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JUMBO | COVID-19 scenarios

Stress-testing estimates for various COVID-19 scenarios – In this note, we build on our recent work on OPAP, extending our COVID-19 scenario modelling work to Jumbo. In that regard, this is our second special report undertaking scenario analysis to help investors understand the extent of operating leverage and potential impact on Jumbo’s earnings and liquidity, against the background of uncertainty around the duration of the lockdown in the group’s territories. The scenarios we examine model a 29-78% drop in Jumbo’s calendar 2020e EBITDA relative to our current numbers (which assume full lockdown until April, with bounce-back in H2).

Jumbo well-placed to comfortably absorb the hit – We find that even under conservative assumptions Jumbo can comfortably absorb the hit, given the strong starting point (€507m gross cash in June 2019, likely to have increased further due to the seasonally strong H2). Key swing factor to our analysis is cost containment, with our numbers assuming relatively limited cost mitigation, thereby pointing to the potential for lower cost deleveraging. Irrespective of the extent of operating leverage, Jumbo has sufficient liquidity to handle a prolonged store closure, given an annual opex base of c€180-190m and a >€500m gross cash position.

The scenarios – We are modelling the following scenarios: 1) A full suspension of the shops throughout Q2, with bounce-back in calendar Q3 and Q4. We assume that the latter is below recent trends (i.e. near 6%), as social distancing dynamics continue to weigh, to an extent, on footfall. 2) A full suspension throughout Q3, with snapback in Q4 and full normalization in 2021, with calendar 2021 sales c5% higher than in 2019. 3) Similar to Scenario 2, but with the additional assumption that the prolonged period of shutdown and the resulting severe disruption in economic activity trigger a recession which weighs on disposable income. This results in a c8% drop in CY2021e revenues relative to CY2019e levels.

Valuation – In this report we also adjust the presentation of the group’s financial statements switching to a calendar year basis. Our current numbers are predicated on the suspension lasting until April, with a 10% drop in May and a mid single-digit bounce-back in the remaining of the year. We end up with a c5% yoy revenue decline in CY20 and a c16% drop in EBITDA, but this is starting to look like a benign scenario, especially given the escalation of the situation in Romania. That said, we will be monitoring developments and intend to conduct a re-set exercise once we have more visibility as to the potential for unwinding of the stringent containment measures.