Market Leader Set to Capitalize on the Digitalization Trend

Gyldendal ASA (“Gyldendal” or “the Company”) is a leading player in the Norwegian book market, with revenue derived from a publishing segment and a retail segment. With 20% of the Norwegian population as members and significant clients such as the Norwegian Curriculum, the Company is deeply engraved in the Norwegian literary world. Through investments in digital solutions and fruitful agreements with major players, Gyldendal is set to capitalize on the current digitalization of the book market, leading to a revenue CAGR of 4.0% 2023-2026. Additionally, a stronger emphasis on digital solutions combined with a cost-reduction program is estimated drive the EBIT margin from -0.5% to 4.9% 2023-2026. An equally weighted DCF and peer valuation, with a target multiple of 9.3x EV/EBIT, implies a potential share price of NOK 520.1.

• Publishing Segment Set to Benefit from Fruitful Agreements

The Norwegian publishing market has grown at a CAGR of 5.3% over the past three years, reaching NOK 3,280m, while the submarket of school-literature has averaged a 8.0% yearly growth, due to the need of constant updates. As Gyldendal’s publishing segment derives a majority of LTM revenue from Curriculum agreements, the high exposure to a faster growing submarket is set to drive growth. With over a decade as the largest curriculum supplier, schools have become accustomed to Gyldendal’s learning material, leading to high switching costs, which creates a stickiness. This, combined with a portfolio of award-winning digital learning tools, positions Gyldendal well for the recent Curriculum-reform of “The Faculty Pledge”, which emphasizes the need for digital solutions, which Gyldendal is set to capitalize on. Factoring in partnerships with streaming services Fabel Lyd and Storytel, the publishing segment is expected to reach a net revenue of NOK 960.1m by 2026, corresponding to a 4.5% CAGR.

• Shift in Demand Set to Drive Growth and Margins for ARK

The demand on the book-retail market is changing towards digital solutions; 42% of all books sold in Norway 2023 were in digital format, compared to 25% in 2019. ARK, the Company’s retail segment, has in order to adapt to the evolving consumer demand implemented an omnichannel solution that includes online sales and subscription services, with a large portfolio of audio books. With 1.2m Norwegian members, Gyldendal is set to leverage the strong customer base and convert them into consumers of higher-margin digital solutions. Therefore, out of estimated 10.1m sold publications 2026, equivalent to NOK 2,039.6m, 5.0m publications, or 49.5%, is estimated to be in digital format. Combined with the publishing segment, this results in a total CAGR of 4.0% from 2023 to 2026. The rise in digital literature sales across both segments is, due to less material requirements, projected to increase the gross margin from 59.2% to 62.6%, due to lower COGS from digital solutions.

• Automated warehousing expected to free tied-up cash flow

In 2021, Gyldendal centralized warehousing by acquiring an automated inventory facility. Initial logistical issues increased Days Inventory Outstanding (“DIO”) from 125 to 164 days 2020-2026, but the integration is now fully completed. Hence, DIO is expected to normalize, with an estimated improvement of the FCF margin from -2.1% to 4.0% 2023-2026.