VRG - 3Q19E financials
We maintain both our LT fundamental Buy recommendation and an Overweight ST market-relative rating, as well as stand by our 12M EFV at PLN 5.1 per share for the Company. 3Q19E EBIT should be decent, yet with the NP negatively affected by PLN 8 million FX differences stemming from the launch of IFRS16 (reversible in the following quarters). It should be noted that Bytom’s consolidation enhances the Company’s results in the seasonally strong quarters (2Q and 4Q), yet weakens in the seasonally poor quarters (1Q and 3Q). Thus, we expect its negative impact on the Company’s profitability in 3Q19. Yet, VRG’s 4Q19 financials should be strong, supported by robust demand, much higher yoy prices of gold and silver (the fixed margin policy at W.Kruk allows to gain an extra profit on cheaper inventories; the prices are adjusted to current purchases), joint purchases for some part of the collection for both Vistula and Bytom (it should result in up to 2pp gross margin on sales enhancement next year in the Group’s apparel segment).
We believe that the Company’s shareholders should consider the dividend stream. Capex should be quite limited (fast growth of the floor space seems to be unreasonable given the sales shift to Internet and Sunday’s sales ban), the working capital rotation cycle should improve after the full operational merger with Bytom, the suppliers financing program has been launched.
VRG SA, formerly VISTULA GROUP SA, is a Poland-based holding that specializes in the design, manufacturing and distribution of men's clothing and accessories. The Company operates in two business segments: Apparel and Jewelry. The Company's brand portfolio consists of Vistula, a men's fashion brand, which also includes Lantier and Vistula Red tailoring collections, Bytom, a men's fashion and tailoring brand, Wolczanka, a fashion and tailoring brand specializing in dress shirts, which also includes the Lambert collection, Deni Cler Milano, a women's fashion brand, and W.Kruk, which specializes in jewelry, as well as retailing of watches from Swiss manufacturers, such as Rolex, Omega and Tag Heuer, among others. The Company's own retail chain comprises more than 400 stores across Poland, as well as online stores for each brand.
BOS Brokerage, with over 20-year experience, offers brokerage services on the Polish capital market to satisfy numerous needs of institutional and retail investors.
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