Portuguese Retail - BPI Equity Research

BPI
EQUITY RESEARCH
Portuguese Retail
Retail
Consolidated in promotions
23rd October 2014
4 The Portuguese retail market is one of the most concentrated in Europe but also highly
competitive which has been preventing returns similar to those in other regions.
4 We have attended several meetings with top management of some of the most important
food retailers in Portugal. The main conclusions we have drawn from these are: (1)
A moderate but positive outlook; (2) Promotions to be continued but the intensity
level should not increase. The main hurdle should come from deflation; (3) Low
profitability should be a cap for new promotions; (4) Players to be focused on
quality vs. pricing; and (5) Online not a short term priority.
Portugal
DIA vs. JMT vs. SON vs.
Eurostoxx Retail
NRM
plk
NOR
4 The market has been highly promotion oriented, particularly since 2012 when Pingo
Doce abandoned its every-day-low-price strategy. This new trend in the market led
national brands to regain weight in household wallets. Recently, we started to
witness that promotion efficacy has reached a cap and volumes have not been
reacting to promotions. JM and Sonae continue to be the clear winners with 230bps
and 90bps market share gains respectively since YE11.
4 In terms of outlook we share the moderate but positive view for the industry. Short
term should still be ruled by deflation pressure which however should ease
throughout 2015 (+0.6% of inflation forecasted vs. -0.3% in FY14). Volumes
should also pick up on the back of improving disposable income (employment)
while trade-up should also benefit sales. Pingo Doce should not push for additional
promotions and instead focus on profitability, Sonae should remain a price-follower
while Lidl has not been cutting prices and should not deviate from its strategy. DIA
could be tempted to be more aggressive but more than promotions, the company
needs to invest in its stores and "quality" perception of its offer in the market.
bìêçëíçññ=
oÉí~áä
NMM
af^
TR
gj
RM
lÅíJNP
cÉÄJNQ
gìåJNQ
lÅíJNQ
Source: Bloomberg.
4 Implications on Sonae, JM and DIA: Sonae is the retailer most exposed to Portugal
(70% of sales) and this slightly positive outlook should be reassuring for the IC. JM
is a strong player and benefits from a its price image and proximity/locations. We
expect JM to focus on profitability and extract the potential from its network. DIA
is in a difficult situation, facing competition in its natural market: proximity (Meu
Super), price (Pingo Doce) and perceived quality to other hard-discounters (Lidl).
DIA could revert the short term headwinds but we can not rule out a potential midterm exit from Portugal (not over the next 12-18 months) if trends do not revert.
We maintain our CoRe Buy recommendation and preference for SON and DIA.
Summary of Recommendations
Market
YE15
LfL Recommendation
Multiple
(€/share)
Price (1)
PT
chg. New
Old
PE14
DIA
4.81
7.20
0% CoRe Buy CoRe Buy
12.9
JMT
8.38
9.80
-5% Neutral
Neutral
15.4
SON
0.97
1.75
0% CoRe Buy CoRe Buy
10.5
(1) Prices as of October 17th 2014. Source: BPI Equity Research.
Analysts
José Rito
[email protected]
Phone 351 22 607 3142
Bruno Bessa
[email protected]
Phone 351 22 607 3183
EPS
14-17 F
6%
5%
12%
EBITDA Chg
14-17 F
0%
0%
0%
Available on our website:
www.bpiequity.bpi.pt, BPI Online,
and Bloomberg at NH BPD
Equity Research
INDEX
3
PORTUGUESE FOOD RETAIL SNAPSHOT
3
GDP, consumer confidence and retail sales
3
PPI, CPI and food retail sales
4
Food retail format evolution: the promotion era
7
Market share evolution by company
10
COMPANIES MEETING HIGHLIGHTS
11
OUTLOOK
15
Main risks to our outlook
COMPANIES
17
21
25
2
DIA
Jeronimo Martins
Sonae
4
Portuguese Retail
4
October 2014
Equity Research
4
PORTUGUESE FOOD RETAIL SNAPSHOT
GDP,
CONSUMER CONFIDENCE AND RETAIL SALES
The last decade has been particularly difficult for the Portuguese economy with a
mere 0.4% average quarterly growth since 2000 and with extremely difficult times
lived in 2003, 2009 and 2013. Consumer confidence reflects this reality as despite
the improvements registered since YE12, the level stands below Jan'00 levels. Is
this a mid-term opportunity?
Portuguese Retail vs GDP (% yoy)
Consumer confidence
NOB
JR
UB
JNR
QB
JOR
dam
MB
JPR
JQB
oÉí~áä
JQR
JUB
JRR
lÅíJNQ
^éêJNP
lÅíJNN
^éêJNM
pÉéJMU
^éêJMT
pÉéJMR
j~êJMQ
pÉéJMO
j~êJMN
JNOB
Source: Bloomberg.
JSR
Source: Bloomberg.
The improvements registered at the macro front since Q2 last year justify the
relative recovery of retail sales witnessed in 2013 (-2.2% vs. -5.4% in FY12). It
seems that the sales momentum has been easing and despite the better relative
figures (-1.6% YTD), it remains on negative ground and without a major defined
trend. We link this gloomy sales backdrop to an increased deflationary trend in the
industry (adjusted by prices, sales have increased 0.9% YTD).
PPI, CPI
AND FOOD RETAIL SALES
Food retail sales have been more resilient during the market downturns and 2013
was a particularly positive year for the industry with a 1.2% yoy gain. The situation
has been changing and declining prices have been driving sales down YTD (flat,
excluding the deflation factor).
PPI evolution also indicates that producer prices have been on a descending trend
which represents a relief to some extent for the retailers' operational performance.
Against this backdrop, we should still expect some operational deleverage but
rising PPI with declining CPI would be dreadful for earnings evolution, which
seems not to be the case.
3
Portuguese Retail
4
October 2014
Equity Research
Food Retail sales (QoQ)
CPI vs PPI (% YoY)
NRB
NOB
NMB
UB
RB
4
`mf
QB
MB
MB
JQB
mmf
JRB
Source: INE.
lÅíJNQ
j~êJNP
pÉéJNN
j~êJNM
pÉéJMU
j~êJMT
^ìÖJMR
cÉÄJMQ
j~êJMN ^ìÖJMQ g~åJMU j~óJNN lÅíJNQ
^ìÖJMO
JNMB
g~åJMN
JUB
Source: Bloomberg.
FOOD RETAIL FORMAT EVOLUTION: THE PROMOTION ERA
We have been witnessing important changes in the Portuguese retail space: 1)
Promotions have been intense; 2) Private labels have been losing weight; and the
3) Shopping frequency is declining.
1. Promotions have skyrocketed
Pingo Doce/Jeronimo Martins has joined the industry promotion trend in mid-2012
with its famous 50% price cut in all products. Sonae and other hypers were already
applying a "high & lows" price strategy but we believe the new Pingo Doce policy
("every-day-low-price" previously) has definitely reshaped the market. The traditional
promotional oriented food retailers (hypers) had to intensify their marketing
campaigns while others, such as the hard-discounters (DIA, Lidl), were forced to
follow these steps in order to prevent an even more pronounced drag on market
share evolution.
Since mid-2013, promotion intensity has once again increased as a response to
Lidl's greater aggressiveness in the market. Lidl proclaimed plans to invest c€ 60mn
(€ 45mn in FY13) in store refurbishments and an improved “fresh” offer as well
as new and premium products (Deluxe brand). This led Pingo Doce to advance
and intensify its promotion campaigns, which once again had to be accommodated
by the key players in the market.
4
Portuguese Retail
4
October 2014
Equity Research
% of sales under promotion
4
Portuguese Retail
4
October 2014
Active leaflets for Sonae and
Jeronimo Martins
33.8%
27.8%
21.4%
24.1%
23.7%
16.5%
16.1%
OU
gÉêçåáãç
j~êíáåë
27.9%
NM
15.9%
NO
pçå~É
V
OMNN
OMNO
cj`d
mêáî~íÉ=i~ÄÉäë
OMNP
j~åìÑ~ÅíìêÉêë
OMNO
Source: Nielsen
OMNP
Source: Companies
2. Private labels have been losing market share
This promotion intensity has been supported by national brands which have reverted
the long term declining trend to private labels. Consequently, in some of the key
players, particularly Pingo Doce, the weight of private labels has declined as a
consequence of the more competitive price positioning from the national brands.
Market share of Private
Labels
36.3%
34.1%
30.2%
34.7%
31.8%
Market share of private labels
SVB
TNBTOB
RUB
RQB RSB
OTB OTB
OQB
^ìÅÜ~å
PQB
PPB
PNB
PNB
OTB
QOB
QNB
PPB
POB
OMMV
OMNM
OMNO
OMNP
Source: Nielsen.
`çåíáåÉåíÉ
fqj
OMNN
iáÇä
OMNO
jáåáéêÉ´ç
máåÖç=açÅÉ
OMNP
Source: Nielsen.
Private labels weighted by
geography in FY13
fq
^q
This trend is in fact somewhat different from what we have seen in other European
markets where private labels continue to win market share. We think this is explained
by some cultural differences (the Portuguese are more sensitive to promotions)
and the fact that the promotion intensity reached levels never seen in the country,
even when compared to other markets.
Initial impact from promotions was positive on sales…
This promotion effort and rising weight from national brands in the retailers' baskets
had an initial positive impact on sales as despite the rebates on prices, prices for
national brand products stand on average higher and therefore for the same volumes,
5
OMNN
ONKQB
OVKRB
_b
PQKPB
mq
PQKTB
co
PQKUB
bro
PRKTB
rh
PTKQB
ab
PVKQB
bp
QMKMB
ki
Source: Nielsen.
QPKPB
Equity Research
4
sales were positively affected by a different mix. FMCG sales increased by 4.3% in
2013, o.w. +0.2p.p was volumes and the remainder price.
