MASTERS IN FINANCE
EQUITY RESEARCH
JERÓNIMO MARTINS, SGPS
COMPANY REPORT
FOOD RETAIL
06 JUNE 2011
STUDENT: MARGARIDA CARREIRA
[email protected]
Premium position in Poland leads to…
Recommendation:
HOLD
Vs Previous Recommendation
…positive results in the Portuguese stock market.
14.31 €
Vs Previous Price Target
riskier
Price (as of 3-Jun-11)
profile
and
tougher
macroeconomic
outlook. Both our sales and EBITDA margins estimates (2011E2013E) for all domestic business units suffered cuts, reflecting the
13.59 €
Reuters: JMT.LS, Bloomberg: JMT PL
52-week range (€)
6.84-13.70
measures imposed by the Troika’s agreement. As a result, our
Market Cap (€m)
valuation for Portugal was reduced in 10.80%, meaning -2.31% in
Outstanding Shares (m)
8,552.09
629.293
Source: Bloomberg
our PT and our recommendation has changed to HOLD.

13.98 €
Price Target FY11 (PT):
We’ve downgraded our PT from €14.31 to €13.98 driven by the
Portuguese
BUY
JMT vs PSI20
Poland - Polish operations are the major source of
value creation: We place our hope in Biedronka whose LfL sales
and EBITDA margin grew 11.7% and 60bp in 1Q11. We expect
sales to grow at a CAGR of 10.8% in the next 10 years (local
70%
60%
50%
40%
30%
currency). Biedronka’s expansion plan will allow JMT to benefit
20%
from high growth rates as long as the food retail market converges
10%
0%
to European standards and Biedronka enlarges its market share
2010 Jul Aug Sept Oct Nov Dec 2011 Feb Mar Apr May Jun
gap to its direct competitors. Polish operations account for 78.6%
of our JMT’s value.
Source: financeyahoo.com

(Values in € millions)
Portugal - we expect the group to consolidate its
positioning: Portuguese operations account for 21.4% of our
Revenues
2010
2011E
2012E
8,691.0
9,528.0
10,197.1
719.67
EBITDA
653.1
672.27
enterprise value and we forecast sales and net income to increase
EBITDA margin (%)
7.5%
7.1%
7.1%
at a CAGR of 4.7% and 8.2% in the next 10 years, reflecting the
Net Profit
281.0
272.6
273.3
0.434
EPS
0.446
0.433
deterioration in private consumption and the mature stage of the
P/E
25.57
32.27
33.45
food retail market. Nevertheless, the group was able to increase its
RoE (%)
24.8%
19.3%
17.0%
EV/EBITDA
10.98
13.1
12.2
Capital Expenditures
434.2
685.6
724.5
profits
by
33.5%
in
1Q2011
YoY
thanks
to
Biedronka,
corresponding to €56.4Mn.

Going Abroad is a Top priority: JMT plans to enter a
new geography in 2012. The most likely format is discount and
mass markets should remain key.
Source: Company’s
reported Data and NOVA ER Team
Company
description
estimates
Jerónimo Martins SGPS (JMT) is a Portuguese
company operating in the food retail market in the
distribution, industry and services areas, in
Portugal and Poland. In Portugal, it operates
under the brands Pingo Doce and Recheio while
in Poland it operates with its hard discount model,
Biedronka. JMT is also involved in the food
industry and in the services area.
THIS REPORT WAS PREPARED BY MARGARIDA CARREIRA, A MASTERS IN FINANCE STUDENT OF THE
NOVA SCHOOL OF BUSINESS AND
ECONOMICS, EXCLUSIVELY FOR ACADEMIC PURPOSES. THIS REPORT WAS SUPERVISED BY ROSÁRIO ANDRÉ WHO REVIEWED THE
VALUATION METHODOLOGY AND THE FINANCIAL MODEL. (SEE DISCLOSURES AND DISCLAIMERS AT END OF DOCUMENT)
See more information at WWW .NOVASBE.PT
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Table of Contents
Company overview ..................................................................................3
Company description..................................................................................... 3

Business Units description ...................................................... 3
Shareholder structure.................................................................................... 4
Macroeconomic Analysis ........................................................................5
Portugal .......................................................................................................... 5
Poland ............................................................................................................ 6
Food Retail Sector Overview ...................................................................7
Food Retail Trends ................................................................................ 7
The Private Label’s Phenomenon........................................................... 9
The Portuguese Food Retail Market ..................................................... 10
The Polish Food Retail Market ............................................................. 12
Valuation.................................................................................................13
Operational Forecasts ...........................................................................14
Investment Forecasts: Capex ...............................................................20
Financing Forecasts: Debt and NWC....................................................21
Discounted Cash Flow model ...............................................................23
Sum of the Parts Approach ...................................................................24
Smooth Investment Scenario ................................................................25
Multiples Comparison ............................................................................26
“Apteka Na Zdrowie” .............................................................................27
Further Internationalization ...................................................................28
Financial Ratios .....................................................................................29
Financial Statements .............................................................................30
Appendix ................................................................................................31
Disclosures and Disclaimer ..................................................................39
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Company overview
Company description
Jerónimo Martins SGPS (JMT) is a Portuguese company in the food sector
operating in the distribution, industry and services areas. Currently, the company
Exhibit 1 – JMT Net sales Breakdown in
2010 (%)
conducts
activities
in
Portugal
(mainland
and
Madeira)
and
Poland.
Nevertheless, the group is searching for new markets to increase its international
position. In Portugal, JMT maintains its recognition as the second largest
portuguese food retail group, right after Sonae Distribuição. While in Portugal it
operates with the brands Pingo Doce (retail) and Recheio (cash&carry), in
Poland it stands with its hard discount model, Biedronka. JMT is also involved in
the food industry over its joint-ventures with Gallo Worldwide and Unilever. In the
Source: Company data
service sector, it offers marketing services, food services and further represents
international brands in Portugal. Brands like Olá, Hussel, Jeronymo, Chili’s, Ben
& Jerry’s and Caterplus are also part of JMT’s portfolio.
