Qliro Group QLRO:SS
October 27, 2017 - 1:08pm EST by
2017 2018
Price: 18.00 EPS 0 0
Shares Out. (in M): 149 P/E 0 0
Market Cap (in $M): 320 P/FCF 0 0
Net Debt (in $M): -29 EBIT 0 0
TEV ($): 291 TEV/EBIT 0 0

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Qliro Group presents an interesting long investment opportunity that offers ca. 60% upside from the current share
price of SEK 18.
At the core of the investment we have a CEO change story. Marcus Lindqvist joined as CEO of Qliro in August 2016
from Dustin AB. Marcus has a clear agenda:
a) Streamline the portfolio of business. When he joined Qliro had 5 e-tailers in various product categories
and a financial services business. He quickly divested the weakest ones (Lekmer in toys and Tretti in major
domestic appliances). The next one up for sale is Health Sports and Nutrition Group (sells products for the
gym like protein powder) as he sees (and clearly says in his communications) that this business is not core.
b) Secondly he wants to restructure all the business. Before Marcus joined Qliro was an under-managed
totally de-centralized conglomerate of e-tailers still run by their founders. These run their companies still as
start-ups: i.e. growth at all costs, with no attention to profits. Most of the businesses in the group have never
made a profit in their history. To give you a sense of the inefficiencies, posting (a substantial cost for an e-
tailer) was negotiated by each company independently thus forgoing the purchasing scale benefits. Marcus
has a clear agenda for cash flow generation.
c) Thirdly Marcus wants to turn Cdon into a marketplace sort a mini-Amazon of the Nordics.
d) Finally Marcus wants to grow significantly the financial services business which consists of merchandise
credit (thus tagging along the customer base who buy at Qliro e-sites) and as online consumer bank in the
This is a brief description for how we got here.
a) The beginnings of Qliro go back to 1999 when Modern Times Group (a Swedish media company owned by
Kinnevik) founded CDON, an e-tailer to sell CDs, DVDs, PC games and books online in Sweden. The
company grew by adding consumer electronics to Cdon, acquiring e-tailers in other product categories (toys,
fashion, gym food, appliances) and expanding into the rest of the Nordic countries.
The important thing is that acquisitions were never integrated, still run by their founders (start-up mentality)
and not running for making money but just for growth. Thus many of the businesses never made money.
Moreover many of the businesses under-invested in marketing for many years, which led to market share
losses in some busineses.
b) In 2014 2 significant events happen: Qliro launched the marketplace for Cdon (in which 3
party merchants
could sell their products into Cdon site) and Qliro Financial Services (to provide financing for people buying
at Qliro sites). The latter business is still going through strong growth phase, and the benefits of operational
gearing have not kicked in fully.
c) Then in August 2016 the company appointed Marcus as new CEO.
Management Discussion CEO Marcus Lindqvist
1. Management Assessment
Before joining Qliro Marcus spent 4 years at Dustin where he was initially the Head of Dustin Sweden and then also
added Head of Group Product Management to his responsibilities. Dustin is a Swedish company which supplies IT
equipment to businesses.
It is difficult to get financials for Dustin Sweden as the private accounts of the Dustin AB (Swedish subsidiary) include
central overheads and other central costs. To assess his track record we had relied on reference checks on Marcus
from people that worked with him at Dustin the feedback was consistent and positive. These are his main traits:
- Marcus gets under the skin of the organization to assess its potential and opportunities. This in turn means
that he attacks both the cost base as well as draw strategies in-line with the company’s assets.
- He is a high-performer and likes to get surrounded of like-minded people.
- Finally he delivers on what he promises, he is not a bla-bla guy.
2. Actions Taken at Qliro
These are the main actions and results achieved at Qliro:
- 2 of the businesses (Tretti and Lekmer) were divested
- He has replaced 25 out 70 of the first and second management team. When you see the profiles of the first
layer of the management team you would see experience from well-established businesses (H&M, P&G, GE
Capital, Kinnevik).