Portuguese Retail
4
October 2014
FMCG sales evolution in
Portugal
QKNB
…but its efficacy has been declining
The problem arises if volumes do not increase, particularly when promotions continue
to increase. In this scenario, national brands would need to continue gaining
weight in order to continue to propel sales growth. Still, we think this has its
limits. We have been witnessing volumes remaining broadly unchanged and
customers are increasingly opportunistic and demanding higher promotions (less
efficacy if the promotion is lower than 50%) to respond, which indicates that the
substitution effect (national brands/private label) seems to be close to saturation
level. In the end, we have reached a situation in which the market presents a
deteriorated sales base (sales are more dependent on promotions) and high
dependence on promotions. FMCG sales registered a 0.7% YTD (until August)
decline.
Total FMCG sales
UKMB
QKMB
MKTB
MKMB
JMKTB
JQKMB
JPKNB
^ìÖJNQ
gìäJNQ
gìåJNQ
j~óJNQ
^éêJNQ
cÉÄJNQ
j~êJNQ
qçí~ä=cj`d=ë~äÉë
vqa=NQ=îë=vqa=NP
k~íáçå~ä=_ê~åÇ
mêáî~íÉ=i~ÄÉä
g~åJNQ
aÉÅJNP
kçîJNP
lÅíJNP
pÉéJNP
^ìÖJNP
gìäJNP
JUKMB
Source: Nielsen.
3. Shopping frequency declines
Average basket has been increasing but store visits declined in 2014. We believe
this lower frequency is partially explained by the weekly promotion flyers which
help customers to be more selective on their buying decisions.
This market trend of lower frequency is usually good for larger concepts (hypers vs.
supermarkets) or in the case of similar formats (e.g. supermarkets), the chains
that offer a wider assortment (supermarket vs. hard-discounter).
6
0.5%
PKSB
MKTB
4.3%
0.8%
0.2%
-0.2%
-2.8%
OMNN
OMNO
OMNP
råáí=s~äìÉ=`Ü~åÖÉ
sçäìãÉ=`Ü~åÖÉ
kçãáå~ä=dêçïíÜ
Source: Nielsen.
Equity Research
Basket size (E)
# stores visits (from Jan-May)
iáÇä
fqj
16.7
15.9
15.5
20.3
20.5
20.8
24.7
24.6
26.0
^ìÅÜ~å
vqa=j~ó=NO
vqa=j~ó=NQ
10.1
11.0
11.9
jáåáéêÉ´ç
7.4
7.4
8.3
9.5
9.2
9.4
10.0
10.1
10.3
6.0
6.4
6.0
iáÇä
fqj
41.0
40.9
41.5
34.5
34.0
34.3
`çåíáåÉåíÉ
13.2
14.2
14.4
máåÖç
açÅÉ
29.0
25.9
24.8
máåÖç=açÅÉ
jáåáéêÉ´ç
4
`çåíáåÉåíÉ
^ìÅÜ~å
vqa=j~ó=NP
vqa=j~ó=NO
vqa=j~ó=NQ
vqa=j~ó=NP
Source: Nielsen
MARKET SHARE EVOLUTION BY COMPANY
Moving parts in the industry…
Before pointing out the winners and laggers in the food retail industry in Portugal,
it is important to highlight some of the key strategic shifts undertaken by the
different players over recent years: 1. Pingo Doce abandoned its "every-day-low
price" strategy, trading down its concept while it started a loyalty card program; 2.
SON merged its two retail brands (Continente and Modelo), invested in logistics
(Kaisen approach), upgraded its stores and worked on the potential of its loyalty
card which already accounts for more than 90% of sales; 3. Auchan focused on
prices and tried to develop some wholesale experiences on its hypers and 4. Lidl
has been trading up its concept (bakery, fresh products, enlarged services on the
store - butchers, fish corners) and raising its marketing campaigns.
Operational Figures (FY13)
Sonae (1)
JM
DIA(3)
Intermarche
Lidl
Auchan
Selling area (th sqm)
584
457
221
320
233
197
# stores
270
376
591
232
238
32
2.2
1.2
0.4
1.4
1.0
6.2
Sales (€ mn)
3 415
3 181
774
1 291 1 225
1 405
EBIT(2) (€ mn)
239.0
82.8
49.3
35.4
46.6
15.9
7.0%
2.6%
6.4%
2.7%
3.8%
1.1%
Sales per sqm (€ th)
5.8
7.0
3.5
4.0
(1) Food retail (Continente, Meu Super).
(2) Adjusted by SON's real estate. Assumed 50% free-hold.
(3) EBIT margin estimate for DIA (6.7% for Iberia).
Source: Companies, Retail-Index, Retail Analysis and BPI Equity Research.
5.3
7.1
Avg selling area/store (th sqm)
Mg
7
Portuguese Retail
4
October 2014
Equity Research
4
Evolution of the Price/Quality image in Portugal
Source: BPI Equity Research.
Our conclusions:
1. SON improved its price/quality proposition as it was able to maintain a good pricing
image and at the same time enhance the shopping experience;
2. Pingo Doce and Lidl are now somewhat closer (in relative terms as both players have
different positioning in terms of number of SKUs and penetration of private labels);
3. DIA and Intermarche were the players that have least changed their positioning;
4. In terms of stores openings, proximity has been the most dynamic format with Sonae
making some steps through the Meu Super franchising stores;
5. Several players are now much closer and the price/quality gap between several players
has narrowed;
JM and SON the two clear winners, but don't forget Lidl
Pingo Doce and Sonae, the two largest players in the market have been the clear
winners adding 230bps and 90bps to their market shares since 2011, respectively.
We think this reflects (1) Pingo Doce's price aggressiveness and good quality
perception for its products with the company adjusting its format to the negative
macro backdrop in Portugal; and (2) Sonae's strong retail proposition in the country,
leveraging on its market leadership and combined with a highly efficient loyalty card.
8
Portuguese Retail
4
October 2014
Equity Research 4 Portuguese Retail 4 October 2014
FMCG Retail Market Share Evolution (2011-2013)
PMB
ORB
25.9%
25.5%
24.9%
23.8%
22.5%
22.7%
22.1%
21.0%
19.7%
OMB
NRB
9.6%
9.6%9.0% 8.7%
8.3%
NMB
7.4%
7.0%
7.0% 6.9% 6.4%6.2%
6.1%
RB
pçå~É
gj
fqj
OMNN
iáÇä
jáåáéêÉ´ç
^ìÅÜ~å
OMNO
OMNP
líÜÉêë
Source: Nielsen.
Lidl has reverted the negative trend in terms of market share evolution while
Intermarche and DIA have been the formats that have been losing the most, reflecting
the decline in some of their customer's bases.
Lidl Weekly Market share evolution
(YTD2014 vs. YTD2013)
% of total shoppers
8.5%
77%
75% 77%
Source: Nielsen
YTD M ay 12
YTD M ay 13
máåÖç
açÅÉ
fqj
HMKTéé
NTJOM=L=NQ
`çåíáåÉåíÉ
HMKVéé
NPJNS=L=NQ
^ìÅÜ~å
HMKPéé
MVJNO=L=NQ
MRJMU=L=NQ
MNJMQ=L=NQ
NTJOM=L=NP
NPJNS=L=NP
MVJNO=L=NP
MRJMU=L=NP
MNJMQ=L=NP
6.6%
49%
48% 47%
47%
47%
42%
37%
34%
34%
jáåáéêÉ´ç
7.3% 7.3%
6.8%
9
63% 60%
60%
7.6% 7.5% 7.5%
7.3%
iáÇä
7.6%
74%
75% 74%
YTD M ay 14
Note: Each household uses 3.3x retail chains.
Source: Nielsen
Equity Research
4
COMPANIES MEETING HIGHLIGHTS
We attended several meetings over the last month with some of the key food
retailers in Portugal and we point out the main conclusions from these:
1. Visibility on the promotion intensity evolution is difficult to determine. Still,
market players recognized that short term sales trend should be mainly
constrained by deflation pressure rather than promotions, which nevertheless
should be maintained. This could mean a weak sales evolution until 1H15.
2. Players started to acknowledge that the current promotion level is not yielding
further sales gains and that a more rational behavior would be welcome.
Promotions intensity should not accelerate from current levels.
3. Some players expect that the ongoing profitability decline in the industry and the
fact that manufacturers have been more reluctant to support promotions could
ease pricing pressure in the near future.
4. More than promotions, the focus should be on "quality perception" investments.
5. Players still see scope to add selling area in Portugal, mainly in the proximity
segment.
6. The market is already well consolidated and the two largest players would be
unable to absorb any other retailer due to competition issues. This would be an
issue if any player decides to exit the market. Most food retailers do not envisage
a market exit in the short term (apart from small operations, Leclerc?) but
some adjustments to the selling area could still occur (Intermarche, a franchising
base operation) particularly until the point at which we see some more normalized
pricing in the industry.
7. Overall, a conservative to positive mid-term outlook for the food retail industry.
8. Online. Incipient in Portugal while Sonae is the only player with an active offer.
The pick-up in online sales should be rather limited in the short term. Profitability
remains a concern due to the operations' higher costs (picking and transport)
but if the business gains scale it will require (1) that retailers adjust and be
more efficient; and (2) greater support from customers (if the client values the
service, he should be willing to pay for it).
10
Portuguese Retail
4
October 2014
Equity Research
4
Portuguese Retail
4
October 2014
OUTLOOK
We believe 2015 should still be a difficult but recovering year for the food retail industry
Starting from the top, GDP expectations are better for 2015 and therefore we would
expect unemployment to maintain a downward trend. This should help to improve
consumer confidence levels in Portugal, which we remark stand at a low historical
level as well as when compared to other European countries.