Exhibit 2 – PD’s Number of stores
evolution

Business Units description
With a total of 353 stores in Portugal (340 in Portugal mainland and 13 in
Madeira), Pingo Doce (PD) is leader in the supermarket segment with 12.1%
market share1 (see Appendix 1). Relying on Portugal’s largest outlet network,
PD has achieved a sales growth of 9.9% in 2010. Among the main differentiation
factors are its every day low prices strategy, its strong private label (38% of PD
total sales), its always fresh perishables and finally its ready to eat Meal
Solutions. Unlike other retailers like Lidl, PD intends to be a price follower
Source: Company data
instead of a price leader. In specific product categories (around 500 references),
PD is forced to offer the same prices as Lidl. Since 2010, the group no longer
Exhibit 3 – Recheio’s type of clients in
2010
owns Feira Nova being all of those stores converted into PD ones. In Madeira,
sales have grown 7.9%, suffering losses due to the storms occurred on 2010,
which affected two of JMT’s most representative stores (Anadia and Dolce Vita).
Recheio is the leader in the food wholesale segment, with 39 cash&carry
stores and 3 food service platforms, which posted a 4.6% sales growth in 2010.
Mainly aiming at satisfying clients from the HoReCa (Hotels, Restaurants and
Café’s) and traditional retail channels, its main differentiation efforts have been
Source: Company data
increasing perishables (14.9% of its total sales) and its private labels,
MasterChef, Gourmês and Amanhecer (17.1% of its total sales). It presents a
market share of 38%.
1 According to Euromonitor International, PD became leader in 2008, surpassing Continente (8.2%) with a market share of 10.6%.
Currently, Continente pursues a market share of 8.8%.
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
In Poland, JMT occupies a relevant position in the food retail market with its solid
hard discount format Biedronka. It is the leader in its segment with a market
Exhibit 4 – Biedronka’s number of stores
evolution
share of 10.5% and has 1,649 stores. Its assortment is composed by 7% of non
food products, 56% exclusive brands and 37% corresponding to other brands.
Due to the potential of the Polish market, Biedronka has grown rapidly in the last
5 years and constituted 55% of the company’s sales in 2010. It is present in 9
Polish regions out of 16 and is recognized by more than 92% of Poles.
In 1949, JMT entered the food industry through its joint-venture with Unilever. In
2007, with the merger of Fima VG, Lever Elida and Olá, a new company
emerged, Unilever Jerónimo Martins (UJM). Today, UJM is the biggest
Source: Company data
manufacturer of the food mass market, home care and personal care products in
Portugal. Regarding services, in 1972 Jerónimo Martins Distribuição de
Produtos de Consumo (JMD) was born. Due to its knowledge of the Portuguese
consumer and distinct markets, JMD’s core activities are the exclusive
representation of a set of international brands in Portugal, mostly market leaders.
Shareholder structure
Exhibit 5 – Shareholder Structure
Currently, JMT’s capital is formed by 629,293,220 ordinary shares whose major
shareholder, with 56.1%, is Sociedade Francisco Manuel Soares dos Santos
which is controled by Alexandre Soares dos Santos, the Chairman of the Board
of Directors of JMT, and his sons. Heerema Holding Company through Asteck
S.A. owns 10%, Carmignac Gestión 3%, BNP Paribas Investment Partners
owns 2.03% and the remaining 29% are free floating and own shares (see
Appendix 2). This structure alows for a certain stability as Soares dos Santos
guarantees the continuity of JMT’s strategy2. Nevertheless, despite having the
majority of JMT, Soares dos Santos’ family cannot make decisions without
Source: Company data
geeting the agreement of a substantial percentage of shareholders in issues like
3
the dividends policy for instance. The shareholders’ structure also varies among
business units. The company owns only 51% of PD while the remaining
participation belongs to Ahold, a Dutch food retail group. In Madeira only 75.5%
are owned by JMT. The remaining are detained by Lidosol and J. G. Camacho.
Regarding industry, Unilever owns 55% of UJM similarly to Gallo Worlwide, that
controls 55% of its own company. The remaining business units are entirely
owned by JMT.
2 Moreover, according to Código das Sociedades Comerciais, article 386º, nº3, JMT cannot merge, be sold or dissolved without the
acceptance of 2/3 of the votes in general assembly.
3 According to Código das Sociedades Comerciais, section IV, article 294º, nº1, the payout ratio can only be changed by acceptance of
at least 75% of the social capital in general assembly.
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Macroeconomic Analysis
Portugal
Exhibit 6 – Portuguese real GDP
growth (%)
Portugal is currently in a very delicate situation, dealing with a serious recession
particularly due to its high budget deficit (9.1% of GDP in 2010 and 10.1% in
2009), lack of competitiveness and the need of deep structural adjustments.
According to the EU rules, the Portuguese deficit should be lower than 3% of its
GDP, very distant from the ones achieved in the last decade. As a way of fighting
its deficit, in 2011, the government increased VAT from 21% to 23% in the
revenues side and it has also cut 5% on civil servant wages on the expenditure
side. However, the obtained results were not enough. This fragility is even more
4
obvious when examining public solvability , resulting in high yields of sovereign
debt and continuous downgrades on credit ratings (Portugal current rating is
Source: IMF for past and future values
BBB-, according to S&P). Perceiving the high level of uncertainty and the
Portuguese risky profile, international investors are speculating negatively,
strongly conditioning access of Portuguese banks to funding and leaving the
economy with tough liquidity problems. Moreover, with 10.638Mn of inhabitants,
Portugal presented the highest unemployment rate of the last 10 years in
2010 (10.83%) and a poor GDP growth rate of 1.4%. Unable to turn around this
Exhibit 7 – Portuguese unemployment
rates (% of total labor force)
situation, on April 6th Portugal was forced to ask for external assistance to the
Troika, following Ireland and Greece. €78Bn were agreed and interests of 3.25%4.25% and 5.5%-6.5% will be paid to the IMF and the EU, respectively. The event
wasn’t, however, enough to calm down international markets and spreads on
sovereign debt haven’t stopped growing, achieving values of 11.89% and 9.72%
for 5 and 10-year treasury bonds, respectively, on May 2nd. Most concerns by the
German Finance Minister about the eventual need to restructure Greece’s debt in
June also jeopardized the very similar Portuguese case. It also led investors to
Source: IMF for past and future values
speculate about a possible departure from the Euro by Greece, representing the
failure of the EU model. In fact, Portugal may not meet its financial obligations if
interest rates prove to be higher than its growth potential. IMF forecasts include
negative or low values of GDP growth rate in 2012 (-0.5%) and 2013 (0.9%).
