LHV Institutional 'Apranga (APG1L LH) Annual Review, October 2nd, 2020'

* Apranga APB (hereafter ‘Apranga’ or the ‘Company’) is one of the leading retailers of fashion apparel in the Baltic states, operating the largest chain of stores in the region (a total of 183: 106 in Lithuania, 50 in Latvia, and 27 in Estonia, with a total store area of 93,400 sqm, as of 31st August 2020). Founded in 1993, Apranga is one of the longest-listed companies in the Baltic states, having been listed on the Vilnius exchange since 1997 and included in the main list since 2005.
* Apranga follows a conventional retail business model, managing a chain of ‘bricks and mortar’ stores, located mostly in the largest shopping centres in the biggest cities in the Baltic states. The Company’s sales consist exclusively of income received in its chain of retail stores. The core of Apranga’s business model is its franchise agreement with Industria de Diseño Textil, S.A. (hereafter ‘Inditex’), the world’s biggest fashion apparel retailer. However, as a retailer, Apranga has been exposed to store temporary shutdowns due to the COVID-19 pandemic. This pushed down sales for a few months and, while the recent months have shown some recovery, the ongoing threat of a second wave of the COVID-19 cases hitting as winter approaches leaves a lot of uncertainty in the air. We still believe that a risk score of 3.5 (out of 5.0), related to the risk arising from the COVID-19 pandemic, would be reasonable for Apranga. Although we have resumed our coverage on the Company and revised the forecasts and fair value range, it should be recognised that there is still a high level of uncertainty and the estimates assume progression towards normal conditions quite soon.
* In valuing Apranga, we have used the weighted average of values derived from the Discounted Cash Flow (‘ DCF’) and relative valuation (based on three peer group multiples), applying different weights to each method. The DCF method is given a 25% weight, while 75% weight is assigned to relative valuation to derive an implied fair equity value range of EUR 2.35-2.55 per share. In relative valuation, we have assigned 25% weight each to the valuation derived from EV/EBITDA, P/E, and P/B multiples. This report contains a full set of financial forecasts and is useful for gaining an initial insight into the company. Please also refer to the tables and charts in the attachment.