Jerónimo Martins: Close, but no cigar
JMT’s Q3 results were very close to being uneventful, with sales, EBITDA and earnings all largely in line with BBG consensus. However, the fact that Biedronka’s 0.8% LfL has again missed a dampened consensus of 2.0% is likely to raise some eyebrows and could lead to further share price weakness. That said, we see no reason for alarm as we believe that Q3’s unequivocally weak LfL was driven by market issues (Sunday trading ban combined with warmer than usual weather) rather than by any structural corrosion of Biedronka’s competitive position. Thus, although we have cut our LfL forecast for ‘18e from 3.4% to 2.9% to allow for the weak Q3 and a slow recovery in Q4 (2.0%), we have left our ‘19e-‘21e LfL unchanged at a level that was already very much in line with our new forecast for ‘18e. We also note that despite this small cut in Poland, our overall estimates have hardly moved as Q3’s stronger sales and margin in Portugal allowed a small upgrade for Pingo Doce. Valuation wise, our FV drops by just Eur0.1/sh to Eur15.2 and we reiterate our Silver Bullet Buy rating. At the current share price, Biedronka (89% of EV) is being valued at an implied EV/EBITDA 19e of just 7.3x. This seems too low for the #1 food retailer in Poland, which we still see as a quite attractive grocery market due to its high penetration of traditional retail, sound growth outlook, limited supply expansion and more settled competitive backdrop.Jeronimo Martins S.G.P.S. is a holding company. Through its subsidiaries, Co. is engaged as a food distribution company with operations in Poland and Portugal. Co. operates in four segments: Portugal Retail, which comprises the business unit of JMR - Gestao de Empresas de Retalho, SGPS, S.A. (Pingo Doce supermarkets); Portugal Cash & Carry, which includes the wholesale business unit Recheio; Poland Retail, which includes the business unit with the brand Biedronka; and Others, which includes marketing services and representations, restaurants in Portugal, health and beauty retail in Poland, and its retail business in Colombia.
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