Measures imposed by the Troika’s agreement like the dismissal of 8,000 civil
servants, cuts on pensions higher than €1,500, 50% reduction on overtime
income, higher indirect taxes and higher VAT on electricity (from 6% to 13%-23%),
among others, are leading to a pessimistic evaluation from the Portuguese
consumers and consequent decrease on families’ disposable income, with 61.3%
believing its financial situation will worsen.
4 Portuguese sovereign debt corresponded to 93% of GDP in 2010.
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JERÓNIMO MARTINS, SGPS
Exhibit 8 – Portuguese Food retail sales
and CPI YoY(%)
COMPANY REPORT
1Q11 already shows evidence that consumers are cutting back on spending,
specially on non-basic purchases, with food retail sales decreasing by 2.2% YoY.
As food inflation has been of 2.4% since 1Q10, the fall on food retail sales was, in
fact, of 4.7% YoY, in real terms.
5
Hence, we’ve cut our JMT valuation for Portugal by 10.8% , as we expect both
retail and non retail activities to be affected by consumers’ retrenchment. Services
and Industry (non retail) suffered higher cuts as consumers are trading down from
manufacturer brands to private labels. Although less affected due to its based on
food assortment, our PD and Recheio estimates were also reduced as we believe
they’ll not be able to avoid the negative impact on consumption. However, as
JMT’s sales are mostly focused in Poland6 (55% of total sales) and its economy
Source: Bloomberg
has been able to grow consistently, JMT performed positively as shown by the
7
Exhibit 9 – Polish real GDP growth (%)
1Q11 results (consolidated sales growth of 14.7% YoY).
Poland
Contrarily to Portugal, Poland, with a population of 38.200Mn inhabitants, has been
one of the fastest growing countries in the EU. Further affected by the European
economic crisis, Poland was the only country in the EU to maintain positive
GDP growth during the economic downturn period (2008-2010). This performance
was only possible thanks to 4 factors: i) Poland had access to structural funds
given by the EU which contributed to boost the economy, ii) The zloty devaluation
Source: IMF for past and future values
has supported Polish production by making polish goods more competitive and
increasing exports, iii) imports decreased in 2009 by 9.3%, and finally iv) its
Exhibit 10 – Polish unemployment rates
(% of total labor force)
conservatively managed banking system was little exposed to toxic assets.
Moreover, Polish exports are highly dependent on the German economic growth,
as Germany is by far its most significant trading partner (1/4 of polish exports).
Polish exports are mainly natural resources like coal, silver, iron and salt and also
automobiles, machinery, furniture and chemicals supported by a healthy industrial
sector. This growth is sustainable as long as Poland still shows large differences
from the European standards8. Last year, Poland’s economy was able to expand
by 3.817% and IMF forecasts point a growth of 3.833% for this year. Triggered by
Source: IMF for past and future values
this economic positivism, the zloty has appreciated, reaching 3.964 (Dec 2010)
against 4.1006 (Dec 2009) per Euro. Nevertheless, rising demands to fund health
care, education and the state pension system caused the public sector budget
deficit to rise to 7.9% of GDP in 2010, a number above the required European
target of 3%.
5 The impact on JMT’s main inputs is explained later in the Operational Forecasts chapter.
6 As extremely dependent of the Polish economy, JMT is very exposed to zloty variations, supporting a high exchange rate risk.
7 In 1Q11, Biedronka, PD, Recheio, Madeira, Industry and Services presented sales growth rates of 21.8%, 4.6%, 3.7%, 15.9%, - 4.6%
and - 4.8%, respectively.
8 In Poland, GDP per capita equaled $12,300.1 (2010) while in Germany it was of $40,831.7 (2010).
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JERÓNIMO MARTINS, SGPS
Exhibit 11 – Polish Food retail
sales and CPI YoY(%)
COMPANY REPORT
According to a report by S&P, Poland’s current rating of A- might be in danger
of being lowered if structural reforms of its public finances are not implemented.
9
The good growth news is deflecting attention from the country’s fast-growing debt .
It is important to mention that the Polish Euro adhesion was postponed
indefinitely thanks to the European crisis.
Since 3Q10, food inflation has been increasing, reaching values of 6.8% in 1Q11.
10
Despite the negative impact of the timing of Easter in 1Q11 , food retail sales were
able to grow 0.6% YoY. Following this tendency, mainly due to its strong LfL sales
growth (11.7%11) and its increase on selling area (13.0% when compared to 1Q10)
Biedronka was able to present good results in 1Q11, with a sales growth of 21.8%.
Biedronka counts for 78.6% of our JMT’s PT and we expect sales to grow at 2
digits in 2011 (10.4%) and 2012 (11.1%).
Source: Bloomberg
Exhibit 12 – Portuguese Householders’
food expenditure
Food Retail Sector Overview
Food Retail Trends
Traditionally, the percentage change of householders’ income is highly correlated
to the GDP growth, which is converted into a correlation around 0.97.