- Finally he has cut significant costs out of the organization. For example in Nelly (the fashion retailer) TTM
EBIT increased from - SEK 4m (in Q3’16) to SEK 95m (in Q3’17).
Business Overview
Qliro is comprised of 4 businesses:
- Nelly: is an online fashion retailer for women 18-25 years old in the Nordics.
- Cdon market place: is like a mini Amazon
- Qliro Financial Services (“QFS”): provides merchandise credit to online buyers (e.g. if you want to purchase
something online on credit) and since September 2017 it gives consumer loans
- Health Sports and Nutrition Group (“HSNG”) is a mix of an online and brick and mortar retailer which sells
fitness products. This is non-core so I will not talk about it.
Below I discuss the essence of each business in more detail.
1. Nelly
Nelly is a strongly sharply positioned online fashion retailer. Its positioning is: female, 18-24 years old and with a
“party” twist (clothes women wear when they go out).
In this niche Nelly is the market leader in the Nordics with ca. 16% of the online market. Its brand is very strong. We
made a survey among 26 women in the target group and 17 of them (nearly 65%!) said responded Nelly to the
question “What online store would you go to if you needed party clothing?”
In the Nelly.com site ca. 42% of the net sales come from their own brand NLY. Consumers told us that they associate
NLY with “trendy”, “cheap”, “low quality”. In that price-point (“entry price”) the NLY is very strongly positioned among
Its main competitor is Zalando who got 8 responses (or 30% of the women interviewed). Zalando is a much more
diversified retailer in terms of gender, style and price-points. We see the niche positioning of Nelly and its brand as a
competitive advantage.
The key risk for Nelly is Zalando. In Jan. 2017 Zalando announced that they will open a warehouse in Stockholm
sometime during 2018 with the goal to reduce the delivery times (from 2-4 days to 0-2 days) and to carry more
Swedish brands.
Zalando has been a competitor of Nelly since it launched the site Zalando.se (.se for Sweden) in 2012. Zalando is
also better than Nelly at delivery: 3-5 days vs. Zalando 2-4 days, and Zalando is better at the return policy.
Nevertheless Nelly, in the 2012 2016, was able to grow revenues at 14% per year and more importantly increase
its market share from 14,5% to 16,0% in its target group.
Marcus’s strategy is to remain in its niche – its focus is on profitability and cash flows. He targets a revenue growth of
8% per year an EBITDA margin of 6% (implying and EBIT margin of 4%). If he was to achieve the targets then Nelly
would look as follows in 2019:
                    TTM Q2’2017     2019
- Revenues         1227           1567
- EBITDA             104              94
- EBITDA margin   8,1%         6,0%
- EBIT                   78              63
- EBIT margin      6,3%          4,0%
Although Nelly will see some pressure on margins from Zalando (marketing expenses for example) I think the targets
as conservative. At the end of Q3 2017 TTM revenues grew by 7,6% (close to expectation) but EBITDA margin was
close to 9% - well above estimates. In the Q3 call Marcus commented that “they have achieved the cost savings faster
than expected but he is no ready to upgrade the revenue growth or EBITDA margins target yet.
2. Cdon Marketplace
Cdon is a mini Amazon in the Nordics. It has a presence in all Nordic countries, but Sweden is the strongest with ca.
60% of the Gross Merchandise Value (GMV). It sells all sorts of products, although consumer electronics, media,
books and domestic appliances will make > 70%.
It has 2 revenue streams: product sales of product whole on own-inventory and the kick-back or commission on the
product sales external merchants pay Qliro for selling their products in Cdon websites.
This is a tough business with very few/no competitive advantages and tons of competition and total price
transparency. To make some money in this business the company has to be a large player in the market: size gives
purchasing scale in your own inventory, size leads to brand recognition so more organic (i.e. non-paid) traffic comes
to your website and size finally gives bargaining power vs. the external merchants to drive up the kick-back or
commissions charge for being a marketplace.
