Sonae: Non-food turnaround has just started
Post Q3 we fine-tune our estimates and take the opportunity to reiterate our BUY rating on Sonae. Our maintained Eur1.18 FV offers 17% potential upside and we think Sonae also trades at quite attractive multiples (P/E 18e ex indirect earnings of 12.4x, EV/EBITDA 18e of 5.1x, DY 18e of 4.4%), namely taking into account that direct earnings should grow at a 16% CAGR16-20e. The latter should be mostly backed by the ongoing turnaround of SR’s legacy banners whose combined pre-tax losses should drop from Eur46m in 2016 to just Eur2m in 2020e. SportZone and Worten should captain this recovery, with the former benefiting from the JV with JD Sports and the latter from the strategic shift in Spain into smaller stores and tier 2 cities. We think that the market has not fully incorporated this strong rebound yet but as we see more quarterly performances like the one we had in Q3, when SR has beaten company gathered consensus EBITDA by 28%, the shares should continue to re-rate.Sonae SGPS is a holding company. Through its subsidiaries, Co. operates in four segments: Sonae MC, which is Co.'s food retail unit that had 478 stores as of Dec 31 2014; Sonae SR, which is Co.'s specialized retail unit, with a presence in the electronics, sports and fashion market and had 522 stores at Dec 31 2014; Sonae RP, which is Co.'s retail real estate unit which manages retail real estate properties of Co.; and investment management, which includes a company that operates in the retail DIY products, building and garden (Maxmat), a travel agency (Geostar), insurance brokers (MDS) as well as Wedo Technologies, Saphety, Mainroad , Bizdirect and Publico.
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