Otto (OTTOGR; unrated) 4.3Y SLB Background on co (Private, owned by the Otto's)

MIN. €250 4.3Y SLB IPT 6%a (eqv. MS+313)

**Coming well wide...but may be warranted. After a look at the co we are left with more questions than answers. Original €300m 26s that have been tendered down trade at Z+70 (issued in late 2019 at MS+240).

Platforms Business (€6.2b/41% of revenue, EBIT-€375, EBITDA -€8m)

• This is effectively it's e-commerce arm - it says it is the 2nd largest for online sales in Germany. Under that it has two platforms; 1) Otto (https://www.otto.de/) at €4b in revenues & ABOUT YOU (https://www.aboutyou.com/) which is €1.9b in revenues.
• From the platforms it makes money on 1) sale of products with first-party relationships (1P, i.e. it is the retailer with wholesale supplier), 2) commissions on marketplace with third-party (3P, no inventory/WC risk) and 3) services including logistics, insurance, customer support, analytics etc. Platform has operating leverage and asset light.
• It says 3P is growing and now 1/3 of volume being down. It says marketplace will be opened to partners from EU after this year (currently on German VAT ID can be onboarded).
• It says €175m impairment charge on ABOUT YOU dragged on income measures further down, but we'd note even headline revenue was down 4.5% in Platforms (its pointing to macro weakness).
• Guidance is for this to go EBIT break even in FY24/25 (12m to Feb 25).

• Sells its own brands as well as licensed brands through e-commerce & physical stores. Online share it says is 63% here. Main companies are Crate&Barrel (Premium furniture & home equip), Bonprix (mix of items in affordable) & Witt-Gruppe (Fashion in mid-range).

• Multi-channel that buy & sell products belonging to their own and 3rd party brands. Difference to above is tad unclear. Companies underneath it include myToys, Baur, Otto Austria & Manufactum.
• We see it closed all of its stores in Mytoys earlier last year and went to offering products only on otto.de, see here.

• Includes EOS group which it says is one of the leading investors & experts in technology-based processing of non-performing receivables. It also has other co's that help in "receivables management".
• It has minority stakes in Hanseatic Bank (25%) and Cofidis Group (20%) which specialise in consumer credit.
• By far the highest margin segment for it. and alongside brand concepts segment, the only profitable one (on EBITDA/EBIT).

• Logistic services which is where it started (mail-order). Does warehousing and distribution under Hermes.
• This segment can drive considerable capex - in FY23 totaled €170m

Publicly it reports annually with sporadic updates on certain divisions between that. We have no issue with its detail in annual reports.

• On earnings, we effective ignore "cash EBITDA" and take reported EBITDA which is running at a 5% margin (was 3.6% last year). FCF conversion on this was high last year (at 92%/€689m) but seems dependent on WC swings & capex. FY22/23 had -€1b WC and +€300m more in Capex (at €800m) drive FCF to -€1.2b.
• We see it 3.7x net and 4.5x gross against reported EBITDA & on its "cash EBITDA" (adj.) it reports net 2.0x/gross 2.5x.
• In FY23/24 annual report it has a very table on forecasts made vs. actuals (below). It has no explicit target for its adj. net debt leverage figure. It recorded an improvement from 2.4x to 2.0xyoy.
• It does target group equity ratio of "at least 25%" - in FY23 it was 33.8%, little changed yoy & leaves headroom.
• Break down on debt; gross €3.4b and includes €1.6b in bank facilities, €1b in leases & €700m in bonds. Cash & eqv.s of €0.7b leaves net €2.7b.
• Note it has noted "break-up of the euro area" as a risk that would have a "relevant impact if it were to occur" - we only see Europe exposure ex. Germany at 25%, rest in Germany (57%) and US (18%).