Nevertheless, even having a direct impact on general consumption, high
variations in disposable income are not translated into high variations in
food spending. As an essential good, demand for food is quite inelastic and food
consumption does not grow exponentially when income experiences that behavior.
That’s mainly why the industry is seen as a very defensive one against recessions.
Instead, the variations that may occur relate to consumers’ choices, selecting
cheaper products during a recession period or expensive ones otherwise.
According to INE, in the last 10 years, Portuguese householders have been
Source: INE and IMF
spending on average 14.1% of their incomes in food related goods. We believe
that this percentage will tend to decrease to 13.6% in 2020 at a CAGR of -0.65%,
mainly due to the increase of the PL’s share12 driven by the severe austerity
measures implemented. Similarly, according to Eurostat, in 2006 Poles spent
approximately 18.2% of their disposable income in food. This percentage has been
decreasing at a CAGR of -1.5% since 2000, mainly due to consumers’ purchasing
power increase and rising importance of non food categories, diversifying their
consuming patterns. We believe this percentage will reach a value of 16.2%13 in
2020, following the same trend as Portugal.
9 In 2010, public debt counted for 55% of GDP.
th
th
10 In 2010, Easter was on April 4 while in 2011, it was on April 24 .
11 Biedronka’s average basket inflation was 4%, meaning that Biedronka was able to raise prices below the market average (5.5%).
12 Having a current private label share of 33%, we believe that in 2020 Portugal will achieve a PL share of 45%, following the behavior of
Switzerland (the European most developed country in terms of PL).
13 Poland presented a PL share of 14% in 2009 and we believe it will reach the current Portuguese PL share (33%) in 2020.
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JERÓNIMO MARTINS, SGPS
Exhibit 13 – Changes in European
shopping patterns (October 2008)
COMPANY REPORT
Over the last years, the European ongoing economic crisis has been changing
customers’ behavior. Following IGD, consumers have adjusted their priorities,
becoming more value conscious, price sensitive and rational in their purchases.
As a consequence, Private Labels (PL) and Eat-at-Home tend to evolve rapidly.
According to JMT, in Portugal (1Q11), PD’s number of shopping trips increased,
being however, somehow neutralized by a reduction in the value of the average
ticket14, showing that consumers are already reducing their spending.
Furthermore, they opt to shop around (proximity) and as more rational buyers,
their time shopping has increased. On the other hand, in Portugal, there’s an
aging population tendency, which together with a bigger concern with health is
resulting in a higher demand for healthy products.
Source: The Institute of Grocery
Distribution (IGD) data
On the supply side, the change in consumers’ behavior has forced most retailers
to optimize and reduce their assortments (simplifying their offer) as a way to
reduce costs and achieve efficiency in stock management. For instance, PD’s
positioning changed from a premium concept to an “every day low price” model,
reducing its offer from 15,000 references to 5,500. Moreover, Portuguese retailers
are holding higher costs due to higher raw materials’ prices and VAT, resulting in
an EBITDA margins reduction. According to Deloitte, the retailers’ ability to limit
their costs is the key to maintain lower prices and achieve profitability during an
economic crisis. Retailers like JMT are investing in the rationalization of their
logistics network, so they can increase their efficiency gains and maintain their
Exhibit 14 – JMT sales by quarters in
2010, as a percentage of total sales
EBITDA margins.
The food retail market is a seasonal activity, selling progressively more from
1Q
2Q
2010 2010
22.5% 24.0%
3Q
2010
26.3%
4Q
2010
27.1%
Source: Company data
quarter to quarter. Contrarily to the 4th quarter, people tend to buy less during the
1st quarter due to the already spent incomes during Christmas celebrations.
Similarly, customers tend to spend more during the 3rd quarter than in the 2nd, as
it corresponds to holidays when the vacation subsidy is granted. Additionally,
companies in this sector are characterized by high liquidity ratios since they
receive from customers immediately and pay to suppliers later on, allowing for
implementing ambitious investment plans.
Private Labels’ Phenomenon
Since the 1970’s, the Private Label market has been suffering a vast
PLs are an option for 99% of
the Portuguese homes and
39% of the Polish
householders.
transformation process. PLs that were previously perceived by customers as
cheap, of inconsistent quality and brand copies, are nowadays competing in
quality. According to AC Nielsen, PLs are an option in terms of quality against
Manufacturer Brands (MBs) for 39% of the Polish householders and 99% of the
Portuguese homes. Usually, customers acquiring these products reveal a high
14 In 2010, the value of the average ticket of PD was around €12 to €15.
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
degree of satisfaction (87%) and only 3% presented some kind of complaint. In
Even after the economy
improves, 95% of the
Portuguese people will
continue to purchase PLs.
most cases, PLs are produced through partnerships with manufacturers.
Furthermore, TNS Worldpanel data reveals that, even after the economy improves,
95% of the Portuguese people will continue to purchase PLs. Following this, JMT
has been making an effort to increase its PL portfolio, not only because of
consumers’ changes but also as a way of differentiation and protection against the
increased pressure from competition. In 2010, PLs corresponded to 38% of PD’s
total sales and 17.1% of Recheio’s total sales (see Appendix 3). Furthermore, PD
managed to increase its PL’s weight on sales to 42% in 1Q11 against 39% YoY. In
Portugal, JMT shows a PL’s share of 33.7%, slightly higher than the 33% of the
overall market, meaning PLs are one of the critical differentiation pillars of JMT’s
Exhibit 15 – Relation between PLs’
share and Retailers Concentration (%)
(2009)
distribution business models.
In fact, PLs are growing faster than MBs, representing currently a European market
share of 35%15 (Europe is the region with the highest share of PLs). Apparently,
this growing tendency is highly correlated with the growing presence of hard
discounters16 and also the high level of retailer concentration measured by the
sum of the 5 top retailers’ market share. All the 5 most developed countries
regarding PLs have a retailer concentration of over 60%. Switzerland is the 1st
ranked with a 46% PLs’ share and a concentration of 69%. Portugal presents a
current retailer concentration of 54% (see Exhibit 19) and a PLs’ share of 33%17.
