BiG Research PSI20 Note: Jerónimo Martins Initiation of Coverage
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BiG Research - PSI20 Note: Jerónimo Martins Initiation of Coverage Jerónimo Martins is committed to grow the business by continuous store expansion in all the markets, where it is present. The highest growth opportunities are viable in Health & Beauty sector in Poland, where Hebe is present (revenue growth +25% in 2018) and food retail in Colombia, where Ara is operating (revenue growth +48%). However, the two banners are not expected to achieve the scale, which Biedronka or Pingo Doce has, consequently they can contribute to the total revenues by 5-7% in the medium term. Moreover, Ara and Hebe have been struggling to achieve profitability, which creates uncertainty towards the future development. We expect Biedronka and Pingo Doce to stay the core business lines and generate 80-90% of the total revenues in the long-run. However, food retail market in Portugal already can be classified as matured, while in Poland it is approaching the mature stage, which implies that Biedronka and Pingo Doce do not have a lot of space for growth. Also, the demographic and GDP growth, as well as inflation rate are not expected to change significantly in the future. Thus, Jerónimo Martins is not expected to have an outstanding growth in these markets (maintain 2-3% growth), rather it should focus on maintaining the market share. |
Despite the lower growth opportunities, the company still is the food retail leader in Portugal and Poland, which allows generating high cash flows, even after planned expansion and financing activities. Therefore, Jerónimo Martins is able to distribute reasonable dividends to shareholders. Except several cases of extraordinary dividends, the company pays 40 to 50% of net income, but we believe the dividends could be increased due to increasing level of cash flows every year. Currently it has dividend yield of 2.08%.
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Taking into consideration the conditions explained above, our recommendation is REDUCE with the price target of €13.17. |
Jeronimo Martins S.G.P.S. is a holding company. Through its subsidiaries, Co. is engaged as a food distribution company with operations in Poland and Portugal. Co. operates in four segments: Portugal Retail, which comprises the business unit of JMR - Gestao de Empresas de Retalho, SGPS, S.A. (Pingo Doce supermarkets); Portugal Cash & Carry, which includes the wholesale business unit Recheio; Poland Retail, which includes the business unit with the brand Biedronka; and Others, which includes marketing services and representations, restaurants in Portugal, health and beauty retail in Poland, and its retail business in Colombia.
Banco de Investimento Global, S.A. (BiG) is a privately-held, specialized financial institution, with headquarters in Lisbon, and is licensed to operate in all business areas open to the banking sector in Portugal.
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