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JUMBO | First thoughts: Retaining its mojo

Robust H1 with adj. EBITDA and net profit +5% yoy; FY24 guidance out of sync with H1 performance – Jumbo has announced quite solid H1 results in line with our estimates, delivering 5.5% adj. EBITDA growth on +8% sales increase (the latter was pre-announced). Underpinning the robust performance was the surprising resilience of gross margins (flat yoy at 55.3%), as Jumbo continued to navigate supply chain challenges efficiently, which was only partly diluted by opex inflation (opex +13% yoy, due to 2 additional stores in operation and the warehouse in Romania). Reported results were bolstered by a €10.2m insurance claim (due to last year’s floods), thus leading reported profits 14% higher yoy to €122m. The FY24 guidance (sales +4%, operating profits flattish yoy) paints a pessimistic outlook for H2, implying sales +1% and adj. net profit -3%, despite Jumbo cycling easy top line comps. We see no reason to change our estimates at this juncture (FY24e adj. net profit +7% yoy), especially as performance hinges on the seasonally important pre-Christmas period.

Inventory levels sufficient in our view – Jumbo stood on inventory of c€246m as of end June, namely c€2.9m per store. We argue this level is sufficient to allow for some de-stocking in the coming months, especially considering that inventory/store had been depleted to as low as €1.9m at the trough (end 2021). In our view, this ought to protect both Jumbo’s margins (by lowering the need for stocking-up with high transport costs) and sales, as was the case at the peak of the supply chain snarls during COVID (when Jumbo enjoyed record cash flow and gross margins). Of note is that FCF in H1 was very strong shaping at €65m, more than fully absorbed by dividend payments thus leading to a €17m reduction in net cash vs the Dec’23 position (to a very solid €428m, excl. leases).

Looking through the lens of history: guidance vs actual results – On our understanding, the guidance communicated by mgt tends to be more of an internal budget rather than outlook in the “traditional” way, which in essence constitutes an “under-promise and over-deliver” approach, as also indicated by mgt at past analyst meetings (e.g. October 2019). In fact, in hindsight, Jumbo’s actual performance has historically eclipsed mgt guidance provided at the start (or mid) of the financial year by a wide margin (c20% at net profit level). This validates our contention that investors should focus more on what Jumbo does, rather than what Jumbo says...

Valuation dislocation with current price embedding value destruction; top pick – Jumbo’s price has suffered a 15% decline from the 2024 peak while returning just 7% ytd, weighed down by the side-effects of the recent placement (c3% stake in May, at €27.2) and, primarily, by the downbeat message echoed by the guidance. With the stock trading at c7x 1yr fwd EV/EBITDA and c10x PE, while offering c8% FCF yield, we find the thesis derisked at these levels and reiterate Jumbo as a top pick. Effectively, we estimate that at the current price the shares embed value destruction in the future, as the current EV seems to be below the value implied by current operating profits. We also reckon that the upcoming buyback program (10% of the share capital in 2 years, price ceiling at €27.2) will provide a safety cushion.