The prevailing reasons behind this effect are the retailers’ aims for higher market
Source: AC Nielsen and Planet Retail
data
79% of the global
consumers confess to
change purchasing habits
to reduce expenses.
Exhibit 16 – Average price differential
between PLs and MBs by country in
2005 (%)
shares, being able to create brand awareness which guarantees consumers’
loyalty. In contrast, emergent markets like Poland, which have a very fragmented
retail market, have a far less developed PLs market (15%15 in 2009).
More important is to understand the PLs buyers’ profile and their motivations in the
purchasing moment. Currently, as mentioned, price plays an important role at the
moment of decision, which contributes to increase PLs’ sales against MBs’.
Following an AC Nielsen study, 81% of the householders admitted to compare
prices between PLs and MBs so as to decide which product to purchase. Actually,
79% of the global consumers confess to change purchasing habits to reduce
expenses. Therefore, more than half agreed that PL products are not only
consumed by people with lower incomes. For JMT, PLs play an important role in
the assortment as in 2010 consumers’ demand for these products increased,
regarding their level of quality. In Portugal the average price differential
between PLs and MBs is around -42%18. In this sense, the PL market seems to
Source: AC Nielsen – “The Power of
Private Label 2005”
be resistant to economic fluctuations since they maintained a steady and
15 Source: AC Nielsen
16 Hard discounters as Aldi or Lidl that mostly sell PLs are expanding their presence. For instance, PLs count for 95% of Aldi’s sales.
17
Source: TNS Worldpanel data
18 Source: AC Nielsen – “The Power of Private Label 2005”
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
growing business throughout economic increases or decreases. When compared
to other nations, the Portuguese is one of the most pessimistic, with a confidence
index of 45, leading to the preference for cheaper alternatives. Thus, MBs have
been losing sales for two successive years. When looking at the cumulative
benefits for a range of 80 categories, customers in Europe can achieve an
average saving of 37%15. The demand for competitive prices is a reality and while
customers save, retailers can be presented with higher margins as they have more
control on production costs and activities such as marketing or distribution.
The bottom PL value driver is the wide range of categories that this sector
manages to offer. However, 35% of European consumers agreed that PLs are
not suitable for products where quality really matters. Consumers may easily
Regarding this PLs
growing tendency, our
sales estimations for
Portugal and Poland were
lowered.
adopt PLs when it comes to dog food, refrigerated food or home cleaning
products among others, but when it comes to personal care, baby food,
cosmetics and alcoholic beverages they’re less convinced about their quality.
Regarding this PLs growing tendency, our sales estimations for Portugal and
Exhibit 17 – Portuguese MGD market
(€ Mn)
Poland were lowered, believing that the percentage of householders’ income
spent in food related goods will decrease at a CAGR of -0.65% and -0.81% in
Portugal and Poland, respectively.
The Portuguese Retail Market
The food retail market in Portugal is currently achieving a certain level of maturity
and will tend to stagnation, with companies heavily competing between each
other. EBITDA margins will tend to be squeezed not only because of the fierce
competition felt but also because of the low price strategies implemented. At this
time, the Traditional Market (TM) accounts for 23% of the entire market, while
Source: Euromonitor International
Exhibit 18 – Sales in Grocery Retailing
by format (€ Mn)
Modern Grocery Distribution (MGD) corresponds to 77%, around €15,442.4Mn.
In 2010, the 5 Portuguese top retailers accounted for 54% of the overall
market, suggesting a high retailers’ concentration. However, it still presents a
small concentration comparing to other European countries like Germany or
Switzerland, with 63% and 69%, respectively. According to Euromonitor,
supermarkets in Portugal had the highest growth rate over the past 5 years
(CAGR of 10.7%) against hypermarkets (CAGR of 2.7%) and discounters (CAGR
of 1.1%) (see Appendix 4). This trend shows that supermarkets have managed to
bring together low prices and convenience. In contrast, discounters presented a
stable behavior, which is not only related to the discounters’ slow down on new
openings during 2009 and 2010, but also with Minipreço’s negative results during
the same period.
Source: Euromonitor International
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JERÓNIMO MARTINS, SGPS
In the past, both Sonae and JMT, the two biggest players of the market, were
Exhibit 19 – Portuguese retailers’
market shares (%)
Retailers Market
shares
Sonae Distribuição
Jerónimo Martins
Os Mosqueteiros
Cia Portuguesa de
Hipermercados SA
Lidl
Dia Portugal
Supermercados
E Leclerq
Others
COMPANY REPORT
able to grow through organic expansion and M&A operations. In 2007, JMT
bought Plus in Portugal and Poland while Sonae bought Carrefour, as a way of
2009
16.4%
13.1%
10.0%
2010
17.1%
13.7%
9.5%
7.5%
7.9%
Minipreço in 2009. Yet, there is no official buyer on the radar although Sonae
6.0%
5.8%
and Group Auchan seem to be interested in it. However, we believe the
4.2%
4.0%
competition authorities would not allow for a possible acquisition by Sonae
2.7% 2.8%
40.1% 39.2%
Source: Euromonitor International
reinforcing their positions in the market. Currently, due to its consistent negative
results, Minipreço has been creating some speculation and rumors about a
possible sale. Moreover, Carrefour has started to decrease its investment in
without some restrictions, regarding its current market share.
Owning stores in similar locations, of similar dimension, also competing in price
and offering a wide range of PLs, Minipreço and Lidl became PD’s main rivals.
Exhibit 20 – Portuguese MGD forecasts
Sonae, instead, is more focused on hypermarkets and non food specialized retail
outlets. Currently, Sonae is operating only under the brand Continente.
