Inditex: There must be something we've missed
We fine-tune our estimates and valuation for ITX post Q2 results, mostly to incorporate a 50bp reduction in our FY18 LfL to 4.5% and a similar cut to the space growth contribution to 3.5%. This has been partly offset by a 11bp GM uplift but ‘18e-‘20e earnings have still nudged down by an avg of 1%. We would also expect BBG consensus for ‘18e earnings to drop 1%-2% on the back of ITX’s LfL (4%-6% in 2H18e) and FX (-3% for ‘18e) guidance and thus we were somewhat surprised by the 4% rise of the share price on the day (vs. 1.5% for the SXRP). We understand that the GM guidance for 2H18e (+50bp YoY) may have provided some comfort post the double-digit share price correction in just 2w, but we note that the 56.7% GM implied for ‘18e is in line with consensus. On the valuation front, our FV has ticked down from Eur26.1 to Eur25.8, which implies a 1-yr fwd P/E of 22.5x and is not far from where the shares ended the day. We thus reiterate our Neutral rating. We would expect the shares to be range bound until we hear about Q3, which should be a more standard quarter weather wise and could be important to shape medium-term LfL expectations.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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