,680 2,254 2,299 2,134 2,085

Valuation (x)

EV/Sales (x) 5.50 5.08 4.20 2.91 2.07 1.70 2.07 1.40 0.97 0.73

EV/EBITA (x) (30.4) 217.4 70.9 58.5 70.8 52.3 114.6 76.2 31.2 18.9

Ordinary DPS (SEK) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

Ordinary dividend yield (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Preference shares

Pref. no of shares (m) 0.000 0.550 0.550 0.550 0.550 0.550 0.550 0.550 0.550 0.550

Pref. share price (SEK) 125.50 125.50 125.50 125.50 125.50 125.50 125.50 125.50 125.50 125.50

Market cap, pref. shares 0 69 69 69 69 69 69 69 69 69

DPS, pref. (SEK) 0.00 1.85 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00

Pref. dividend yield (%) 0.0 1.5 6.4 6.4 6.4 6.4 6.4 6.4 6.4 6.4

Source: SEB

62.5

57.0 56.0 59.7 59.8

74.8

48.6

36.0 34.2

35.0

0.0 25.0 50.0 75.0 100.0

2015 2016 2017 2018 2019 2020 2021E 2022E 2023E

Inventory/sales (%) Inventory/sales ambition (%)

2.3 5.9

5.0

2.9 3.2

1.8 1.8

3.1 3.8

(1.6)

3.3 3.2

2.0 2.6

0.6

(0.8) 1.2

2.4

(2.0) (1.0) 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0

2015 2016 2017 2018 2019 2020 2021E 2022E 2023E

Adj. EBITA margin (%) Adj. EBIT margin (%)

3.5 9.6

11.7

7.6 8.1

2.6 3.0

7.8 14.2

7.2

8.3

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

2015 2016 2017 2018 2019 2020 2021E 2022E 2023E

Adj. ROCE ROCE, 6Y avg (2015-2020) ROCE, 3Y f'cast avg (2021-2023E)

11.5

18.5

11.2

3.0 13.7

19.1

12.5

7.8 15.6

20.3

14.5 14.2

0.0 5.0 10.0 15.0 20.0 25.0

Omni Retail & Sports fashion, med

Online Retail & Marketplace, med

Online Apparel & Footwear, med Footway Group 2021E 2022E 2023E

ROCE forecasts (%)

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Footway Group today has a market capitalization of around SEK 2.1bn. The group has outstanding preference shares (yielding 6.4% p.a. based on preferred dividend payouts of SEK 8 per share) with a market capitalization of SEK 69m. We do not forecast any ordinary dividend payments over our projection period of 2021-2023. Following asset acquisitions in 2020, the most important of which was Sportamore, the group ended Q1 2021 with net debt of SEK 384m. Markets have been difficult because of the pandemic (demand in several shoe categories, such as workplace and occasional wear, has slumped) and the group invested in extra marketing expenditure in Q4 2020 and in Q1 2021, burdening short-term margins and profitability.

Net debt-to-EBITDA was 37x in Q1 2021, which we expect to drop to 19x in Q2, 18x in Q3 and 8x at the year-end. This is based on our forecasts for net debt of SEK 240m at the end of Q4 2021 and reflects the company releasing working capital (stock-in-trade) and paying down debt. Here, the group targets about 35% inventory/sales in the “medium term”. Based on lowered inventory positions, as well as strong sales growth, our forecasts imply 49% inventory-to- sales at the end of 2021 and 36% at the end of 2022.

