Jerónimo Martins: Time to buy Poland's #1 grocer
JMT’s share price has dropped 18% since Q4 results (vs. +2% for SXRP) and we take this opportunity to upgrade from Neutral to BUY what is still in essence the undisputed #1 grocer in Poland. Our Eur17.0 FV (was Eur16.5) offers 21% upside potential and we also see as quite attractive the 15.5x P/E 18e ex-Ara/Hebe and the sector-leading DY. We think investors should not be distracted by the slower and bumpier path to profitability of Ara, which has been one of the main drivers for JMT’s earnings downgrades, as it accounts for just 3% of our target EV. The focus should remain on Poland (90% of EV), where we still see a quite supportive consumer backdrop and where Biedronka’s LfL obsession should continue to allow it to post high single digit top-line and EBITDA growth. In this note we bring down EPS ‘18e-‘20e by an avg of 4% but to a level in line with BBG consensus and we would thus expect earnings momentum to stop being a headwind. Valuation wise the lower EPS was offset by the 1-yr roll over of our FV to the end of ‘18.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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