Report
EUR 305.36 For Business Accounts Only

Keeping the faith

Positioned for cyclical upturn – Given the discretionary characteristics of its retail concepts (home furnishing and sporting goods), Fourlis’s profitability is prone to cyclical swings. Although 2017 started with many hopes for a convincing inflection of the Greek business (>60% of sales), trading has been rather lukewarm year-to-date (Greek sales -3.4% in the 9M period) as a result of ongoing pressures on disposable income and fragile consumer confidence. That being said, despite the short-term pushback resulting from a more negative macroeconomic backdrop than initially envisaged, the structural story has not subsided. Fourlis’s product availability and value-engineered IKEA concept are likely to prove instrumental in helping the group outperform the rest of the market, while Greek operations are likely to inflect, barring an unforeseen macro deterioration. On that basis, we believe Fourlis will deliver 7-6% top line growth in 2018-19e, translating to >15% EBITDA growth as a result of the high operating leverage, with each €10m extra sales resulting in €3-4m incremental EBITDA.

Winner in a depressed market – We reiterate the point that the Greek homeware market has shrunk to unusually low levels (just 0.5% of GDP), having tumbled c70% since 2008 as a result of falling disposable income (-32%), trading-down and industry rationalisation. Against this background, Fourlis has emerged as clear winner with IKEA’s share rising from 12% in 2009 to c23% in 2016. The disproportionate contraction of the particular segment relative to GDP leaves scope for a more pronounced rebound of the market when disposable income recovers. Assuming market penetration were to rise to c0.6% of GDP in the next 4 years, this would create a c€75m revenue opportunity for IKEA (its “fair” share) resulting in >€30m incremental EBITDA (>40% uplift to 2021e).

Continuing deleveraging and progressive dividend policy – Following the successful debt reprofiling, Fourlis enjoys a healthy debt maturity profile (>80% of debt is long-term) while leverage is set to fall below 3x (net debt/EBITDA) for the first time after 7 years. Cash conversion has been consistent, with our numbers envisaging FCFE of €18-28m over 2018-2020 (35-40% of EBITDA) in the absence of significant capex needs. On that basis, we anticipate a progressive dividend policy following the restatement of the dividend in 2017 (€0.10, paid out of 2016 profits).

 Valuation – Following Q3 results, we have lowered our 2017-18e EBITDA by c€3m, but our medium term estimates remain broadly unchanged. As a consequence, our DCF-based PT stays at €6.30 (predicated on 9.6% WACC). At our PT the stock would trade at c7.4x 2018e adj. EV/EBITDA, still significant discount to the long-term average.

Underlying
Fourlis Holdings S.A.

Co. is engaged in the manufacture, import and distribution of electrical household appliances and the manufacture of FOURLIS kitchen hoods. In addition, through a subsidiary, Co. is engaged in the operation of a retail chain.

Provider
Eurobank Equities
Eurobank Equities

Eurobank Equities is a Greek-based firm offering research, sales and trading services to institutional, corporate and private clients. The company is wholly owned by Eurobank, one of the 4 systemic banks in Greece.

Research is the backbone of Eurobank Equities' platform, with a team of 4 professionals committed to generating actionable investment ideas by providing timely research products. We are committed to offering value-added services to clients by filtering market noise and providing insights on the multiple sectors that we cover. Our universe includes 26 - large, medium and small cap - companies whose market capitalization amounts to 80-85% of the total market capitalization of the Athens Stock Exchange. Our research team also maintains the capacity to generate ad-hoc research for micro-cap listed companies.

Our team has consistently gained recognition among institutional investors for its quality research, having ranked No. 1 team in Greece at the Extel Surveys of 2013-2016 and 2018. We have also been named Leading Brokerage Firm in Greece over 2014-2016 and in 2018.

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