(Mn €)
2010
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
CAGR
Overall
Market
20,061
20,016
20,018
20,338
20,782
21,341
21,969
22,689
23,526
24,513
25,566
15,442
15,598
15,791
16,241
16,800
17,465
18,200
19,028
19,972
21,066
22,242
JMT
sales
2,884
3,210
3,276
3,391
3,533
3,698
3,879
4,081
4,314
4,579
4,869
2.5%
3.7%
5.4%
MGD
Source: Euromonitor International,
Company data and ER Team estimates
Fighting between each other, retailers are investing significantly in solid
marketing campaigns and outlet design in order to increase their brand
awareness and attract more consumers than their peers. Both JMT and Sonae
have been largely investing in TV ads. While JMT reinforces its PD’s policy for
quality at low prices, Sonae promotes its brand Continente. The discount leader,
Lidl, so far not investing on TV ads in order to maintain its very low prices, is now
competing by using marketing tools and developing PL luxury products.
In the medium-term, we believe there is still a little room for growth due to
the significant gap existing between Portugal and European countries.
Following Alisuper that went bankrupt (2011), we believe smaller players such as
Sampedro will go out of business without the ability to survive the fierce
competition. Hence, further consolidation opportunities will occur. According to
Euromonitor International, MGD was able to grow at a CAGR of 6.8% in the past
5 years. Believing traditional market will continue to shrink, we expect MGD to
increase to 87% in 2020, growing at a CAGR of 3.8% in the next 10 years (see
Appendix 5 for methodology).
We consider that PD was able to positively differentiate itself from its peers in the
past through its strategic moves. Hence, despite the negative impact on
householders’ consumption, we believe PD and Recheio will keep on increasing
their market shares as they have been enlarging their PL offer.
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Exhibit 21 – Portuguese MGD growth rate forecasts (%)
Portugal
2010
2011E
2012E
2013E
2014E
2015E
2020E
GDP Growth rate
1.4%
-1.5%
-0.5%
0.9%
1.0%
1.2%
2.3%
Inflation rate
1.4%
2.4%
1.4%
1.4%
1.4%
1.6%
1.9%
Confidence índex
0.4%
0.2%
0.3%
0.5%
1.0%
1.1%
1.5%
Growth rate of a mature market
0.82%
0.72%
0.72%
0.72%
0.68%
0.68%
0.55%
% spent in food related goods
14.5%
14.4%
14.3%
14.2%
14.1%
14.0%
13.6%
MGD Growth rate
T
3.40%
1.07%
1.30%
2.91%
3.50%
4.02%
5.64%
Source: INE, IMF, Euromonitor International and Nova ER Team for estimates
Exhibit 22 – Polish MGD market (PLN
Mn)
Polish Food Retail Market
As developed economies evolve into stagnation, emergent economies play a
crucial role for international retailers. In contrast to Portugal, currently, the
grocery retail market in Poland is very fragmented and is in a development
stage, just like it was in Portugal 10/15 years ago. MGD accounts only for 51%
of the total market while the remaining relates to Traditional Market. Contrarily to
TM (lost around 7,000 outlets in 2010), MGD was able to grow at a CAGR of
12.8% over the past 5 years. Following the same trend, we believe TM will lose
Source: Euromonitor International
to MGD, growing at a CAGR of 7.4% in the next 5 years and reaching a relation
of 70%-30% in 2020 (see Appendix 5 for methodology).
Exhibit 23 – Polish MGD growth rate forecasts
Poland
2010
2011E
2012E
2013E
2014E
2015E
2020E
GDP Growth rate
3.8%
3.8%
3.6%
3.7%
3.7%
3.9%
4.2%
Inflation rate
2.6%
4.1%
2.9%
2.6%
2.5%
2.5%
2.5%
Growth rate of an in development market
1.56%
1.56%
1.56%
1.56%
1.23%
1.23%
1.10%
% spent in food related goods
17.6%
17.5%
17.3%
17.2%
17.0%
16.9%
16.2%
MGD Growth rate
7.3%
8.8%
7.4%
7.3%
6.7%
6.9%
7.1%
Source: Eurostat, IMF, Euromonitor International and Nova ER Team for estimates
Exhibit 24 – Evolution of Polish Food
The three modern formats, i.e., hypermarkets,
retail market by formats (%)
(2005=100%)
supermarkets and discount
stores, have increased their market shares in the last 5 years. Nevertheless,
independent small grocers still account for a large percentage in the market
(25.3%) operating with 97,820 stores. Discounters presented the highest
growth rate over the past 5 years (CAGR of 19.4%)19, resulting in an increase
of 7.8% in market share. The format was able to perform successfully during the
economic downturn mainly due to the wide selection of lower priced PL products.
According to the Polish press, the number of customers buying from discounters
has also increased from 16% in 2009, to 24%. The observed interest in this
format results mainly from price sensitive consumers and a more positive
Source: Euromonitor International
19
Followed by supermarkets (CAGR of 15.2%)
PAGE 12/39
JERÓNIMO MARTINS, SGPS
COMPANY REPORT
attitude towards it among people of higher economic status.
Exhibit 25 – Polish Retailers’ market
shares
Retailers Market
shares
The grocery retail market in Poland is mainly led by multinational companies as
they possess additional market experience and larger budgets to invest. The 5
2009
2010
biggest chains of the market are Jerónimo Martins Dystrybucja, Tesco Polska,
Jeronimo Martins
Dystrybucja
10.2% 10.9%
Carrefour Polska, Group Auchan and ZKIP Lewiatan which represent 29.9% of
Tesco Polska
5.8%
5.7%
the overall market, a concentration far below the European values and
Carrefour Polska
4.9%
5.1%
Auchan Sp zoo
ZKiP Lewiatan '94
Holding
suggesting high growth opportunities. Holding almost 65% of the hard discount
4.1%
4.2%
3.9%
4.0%
Real
3.6%
3.4%
Eurocash
2.7%
3.1%
Lidl Polska
Kaufland Polska
Markety
2.8%
2.7%
2.5%
2.7%
Grupa E Leclerc
segment Biedronka is the leader in its segment with a market share of
10.9%. Having a great advantage over its peers in terms of the number of stores
due to its Plus acquisition (1,649 stores against 400 from Lidl and 212 from
Netto), Biedronka competes mainly against Netto, Lidl and Aldi. In 2009, the
Polish market showed signals of consolidation, with E Leclerc buying 25 Billa
1.5%
2.2%
supermarkets while JMT acquired 12 Carrefour Express stores.