Consumer confidence in FY13
13 14 F 15 F
GDP
VQ
UV
UR
UQ
UM
pé~áå
sÉåÉòìÉä~
g~é~å
rh
pïÉÇÉå
fëê~Éä
rp^
`~å~Ç~
aÉåã~êâ
_ê~òáä
RU
`Üáå~
1.0
1.2
-1.7
-1.8 -1.0 -0.2
Investment
-7.3
2.0
3.0
Exports
6.1
4.0
3.0
Imports
2.8
3.5
2.2
0.3 -0.3
0.6
16.3 14.2 14.0
4.0
2.5
TQ
RN
QR
QQ
mçêíìÖ~ä=
NMM
dêÉÉÅÉ
NMR
1.5
Public balance, % of GDP 4.9
Source: INE, BPI forecasts.
cê~åÅÉ
NNM
1.0
Private consumption
Unemployment rate
NNN
-1.4
Public spending
Average inflation rate
NOQ
fåÇçåÉëá~
BPI Macroeconomic forecasts
Source: Bloomberg and Nielsen.
Families remain leveraged in Portugal, but interest rates should remain low (mortgage
is the main household expense) and increasing savings over recent years suggest
some margin of maneuver to increase consumption levels. That said, we expect
volumes to maintain a slightly positive trend.
Savings Rate in Portugal
Disposable Income, Consumption and Savings
NQB
RR
QS
PS
NP
NM
RR
NOB
NMB
NR
V
RV
RQ
QR
UB
RO
SB
OMMM OMMN OMMO OMMP OMMQ OMMR OMMS OMMT OMMU OMMV OMNM OMNN OMNO OMNP
QB
aáëÅêÉíáçå~êó=`çåëìãéíáçå
Source: PCG.
11
p~îáåÖë
kçå=aáëÅêÉíáçå~êó=`çåëìãéíáçå
OMMM
Source: INE.
OMMQ
OMMU
OMNO
Equity Research 4 Portuguese Retail 4 October 2014
What about prices? We believe promotions should continue going forward as this is
already embedded in the Portuguese consumption structure, but we should expect
some positive tailwinds:
(1) From deflation to some inflation (even if price evolution remains subdued).
Expectations point to some higher price indexes in the coming years, which should
provide top line support. Still, we expect a rather smooth evolution in terms of
price indexes.
Food Prices evolution in Portugal
NOB
qçí~ä
_mf=bëíáã~íÉë
UB
QB
MB
^äÅçÜçäáÅ=ÄÉîÉê~ÖÉë=
~åÇ=íçÄ~ÅÅç
JQB
cççÇ=~åÇ=åçåJ~äÅçÜçäáÅ=
ÄÉîÉê~ÖÉë
pÉéJNR
pÉéJNQ
j~êJNR
pÉéJNP
j~êJNQ
pÉéJNO
j~êJNP
pÉéJNN
j~êJNO
pÉéJNM
j~êJNN
pÉéJMV
j~êJNM
pÉéJMU
j~êJMV
pÉéJMT
j~êJMU
pÉéJMS
j~êJMT
pÉéJMR
j~êJMS
pÉéJMQ
j~êJMR
JUB
Source: Bank of Portugal, INE, BPI Macro Team.
(2) Promotions should ease and/or manufactures should increase prices. Profitability
has been under pressure in the food retail industry in Portugal and remains at
unattractive levels. We believe this should at least prevent discounts from increasing
while we do not rule out some easing pressure in the market. We detail our view on
each of the main players' strategies:
Pingo Doce: We start by JM's banner in Portugal, which we believe to be one of the
strongest, if not the strongest, promoter in the market. We think JM is prepared
for difficult times ahead. The company has conservative expectations regarding
the food retail market evolution ahead and is prepared to be a forcible player and
continue gaining market share, which we think should be possible at the expense
of softer concepts in the market (Intermarche, DIA, Auchan?). Still, we believe
returns are also on the company's agenda and after the successful commercial
repositioning in 2012, it would make sense to push for profitability. A substantial
part of these returns should come from the inside (logistics, processes) but a
milder promotion activity would almost be inevitable to attain a decent level of
returns.
Pingo Doce pre-tax ROIC
evolution
NOB
NMB
UB
SB
QB
OB
Looking at the market structure in Portugal - consolidated market, no major growth
potential - the trade-off “top line growth vs. returns”, indicates that the key players
should rather focus on the latter. This suggests that with a more stable macro
environment some more balanced behavior should finally be expected, which should
also include Pingo Doce. We are not expecting Pingo Doce to exit from this promotion
mode, but we would expect some more tactical decisions, which should allow the
company to continue advancing in terms of market share and profitability (similar
12
MB
OMNM OMNN OMNO OMNP OMNQc
Source: JM and BPI Equity Research.
Equity Research
4
to Sonae in 2011-13). Furthermore, considering the recent moves from other retailers
such as Lidl but also the continued store improvements at Sonae, Pingo Doce
would probably have to seriously look at undertaking an extra effort in terms of its
"quality" perception which would imply additional capex efforts (higher invested k,
higher pressure on returns).
Sonae: Is the leader in Portugal and therefore has no incentive to be an active
price promoter in the market. We think Sonae will remain a price-follower, focused
on preserving its market share and profitability. The company's high margins are a
reference in the industry but Sonae remains one of the most competitive players
and with a very good pricing image.
Price ranking in Portugal
NNN
jÉì=pìéÉê
pé~ê
NNM
NMV
`çîáê~å
NMS
jáåáéêÉ´ç
NMR
fåíÉêã~êÅܨ=pìéÉê
máåÖç=açÅÉ
NMQ
iáÇä
NMQ
`çåíáåÉåíÉ=jçÇÉäç
NMP
`çåíáåÉåíÉ
NMP
gìãÄç
NMM
Source: DECO, June 2014.
SON’s improved B/S to dissuade competitors? Going forward, the remaining players
in Portugal, before starting to cut prices, should be increasingly aware that this is
Sonae's main market/business and the group's improving B/S situation (particularly
if it finally advances with the S&L operations, cash-in of € 450-500mn) make it a
strong competitor. The company's leverage situation is completely different from
the reality seen in 2012 and therefore we think this should be a more dissuasive
factor for other players' strategies in the future.
Sonae has been one of the most active players in terms of store expansion. The
company has been mainly focused on the proximity segment and through franchising
(Meu super, ~200sqm/store), leveraging on its scale in the country (logistics, sourcing)
and private label. This is a risk to DIA, the player most exposed to the proximity
format.
Lidl: The company's approach in Portugal is aligned with the group's European
strategy. Lidl has not been a strong price promoter in Portugal. The company's
strategy has been focused on “marketing, marketing, marketing” and improved
quality perception of its offer. The company has not been opening new stores and
has channeled its capex budget (c€ 50-60mn/year) to store remodeling. In terms
of assortment the company has been betting on bakery (already in the 3rd phase of
the concept), fresh products and in a strong "in&out" non-food products.
13
Portuguese Retail
4
October 2014
Equity Research
4
Portuguese Retail
4
October 2014
Non-Food products are designed in Germany, produced in Asia and then sold
across Europe. The strong marketing campaigns, attractive non-food promotions
(leveraged on the group's European scale) and increased trade-up of the concept
(Lidl has been introducing additional services in the stores, namely butcher and is
studying the incorporation of a fish market as well as coffee corners) make Lidl a
strong player to take into account.
Lidl's improved offer is a risk mainly to Pingo Doce and DIA, while its differentiation
strategy has not been focused on prices. We therefore believe that in a backdrop
in which promotions are less effective, Pingo Doce and DIA should be focused
more on quality rather than price to fight the Lidl approach.
Intermarche and Auchan: Both competing more with Sonae due to their exposure to
big boxes. We believe Auchan has been a more competitive player backed by its
high focus on prices and some wholesale innovative approaches which have been
allowing it to improve its pricing image over time. Still, its scale in the country,
lack of profitability and limited growth possibilities should make Auchan a soft
player going forward. Nevertheless, we do not expect an exit of Auchan from the
market.
Regarding Intermarche, this franchising model has been developed throughout
the country, capitalizing on the opportunity left by the big names (Sonae, Pingo
Doce) which have mainly grown in the larger cities (because of their first mover
advantage) pushing Intermarche into tier 2-3 cities. The concept lies on a
franchising scheme in which the owner is given a high degree of operational control
and store ownership (unlike DIA in which the majority of the store goodwill is
detained by the company, only outsourcing the store management).
The franchising operation generally works well in local communities with the
managers having a good knowledge of their catchment area. On the other hand,
this is also a more difficult structure to adapt to a changing environment, which
has been the case over recent years (Pingo Doce, Lidl, Sonae).
The main tailwind for Intermarche operation in Portugal has been the increased
competition in tier 2-3 cities. Sonae has been focusing its store openings (ex-Meu
Super) in these cities while DIA has also been quite aggressive in terms of selling
area expansion through franchising. We think this trend should intensify in the
future which could trigger the closure of some Intermarche stores.
DIA store evolution in
Portugal
SMM
DIA: Living a difficult situation in Portugal. We believe the company is experiencing
a strategic debate which alloyed to the recent moves from Pingo Doce (aggressive
price promotions), Lidl (trade-up, marketing) and Sonae (rising number of proximity
stores - Meu Super) have been cornering DIA into a very fragile position.
RSM
ROM
DIA has recently replaced its management team in Portugal and some new measures
should be expected in the short term. The company's strengths include: (i) a
rather good price image, (ii) high margins, and (iii) scale support from DIA Spain.
The negatives include, apart from increased competition in key features (price Pingo Doce; quality - Lidl and proximity - Meu Super), quality perception. Overall,
the company should work on: (i) marketing; (ii) product quality perception; and
(iii) strong capex refurbishment of the stores (not the small upgrade being
14
QUM
QQM
OMMU OMMV OMNM OMNN OMNO OMNP
Source: DIA.
Equity Research
4
undertaken into DIA Market III), which should also include additional store services.
This should require a substantial capex effort (and lower margins) but we see this
as essential to have a long term presence in a very competitive and "high quality
perception" market. We therefore believe DIA will not focus its strategy on prices.
Portuguese Retail
4
October 2014
Meu Super stores evolution
100
80
Finally on manufacturers, we have been getting feedback to the effect that some
manufacturers have been raising prices on national brands to somewhat offset
higher promotions. We assume that food retailers should pass-through this increase.
