Pepco Group: plunge overdone (stays BUY)
We maintain our BUY on Pepco Group (Pepco), cutting our price target (PT) to PLN 31.5/share (from PLN 49.4). The past three months have been marked by extreme volatility, triggered by two profit warnings, a management reshuffle, the liquidation of the parent company, and a strategic shift from growth to “measured growth”. We also attended the company’s Capital Market Days (CMD)this week, from which we got the impression that the situation is more serious than we thought previously. However, we see the almost 50% share plunge as overdone. First, we underline that the new “measured growth” trajectory still suggests a healthy store rollout of c.10% in FY24E. Secondly, while conservatively assuming only a 100bps gross margin recovery for the Pepco banner in a five-year horizon, i.e., one-sixth of the company’s mid-term target, we expect a 2023-25E EBITDA CAGR of 16% for Pepco. Across this, we see Pepco’s valuation, with our EV/EBITDA easing from 7.8x in 2023E to 5.5x for 2024E and 4.8x for 2025E, as attractive.
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