Inventory-to-sales forecasts (%)

Source: SEB

Net debt-to-EBITDA forecasts (x)

Source: SEB 62.5

57.0 56.0 59.7 59.8

74.8

48.6

36.0 34.2

35.0

0.0 25.0 50.0 75.0 100.0

2015 2016 2017 2018 2019 2020 2021E 2022E 2023E

Inventory/sales (%) Inventory/sales ambition (%)

(0.31) (2.07)

(0.04) (0.64)

3.35 5.18

18.38

7.81

0.96 0.16

(5.00) 0.00 5.00 10.00 15.00 20.00

2014 2015 2016 2017 2018 2019 2020 2021E 2022E 2023E

Net debt/adj. EBITDA (x)

The group targets about 35%

inventory/sales in the “medium- term”

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Key risks and investment concerns

We have identified the following material risks and investment concerns in Footway Group:

● Cyclical underlying demand: Any discretionary spending, including in the apparel and footwear segment of the retail market, builds from private consumption growth and as such is cyclical. As analysed in more detail in this research note, we conclude a strong correlation between employment concerns (a consumer confidence indicator) and retail sales. When consumers become more concerned about maintaining employment (i.e.

not the unemployment rate as such), this historically has burdened discretionary spending and vice versa. The secular trend towards health, well-being and exercising should support the sports apparel segment across the cycle, we believe. In this perspective, the addition of Sportamore is a mitigating factor for Footway Group as it dilutes the dependence on sales of primarily footwear

● Unseasonable weather conditions: Seasonable weather conditions are perhaps the most important driver of short-term consumer buying patterns.

This is well-established across the retail sector. The footwear segment is arguably more dependent on seasonal weather than apparel in general, especially in big-ticket winter seasons.

● High indebtedness and WC position: Coming out of difficult trading amid the Covid-19-pandemic, as well as having invested extra in marketing costs to populate new markets with local data, Footway Group’s net debt-to- EBITDA is currently high at 37x (end-Q1 2021). While the company is not in breach of covenants (which are based on debt-to-inventory) this also risks maintaining a higher equity risk premium until levels normalise (we estimate towards the end of this year). Lowering its stock-in-trade position is key to releasing working capital and to paying down debt. We believe these issues, including focusing on lifting EBITA margins are at the top of the company’s agenda.

● Limited track record of profitability with new platform: While we reckon its highly automated e-commerce platform could be a competitive advantage that will give Footway Group economies of scale in future expansions (common backbone and front-end systems for all stores on the platform), the company has yet to build a track record showing organic growth and at increasing margins and profitability. The group has experienced some automation issues because not all product categories can be fully automated and still require manual sales/handling – this is why some Sportamore lines have been discontinued. However, in the longer term we believe the globalisation and automation of Footway’s processes – including sourcing/supplies, product categorization, pricing, reporting, return handling, warehousing and marketing – will all compound to produce higher margins and returns on investment compared to peers.

● New distribution investment phase: Footway Group has decided to double its capacity in its fully automated Eskilstuna distribution centre (DC) to 48,000 square metres. This will mean higher costs this year and next (when two DCs will run in parallel) and could impact sales performance in the transition period. The chosen Auto Store system is well-established in the industry (sector peer Boozt has successfully invested in the same system) and we believe longer term that this could significantly reduce handling costs per order and bolster EBITA margins.

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Equity valuation

Midpoint DCF equity value of SEK 39

To value Footway Group we use a DCF approach. We use an equity risk premium of 4% in our weighted average cost of capital (WACC of 6.1%). Reflecting the indebtedness, our WACC assumptions have a fairly large impact on the equity value in Footway Group, as outlined in the sensitivity tables below.

We use a steady-state EBIT margin of 4%. Based on our margin analyses elsewhere in this research, this could be conservative. Here too, we provide sensitivities to changes in margin assumptions and the resulting impact on our equity valuation, which is also material, in the tables below.

In all, based on a WACC of 6.1% and a steady-state EBIT margin assumption of 4%, we arrive at our midpoint equity valuation of SEK 39 per share in Footway Group.

