Inditex: Slower growth to drive further de-rating
We still see Inditex (ITX) as a long-term winner in the global apparel industry due to its successful business model and seamless integration between stores and online. However, e-commerce has brought new players and allowed many others to expand much faster than before. Consumers are now a click away from a much wider choice and we think this is making it more difficult for incumbents like ITX to maintain historical growth rates. We have cut our medium-term LfL and space growth forecasts by 100bp each to 4%, leading to a 5% avg EPS cut for ‘19e-‘21e. This has put us on average 7% below BBG consensus for this period and thus we expect earnings momentum to be a negative driver for the shares. Likewise, our FV has dropped from Eur25.5 to Eur22.8, implying an ex-cash P/E 19e of 18x that we see as fair taking into account ITX’s slower growth profile (5.8% EPS CAGR 18e-21e). The shares have rebounded 18% YTD, beating the SXRP Index by 3%, and we take this opportunity to downgrade ITX from Neutral to SELL.Industria de Diseno Textil Inditex is the parent company of a group engaged in apparel and footwear manufacturing and retailing. The Group is made up of fashion retail chains, textile manufacturing, purchasing and fabric treating companies, logistics and construction companies which are responsible for store refits and manufacturing structure. Products include men's, women's and children's wear collections, footwear, and women's lingerie which are sold through the Group's retail store chains of: Zara, Kiddy's Class, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, and Oysho and Zara Home.
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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