Wulff: Efficiency improvements to boost earnings growth

Automatic translation: Originally published in Finnish on March 13th, 2025 at 7:24 AM EET. Please note that the automatic translation currently only covers the text visible here and may contain errors. You can provide feedback on the translations here.

Wulff announced that it is aiming for significant cost savings in its Products for the Workplace business by adapting its organizational structure and streamlining its operations. We have slightly raised our earnings estimates, albeit less than the company's target level, as we believe that some of the savings will be diluted by the segment's declining revenue and the resource needs of other growing businesses. We are raising Wulff's target price to EUR 3.1 (previously EUR 3.0), driven by the estimates change we have made. However, we still think that the stock's risk/reward ratio remains too narrow, which is why we reiterate our Reduce recommendation. 

The aim of streamlining operations is to achieve substantial cost savings

Yesterday, Wulff announced that it would implement an organizational reform in Finland in the business operations of its Products for the Workplace segment. The reform aims to increase efficiency and strengthen the company's competitiveness in a changing and, for the time being, challenging market environment. As a result of the reform, the company will initiate change negotiations concerning 60 people, of whom a maximum of 9 may have their employment terminated. The company believes that these measures will improve its earnings by MEUR 0.7 annually. In our view, efficiency gains are being sought not only through staff reductions but also in systems and processes, among other things. This also means that the efficiency measures may be sustainable in nature, in which case it would not necessarily be necessary to hire additional resources to replace the reduced job duties, for example, as the market recovers.

Some savings should already be visible during the current financial year

According to our calculations, the potential savings for the current year are in the range of 0.3–0.4 MEUR. The company will also incur non-recurring costs from the change negotiations, which we estimate to be in the region of just over EUR 100k. In our estimation, the company will already be able to repatriate some savings during Q2, but the company should be able to fully enjoy the lighter cost structure in H2.

The impact of savings will be diluted by other growth

We have slightly adjusted our cost structure estimate for Wulff to reflect the post-organizational reform period. However, we assume that resources will be increasingly tied up in the company's growing Working Life Services segment. These include Consulting and accounting services, in addition to Wulff Works, which is in the ramp-up phase. In addition, we estimate that the decline in volume in the Products for the Workplace segment related to the organizational restructuring will erode some of the company's planned cost savings. Based on the aforementioned assumptions, our adj. operating profit estimates increased by approximately 0.2-0.3 MEUR (+4%) year-on-year, thus remaining below the company's target level. 

The expected return remains too lean

We see Wulff's valuation as fairly neutral, as the stock trades at 12x P/E and 9x EV/EBIT multiples with our current financial year estimates. The usability of EV-based multiples is weakened by the large share of earnings distributed to minority shareholders relative to Wulff's earnings level, which is why we emphasize P/E-based valuation. In our view, a significant increase in the valuation would require a reduction in risk factors, such as a debt-laden balance sheet, market uncertainty and margin fluctuations, or stronger earnings growth than in our estimates. Reflecting on this, the stock's expected return relies almost entirely on the dividend yield of approximately 6%, which in itself is not enough to compensate for our required return of over 12%. Thus, we see the risk/reward ratio of the stock as weak, supporting our negative view of the stock. We believe that the DCF model (EUR 3.4 per share) above the current share price provides some support for the current valuation, the underlying assumptions of which include improved growth and relative margins.