Midpoint DCF equity valuation – summary

Source: SEB

DCF range: sensitivities to CoE and ECW (%) DCF range: sensitivities to margins and growth (%)

Source: SEB Source: SEB

Peer group valuation

As outlined in this research, we believe there are a number of important factors that separate Footway Group from its online retail peers, notably and including its highly automated technological platform allowing for one common backbone (the new distribution centre will be fully automated, based on a solution from industry benchmark Auto Store) and one common front-end system. Over time this should provide a margin premium, as this structure allows for both organic growth and other expansions; and without necessarily adding much to costs.

DCF valuation (SEKm) Weighted average cost of capital (%)

NPV of FCF in explicit forecast period 887 Risk free interest rate 2.5

NPV of continuing value 2,824 Risk premium 4.0

Value of operation 3,711 Cost of equity 6.5

Net debt, incl. Pref shares 309 After tax cost of debt 2.0

Share issue/buy-back in forecast period -

Value of associated companies - WACC 6.1

Value of minority shareholders' equity -

Value of marketable assets - Assumptions

DCF value of equity 3,402 Number of forecast years 10

DCF value per share (SEK) 39.00 EBIT margin - steady state (%) 4.0

Current share price (SEK) 24.00 EBIT multiple - steady state (x) 17.0

DCF performance potential (%) 63 Continuing value (% of NPV) 76.1

5.5 6.0 6.5 7.0 7.5

72 65.4 58.9 53.4 48.7 44.6

Equity capital 82 55.8 50.1 45.3 41.2 37.6

weight (%) 92 48.4 43.3 39.0 35.3 32.2

100 43.3 38.7 34.7 31.4 28.5

Cost of equity (%)

-2% -1% 0 +1% +2%

-2% 17.4 26.3 35.2 44.0 52.9

Abs. change in -1% 18.3 27.7 37.0 46.4 55.8

sales growth - 0 19.2 29.1 39.0 48.9 58.8

all years +1% 20.2 30.6 41.1 51.5 62.0

+2% 21.2 32.2 43.3 54.3 65.3

Absolute change in EBITDA margin - all years

Based on a WACC of 6.1% and a steady-state EBIT margin assumption of 4%, we arrive at our midpoint equity valuation of SEK 39 per share

There are a number of important factors that separates Footway Group from its online retail peers, notably and including its highly automated technological platform

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On the other hand – as outlined in detail in our section “Peer benchmarking and KPIs” – there are significant differences between Footway Group and other Nordic and international online retailers in everything from average order values to return rates, which affects the balance between sales growth and margins.

Some online retailers, like Desenio (the online poster and prints company) and RugVista (the online carpet retailer), generate EBIT margins of 20-25%: other companies have margins in low single digits and some cases even have negative margins. Also, Footway Group maintains a significantly higher stock-in-trade level compared to its peers, which holds back its relative ROCE.

Sales growth expectations also differ substantially. We estimate sales CAGR of 32% in 2021-2023 for Footway Group, which well above the estimated median sales CAGR of 10% for the peer group.

Peer group sales CAGR 2021-2023 estimates (%)

Source: SEB, Factset

EBIT margin forecast 2022 (%)

We divide our peer group into three sub-groups: omni retailers and brand owners focusing on footwear and sports apparel (including companies like FootLocker, Adidas and Genesco that owns and retails Johnston & Murphy, for example); online retailers (including AO World, BHG and Overstock); and online apparel and footwear retailers (including ASOS, Boozt and Zalando).

2.2 2.9 3.1

4.3 4.3 4.5

5.9 6.1

7.2 7.2 7.6 8.0

8.8 9.0 9.1 9.6

10.1 12.5

14.9 16.1 16.1 16.5

16.7 17.1 18.4

19.0 22.3

23.4 23.6

29.5 29.8

32.3

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0

Foot Locker, Inc.

Genesco Inc.

XXL ASA Under Armour, Inc. Class AAsics Corporation SRP Groupe SA Nelly Group Delticom AG CDON Hennes & Mauritz Verkkokauppa.com Oyj Overstock.com, Inc.

ZOZO, Inc.

