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Eurobank Sec raises estimates on Jumbo

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Following on from Jumbo’s FY13 results and annual investor meeting, Eurobank Securities raised its FY14-15 EBITDA by c5%, on the back of improved freight rate and FX trends year-to-date.

Although management reiterated its guidance for c150bps gross margin contraction in the full year, Eurobank Securities believes that Jumbo’s gross margin will expand in FY14 and, as a result forecasts net profit of EUR96mn in FY14 (c28% above guidance).

The investment case positives for Jumbo are well-known (defensive product offering, high cash conversion, solid balance sheet) and will be combined with a double capital return next year (we assume EUR0.40 per share), says Eurobank Sec.

On the other hand, it adds that the stock trades on a small premium EV/EBITDA valuation to other EU retailers and just c20% lower than its historic peak. Put in another way, adjusting for the 3-year estimated CAGR, Jumbo trades above its peak valuation (PEG >2x now vs. 0.9x at peak). “As a result, we believe that the investment case positives are reflected on the share price level and, thus, we retain our Hold recommendation with a new PT of EUR9.0. In the short-term, we note the positive technical factor due to Jumbo’s imminent inclusion in the new MSCI Greece Emerging index” Eurobank Sec concludes.

 

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