Jerónimo Martins: Looking beyond the weak LfL
JMT’s Q2 EBITDA (up 3% YoY) managed to beat our forecast and BBG consensus by 2% with the better than we expected margin evolution at Pingo Doce and Ara offsetting weaker sales growth in Poland. Biedronka’s 0.6% Q2 LfL was a clear miss to our 2.3% forecast and we have cut our FY18e LfL forecast by 100bp to 5.0%. This might still look optimistic in light of the 4.5% LfL achieved in 1H18 but we note that: i) comps get 130bp easier in 2H18; and ii) opex inflation and LfL growth should be aligned in the back half of the year, allowing Biedronka to invest at least part of the chunky GM tailwind that it has enjoyed in 1H18 (HTGe >50bp) in prices. Despite cutting our LfL forecast in Poland, our ‘18e-’20e earnings forecasts were largely stable at a level in line with consensus as the PLN has recently bounced back to 4.30/Eur and we have nudged up EBITDA for Portugal. Our unchanged Eur16.0 FV offers 20% upside potential and we also see as quite attractive the 14.9x P/E 18e ex-Ara/Hebe combined with a sector leading DY 18e of 5.1%. We take this opportunity to reiterate our SIlver Bullet BUY.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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