EUR 103.27 For Business Accounts Only

BGC Partners: MOST PREFERRED LIST AMENDMENT: Replacing MGROS with BIMAS

We remove MGROS from our Most Preferred List due to the pressure on TL, which hurts Migros as the company has a short EUR position of €560mn, although it continues to be cheap on operational metrics. We include BIM instead as the stock has underperformed BIST100 by 13% YTD, with the expectation of lower profitability in 2019 due to the introduction of the organized sales points by the municipalities that cut the prices of certain vegetables and leads food retailers to comply, in addition to the ‘fight for inflation’ program kicked off in October 2018. Further negative newsflow such as the Competition Board probe into organized retailers for possible violation of anti-trust regulations and some news from a pro-government media outlet saying that BIM did not sacrifice profits at a time the nation is trying to lower inflation, has not helped. We acknowledge that the profitability will be lower in 2019 compared to 2018, as indicated by the more conservative guidance provided by the management, and 1Q19 may reflect more significant cost pressures as minimum wage adjustment kicks in. However, the current price more than reflects these expectations, in our opinion. BIM is trading at 16.6x 2019E earnings and EV/EBITDA of 10.0x. The stock is currently trading at c20% discount to its last 1-year average P/E and EV/EBITDA multiples and the discount widens to c30% when we look at the last 3-year averages. We find BIM’s defensive qualities to also come to the fore in the near-term with the TL volatility and the upcoming elections.