INDITEX: initiation of coverage report (Bankinter Securities)
We value Inditex using a DCF method with a weighted average cost of capital of 7%. We come up with a €24.19 / share valuation (December 2018), or a -4% downside potential, thus we start our coverage with a Hold recommendation. This valuation implies a 21.2x forward P/E multiple. We reckon this is a “low-ball valuation” when compared to a) where the consensus is (above 27x), and b) where Inditex recent implied valuation has been. As we will explain throughout this report, we think that competition in retail is intensifying while growth could be waning because of several reasons, such as product saturation, demographics, and cannibalization between offline and online stores.
Industria de Diseno Textil Inditex is the parent company of a group engaged in apparel and footwear manufacturing and retailing. The Group is made up of fashion retail chains, textile manufacturing, purchasing and fabric treating companies, logistics and construction companies which are responsible for store refits and manufacturing structure. Products include men's, women's and children's wear collections, footwear, and women's lingerie which are sold through the Group's retail store chains of: Zara, Kiddy's Class, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, and Oysho and Zara Home.
Bankinter S.A. is a Spanish brokerage firm established in 1989. The company's line of business includes the provision of market research and trading services for Equity and Fixed Income products.
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