60
(3) Customers should trade-up, compensating some potentially negative effects to
retailers from a possible higher weight of private labels as with lower discounts,
the price gap between national brands and private labels should widen again.
20
40
gìåNN
pÉéNN
aÉÅNN
j~êNO
gìåNO
pÉéNO
aÉÅNO
j~êNP
gìåNP
pÉéNP
aÉÅNP
j~êNQ
gìåNQ
0
MAIN RISKS TO OUR
OUTLOOK
1. Price competition:
(i) Pingo Doce willing to be leader in Portugal, disregarding ROIC. This would be
painful for the overall industry while the end gain for the company would be
questionable as it would imply even lower returns.
(ii) DIA to start investing on prices to regain its market share. This would possibly
imply a reaction from Pingo Doce and Sonae (Lidl's strategy is mainly defined
at the European level and we would not expect a major shift in its approach).
(iii) Lidl's improved stance in the market to increase its market share above an
"acceptable level". We think this may propel Pingo Doce to continue to fight
based on price, despite the fact that Lidl has been mainly focusing on the
"quality perception". The right move from Pingo Doce would be betting on
differentiation/trade up of the concept rather than a new price offer.
2. A market exit. The Portuguese food retail market reached a level of consolidation
that a potential exit from one of the larger players would constitute a problem,
potentially generating a phase out and huge pricing pressure in the short term. JM
and Sonae have a dominant position in the market which would theoretically
represent a huge competition constraint in terms of a new acquisition.
Who could exit? Not Lidl or Intermarche but in the case of the latter, we may
witness some franchisees shutting down. We believe Auchan and DIA would be the
theoretical candidates while Leclerc with a rather small presence in Portugal (20
stores, less than 1% market share), could therefore also decide to leave.
In the case of Auchan, considering it is a private company, we may also consider
that despite the lower returns, the operation would be maintained. DIA's
management has been showing a superior track record in exiting the most
problematic markets and therefore if the operation continues to head south we
can not rule out a market exit. The problem in identifying the potential buyer
persists. Sonae and JM would likely be prevented from a full acquisition while for
Intermarche, Auchan and Lidl, DIA would not fit their strategy. Nevertheless, we
do not expect this scenario of a possible exit from the market to be considered in
the coming 12-18 months. Obviously, a potential exit would imply some short-term
risks but the long term benefits would be sizeable.
15
Source: Sonae.
Equity Research
4
Portuguese Retail
Company Notes
16
4
October 2014
EQUITY RESEARCH
DIA
Retail
CoRe Buy
Portugal - a challenging market
(€ 7.20 Price Target and CoRe Buy Recommendation maintained)
Medium-Risk
4 The market has been changing fast in Portugal and DIA was caught off-guard. Portugal
accounts for c9% of the company's sales and we estimate c10% of the recurrent
EBITDA. Increased competition has been eating into the company's market
share in the country (-40bps since YE11). DIA has been trying to offset this
through selling area, being one of the most active players in the market but the
reduced sales density has been affecting EBITDA margins which we estimate to
be at c9.0% vs. 9.7% in Spain. Profitability is still quite high and for this, we
think that DIA should try to revert the situation.
4 A new management is in place in Portugal and the group has the upgrade of its
stores to DIA Market III in Iberia on its agenda. This encompasses a € 50k
investment/store but we believe more is needed in Portugal. We have two clear
market leaders in Portugal (vs. one in Spain) and the market is quite consolidated
while 50% of the market is in the hands of regional retailers with less than 1%
of the market in Spain. Customers are used to quality at low prices in Portugal
which should force DIA to adjust. These investments may imply lower returns
for DIA but ultimately, would still be accretive.
23rd October 2014
Spain
DIA vs. IBEX35 vs. Eurostoxx
Retail
NOM
f_buPR
NMM
bìêçëíçññ=oÉí~áä
UM
af^
SM
lÅíJNP
cÉÄJNQ
gìåJNQ
lÅíJNQ
Source: Bloomberg.
4 The next 12-18 months should be critical for DIA in Portugal. We believe the recent
decline in market share could be reverted but this should be firmly assumed by
the management. Competition should remain quite strong and without a clear
and strong strategy we do not rule out a possible exit of DIA in the mid-term.
DIA has been showing a better track record at disposing vs. recovering problems
but the departing point in Portugal is also different vs. Turkey, France and
Beijing. We do not expect Portugal to be an issue to the investment case. We
have maintained our YE15 Price Target at E 7.20. CoRe Buy.
Stock data
Price (17th Oct):
4.81
# shares (mn):
651.1
Reuters/Bloomberg:
Major Shareholders:
Estimates
PE Adj.
DIDA.MC/ DIA SM
Price Target (YE15):
7.20
M. Cap (€ mn) / F. Float: 3 132 / 82%
Avg. Daily Vol. [€'000]:
31 816
Blue Capital (8.9%); Baillie Gifford (8.1%); Treasury Stock (1.0%)
2011
2012
2013
2014F
2015F
2016F
2017F
32.8
19.8
16.4
12.9
12.2
11.5
11.0
11.3%
2.3%
2.7%
3.3%
3.7%
4.0%
4.4%
FCFE Yield
1.4%
0.7%
2.1%
-2.5%
3.8%
7.6%
6.7%
FCFF Yield
8.5%
7.1%
8.6%
1.7%
6.6%
7.9%
8.3%
PBV
33.1
21.5
17.1
6.6
5.1
4.1
3.5
EV/EBITDA(1)
7.1
6.2
5.7
5.6
5.4
5.1
4.8
EV/Sales(1)
0.4
0.4
0.4
0.4
0.4
0.3
0.3
Dividend yield
(1) EV is fixed with current market cap and MV of remaining items.
Analysts
José Rito
[email protected]
Phone 351 22 607 3142
Bruno Bessa
[email protected]
Phone 351 22 607 3183
Valuation Summary
Business
€ mn % of EV
Iberia (DCF, 7.8% wacc)
3 299
60%
France(1)
724
13%
Emerging Markets (DCF)
1 499
27%
Argentina (23.6% wacc) 141
3%
Brazil (9.9% wacc)
1 298
23%
China (9.0% wacc)
60
1%
EV
5 522
100%
Net Debt YE15 (2)
882
Fin. Investments
51
Total Equity Value
4 691
# shares (mn)
651
YE15 Price Target (E)
7.20
(1) EV of € 600mn + € 124mn NPV of
tax credits; (2) Adjusted by B/S
provisions. Source: BPI Equity Research.
Historical Recommendation
Date
Recommendation
08-May-13
Buy
21-Oct-13
CoRe Buy
13-Jan-14
Buy
22-Oct-14
CoRe Buy
Source: BPI Equity Research.
Available on our website:
www.bpiequity.bpi.pt, BPI Online,
and Bloomberg at NH BPD
Equity Research
BPI vs. Consensus
4
Portuguese Retail
4
October 2014
Stock Momentum
Company:
DIA
Sector:
DJ Euro Stoxx Retail € Pr
Price Performance
Forward P/E and EV/EBITDA
22
1Y
Fo rward P/E
Valuation monitor
18
Relative Valuation
2014
2015
2016
BPI
5.6
5.4
5.1
Consensus
6.3
6.1
5.5
10.3
9.2
8.3
3M
14
EV/EBITDA
Sector
10
YTD
EV/EBITDA
6
-30%
P/E
BPI
12.9
12.2
11.5
Consensus
12.0
11.5
10.0
Sector
18.4
16.5
14.9
-20%
-10%
0%
DJ Euro Stoxx Retail €Pr
DIA
Market Price Rating (E)
2
Jul-11
A ug-12
Sep-13
Oct-14
Market Recommendations
8
PBV
BPI
6.6
5.1
4.1
Consensus
7.8
5.8
4.6
Sector
5.4
4.6
4.1
BPI
3.3%
3.7%
4.0%
Consensus
3.3%
3.6%
3.9%
Sector
3.4%
3.6%
4.0%
Dividend yield
Price Target
Consensus
Neutral
29%
Po sitive
53%
7
6
Price
5
Negative
18%
4
Sep-13
P&L and B\S monitor
Apr-14
Oct-14
Fair Value Comparison (E)
BPI estimates/Consensus
2014
2015
2016
Revenues
-0.2%
-9.8%
-9.2%
EBITDA
-4.9%
-5.1%
-8.4%
EBIT
-5.7%
-2.7%
-5.9%
Net Profit
53.9%
0.0%
-12.2%
Net Debt
64.0%
151.6%
193.6%
Capex
57.7%
47.8%
22.2%
Profitability monitor
8
7.25
7.20
CAGR 2013-16
Adj. EP S
6.49
Net P ro fit
6
4.37
EBIT
4
EB ITDA
2
Revenues
EBITDA Margin
BPI
Consensus
7.0%
7.0%
6.8%
7.3%
6.7%
6.8%
BPI
4.7%
4.7%
4.7%
Consensus
5.0%
4.4%
4.5%
0
-5%
P /E15
P B V15 Consensus B P I
EBITDA Consensus (E mn)
15%
EPS Consensus (E)
FY16
BPI
4.9%
3.1%
3.0%
Consensus
3.2%
2.8%
3.1%
FY16
750
Net Debt/EV
0.5
850
Key leverage ratios
BPI
17.4%
17.3%
14.9%
Consensus
10.6%
6.9%
5.1%
650
1.5
1.4
1.2
550
FY15
FY1
5
0.9
0.5
0.4
Source: Factset, Bloomberg and BPI Equity Research.
0.4
0.3
FY14
FY14
Net Debt/EBITDA
18
10%
Co nsensus
0.6
950
Net Profit margin
Consensus
5%
Current M arket P rice
EBIT margin
BPI
0%
B PI
Oct-11
0.2
Oct-12
Oct-13
Oct-14
Oct-11
Oct-12
Oct-13
Oct-14
Equity Research
4
Portuguese Retail
4
October 2014
DIA at a Glance
1H14 Sales Breakdown (E3.8bn)
1H14 Rec. EBITDA Breakdown (E245mn)
Source: DIA.
Source: DIA.
