Dino – Momentum Continues Heading Into 2020
Dino has seen its share price plummet since the comments made at the third-quarter earnings call about downward pressure on EBITDA margins experienced in Q4 2019, which some analysts seem to have extrapolated to the whole year, and about target 2020 store openings at the same level as in 2019. Our current outlook for Dino assumes a decline in 2019 Q4 EBITDA margin by 0.2pp y/y, with the full-year margin likely to show an increase of 0.1pp relative to 2018. As regards openings, note that in past years Dino has always topped the previous-year's numbers at a rate of 120%, and we expect the same to happen in 2020 looking at the current land bank, with a likely addition of 293 new locations. As it continues its fast-paced expansion, Dino should be able to mitigate the downward pressure on operating margins created by increasing labor costs in 2020 by improving sales effectiveness and payment terms. We believe the EBITDA margin in 2020 will grow by a further 0.1pp to 9.5%, accompanied by a 31% rebound in EBITDA. With projected 2019-2023 EBITDA CAGR of 24.7%, Dino ranks among the fastest-growing businesses in the Polish grocery sector. We would take advantage of the current sell-off to accumulate shares in Dino, and so we upgrade the stock with an updated target price of PLN 148.60.
Dino Polska is engaged in the business of retail sale in non-specialized stores with food, beverages and tobacco. In addition, Co. conducts processing of meats and the resulting products are dedicated, in the form of culinary meat, to external recipients within Co.'s retail chain. As of December 31, 2016, Co. operated a network of 628 Dino stores.
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