EUR 854.30 For Business Accounts Only

Europris (Buy, TP: NOK30.00) - Q3e sales feel the summer heat

We expect a weak Q3, hit by the exceptionally warm summer in the Nordics, particularly July sales (results due at 07:00 CET on 31 October). However, we maintain our NOK30 target price and BUY recommendation on our view of ample potential upside and our expectation Europris will continue to enjoy a strong position in an attractive part of the retail space. Set for a soft Q3. We expect flat revenues YOY of NOK1,286m versus consensus of NOK1,358m, reflecting a positive contribution from 12 new stores YOY and our expectation of negative LFL growth of 3%. The latter is based on weak summer revenues due to the extreme weather hampering sales in July, the most important summer month (typically accounting for 35–40% of Q3 sales). We expect a 120bp squeeze in the EBITDA margin, primarily on the back of negative leverage on fixed costs as our price survey points to stable gross margins. Estimate revisions. We have our lowered our 2018e EPS by 3%, primarily on negative revisions to our Q3 estimates. Broad variety discount an attractive segment. We continue to believe Europris has a strong position in an attractive part of the retail space that saw a healthy 2006–2017 sales CAGR of 6.2%, and less affected globally by the shift to ecommerce. Unique position. Our analysis of the broad variety segment supports our view that despite its recent headwind, Europris remains the dominant force in the Norwegian discount variety segment. We believe this positon is only set to be reinforced post the opening of the new warehouse in 2020e, which should both be an enabler of cost reductions and growth in more efficient online sales, and potentially more SKUs supporting growth in new categories. Longer-term we see the ÖoB JV strengthening Europris’ sourcing capabilities. Attractive valuation – BUY and NOK30 target price reiterated. At our target price Europris would trade at a 2019e P/E of 11.2x versus its current of c8.0x. This compares to an historical 12-month forward P/E of 14.6x and forward P/E + 1Y of 12.8x. Furthermore, assuming a flat dividend, Europris offers a yield of c8%