LfL Performance vs. Food Retail Sales:
Spain and Portugal (%)
Dia's Selling Area Evolution
4.0%
30%
Spain
LatAm
20%
0.0%
10%
Iberia
P o rtugal
0%
-4.0%
-10%
LfL
-8.0%
-20%
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
2009
2010
2011
2012
Source: DIA and INE.
Source: DIA.
FMCG(1) Retail Market Share in Spain (2013)
Modern Retail mkt share - Portugal (2013)
(1) Fast Moving Consumer Goods. Source: Kantar.
Source: Nielsen.
DIA's Refinancing Needs (E mn)
(1)
DIA's New Openings Evolution (#)
400
300
300
200
200
2013
(2)
100
100
0
2013
0
1H15
1H16
1H19
(1) Recently refinanced with a 5y maturity.
Source: DIA and BPI Equity Research.
19
>1H19
2014F
Spain
P o rtugal
2015F
A rgentina
2016F
B razil
2017F
China
(2) Spain excludes the acquisition of Schlecker's stores in 2012
Source: DIA and BPI Equity Research.
Equity Research
4
P&L
(€ mn)
Revenues
EBITDA
EBITDA adj.
EBITDA adj. mg.
Depreciation & others
EBIT
EBIT adj.
Net financial results
Income tax
Others
Minority Interests
Net Profit reported
Net Profit adj.
2011
9 779
505
558
5.7%
-292
213
266
-35
83
0
-5
100
128
2012
10 124
587
610
6.0%
-299
288
310
-32
102
-7
-11
158
179
2013
9 844
592
641
6.5%
-282
326
375
-39
95
5
-13
209
237
2014 F 2015 F
7 994 8 318
559
584
584
594
7.3% 7.1%
-182
-190
377
394
402
404
-36
-33
99
105
150
0
0
0
392
256
260
263
2016 F
9 018
617
622
6.9%
-196
421
426
-37
113
0
0
271
275
2017 F
9 775
648
653
6.7%
-207
441
446
-34
122
0
0
285
289
2011
461
1 626
59
522
291
60
290
3 310
105
600
600
2 605
266
1 750
3 310
2012
461
1 619
81
527
311
55
350
3 405
148
553
553
2 704
427
1 709
3 405
2013
500
1 602
87
545
318
58
262
3 371
184
701
701
2 486
212
1 685
3 371
2014 F 2015 F
500
500
1 745 1 884
237
237
428
445
254
263
59
61
100
100
3 322 3 490
471
613
701
351
701
351
2 150 2 526
233
577
1 356 1 367
3 322 3 490
2016 F
500
1 956
237
491
292
63
100
3 639
758
351
351
2 530
466
1 438
3 639
2017 F
500
2 076
237
542
324
65
100
3 843
905
351
351
2 587
396
1 518
3 843
2011
505
-103
141
467
135
186
7
138
35
369
0
-58
323
576
2012
587
-2
116
472
97
196
30
150
32
75
0
-97
53
629
CAGR
13-17 F
0%
2%
0%
-7%
8%
4%
-4%
6%
n.s.
n.s.
8%
5%
Balance Sheet
(€ mn)
Net Intangibles
Net Fixed Assets
Net Financials
Inventories
ST Receivables
Other Assets
Cash & Equivalents
Total Assets
Equity & Minorities
MLT Liabilities
o.w. Debt
ST Liabilities
o.w. Debt
o.w. Payables
Equity+Min. + Liabilities
CAGR
13-17 F
0%
7%
29%
0%
0%
3%
-21%
3%
49%
-16%
-16%
1%
17%
-3%
3%
Cashflow
(€ mn)
+ EBITDA
- Chg in Net W.C.
- Income Taxes
= Operating Cash Flow
- Growth Capex
- Replacement Capex
- Net Fin. Inv.
= Cash Flow after Inv.
- Net Fin. Exp.
- Dividends Paid
+/- Equity
Other
=Change in Net Debt
Net Debt (+)/Net Cash (-)
2013
592
-44
142
494
98
206
0
190
39
88
-3
-97
37
651
2014 F
559
171
91
297
110
216
0
-28
36
104
0
-15
183
834
2015 F
584
-5
106
482
102
227
0
153
33
115
0
0
-6
828
2016F
617
-39
115
542
30
238
0
274
37
126
0
0
-111
716
2017 F
648
-44
123
569
77
250
0
242
34
139
0
0
-70
646
2011
2012
2013
2%
4%
-3%
10%
9%
5%
109%
40%
32%
679.3
679.3
651.1
0.15
0.24
0.29
0.19
0.26
0.36
0.11
0.13
0.16
47.36% 42.40% 43.43%
8.0%
9.8% 11.6%
37.7% 125.9% 124.7%
12.0% 13.1% 13.6%
1.1x
1.1x
1.1x
Source: Company data and BPI Equity Research (F).
20
4
October 2014
Valuation Summary @ Market
Multiples (1)
Implied
Business
€mn EV/EBITDA
Iberia
France(2)
2 854
724
5.7
n.a.
928
0
10.7
n.a.
928
0
19.2
n.a.
EV
Net Debt YE14 (3)
4 507
888
6.5
Fin. Investments
Total Equity Value
51
3 669
Emerging Markets
Argentina
Brazil
China (Shanghai)
# shares (mn)
Market NAV (E)
651
5.65
(1) Average EV/Sales and EV/EBITDA;
(2) EV of €600mn + €124mn NPV of
tax credits; (3) Adjusted by B/S
provisions. Source: BPI Equity Research.
YE15 PT Sensitivity to LT
EBITDA mg in Iberia
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
Source: BPI Equity Research.
4.80
5.40
6.00
6.60
7.20
7.75
8.35
DCF Sensitivity (E/share)
Ch in Rf
-0.5% 0.0%
-0.5% 7.45
6.95
Ch in g 0.0% 7.75
7.20
0.5% 8.10
7.50
Source: BPI Equity Research.
0.5%
6.50
6.75
7.00
Market Multiples
Growth, per share data and ratios
Sales growth
EBITDA Adj. growth
EPS Adj. growth
Avg. # sh (mn)
Basic EPS
EPS Adj. Fully diluted
DPS
Payout
ROCE (after tax)
ROE
Gearing (ND/EV)
Net Debt/EBITDA
Portuguese Retail
2014 F
2015 F
-19%
4%
-9%
2%
10%
1%
651.1
651.1
0.37
0.39
0.40
0.40
0.18
0.19
42.94% 49.19%
12.6% 12.7%
119.7% 47.2%
17.4% 17.3%
1.5x
1.4x
2016F
8%
5%
4%
651.1
0.42
0.42
0.21
51.12%
12.6%
39.6%
14.9%
1.2x
2017 F
8%
5%
5%
651.1
0.44
0.44
0.23
53.48%
12.3%
34.3%
13.5%
1.0x
ROIC
DIA
Carrefour
Ahold
Colruyt
Axfood
15F(1)
18%
15%
17%
21%
18%
PE15
EPS
PEG
PE15 14-16 14-16
12.2
6%
4.5
12.9
12.0
14.6
17.6
9%
9%
4%
4%
3.2
2.8
9.2
6.9
Peer Sample 18%
14.3
6%
5.5
(1) Pre-Tax ROIC with (8x) capitalised
rentals. Source: BPI Equity Research
(DIA) and Factset.
EQUITY RESEARCH
Jeronimo Martins
Retail
Neutral
A strong player in Portugal
Medium-Risk
(Price Target cut from € 10.30 to € 9.80; Neutral Recommendation maintained)
23rd October 2014
4 JM's banner in Portugal, Pingo Doce, has been one of the most dynamic retailers in
Portugal. It has made two deep strategic changes and proved to be right. The first
was in late 2000 when it decided to move from a high-end/margin retailer to an
every-day low price operation. With this move, JM was able to substantially increase
its market share, obviously at the expense of margins, but total EBITDA increased
and ROIC improved as the negative WK was fuelled by the top line growth. The
second reshape was operated in 2012 with the introduction of promotions. The
trade down of the Pingo Doce concept allowed the company to protect against
hard-discounters.
4 What's next? We think JM was victim of its own success in Portugal and logistics
lagged behind, particularly with the "in&out" promotions. JM has been investing in
3 new DCs (1 already in operation), from a total of 7, which should better prepare
the company for this new reality. We therefore expect margins to evolve positively in
coming years in Portugal and this should also allow JM to remain one of the most
competitive players in the market.
Portugal
Jeronimo Martins vs PSI20 vs.
Eurostoxx Retail
NRM
mpfOM
NOR
bìêçëíçññ=
oÉí~áä
NMM
TR
gj
RM
lÅíJNP
cÉÄJNQ
gìåJNQ
lÅíJNQ
Source: Bloomberg.
4 Portugal weights low in the IC. JM is a story of execution in Poland. The country
accounts for 82% of our target EV and JM's share price should be ruled by what
unfolds in Poland. JM has been an underperformer (-40% YTD) with the share
price reflecting the difficulties from the company in maintaining LfL on positive
ground and margins flat in Poland. JM should present a new business strategy for
Poland in its investor day (13th Nov) which should encompass a new format to
allow it to continue expanding in the urban areas (less affordable for a harddiscount concept). We have excluded Hebe from our valuation (€ 0.30/sh) and
applied a 75% discount to Colombia (€ 0.20/sh) due to visibility concerns, setting
our YE15 Price Target at E 9.80. NEUTRAL.
Stock data
Price (17h Oct.):
8.38
# shares (mn):
629.3
Reuters/Bloomberg:
JMT.LS/JMT PL
Major Shareholders:
Estimates
PE Adj.
