Pepco Group: time for discounters (stays BUY)
We maintain our BUY recommendation for Pepco Group (Pepco), trimming our price target (PT) to PLN 49.4/share, from PLN 50.5. After a volatile FY21/22, we find the company well positioned for the consumer slowdown. Pepco offers a combination of value for money and low-ticket apparel, general merchandise and FMCG to clients trading down. The supply chain disruptions are mostly gone, cost inflation is stabilising, regional currencies have rebounded, and prices of cotton and freight are coming off. In the short term, we find the results well supported by the low base and a major step-up in inventories ahead of the first Christmas season in three years without COVID-19 restrictions. Going forward, given the experience of the successful transformation of Biedronka and promising trials for Pepco, we believe its store upgrade programmes should support sales efficiency and margins. With our expectation of a 2022-24E EBITDA CAGR of 21%, we see the stock as cheap, on our EV/EBITDAs of 10x for 2023E and 8x for 2024E, implying a double-digit discount to our Polish food retail universe.
WOOD & Company is the leading investment bank in Emerging Europe. Founded in 1991 and head-quartered in Prague, our footprint spans the region and touches investors around the globe.
A pioneer in Emerging Europe, WOOD executed many of the first CEE equity trades and landmark investment banking transactions. Our electronic trading platform was the first in the region, and remains the best. We are continually expanding our relevance and reach in these ever-evolving markets.
Our equity market share reflects our stature: 7% in Warsaw, 20% in Bucharest, 16% in Hungary, 40% in Prague and 5% in Vienna. Our distribution is unparalleled, with the largest salesforce in the region, servicing a uniquely diverse investor base.
We couple local expertise with a truly international perspective. With offices on the ground in the region, and in key financial hubs such as London and Milano, we are never far from our clients and we remain at the forefront of what’s afoot in the CEE emerging and frontier landscape.
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