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FOURLIS | Value Play, Ready to Roll

Valuation dislocation remains – Fourlis shares have returned just c4% ytd underperforming a c10% average return for our non-financials universe, adding to the streak of relative stock underperformance since 2020. The shares have been weighed down particularly since mid-2023 by a confluence of factors including sequential top line deceleration in H2’23 (as pricing taken in the prior year rolled off), the subdued valuation attached to the REIC post IPO, the layer of complexity as the REIC has been scaling up (capital intensity, increasing leverage), as well as dilution to reported profits from minority leakage and rising financial expenses (related to the REIC). Although some near-term uncertainty regarding the extent of OpCo profit growth remains, as this hinges on volumes rather than pricing, at these levels we find the stock as sufficiently de-risked, as both the REIC (trading at c38% discount to NAV) and the OpCo stub (trading at c4x 2024 EV/EBITDAaL) indicate quite a compelling risk-reward skew. We thus reiterate our Buy, with our SOTP yielding a fair price near €5.7.

… but this is primarily a “show-me” story – 2023 was a rather bifurcated year, with H1 showcasing strong revenue (+16%) and EBITDAaL growth (+76%) followed by a more tepid H2 (flat revenues, +4% EBITDAaL) due to base effects and the rolling-off of pricing. 2024 has started on the front foot (H1 EBITDAaL +62%) and looks primed for mid single-digit top line growth and very strong gross margins, but the extent of positive operating leverage is to be seen in the seasonally important H2. The OpCo did enjoy c€4.7m higher EBITDAaL yoy in H1’24 (c1.8ppts margin accretion), but clearly more work will need to be done in H2, especially on the price/mix front. Against this background, we see Fourlis as a “show-me” story, whereby the REIC deconsolidation (likely in Q4’24) is a significant catalyst but will not eclipse operational execution.

Medium-term targets quite bullish; 2-digit growth does seem feasible – Mgt has in the past guided for €750m retail sales in the medium term, although the timeline of this has been gradually pushed back by 2 years, to 2027e. In any case, the revenue target is c44% higher than 2023, corresponding to an EBIT target c2.8x the level of 2023, indicative of the operating leverage embedded in the business. We expect these targets to be revised higher post the licence agreement with Foot Locker (FL). Our 2027e estimates remain quite conservative and below the previous mgt guidance, even with FL included, as we embed more modest operating leverage (OpCo EBIT margin at