Price Target (YE15):
M. Cap (€ mn) / F. Float:
9.80
5 273 / 39%
Avg. Daily Vol. [€'000]:
9 663
Soares dos Santos Family (56.1%); Heerema (5.0%)
2011
2012
2013
2014F
2015F
2016F
2017F
15.0
14.0
13.7
15.4
15.1
14.8
13.4
Dividend yield
0.0%
6.1%
3.5%
3.6%
3.5%
3.4%
3.4%
FCFE Yield
3.9%
2.5%
1.8%
0.6%
1.2%
2.9%
2.5%
FCFF Yield
5.4%
5.4%
5.6%
6.0%
6.1%
6.4%
6.9%
PBV
4.7
4.4
3.8
3.4
3.1
2.8
2.5
EV/EBITDA(1)
9.1
8.6
8.4
8.7
8.4
8.1
7.5
EV/Sales(1)
0.7
0.6
0.6
0.5
0.5
0.5
0.4
(1) EV is fixed with current market cap and MV of remaining items.
Analysts
Jose Rito
[email protected]
Phone 351 22 607 3142
Bruno Bessa
[email protected]
Phone 351 22 607 3183
Sum of Parts (E mn)
EV % of
Business
Attrib.
EV
Portugal
797 12%
Retail (DCF)
546
8%
Cash & Carry (DCF)
251
4%
Poland (DCF)
5 530 82%
Hebe
0
0%
Colombia (DCF) (1)
181
3%
Manufacturing & JMD (2)
226
3%
Non core assets (3)
49
1%
Total EV
6 782 100%
Net debt YE15 (4)
609
Total Equity Value
6 173
# shares mn (adj)
628
YE15 Price Target (E)
9.80
(1) 75% execution risk; (2) 13.3x PE14; (3)
BCP shares, real estate and others; (4)
includes pension fund liabilities.
Source: BPI Equity Research.
Historical Recommendation
Date
Recommendation
08-Apr-13
CoRe Buy
27-Sep-13
Buy
30-Jul-14
Neutral
Source: BPI Equity Research.
Available on our website:
www.bpiequity.bpi.pt, BPI Online,
and Bloomberg at NH BPD
Equity Research
BPI vs. Consensus
4
Portuguese Retail
October 2014
4
Stock Momentum
Company:
Jeronimo Martins
Sector:
DJ Euro Stoxx Retail € Pr
Price Performance
Forward P/E and EV/EBITDA
30
25
1Y
Valuation monitor
Forward
P /E
20
Relative Valuation
2014
2015
2016
3M
EV/EBITDA
BPI
8.7
8.4
8.1
Consensus
7.5
7.0
6.4
10.1
9.0
8.1
BPI
15.4
15.1
14.8
Consensus
14.9
13.6
12.1
Sector
18.0
16.1
14.6
3.4
3.1
2.8
Sector
10
YTD
-60%
-40%
-20%
DJ Euro Sto xx Retail €P r
Jeronimo M artins
Consensus
3.4
3.0
2.6
17
Sector
5.3
4.6
4.0
15
0
0%
Jan-07
Market Price Rating (E)
19
BPI
EV/EBITDA
5
P/E
PBV
15
A ug-09
M ar-12
Oct-14
Market Recommendations
Price Target
Co nsensus
Neutral
36%
Dividend yield
Po sitive
43%
P rice
BPI
3.6%
3.5%
3.4%
Consensus
3.6%
3.5%
3.7%
Sector
3.5%
3.7%
4.1%
13
11
Negative
21%
9
7
Sep-13 Jan-14 A pr-14
Jul-14 Oct-14
P&L and B/S monitor
Fair Value Comparison (E)
BPI estimates/Consensus
Revenues
EBITDA
EBIT
Net Profit
Net Debt
Profitability monitor
EBITDA Margin
BPI
Consensus
EBIT margin
BPI
Consensus
Net Profit margin
BPI
Consensus
Key leverage ratios
Net Debt/EV
BPI
Consensus
Net Debt/EBITDA
BPI
Consensus
2014
2015
2016
-0.7%
-2.2%
-4.2%
-2.6%
10.1%
-1.3%
-5.4%
-9.5%
-9.6%
26.0%
-2.3%
-9.7%
-15.3%
-17.1%
22.3%
5.9%
6.0%
5.7%
5.9%
5.6%
6.0%
A dj. EP S
12.28
11.00
9.80
8.92
Net Pro fit
EB IT
8
EB ITDA
Revenues
0
P/E15
P B V15
Co ns.
-5%
BP I
3.5%
3.8%
3.4%
3.9%
2.7%
2.8%
2.6%
2.8%
2.5%
2.9%
EBITDA Consensus (Emn)
0%
BPI
Current M arket P rice
3.7%
3.9%
5%
7.3%
7.6%
8.5%
7.7%
7.4%
6.8%
0.6
0.6
0.7
0.5
0.6
0.4
10%
Co nsensus
EPS Consensus (E)
1.3
1400
FY16
1.1
1200
FY15
Source: Factset, Bloomberg and BPI Equity Research.
22
16
CAGR 2013-16
FY16
0.9
1000
FY14
FY14
800
600
May-12 Mar-13 Dec-13
FY15
0.7
Oct-14
0.5
May-12
Mar-13
Dec-13
Oct-14
Equity Research 4 Portuguese Retail 4 October 2014
Jeronimo Martins at a Glance
1H14 Sales Breakdown (€ 6.1bn)
1H14 EBITDA Breakdown (€ 341mn)
400
- 36
95
300
200
341
282
100
0
B iedro nka
Retail Po rtugal
Others
To tal
Source: JM.
Source: JM.
LfL Performance vs. Food Sales: Poland (%)
LfL Performance vs. Food Sales: Portugal (%)
26
12.0
21
JM
JM
16
6.0
11
6
0.0
Foo d sales
1
Foo d sales
-4
-6.0
2Q09
2Q10
2Q11
2Q12
2Q13
2Q14
2Q09
Source: JM, BPI Equity Research, Polish Central Statistical Office.
2Q10
2Q11
2Q12
2Q13
2Q14
Source: JM, BPI Equity Research, INE.
Modern Retailers mkt share - Portugal (2013)
Retail market share - Poland (2013)
Source: Nielsen.
Source: JM and BPI Equity Research.
JM Share price vs. €/PLN
Biedronka's new openings evolution
Eur/P ln
Eur
400
5,000
4.6
17
JM
4.4
4,000
300
15
3,000
200
13
4.2
Eur/P LN
11
4.0
9
3.8
Oct-12
7
Apr-13
Source: Bloomberg.
23
Oct-13
Apr-14
Oct-14
100
252
268
290
2,000
250
150
150
150
150
0
1,000
0
2012
2013
2014F
2015F 2016F
New Openings
Source: JM and BPI Equity Research.
2017F 2018F
Total Sto res
2019F
Equity Research
4
P&L
(€ mn)
Revenues
EBITDA
EBITDA adj.
EBITDA adj. mg.
Depreciation&others
EBIT
EBIT adj.
Net financial results
Income tax
Others
Minority Interests
Net Profit reported
Net Profit adj.
2011
9 838
721
721
7.3%
208
512
512
-30
111
-14
17
340
340
2012
2013 2014 F 2015 F 2016 F 2017 F
10 683 11 829 12 677 13 629 14 516 15 289
740
777
749
777
806
872
740
777
749
777
806
872
6.9%
6.6%
5.9% 5.7%
5.6%
5.7%
221
249
274
299
314
335
518
528
475
478
492
537
518
528
475
478
492
537
-17
-20
-19
-19
-18
-14
116
111
100
96
100
110
-19
-4
0
0
0
0
6
10
12
14
18
19
360
382
343
348
357
394
360
382
343
348
357
394
CAGR
13-17 F
7%
3%
3%
8%
0%
0%
-9%
0%
n.s.
17%
1%
1%
Portuguese Retail
4
October 2014
DCF Assumptions (Poland
Retail)
Re
9.6%
Rf
4.0%
Beta Equity
Mkt Premium
Rd
0.9
6.0%
5.5%
Tax rate
19.0%
D/EV
20.0%
WACC
8.6%
g
Source: BPI Equity Research.
2.0%
Balance Sheet
(€ mn)
Net Intangibles
Net Fixed Assets
Net Financials
Inventories
ST Receivables
Other Assets
Cash & Equivalents
Total Assets
Equity & Minorities
MLT Liabilities
o.w. Debt
ST Liabilities
o.w. Debt
o.w. Payables
Equity+Min. + Liabilities
2011
831
2 301
59
388
170
202
530
4 481
1 422
795
394
2 265
359
1 726
4 481
2012
794
2 572
128
474
175
254
375
4 772
1 502
957
582
2 313
112
2 038
4 772
2011
721
-78
88
711
126
158
13
415
30
0
0
-34
-351
223
2012
740
-102
118
724
248
212
91
174
17
323
0
60
107
319
2013
806
2 783
130
575
169
264
372
5 099
1 649
726
372
2 724
340
2 193
5 099
2014 F 2015 F
803
800
3 208 3 577
130
130
605
652
174
180
266
275
100
100
5 286 5 713
1 802 1 967
872
835
500
450
2 612 2 911
79
205
2 354 2 512
5 286 5 713
2016 F
797
3 792
130
695
185
284
100
5 983
2 150
747
350
3 086
224
2 654
5 983
2017 F
795
4 077
130
731
190
292
100
6 314
2 367
758
350
3 189
177
2 792
6 314
CAGR
13-17 F
0%
10%
0%
6%
3%
3%
-28%
5%
9%
1%
-2%
4%
-15%
6%
5%
Sensitivity Analysis to EBITDA
mg in Poland (1)
4.7%
5.70
4.9%
6.10
6.1%
8.70
6.6%
9.80
7.1%
10.90
(1) Average EBITDA mg in 2014-20.
Source: BPI Equity Research.
Cashflow
(€ mn)
+ EBITDA
- Chg in Net W.C.
- Income Taxes
= Operating Cash Flow
- Growth Capex
- Replacement Capex
- Net Fin. Inv.
= Cash Flow after Inv.
- Net Fin. Exp.