NIKE, Inc. Class B adidas AG Peer group, med JD Sports Fashion Plc PUMA SE zooplus AG Rugvista Group AB ASOS plc Pierce Group AB Ocado Group PLC Stitch Fix, Inc. Class A Boozt Zalando SE BHG Group Lyko Group AB Class A boohoo group Plc Desenio Group AB Farfetch Limited Class A Footway Group

(10.9) (3.0)

(2.4) 1.2 1.7 2.5 2.7 2.8 3.0 3.9 4.1

4.3 4.5 4.5 4.5 4.7 5.7 5.7 6.1 6.6

7.0 7.2 7.7 8.5 8.8 9.2 9.7 11.2 11.3

16.2 18.9 23.7 30.8

(15.0) (10.0) (5.0) 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0

Farfetch Limited Class A Stitch Fix, Inc. Class A Ocado Group PLC Footway Group zooplus AG Nelly Group Delticom AG XXL ASA AO World Plc Zalando SE Verkkokauppa.com Oyj SRP Groupe SA Overstock.com, Inc.

Genesco Inc.

ASOS plc Asics Corporation Lyko Group AB Class A Peer group, med Under Armour, Inc. Class A Boozt Pierce Group AB BHG Group boohoo group Plc Foot Locker, Inc.

JD Sports Fashion Plc PUMA SE CDON Hennes & Mauritz adidas AG NIKE, Inc. Class B Rugvista Group AB Desenio Group AB ZOZO, Inc.

EBIT margins (%) 2022E

We estimate sales CAGR of 32% in 2021-2023 for Footway Group, which well above the estimated median sales CAGR of 10% for the peer group

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Peer group valuation and share price performance

CCY Share Mkt cap EV/Sales (x) EV/EBIT* (x) Abs. performance (%) Online Retail & Sports Fashion price price (EURm) 2021E 2022E 2023E 2021E 2022E 2023E -1M -3M -12M Omni Retail & Sports fashion

adidas AG EUR 288.55 57,830 2.71 2.47 2.28 27.7 21.8 18.4 3.9 (1.1) 47.8

Asics Corporation JPY 2,178.00 3,114 1.19 1.13 1.09 38.0 24.0 19.7 20.7 9.7 120.7

Foot Locker, Inc. USD 64.60 5,499 1.03 1.00 0.99 12.4 11.8 11.3 10.2 23.9 163.1

JD Sports Fashion Plc GBP 8.93 10,696 1.39 1.26 1.15 17.3 14.4 12.9 (4.1) 11.0 71.0

Genesco Inc. USD 55.72 687 0.62 0.59 0.58 15.4 13.1 11.8 11.4 27.9 259.9

Hennes & Mauritz SEK 211.90 34,526 1.86 1.63 1.51 23.3 14.5 12.5 4.1 17.8 77.2

NIKE, Inc. Class B USD 135.93 142,832 4.45 4.08 3.74 29.0 25.1 22.2 2.8 (4.4) 57.1

PUMA SE EUR 90.20 13,604 2.27 2.00 1.79 29.6 21.8 17.9 (1.2) 5.5 57.8

Under Armour, Inc. Class A USD 22.78 7,206 2.09 1.99 1.92 42.7 32.7 26.7 2.8 1.8 195.5

XXL ASA NOK 21.44 536 0.80 0.76 0.73 20.8 27.7 25.3 12.8 9.4 112.3

Omni Retail & Sports fashion, avg 1.84 1.69 1.58 25.6 20.7 17.9 6.3 10.2 116.2

Omni Retail & Sports fashion, med 1.62 1.45 1.33 25.5 21.8 18.2 4.0 9.6 94.7

Online Retail & Marketplace

AO World Plc GBP 2.54 1,414 0.68 0.60 n.a. 23.5 20.1 n.a. (20.0) (15.8) 179.1

BHG Group SEK 146.90 1,749 1.63 1.36 1.10 24.1 18.8 15.8 (13.9) 2.7 106.3

CDON SEK 480.60 283 4.07 3.96 3.31 n.a. 40.6 22.5 (21.3) (35.1) n.a.

