Jerónimo Martins: Cruel summer but not without hope
Ahead of Q3 results (Oct 30) we cut JMT’s ‘18e-‘20e earnings by an avg of 4% mostly on lower forecast sales in Poland. After a muted impact in the first four months, the headwind from the new Sunday ban seems to have picked up materially in Jul/Aug. This leads us to be more cautious regarding the impact from the ban on Biedronka’s LfL growth up to ‘20e, when trade will only be allowed on 7 Sundays. Despite the lower LfLs and the still high wage inflation, we keep our flattish EBITDA mg assumption for Biedronka as we expect its gross margin to continue to trend higher, benefiting from a more rational promotional backdrop and a better mix. Valuation wise, we cut our FV from Eur16.0 to Eur15.3 but reiterate our Silver Bullet BUY rating. The shares have strongly de-rated on the slower growth outlook for Poland and we see the current weakness as a buying opportunity. Adjusting for Ara and Hebe losses, JMT trades at 12.6x P/E 19e and 6.7x EV/EBITDA 19e. We believe this is too low for what is in its essence the #1 Polish grocer with 3x the market share of #2 and sector-leading sales densities and efficiency.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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