- Dividends Paid
+/- Equity
Other
=Change in Net Debt
Net Debt (+)/Net Cash (-)
2013
777
-63
105
735
328
182
-31
256
20
186
0
-72
22
341
2014 F
749
-121
91
779
515
182
0
83
19
192
0
-10
138
479
2015 F
777
-114
86
805
460
204
0
141
19
185
0
-12
76
555
2016F
806
-102
90
818
345
182
0
291
18
178
0
-14
-81
474
2017 F
872
-104
102
874
419
199
0
257
14
178
0
-18
-47
427
2013
9%
5%
6%
629.3
0.61
0.61
0.31
50.2%
14.9%
29.5%
18.9%
0.4x
2014 F
7%
-4%
-10%
629.3
0.55
0.55
0.29
54.0%
12.6%
23.5%
26.6%
0.6x
2015 F
8%
4%
1%
629.3
0.55
0.55
0.28
51.0%
11.7%
21.6%
30.8%
0.7x
2016F
7%
4%
2%
629.3
0.57
0.57
0.28
50.0%
11.3%
20.0%
26.3%
0.6x
2017 F
5%
8%
11%
629.3
0.63
0.63
0.31
50.0%
11.6%
19.9%
23.7%
0.5x
Growth, per share data and ratios
Sales growth
EBITDA Adj. growth
EPS Adj. growth
Avg. # sh (mn)
Basic EPS
EPS Adj. Fully diluted
DPS
Payout
ROCE (after tax)
ROE
Gearing (ND/EV)
Net Debt/EBITDA
2011
13%
16%
21%
629.3
0.56
0.56
0.51
95.1%
15.9%
30.4%
12.4%
0.3x
2012
11%
3%
6%
629.3
0.60
0.60
0.30
51.5%
15.8%
29.7%
17.7%
0.4x
Source: Company data and BPI Equity Research (F).
24
Sensitivity Analysis to LfL in
Poland (1)
-0.7%
7.80
0.7%
9.00
1.7%
9.80
2.7%
11.10
3.7%
(1) Average LfL in 2014-20
Source: BPI Equity Research.
11.70
EQUITY RESEARCH
Sonae
Retail / Holding
Food master in Portugal
CoRe Buy
(€ 1.75 Price Target and CoRe Buy Recommendation maintained)
High-Risk
4 Sonae (SON) is highly leveraged on the food retail business which accounts for 70%
of its sales and represents the bulk of the company's CF. SON has been showing
throughout the years that it remains one of the most competitive players in the
food retail market both in terms of innovation (loyalty card, online), efficiency
(logistics, Kaisen) and shopping experience (recurrently high maintenance capex).
This has allowed the company to differentiate itself from the competition, improve
margins (being a reference in the industry: EBITDAR margins close to 10%)
while at the same time maintain a strong price position.
4 SON has performed incredibly well in the difficult years (2011-2013) with sales
increasing by 3% and margins by 60bps. The potential for further restructuring
gains is now limited and therefore short term margins should remain constrained
by the promotion intensity/deflation in the market. Still, margins remain stellar
and absolute EBITDA should remain almost flat in FY14. Mid-term outlook is
positive for the industry and we therefore expect SON to continue leveraging on
its leadership position.
23rd October 2014
Portugal
Sonae vs. PSI20 vs. Eurostoxx
Retail
NSM
plk
NPM
NMM
bìêçëíçññ=oÉí~áä
mpfOM
TM
4 Food is already top-notch, upside is elsewhere. Food retail is one of the key
components of our target NAV (35%) but the EPS and valuation drivers lie on
its more discretionary formats (specialized retail, shopping malls) and the
telecoms unit. Overall, we expect EPS to follow a 12% CAGR14-17F and underlying
average FCFE to reach 11% until 2017. We have maintained our YE15 Price
Target at E 1.75. Real estate yields, delivery on NOS synergies and Non-Food
recovery remain the triggers for the stock. CoRe Buy.
lÅíJNP
cÉÄJNQ
Valuation Summary
Business
Stake
Retail (DCF, Yields)
100% 3 185 69%
SNC (NAV)
Price (17th Oct):
# shares (mn):
Reuters/Bloomberg:
0.97
2 000
SON.LS / SON PL
Price Target (YE15):
M. Cap (€ mn) / F. Float:
Avg. Daily Vol. [€'000]:
1.75
1 932 / 28%
4 522
Azevedo's Family (52.6%); Banco BPI (9.4%)(2);
Major Shareholders:
Bestinver (4.9%); Fundação Berardo (2.5%); Norges Bank (2.3%)
Estimates
2011
2012
2013
2014F
2015F
PE Adj.
13.2
46.6
n.s.
10.5
8.7
Dividend yield
3.4%
3.4%
3.4%
3.6%
3.6%
FCFE Yield
6.2% 10.1% 34.9%
2.6% 10.7%
FCFF Yield
13.7% 12.7% 18.9% 10.7% 12.0%
PBV
1.4
1.5
1.2
1.2
1.1
EV/EBITDA(1)
3.6
3.6
5.7
5.3
4.9
EV/Sales(1)
0.4
0.4
0.4
0.4
0.4
(1) EV is fixed with current market cap and MV of remaining items.
(2) 6.6% through a cash settled Equity Swap.
2016F
8.4
3.6%
12.0%
12.5%
1.0
4.6
0.4
lÅíJNQ
Source: Bloomberg.
Sierra (NAV Forecast)
Stock data
gìåJNQ
(1)
€ mn %NAV
50%
627 13%
88%
775 17%
Inv. Management (BV) 100%
TOTAL NAV
Net debt YE15
56
1%
4 643
750
TOTAL Equity
3 892
# shares (mn)
2 000
2017F
YE15 Fair Value (E)
1.95
7.9
3.6%
13.7%
12.7%
0.9
4.4
0.4
Holding Discount
10%
YE15 Price Target (E)
1.75
(1) Cash + 27.14% of NOS @ MV + SSI
( € 101mn).
Source: BPI Equity Research.
Historical Recommendation
Date
11-Jun-13
Recommendation
CoRe Buy
Source: BPI Equity Research.
Analysts
José Rito
[email protected]
Phone 351 22 607 3142
Bruno Bessa
[email protected]
Phone 351 22 607 3183
Available on our website:
www.bpi.pt/equity, BPI Online
and Bloomberg, at NH BPD.
Equity Research 4 Portuguese Retail 4 October 2014
Stock Momentum
BPI vs. Consensus
Company:
Sonae
Sector:
DJ Euro Stoxx Retail € Pr
Price Performance
Forward P/E and EV/EBITDA
30
1Y
Forward P /E
25
Valuation monitor
Relative Valuation
2014
2015
2016
BPI
5.3
4.9
4.6
Consensus
5.6
5.2
4.8
10.1
9.0
8.1
20
3M
EV/EBITDA
15
Sector
10
YTD
5
P/E
-20%
BPI
10.5
8.7
8.4
Consensus
13.8
11.7
8.4
Sector
18.0
16.1
14.6
PBV
-15%
-10%
-5%
DJ Euro Sto xx Retail €P r
Sonae
EV/EB ITDA
0%
Market Price Rating (E)
0
Jan-07
Dec-10
Oct-14
Market Recommendations
1.5
BPI
1.2
1.1
1.0
Consensus
1.2
1.1
1.0
Sector
5.3
4.6
4.0
BPI
3.6%
3.6%
3.6%
Consensus
3.6%
3.6%
3.6%
Sector
3.5%
3.7%
4.1%
P rice Target
Consensus
1.3
P o sitive
75%
Neutral
25%
Price
Dividend yield
1.1
0.9
0.7
Sep-13
P&L and B\S monitor
Jan-14
Jun-14
Oct-14
Fair Value Comparison (E)
BPI estimates/Consensus
Revenues
EBITDA
EBIT
Net Profit
Net Debt
2014
0.0%
2015
0.6%
2016
0.5%
5.1%
3.4%
30.9%
-0.9%
4.9%
5.7%
21.7%
-5.5%
4.2%
3.8%
2.0%
-4.0%
5
Net Pro fit
4.17
4
EB IT
3
2
1.79
1.75
1
BPI
8.1%
8.5%
8.8%
Consensus
7.8%
8.4%
9.0%
Revenues
0
BPI
4.5%
5.0%
5.4%
4.3%
4.8%
5.5%
P B V15 C o ns ens us B P I
-20% -10%
C urrent M ark et P ric e
BP I
P /E15
EBIT margin
Consensus
EBITDA Consensus (Emn)
BPI
3.7%
4.3%
4.4%
Consensus
2.8%
3.7%
4.5%
Key leverage ratios
Net Debt/EV
57.4%
57.0%
55.3%
Consensus
57.9%
60.4%
57.6%
EPS Consensus (E)
0.1
700
500
FY16
FY15
0.1
FY14
FY14
3.0
3.2
2.5
2.8
2.0
2.2
Source: Factset, Bloomberg and BPI Equity Research.
26
20%
FY16
Net Debt/EBITDA
Consensus
10%
Co nsensus
FY15
BPI
BPI
0%
0.2
900
Net Profit margin
EB ITDA
1.40
Profitability monitor
EBITDA Margin
CAGR 2013-16
300
Apr-13
Jan-14
Oct-14
0.0
Apr-13
Oct-13
Apr-14
Oct-14
Equity Research
4
Portuguese Retail
October 2014
4
Sonae at a Glance
1H14 Sales Breakdown (E 2.3bn)
1H14 Rec. EBITDA Breakdown (E 154mn)
OMM
R
RT
NMM
NRQ
JN
NMM
JT
`çåëçäáÇ~íÉÇ
bäáãK=^åÇ
^ÇàìëíK
fåîÉëíãÉåí
j~å~ÖÉãÉåí
pçå~É=om
pçå~É=j`
pçå~É=po
M
Source: Sonae.
Source: Sonae.
LfL Performance vs. Food Sales: Portugal (%)
LfL Performance vs. Non-food Sales: Portugal (%)
7.0
12.0
So nae
So nae
5.0
7.0
3.0
2.0
1.0
-3.0
-1.0
-8.0
-3.0
-13.0
N o n-fo o d Sales
F o o d Sales
-18.0
-5.0
2Q09
2Q10
2Q11
2Q12
2Q13
2Q09
2Q14
2Q10
2Q11
2Q12
2Q13
Source: Sonae and INE.
