DIA: Will L1 provide storm shelter?
Ahead of what we expect to be another rather weak set of results on July 26, we cut (again) our earnings by an avg of 11% for ‘18e-‘20e, mostly to allow for the FX headwind and slower margin ramp-up in EM, weaker sales in Portugal and higher net interest expenses. Valuation wise, we cut our FV from Eur2.55 to Eur2.0 due to the lower input from EM (-Eur0.21/sh), Iberia (-Eur0.15/sh) and the recent Eur0.18 DPS payment. Having said that, we note that Dia is about to present a new strategic plan mastered by Letterone (L1), which should finally address Dia’s ‘original sin’ of very low sales densities through a combination of higher store capex and an upgrade of its value for money proposition (lower prices/higher quality). We caution that this plan will involve high execution risk due to Dia’s difficult starting point and the fierce competitive backdrop in Iberia but, following the 47% YTD correction in the share price (vs. a flattish SXRP), we think this is the time to upgrade the shares from Sell to Neutral and wait for L1’s next move.Distribuidora Internacional De Alimentacion is a supermarket and convenience store group based in Spain. Co. is engaged in the retail trade of food through cut-price self-service supermarkets and franchise establishments. Co. is engaged in the operation of stores located in Spain, France, Portugal, Turkey, Argentina, Brazil and China.
Haitong is the first international Chinese investment bank and our goal is to be the primary channel for capital flows into and out of China. During 2015 the Senior Management Team in London was expanded significantly to focus on this objective and to provide a full-service cross-asset markets business coupled with sector-focused investment banking. We work closely with our world-wide network of offices to bring a true depth of understanding to all client situations.
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