Sonae: Quality assets for a good price
We raise Sonae’s rating from Neutral to BUY. The shares are off 15% from January highs (vs. -5% for PSI20) and we believe this is a good opportunity to buy top quality retail, telco and real estate assets at an attractive valuation. The 11% drop in NOS’ share price and the 10% de-rating of Sierra peers drives a reduction in our FV from Eur1.33 to Eur1.27 but we still see potential upside of 15% coming from Sonae’s retail assets, where top-line growth should continue to leverage on the quite supportive economic backdrop and where we still see room for margins to improve in non-food. Further upside to Sonae could come from a recovery of NOS, where our telco analyst has a positive view. Were we to use his Eur6.9 FV instead of the market price, our FV would rise to Eur1.39. We also note that despite 18% direct earnings CAGR 17-20e, the shares look quite inexpensive on 2018e multiples (13.1x adj. P/E, 5.6x EV/EBITDA, well backed by a 4.0% DY).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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