Source: Sonae and INE.
Food Retail Selling Area Breakdown in
1H14 (584k sqm)
Non-Food Retail Selling Area Breakdown in
1H14 (399k sqm)
Source: Sonae.
Source: Sonae.
Retail mkt share - Portugal (2013)
Sonae's Refinancing Needs (E mn)
(1)
1200
60%
1000
50%
800
40%
600
30%
400
20%
200
10%
0
0%
2014 (1) (2) 2015 (1) (2)
2016
2017
Refinanc ing needs
Source: Nielsen.
27
2Q14
2018
>2019
%
(1) includes commercial paper; (2) already refinanced
Source: Sonae and BPI Equity Research.
Equity Research
4
P&L
(€ mn)
Revenues
EBITDA
EBITDA adj.
EBITDA adj. mg.
Depreciation & others
EBIT
EBIT adj.
Net financial results
Income tax
Others
Minority Interests
Net Profit reported
Net Profit adj.
2011
5 541
602
602
10.9%
368
235
235
-84
24
0
23
104
104
2012
5 379
599
599
11.1%
366
232
232
-119
25
-17
39
33
33
2013
4 821
376
378
7.8%
187
188
190
-10
30
315
145
319
112
2011
1 240
2 672
575
651
493
260
426
6 317
1 700
2 166
1 791
2 451
600
1 313
6 317
2012
1 221
2 603
516
538
505
274
378
6 035
1 669
2 029
1 687
2 338
526
1 282
6 035
2013
814
1 827
1 379
589
346
155
366
5 477
1 908
1 588
1 363
1 980
230
1 218
5 477
2011
602
33
25
544
158
225
-44
204
84
66
4
-5
-54
1 931
2012
599
1
9
588
15
230
-42
384
119
66
4
-74
-129
1 802
2014 F 2015 F
4 967 5 123
405
437
405
437
8.1% 8.5%
183
183
222
254
222
254
-7
18
27
45
0
0
3
4
185
222
185
222
2016 F
5 263
466
466
8.8%
183
282
282
16
63
0
5
230
230
2017 F
5 369
485
485
9.0%
183
302
302
33
84
0
6
245
245
CAGR
13-17 F
3%
7%
6%
4%
-1%
13%
12%
n.s.
30%
n.s.
-55%
-6%
22%
2014 F
780
1 833
1 429
632
351
156
200
5 380
2 026
1 370
1 263
1 983
183
1 259
5 380
2016 F
713
1 854
1 533
684
367
157
200
5 509
2 348
1 220
1 113
1 941
34
1 334
5 509
2017 F
681
1 859
1 573
698
375
158
361
5 705
2 529
1 230
1 113
1 946
0
1 361
5 705
CAGR
13-17 F
-4%
0%
3%
4%
2%
0%
0%
1%
7%
-6%
-5%
0%
-100%
3%
1%
Portuguese Retail
4
October 2014
Real Estate Yields Sensitivity
Analysis
∆ in
Retail Real
Sierra Sonae
yields vs.
Estate EV
BPI (bps)
(€mn)
(€/sh) (€/sh)
-100
1 777
49.73
1.95
-50
1 644
43.76
1.84
1 529
38.54
1.75
50
1 428
33.94
1.67
100
1 339
29.85
1.60
Base Case
NAV
PT
Source: BPI Equity Research.
Balance Sheet
(€ mn)
Net Intangibles
Net Fixed Assets
Net Financials
Inventories
ST Receivables
Other Assets
Cash & Equivalents
Total Assets
Equity & Minorities
MLT Liabilities
o.w. Debt
ST Liabilities
o.w. Debt
o.w. Payables
Equity+Min. + Liabilities
2015 F
746
1 845
1 488
662
359
157
200
5 456
2 183
1 220
1 113
2 054
197
1 298
5 456
2013
376
-167
31
511
8
128
548
-173
10
66
1
857
-609
1 214
2014 F
405
-1
27
379
7
148
0
175
7
70
0
-168
20
1 234
2015 F
437
-19
47
409
5
156
0
188
-18
70
0
-59
-136
1 097
2016F
466
-22
65
422
0
159
0
217
-16
70
0
-46
-163
934
2017 F
485
-19
87
418
0
156
0
222
-33
70
0
-30
-195
739
Growth, per share data and ratios
Sales growth
EBITDA Adj. growth
EPS Adj. growth
Avg. # sh (mn)
Basic EPS
EPS Adj. Fully diluted
DPS
Payout
ROCE (after tax)
ROE
Gearing (ND/EV)
Net Debt/EBITDA
2011
2012
-6%
-3%
-19%
-1%
-38%
-69%
2000.0 2000.0
0.05
0.02
0.05
0.02
0.03
0.03
63.6% 203.1%
6.3%
5.5%
7.7%
2.4%
63.8% 64.8%
3.2x
3.0x
2013
n.s.
n.s.
244%
2000.0
0.01
0.01
0.03
21.8%
9.8%
22.1%
57.7%
3.2x
Source: Company data and BPI Equity Research (F).
28
Re
2014 F
3%
8%
65%
2000.0
0.09
0.09
0.03
37.7%
10.8%
11.4%
47.6%
3.0x
2015 F
3%
8%
20%
2000.0
0.11
0.11
0.03
31.3%
12.0%
12.7%
42.1%
2.5x
2016F
3%
7%
3%
2000.0
0.12
0.12
0.03
30.2%
12.9%
12.0%
37.4%
2.0x
2017 F
2%
4%
6%
2000.0
0.12
0.12
0.03
28.4%
13.5%
11.8%
34.5%
1.5x
10.4%
Rf
3.25%
CRP
1.15%
Beta Equity
Market Premium
Rd
1.0
6.0%
6.0%
Tax Rate
27.5%
D/EV
30.0%
WACC
Cashflow
(€ mn)
+ EBITDA
- Chg in Net W.C.
- Income Taxes
= Operating Cash Flow
- Growth Capex
- Replacement Capex
- Net Fin. Inv.
= Cash Flow after Inv.
- Net Fin. Exp.
- Dividends Paid
+/- Equity
Other
=Change in Net Debt
Net Debt (+)/Net Cash (-)
DCF Assumptions (Food Retail)
g
Source: BPI Equity Research.
8.6%
1.0%
Implied Retail multiples @
Mkt Prices
SON's MK (@ €0.97)
1 932
Sierra (@ NAV)
546
SNC's MK NAV (@ €2.54)
686
Invest. Management (@BV)
56
Retail Market Value (• mn)
645
Implied Retail PE14 F
5.9
Current MK
1 932
Adj. Net Debt (1)
1 413
Market Value Financial Stakes
1 231
Adjusted EV14
2 113
EV/EBITDA14 F
5.2
(1) Deducting the cash from SNC.
Source: Bloomberg and BPI Equity
Research.
BPI
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Each Research Analyst responsible for the content of this research report certifies that, with respect to each security or issuer covered in this report:
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BPI has compiled policies and procedures applicable to the investment recommendations activity. Such document is available for consultation on request.
In November 2007, Banco BPI has celebrated an "Equity Swap" contract with Sonae Investments with strictly financial settlements (Cash Settled Share
Swap Transaction), to cover the inherent risk in the acquisition of 6.64% of Sonae's share capital, at a price of €2.06 per share. In this contract, the
periodic repercussion over Sonae Investments of the amounts corresponding to Sonae share price changes relative to the above-mentioned price was
agreed as well as the amounts equivalent to the proceeds to be received by Banco BPI under the exercise of rights inherent to these shares. The contract
had a maximum maturity of 3 years. In October 2010, the maximum maturity of this "Equity Swap" (covering at such date the inherent risk in respect
of 6.52% of Sonae's share capital) was extended up to 3 years. In November 2013, the maximum maturity of this "Equity Swap"(covering at such date
the inherent risk in respect of 6.13% of Sonae's share capital) was extended up to 12 Months, until November 2014. In February 2008 BPI entered
into a liquidity provider agreement with Euronext Lisbon for the Banco Popular Español shares. Such agreement ended last October 2013.
Banco BPI and/or Banco Português de Investimento participate or have participated, as a syndicate member and/or assisting the issuer, in the share offerings of CTT,
Espirito Santo Saúde, and Sonaecom, and in the bonds offerings of Brisa, EDP, Portugal Telecom, Sonae Investimentos, REN, Semapa and ZON Optimus.
BPI Group may provide corporate finance and other investment banking services to the companies referred to in this report.
Amongst the companies covered by BPI Equity Research, BPI Group has qualified stakes in Ibersol, Impresa, ZON Optimus, Semapa and Sonae SGPS.
BPI Group, members of the board, or BPI Group employees, may hold a position or any other financial interest in issuer's covered by BPI Equity Research,
subject to change, which shall be disclosed when relevant for assessing the objectivity of the recommendation.
BPI's activity is supervised by both Banco de Portugal (the Portuguese Central Bank) and by the CMVM (Stock Exchange Regulator).
INVESTMENT R ATINGS AND R ISK CLASSIFICATION (TOTAL RETURN IN 12-18 MONTHS ):
Buy/CoRe Buy
Neutral
Reduce
Sell
Low Risk
>15%
>5% and < 15%
>-10% and < 5%
< -10%
Medium Risk
>20%
>10% and <20%
>-10% and < 10%
< -10%
High Risk
>30%
>15% and < 30%
>-10% and < 15%
< -10%
These investment ratings are not strict and should be taken as a general rule.
INVESTMENT R ATINGS STATISTICS
As of 30th September BPI Equity Research's investment ratings were
distributed as follows:
CoRe Buy
11%
Buy
27%
Neutral
38%
Reduce
15%
Sell/Accept Bid
4%
Under Revision/Restricted
3%
Total
100%
BANCO PORTUGUÊS DE INVESTIMENTO, S.A.
Oporto Office
Madrid Office
Paris Office
Cape Town Office
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4100-476 Porto
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Phone: (351) 22 607 3100
Telefax: (351) 22 606 4183
Phone: (34) 91 328 9800
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