Netto
1.9%
1.8%
Others
According to PMR Research, Biedronka was considered the most often
56.1% 54.2%
attended store in 2009 with 40% adhesion, followed by Real (36%). Consumers
Source: Euromonitor International
not only mentioned its very low prices but also considered its brand as solid. JMT
has been aware about the possible growth opportunities of Biedronka and has
drafted an ambitious stores’ expansion plan for the future, reaching the 3,000
stores in 2015.
Valuation
Exhibit 26 – Valuation Approach
With the aim of discounting each cash flow with the appropriate cost of capital
(WACC), we’ve divided our valuation of Jerónimo Martins SGPS into six
Find out the value drivers
of each business unit
business units, Retail Mainland (Pingo Doce), Recheio, Madeira, Biedronka,
Industry and Services, according to two criterions: retail format and domestic or
Make Forecasts, including
the JMT’s strategic plan
and guidelines
Project FCF until 2020 and
compute the terminal
value of JMT
international operations. JMT’s value was computed by making use of the
Discounted Cash Flow model, on a sum of the parts basis, with explicit
forecasts up to 2020. Along our analysis we’ve come out with a conservative
point of view when performing forecasts as we have not included in our analytical
approach any scenario that could bring additional uncertainty to our analysis.
Thus, we’ve only considered current reliable scenarios aligned with the
Discount FCF at the
appropriate WACC
company’s guidelines. We took into account the IMF intervention in Portugal
th
given that it became a reality on April 7 .
SOTP: Reach the total
value of JMT
Additionally, some likely future
scenarios will be explored later in further chapters.
PAGE 13/39
JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Operational Forecasts
With the aim of computing Free Cash Flows (FCF)20, value drivers of each
business unit were initially found for computing sales, Net Working Capital
variation (∆NWC) and CAPEX. The key value drivers of our model are related
with the number of stores and their area, sales per sqm, EBITDA margins, activity
ratios and costs of revamping and opening new stores. Our calculation of sales
was based on the stores’ expansion plan (selling area in sqm) and sales/sqm
evolution (measure of store performance) for all business units with the exception
of industry and services, in which cases a constant selling area was assumed.
Retail Mainland
Exhibit 27 – Retail Mainland new
openings forecasts
Analyzing PD’s past performance during the last 5 years, we realize PD
managed to increase its sales from €1,612Mn to €2,756Mn at a CAGR of 11.3%.
This performance was only possible thanks to its selling area expansion (CAGR
of 19.2%) and rise in the sales/sqm ratio (CAGR of 2.8%). The high number of
new openings in 2008 presented on Exhibit 27 is related to the Plus acquisition.
Having in mind that the Portuguese food retail market has achieved a mature
stage, it will not allow for aggressive expansion plans. Therefore, according to
information published during the investor’s day, we believe PD’s new openings
will smoothly decrease during the next 10 years, converging into 2 openings in
2020 and contributing to a low selling area CAGR of 0.7% (see Exhibit 63 of
Source: Company data and Nova ER
Team for forecasts
Appendix 6). We highlight the fact that there’re still 18 Plus stores left to convert
which are expected to be concluded in 2012 (9 each year).
Regarding stores performance (sales/sqm growth rate), we expect it to evolve
Exhibit 28 – Retail Mainland sales
forecasts
smoothly, at a CAGR of 2.6% in the next 5 years. After 2015 the majority of
stores will be selling at full capacity. The sales/sqm growth rate was estimated
based on i) the overall supermarkets’ sales growth rate and ii) the stores’
capacity to sell products, that is, a recently opened store does not sell the same
as a mature one21. As stated before, in the past 5 years, supermarkets were able
to grow at a higher CAGR than the overall Modern Grocery Distribution market,
10.7% against 6.8%. Believing PD will contribute to maintain this tendency, we
forecast a CAGR of 3.2% for supermarkets’ sales for the next 5 years. 3.2% is
far below the previous 10.7%, as we’ve cut our estimates for 2011, 2012 and
2013 to 1.73%, 1.96% and 3.59%, respectively, taking into account the negative
Source: Company data and Nova
ER Team for forecasts
impact on householders’ incomes and consumption given the Troika’s
20
FCF = Operational Cash Flow + Cash Flow from Investing
Operational Cash Flow = EBIT(1-t) + Depreciation – ∆NWC
Cash Flow from Investing = Investment in non-current liabilities – Investment in non-current assets – CAPEX
21 We’ve assumed that a 1-year store only sells 55% of its capacity, a 2-year one sells 75% and a 3-year one sells at full capacity.
PAGE 14/39
JERÓNIMO MARTINS, SGPS
COMPANY REPORT
22
agreement. Thus, we expect sales to grow at a modest CAGR of 5.5% .
Regarding PD’s EBITDA margins, we evoke that PD’s EBITDA margin has
Exhibit 29 – EBITDA margin of JMT’s
peers (European Western countries) in
2010
suffered a contraction of 20bp last year (7.0% in 2009 to 6.8% to 2010). We
believe this fall was related with high investments in advertising. For the future,
we forecast a PD’s EBITDA margin increase to 7.0% until 2012, and a
decrease thereafter, converging to values of 2010 (6.8%) and remaining constant
afterwards.
We believe the EBITDA margins’ increase will be mainly driven by the total
conversion of Feira Nova and Plus into PD stores. Feira Nova conversion will
not only contribute to lower operating costs due to the reduction in selling area
and more focused assortment in food, but also to increase sales’ productivity as
all the investment of restructuring was already done in 2010. Similarly, in 2012,
all Plus stores will be converted, 9 in 2011 and 9 in 2012, further contributing to
increase EBITDA margins.
