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JUMBO | Pulling off another Jumbo

Impressive sales growth – Jumbo continues its impressive execution, having delivered 40% sales growth in Jan-Feb 2023 following +14% in FY22. Although the 2-month trading has been propelled by one-off factors (warm weather in Jan, earlier carnival season and cycling of pandemic restrictions in Q1’22), these do not – by any means – iron out the astonishing sales performance and should not mask the underlying growth drivers, namely the wide assortment, the value offering and the smart price/mix management. In fact, price/mix seems to have been stronger than we had envisaged and among the key pillars not only of top line growth but also of robust gross margins. In the light of the strong start to 2023, mgt has provided guidance for +15% sales growth in FY23, with our updated estimates (raised 7-9% for 2023-24e) now eyeing 15% growth this year followed by 6.3% in FY24e.

Even more astonishing profit growth; 20% upgrades to our numbers – Since our previous note in Jan, shipping costs have tumbled another c10% – with Maersk loaded freight rates set to return to pre-COVID levels in 2023-24 – while China PPI remains in negative territory. Coupled with the strong price/mix, these drivers paint an even better picture for Jumbo’s margins than we had previously factored in our model. We have therefore recalibrated our gross margin forecasts now anticipating a 60bps expansion in 2023 (at 55.5%, with mgt guiding for c54%) followed by just a slight erosion in 2024e (to 55.4%). On the opex front, the impact from the increase in the minimum wage can be comfortably absorbed while energy costs in 2023 do not look likely to cause a material swing. Against this background, we have increased our 2023-24 EBITDA by c20% landing at €391m in 2023, c17% above current consensus. On our new numbers, Jumbo will deliver c13% average annual EBITDA growth in 2022e-23e, quite an impressive performance given the flurry of headwinds in 2022.

“Jumbonomics” – Jumbo enjoys a clear competitive advantage in its core Greek market by virtue of the store format, the wide assortment, the low prices and the logistics infrastructure. This unique combination has insulated Jumbo from the e-commerce threat, especially since the low-ticket nature of the product offering mitigates the main incentive that consumers have to purchase online, namely price. More recently, the no fashion element of the assortment and the high inventory policy have proved instrumental in helping Jumbo navigate the spike in freight rates (until Q2’22), with the group delivering record gross margins in a period of elevated cost inflation (2021-22).

Valuation still muted; top pick – Filtering through the estimate upgrades and lifting our med-term EBIT margin assumption (to 30-32% through to 2025) on stronger price/mix, we have raised our PT to €25.6 (DCF-based at 9.9% WACC), placing Jumbo at 7.6x 12m fwd EV/EBITDA, now small premium vs the LT average given the improved growth profile. We reiterate that the current valuation (still >25% EV/EBITDA discount vs retail peers) is discounting a pessimistic setup, with the stock thus being sufficiently de-risked and having a defensive appeal underpinned by earnings momentum and rising cash returns (Jumbo to trade ex-special DPS of €1.155 on 21st March).