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DIA: 3Q'20 RESULTS (ANÁLISIS BANCO SABADELL)

3Q'20 vs. 3Q'19 Results
Sales: € 1.679 Bn (+2.5% vs. +2.5% expected);
EBIT: € -30.7 M (€ -41.6 M in 9Q'19 vs. € -17.5 M expected);
Net Profit: € -58.2 M (€ -85.6 M in 9Q'19 vs. € -81.2 M expected);
9M'20 vs. 9M'19 Results
Sales: € 3.498 Bn (-31.2% vs. +2.2% expected);
EBIT: € -82.8 M (€ -356.6 M in 9M'19 vs. € -69.6 M expected);
Net Profit: € -245.9 M (€ -504.3 M in 9M'19 vs. € -268.9 M expected);
3Q20 Results came in better than expected on the operating level thanks to lower restructuring costs, better commercial proposal and stricter cost management (initiated in 2H’20). This continues to be evidenced in the EBITDA margin, which stood at 1.9% in adjusted terms (vs. 1.8% BS(e) and vs. 3.3% in 2Q’20). By markets, the performance in Spain stands out (around 66% sales), where sales grew by 7.5% LfL in the 3Q’20 (vs. +20% LfL in 2Q’20, in any case already known) and the adjusted EBITDA margin came in slightly below expectations (1.9% vs. 2.5% BS(e) and 4.2% in 2Q’20). In the rest of markets, the progress made is relevant although Brazil and Argentina remain hit by the negative exchange rate. Meanwhile, Portugal (around 16% adjusted EBITDA) showed the best operating performance with +44% growth vs. 3Q’19 and a 3% adjusted EBITDA margin (+80bps vs. 3Q’19 and vs. 3.2% in 2Q’20).
As for debt, it came in at € 1.25 Bn (€~1.85 Bn including rents), which means a €~-72 M reduction vs. YE2019 (€-4 M vs. the 1H’20) and would be due to lower investments and slightly higher working capital levels. As regards the possibility of changing its financial structure (the press mentioned that LetterOne might capitalise € 200 M of debt and, in exchange, it would ask the lending banks to extend the duration of loan facilities for suppliers by some € 71 M), the company added nothing new to the communiqué in which it announced that it was in talks with financial institutions although no agreement had been reached yet.
In short, solid operating performance, although this is no big surprise compared to what we expected, given that the room for improvement vs. 2019 was still quite obvious. Thus, the performance would be in line with the roadmap for the company’s Transformation Plan, demonstrating that 2020 is a year of transition in which the company is not quantifying targets and only giving indications of a significant improvement in the medium-term adjusted EBITDA margin, which we largely include (target adjusted EBITDA margin of 5.5% in 2023 vs. 4.8% BS(e) and vs. 1.8% in 9M’20). In spite of this, the smaller impact from restructuring costs would allow the company to increase EBITDA by around +15%, with a similar impact on T.P., although this would not be enough to provide upside potential, and thus we maintain our SELL recommendation. Target Price: € 0.10/sh. (-27.27% potential)