Delticom AG EUR 7.56 94 0.32 0.30 0.28 17.2 11.1 9.5 (3.6) (4.3) 173.9

Desenio Group AB SEK 94.70 1,348 7.89 5.87 4.43 36.0 24.8 18.4 0.4 n.a. n.a.

Lyko Group AB Class A SEK 311.50 471 2.50 1.99 1.60 51.3 35.0 26.0 (2.4) 1.8 74.5

Ocado Group PLC GBP 19.87 17,291 5.08 4.36 3.73 n.a. n.a. n.a. (6.3) (24.2) 1.6

Overstock.com, Inc. USD 71.14 2,522 0.92 0.83 0.79 23.1 18.6 16.6 (8.1) (33.4) 282.1

Pierce Group AB SEK 80.40 315 1.87 1.56 1.30 29.2 22.4 17.6 1.3 n.a. n.a.

Rugvista Group AB SEK 168.00 345 4.87 4.15 3.45 24.1 22.0 18.8 12.9 n.a. n.a.

Verkkokauppa.com Oyj EUR 8.30 374 0.61 0.57 0.53 15.6 13.9 12.2 (11.7) (2.1) 113.9

zooplus AG EUR 223.80 1,600 0.75 0.65 0.57 51.5 37.2 27.0 (13.4) (2.7) 61.9

Online Retail & Marketplace, avg 2.60 2.18 1.92 29.6 24.1 18.4 (7.2) (12.6) 124.2

Online Retail & Marketplace, med 1.75 1.46 1.30 24.1 22.0 18.0 (7.2) (4.3) 110.1

Online Apparel & Footwear

ASOS plc GBP 49.60 5,750 1.25 1.06 0.93 25.5 23.3 19.4 (8.6) (6.4) 86.7

boohoo group Plc GBP 3.19 4,675 1.66 1.34 1.08 22.1 17.3 14.8 (11.3) (12.9) (9.3)

Boozt SEK 184.20 1,159 1.97 1.60 1.37 30.3 24.4 19.2 (15.6) (5.4) 203.0

Farfetch Limited Class A USD 41.90 10,771 6.91 5.35 4.10 n.a. n.a. n.a. (20.3) (39.7) 163.7

Nelly Group SEK 33.95 60 0.33 0.31 0.29 28.5 12.3 8.9 (7.7) (3.0) 129.8

SRP Groupe SA EUR 3.56 419 0.47 0.45 0.43 11.7 10.5 9.4 11.4 (2.7) 597.1

Stitch Fix, Inc. Class A USD 43.06 2,419 2.40 2.03 1.75 n.a. n.a. n.a. (8.1) (49.4) 121.5

Zalando SE EUR 84.08 21,940 2.08 1.74 1.47 52.8 44.2 33.7 (3.6) (15.8) 59.4

ZOZO, Inc. JPY 3,550.00 8,332 6.50 6.01 5.48 21.6 19.5 17.2 0.3 2.5 79.3

Online Apparel & Footwear, avg 2.62 2.21 1.88 27.5 21.6 17.5 (7.0) (14.8) 159.0

Online Apparel & Footwear, med 1.97 1.60 1.37 25.5 19.5 17.2 (8.1) (6.4) 121.5

Peer group, avg 2.36 2.03 1.79 27.6 22.2 18.0 (2.8) (5.2) 132.8

Peer group, med 1.86 1.56 1.34 24.1 21.8 17.9 (3.6) (2.7) 112.3

Footway Group* SEK 24.00 206 1.42 0.98 0.74 n.a. 82.3 30.7 (13.0) (20.0) 89.0

Discount/(Premium) to Online peers, avg (%/pp)

Discount/(Premium) to Online peers, med (%/pp) 39.7 51.8 59.0 n.a. (269.8) (71.1) 10.3 14.8 43.9

23.4 37.0 45.0 n.a. (278.0) (71.9) 9.5 17.3 23.3 Source: SEB, Factset. *Footway Group adj. for GW amort (EV/EBITA)

The share prices of our peer group have been boosted over the past year because of the way the pandemic has encouraged consumers to move online.