Marcus’ objective is to grow GMV by 10% per year and the marketplace (or revenues from external merchants) being
the primary driver for growth. To grow the marketplace fast an e-tailer two things needs to happen:
a) The company needs a good market place “engine” which integrates and price the products of the merchants
into Cdon site automatically and efficiently. The current marketplace engine of Cdon is not efficient, there is
tons of manual input going on, which adds as lot of costs to Cdon. To resolve this problem Marcus has hired
IT people to upgrade such market place engine. Qliro expects to have completed the development of this
market place in H1 2018.
Thus Cdon will have an inefficient cost structure until the new marketplace engine comes live. This explains
why profitability has been declining since Marcus joined.
b) Secondly Qliro has increased its marketing spend.
In terms of competition one needs to look it from two angles: first by country and then by own-inventory vs.
a) Country wise Cdon is the number 1 player in Sweden in online in their core product categories with ca. 4,5%
share. Komplette (a Norwegian company) is number 2 with 4% share. The industry remains fragmented and
thus it offers opportunities to the larger players to gain market share from small players.
Outside Sweden Cdon is sub-scale. There are very strong competitors such as Komplett (in Norway) and
Verkkokauppa (in Finland). Both very profitable with EBIT margin in the 3-5% range. Marcus has no plans to
close the operations in Norway or Finland as he benefits from purchasing scale: shipments of goods are
made from a warehouse in Stockholm. The good news is that Verkkokauppa has no plans to expand into
b) In terms of marketplace competition only Komplett offers a marketplace. It was launched very recently (June
2017) and for now it is only in the Nordics. The external merchants I spoke to told me that they are agnostic
with regards to marketplaces. If they believe marketplaces make sense for their business then they will sell
their products in all the marketplaces available.
c) The name you are missing in this list is Amazon. Amazon is indirectly present as it ships goods into the
Nordics at an affordable cost. However it does not have a Nordic site in the local language. E.g. when you
type Amazon.fi you get redirected to Amazon.de (Germany) with no option to translate the website into
Finnish. In terms of competition intensity this form of Amazon presence would be the least intense the
highest level of competition from Amazon comes when Amazon sets a warehouse in the respective country.
About 3 weeks ago magazine Breakit.se announced that Amazon would be launching an e-commerce site in
Sweden soon. As a caveat Amazon bought the .se in April this year.
My understanding of Amazon international expansion strategy is that they only pursue the full-model (e.g.
warehouse in the country) in very large markets the latest have been Middle East and Australia. Sweden is
a small country with ca. 10m people so it does not make sense for Amazon to do a full-launch.
Thus Amazon in Sweden will have the following forms: (i) a website in Swedish selling kindle and prime
video - like Amazon Netherlands, (ii) a website in Swedish selling products and shipping them from
Germany. (ii) will take some time 6 12 months, and even though it would increase competition (e.g. bidding
for keywords) the impact will not be catastrophic for Cdon. To start with Amazon will not carry Swedish
products as it will make no sense shipping out of Germany. This will lead to relatively lower consumer
engagement in the Amazon.se.
Marcus has set the following targets for 2019: growth of gross merchandise value by 10% per year and an EBITDA
(as % of GMV) 1-2%. This translates into an EBIT margin of 2-3%. If he was to achieve his targets then Cdon in 2019
would look as follows:
                                           TTM Q2’17       2019
- GMV                                      2174           2759
- EBIT                                        -24             69
- EBIT as % of GMV                  -1,1%          2,5%
3. Qliro Financial Services (“QFS”)
QFS does 2 things:
Merchandise credit:
In this business Qliro allows online buyers to pay on credit, either on invoice (paying within 14 days) or over a longer
period (3 36 months). The income stream is the commissions Qliro charges the buyer for setting up the loan and
lending the money (interest income).
The average loan amount is ca. SEK 1000 and duration is 1 year. The market leader in Europe is Klarna.
Qliro provides this service in its websites (captive) and in third party websites (non-captive). For 3
rd party websites 2 things matter:
- Conversion defined as the number of people who put an item into the basket and complete the purchase as
% of people who put the item into the basket. We have gone through the payment process both using Qliro
and Klarna, and they are similar. Finance managers of some e-tailers I have spoken to told me that the
conversion rate is similar.
