MIGROS: BUY recommendation by Is Invest
The Company reported TL6.46bn of revenues in 3Q19, perfectly in line with consensus estimate, suggesting a strong y/y growth of 21.3%
NI exceeded estimates
Migros announced TL179mn of net profit in 3Q19, 8% higher than consensus estimate (IS Inv: TL177mn, cons: TL165mn). Excluding IFRS 16 impact, net profit would be even better at TL228mn compared to net loss of TL670mn a year ago. Strong operational profitability seems to be the main reason behind the better than expected bottom-line, which is partially shadowed by the lower than expected Fx income as a result of appreciation of TL against euro.
Strong operational profitability
The Company reported TL6.46bn of revenues in 3Q19, perfectly in line with consensus estimate, suggesting a strong y/y growth of 21.3% thanks to the solid LfL growth and 1.6% space growth. The Company posted TL684mn of EBITDA in 3Q19, 11% higher than consensus estimate of TL618mn. Exc. IFRS 16 impact, EBITDA came in at TL490mn (+31.2% y/y). Note that the Company has a different calculation of EBITDA including severance payments which is calculated at TL503mn in 3Q19, up by 31.5% y/y along with a margin of 7.8%, showing 60bps improvement y/y thanks to the strong gross profitability. Despite the price investments mainly in fresh lines, gross margin (exc. IFRS 16) improved by 110bps y/y to 27.1% in 3Q19 as a result of the positive impacts of the merger synergies and inventory gains mostly driven by the price adjustments in tobacco and alcoholic beverages.
Positive surprise at bottom-line (+8%) and operational profit (+11%), strong cash generation thanks to the strong operational performance and improving WCR and lastly improving leverage are likely lead to a strong positive market reaction, in our view. We may revise up our estimates and valuation following today’s conference call to be held by the Management to review the operational and financial results. Currently, we reiterate our BUY recommendation for the stock.