The median share price performance is up 112%, whereas median 2021 EPS estimates over the same period have been upgraded by 16%, suggesting a marked multiple expansion in the sector. (Within that, multiples for some companies have contracted, for example ASOS).

The share prices of our peer group have been boosted over the past year because of the way the pandemic has encouraged consumers to move online

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Peer group share price performance, -1Y (%)

Peer group 2021 EPS revisions, -1Y (%) Peer group capital management forecasts (%)

Because Footway Group’s EBIT is burdened by amortization of goodwill (so far, the company has not consolidated acquisitions, preferring to acquire the assets and then liquidate the target company), we believe investors may increasingly look at EV/EBITA when margin levels return to more normal levels. For now, we argue EV/Sales could be a preferred valuation metric in a relative valuation of Footway Group. Given its small capitalization, we suggest valuing Footway Group using a peer group of local online retail exposures as a proxy for alternative investments.

Based on our estimates, Footway Group is valued at about 1x 2022 EV/Sales.

This is a discount of nearly 60% to its Nordic online retail peer group average (and about a 40% discount to the median valuation).

Our midpoint DCF-based equity value in Footway Group of SEK 39 per share translates into an EV/Sales multiple of 1.6x 2022E, a discount of 30% to its local online retail peers. We believe this discount is justified by its small market cap and lesser liquidity.

(9.3) 1.6

47.8 57.1 57.8 59.4 61.9

71.0 74.5

77.2 79.3 86.7

89.0 106.3

112.3 112.3 113.9 120.7 121.5 129.8

163.1 163.7 173.9

179.1 195.5

203.0

259.9 282.1

(50.0) 0.0 50.0 100.0 150.0 200.0 250.0 300.0

boohoo group Plc Ocado Group PLC adidas AG NIKE, Inc. Class B PUMA SE Zalando SE zooplus AG JD Sports Fashion Plc Lyko Group AB Class A Hennes & Mauritz ZOZO, Inc.

ASOS plc Footway Group BHG Group XXL ASA Peer group, med Verkkokauppa.com Oyj Asics Corporation Stitch Fix, Inc. Class A Nelly Group Foot Locker, Inc.

Farfetch Limited Class A Delticom AG AO World Plc Under Armour, Inc. Class A Boozt Genesco Inc.

Overstock.com, Inc.

Abs. performance (%) -12M

(50.8) (25.0)

(15.7) (12.8)

(3.3) 3.5

7.0 14.8 16.1 16.1

35.7 59.7

69.9 70.4

146.5 156.5

207.1

(100.0) (50.0) 0.0 50.0 100.0 150.0 200.0 250.0

Asics Corporation Genesco Inc.

adidas AG Lyko Group AB Class A PUMA SE NIKE, Inc. Class B Foot Locker, Inc.

JD Sports Fashion Plc ZOZO, Inc.

Peer group, med boohoo group Plc BHG Group Verkkokauppa.com Oyj Zalando SE AO World Plc Under Armour, Inc. Class A ASOS plc

17.5

8.3

10.8

48.6

16.6

8.2

11.2

36.0

16.3

9.8

12.1

34.2

0.0 10.0 20.0 30.0 40.0 50.0 60.0

Omni Retail & Sports fashion, med Online Retail & Marketplace, med Online Apparel & Footwear, med Footway Group 2021E 2022E 2023E

Inventory/sales forecasts (%)

Footway Group is valued at about 1x 2022E EV/Sales, a discount of nearly 60% to its Nordic online retail peers

SEB Investigates