LPP: High 2018 base mutes 2019 growth
We maintain LPP as a BUY but trim our FV to PLN 9,419 (from PLN 10,183) on the back of 7%/8% EBITDA cuts coming from higher than expected SG&A/sqm growth (now exp at a mid single-digit in 2019-20 vs a low single digit before). Despite the introduction of the Sunday trade ban in Poland and the weather anomaly, LPP has performed very well in 2018 with 9M18 LFL at +9.2% and the gross margin at 52.5%, +1.7ppt YoY and ND/EBITDA at -0.5x, materially supported by over-delivery on WC management. A high base from 2018, more trade banned Sundays in Poland in 2019 and the FX (USDPLN at 3.8, +9% YTD) make 2019 a bit more challenging for LPP but still not too bad as we expect above average growth in the SEE and CIS regions and a high growth pace in ecommerce (supported by geographical expansion and the increased Sunday trade ban as well). On top, we think LPP still has room for internal optimization both on the top line (RFID to support LfL) and costs side (rentals & salaries on the back of expanded avg store size) plus some potential to optimize WC. On our updated numbers, LPP trades at a 2018E/19E P/E of 26.2x/23.9x and EV/EBITDA of 11.8x/10.7x.LPP SA Gdansk is clothing manufacturing group based in Poland. Co. is engaged in the design and distribution of clothing. Co.'s headquarters is located in Gdan'sk, including designing resources for all its brands. Co.'s stores offer its customer products that include jackets, shirts, sweaters, dresses, skirts, trousers, jeans, underwear and garment products. Co. also sells promotion clothing under a special selected brand. Co.'s product offering is addressed to a variety of customers for whom separate brands and chain stores are set up. Co. launches clothing under such brand names as: RESERVED, CROPP, MOHITO, HOUSE, and PROMOSTARS.
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