JUMBO | Steady into 2021
In our new note on Jumbo we argue that the solid cash generation track record and the group’s strong fundamentals are balanced by key person risk and long-term e-Commerce concerns. Absolute valuation is admittedly quite attractive, as the group trades at just c7.5x 12m forward EV/EBITDA, but from a historic viewpoint this is in fact in sync with the last 10-years’ average.The short term view – Operationally Jumbo remained relatively unscathed from the COVID disruption (sales -18%, EBIT -24% in 2020), while the start to 2021 has been quite resilient (Q1 revenues down just -11%). Cost inflation looks manageable this year given contracted rates but pressures seems to be building in 2022. Overall, we see upside risk to our FY21 EBIT forecast of €202m (+17% yoy), since the latter stands c11% below pre-COVID levels (to reflect risks around the pace of return to normality). We expect 16% EBIT growth in 2022, with group FY22e EBIT coming in c3% above pre-COVID levels.
The long-term perspective – Jumbo has been a quality earnings compounder with a strong execution track record, having delivered c10% EBIT CAGR in the previous 14 years (pre-COVID) via both organic growth and a c6% average annual store growth. Looking ahead, Romania capacity expansion can propel top line by c4% annually over the next 5 years on our estimates, but beyond 2025 growth avenues look more scarce. In the long-term, rising e-commerce penetration is looming as a structural challenge and we expect the debate around the digital channel to be at the forefront of investors’ agenda in the coming years. Although we believe that the wide assortment and the nature of the product offering render Jumbo relatively insulated for the next few years, we posit that its competitive advantage will inevitably wane in a rapidly digitalizing world. On that basis we have incorporated ROIC fading towards WACC in the long-run after peaking at 26% in 2025 (vs c19-20% in 2017-2019).
Our PT (DCF-based at 9.4% WACC) has been lifted on the back of modest upgrades (EBITDA 4%/1% in FY21/22), effectively placing Jumbo at c8x 12m fwd EV/EBITDA, c20% discount vs peers, in sync with the LT discount.
Jumbo is a trading company based in Greece. Co.'s main operation is retail sale of toys, baby items, seasonal items, decoration items, books and stationery. A part of its operations is wholesale of toys and similar items to third parties. Co. and its subsidiaries have four geographical segments: Greece, Cyprus, Bulgaria and Romania. At June 30 2015, Co. operated 72 stores in Greece, Cyprus, Bulgaria and in Romania and the on line store e-jumbo.
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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