EUR 150.00 For Business Accounts Only

Sonae: A good time to be in Portugal

Sonae will publish its 4Q18 sales on Jan 23 and results on March 21 and we expect it to benefit from the buoyant consumer backdrop in Portugal. Both food and non-food retail sales have been quite strong for Oct/Nov and, based on Pingo Doce’s very solid Q4 LfL, we believe it is fair to assume that Dec was also quite strong. We forecast MC to deliver a LfL of 2.3%, in line with Q3 despite a 3pp tougher comp, and we assume a stable EBITDA margin YoY. In Electronics, the very tough comp should drive a reduction of the LfL from 4.2% in Q3 to 1.8 % in Q4 but we expect the margin to remain flattish YoY. As for Fashion, we forecast sales growth to pick up from 0% in Q3 to 5.1% in Q4 and the EBITDA margin to rise 50bp YoY. In this note we have updated our forecasts to account for the recent sale&leaseback transactions, which despite being value enhancing are slightly earnings dilutive, as well as for a slower margin recovery for electronics and fashion on fiercer competition. Overall, we cut our ‘19e-‘20e EBITDA by an avg of 2% but to a level largely in line with BBG consensus. Valuation wise, our FV actually goes up Eur0.05 to Eur1.30, evenly driven by the mark to market of the indirect stake in NOS and by a higher input from MC on a stronger FCF in ‘18e. Our Eur1.3 FV offers potential upside of 46% and, despite the 10% YTD recovery (vs. +7% for PSI20), the shares still look quite inexpensive on ‘19e multiples - 9.6x adj P/E, 4.1x EV/EBITDA and a well backed 5.2% DY. We therefore reiterate our BUY rating.