- Economics of the transaction: Qliro does a revenue sharing with the merchant of the fee for processing the
payment for setting up the loan. Qliro will keep 100% of the interest income for itself. Klarna use to keep
100% of the processing fees and the interest for themselves in the past. Now they have started to offer some
revenue sharing, but still not as attractive as Qliro.
Consumer loans:
This business started in September 2017 when Qliro got the license to give loans. The loan size will range from SEK
20.000 to SEK 350.000 with a repayment period of 2- 15 years without collateral. Other peers in the sector include
Resurs Bank, Komplett Bank, Collector, TF Bank. They are all listed so you can get a sense of their returns (ROE
18% - 35%) and the growth in the loan book they have achieved.
The key to money in this business over the long-term is to have a sound credit process and risk-averse credit policies.
Qliro has no experience in this business but it has a very good board (independent of the board of directors of Qliro
Group) with relevant experience in consumer banking. I would highlight Lennart Francke for example who worked as
Chief Credit Officer for Handelsbanken for ca. 15 years. Handelsbanken is known to be a risk-averse bank in the
Nordics. This provides comfort that QFS will not grow by being risky on the loans they give.
In addition Marcus has mentioned that they have started the consumer loan business just in Sweden slowly and
 To grow this business Qliro will nurture from the 3,5m customers they have on their other sites. This customer
database has 2 positives: first Qliro will know the customers better than it a cold/new customer were to come to the
website (this reduces the risk of loan defaults) and secondly customer acquisitions costs will also be lower.
Komplett launched the consumer bank business in March 2014. In Norway alone delivered an EBT (after interest
expenses and credit losses) of NOK 174m up from nil in March 2014. Komplett is a good benchmark to what QFS
could achieve as Komplett also benefited from the customers coming to their sites.
Marcus has set a target of EBTDA (i.e. after interest expenses and credit losses) of SEK 150m by the end of 2019. At
the end of Q3 2017, TTM EBTDA was SEK 30m. I see this target as achievable given the operational gearing and the
incremental volume of loans coming from the consume loan businesses.
With the share price of SEK 18,0 the company has a market cap of SEK 2,7bn. And net financial cash (excluding all
the net financial cash of QFS) of SEK 240m
If Marcus was to achieve all the targets then Net Income on 2019 would be SEK 230m (tax rate of 25%) - see tables below for details.
his would imply a P/EPS of 10,7x in 2019.
Qliro TTM as of Q2 2017                    
  E-Commerce + MarketPlace              
  Nelly HSNG CDON Sub-Total E-Commerce Marketplace CDON  + Marketplace Sub-total E-Commerce Qliro Financial Services Eliminations Qliro Group
Gross Merchandise Value 1277 783 1727 3786 447 2174 4233 269 -1 4501
Net Sales 1277 783 1727   40 1768 3827 269 -1 4095
EBIT 78 38       -24 93      
EBIT Margin 6.1% 4.9%       -1.1% 2.2%      
Interest cost             0.1      
PBT             92.7 3 -3.5 92.2
as % of GMV             2.2% 1.1%   2.0%
Qliro FY 2019                    
  E-Commerce + MarketPlace              
  Nelly HSNG CDON Sub-Total E-Commerce Marketplace CDON  + Marketplace Sub-total E-Commerce Qliro Financial Services Eliminations Qliro Group
Gross Merchandise Value 1,547 783 1,727 4,057 1,032 2,759 5,089 483 -1 5,571
Net Sales 1,547 783 1,727 4,057 93 1,819 4,150 483 -1 4,632
EBIT 61.9 38.2       69.0 169.1      
as % of GMV 4.0% 4.9%       2.5% 3.3%      
Interest cost 0 0       0        
PBT 61.9 38.2       69.0 169.1 138 -3.5 303.6
as % of GMV 4.0% 4.9%         3.3% 28.6%   5.4%
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


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