Source: Bloomberg
From 2013 onwards, we believe EBITDA margin will decrease and remain
constant at 6.8%. During the next 3 years, JMT will invest in restructuring and
rationalizing its logistics network. This transformation will be translated in a
reduction of 2 distribution centers from the current 7, as 40% of PD’s clients are
mainly concentrated in Lisbon and Porto. JMT will only start benefiting from
higher cost efficiency and consequent reduction in distribution costs after 2013.
We suppose this supply chain restructure will contribute in part to fight against
the fierce competition that characterizes a mature market as well as the
increasing tendency on raw materials’ prices.
Exhibit 30 – Retail mainland Operational Forecasts
€ Mn
2010
2011E
2012E
2013E
2014E
2015E
2020E
Sales
2,755.8
3,070.6
3,138.3
3,253.9
3,395.1
3,559.3
4,726.3
EBITDA
186.0
214.9
219.7
221.3
230.9
242.0
321.4
EBITDA margin (%)
6.8%
7.0%
7.0%
6.8%
6.8%
6.8%
6.8%
Depreciation
88.52
89.75
90.71
91.31
91.83
92.37
96.31
EBIT
97.50
125.19
128.97
129.95
139.04
149.66
225.07
EBIT margin (%)
3.5%
4.1%
4.1%
4.0%
4.1%
4.2%
4.8%
Source: Company data and Nova ER Team for estimates
2
22 By adding the new openings’ selling area to the already existing selling area of the previous year (1,170m is the average area of a PD
store), we achieved PD’s total selling area (sqm). By using the forecasted sales/sqm ratio, we were able to compute total sales.
PAGE 15/39
JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Recheio
Exhibit 31 – Hotels’ total income in
Portugal
Currently, the wholesale market is in a mature stage, with the 5 top players of
the market representing 82.3%23 of the consumption in 2009. The two main
players in terms of dimension are Recheio and Makro with market shares of 38%
and 21.7%, respectively. Over the past years, the wholesale market in Portugal
has been declining mainly due to the TM’s decreasing tendency and the actual
economic crisis. As mentioned before, in 2010, TM’s decreasing tendency
persisted, with some traditional retailers leaving the market. This resulted in
the loss of some clients, affecting significantly small wholesalers with less
diversified clients’ portfolios. On the other hand, HoReCa channel was able to
recover in 2010 from the crisis effects felt in 2009, mostly favoring the biggest
wholesalers of the market. In 2010, according to INE, the accommodation and
food service activities showed a positive growth rate of 1.4%, representing a
Source: INE
HoReCa growth rate of 4.5%. Nevertheless, we believe HoReCa channel will not
be able to avoid the negative impact driven by the fall in householders’
disposable income. We think in the next 2 years (2011 and 2012) householders
Despite the actual
economic adversities,
Recheio managed to
present a sales growth rate
of 3.7% (0.4% LfL) in 1Q11.
will tend to cut on their vacations and restaurants spending (tendency to eat at
home), contributing to the decrease of HoReCa’s sales. Despite the actual
economic adversities, Recheio’s sales did not present negative growth rates
during the years of economic slowdown. Recheio has been able to increase its
market share in the previous 5 years, with sales growing at a CAGR of 5.02%.
Moreover, its effort on increasing its PL offer and the investment done in
advertisement campaigns, mainly falling upon the beverages category,
contributed to reach a sales’ growth rate of 3.7% (0.4% LfL) in 1Q11.
Since the wholesale market is already in a high stage of maturity, we believe
Exhibit 32 – Recheio’s new openings
forecasts
there won’t be much room for further growth. We expect Recheio to open
only 3 stores during the next 10 years, according to the company guidelines. We
estimate sales area to reach 133.826m2 in 2020, growing at a modest CAGR of
0.8% (see Exhibit 64 of Appendix 6).
Because this business unit is more affected by the macroeconomic environment
than the Retail Mainland unit, we’ve considered a sales growth rate based only
on the GDP growth rate, inflation rate and the PLs effect24. In the previous 5
years, Recheio managed to present a sales’ productivity CAGR of 2.7% and a
sales CAGR of 5.02%. Nevertheless, according to our forecasts, sales
Source: Company data and Nova
ER Team for forecasts
productivity and sales are expected to grow at a modest CAGR of 2.0% in the
next 10 years, aligned with the inflation rate values between 2016 and 2020.
23 Source: Company data
24 Knowing that a recently opened store does not sell the same as a mature one, we’ve also incorporated that information in our model,
assuming that a 1-year store will only sell 55% of its capacity, a 2-year one sells 75% and a 3-year one sells at full capacity.
PAGE 16/39
JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Currently, as a way of fighting against the difficulties in the TM’s segment, JMT
focused on implementing a new project called Amanhecer. Its main objective is
Exhibit 33 – Recheio’s sales forecasts
to increase Recheio’s sales through 40,000 already existent customers from this
segment. The main business idea is to create a franchising chain of traditional
retailers under the name Amanhecer, whose products are obliged to be at least
80% from the current 130 references of products from the PL brand
Amanhecer. On the other hand, JMT gives support to the store brand and helps
on issues like the revamping diagnosis, logistics, transportation, marketing,
advertisement and retailers’ formation. The group predicts to open between 20
and 25 stores until the end of this year and to achieve 220 references of
products. As a recent project, it is still marginal at the moment and thus only
limited data is available. However, we believe it will contribute to increase sales
Source: Company data and Nova ER
Team for forecasts
and fight against the negative tendency on EBITDA margins regarding
competition. For the following years we expect EBITDA margins to decrease and
remain stable at 6.1%.
Exhibit 34 – Recheio Operational Forecasts
We believe Amanhecer will
contribute to increase sales
and fight against the
negative tendency on
EBITDA margins regarding
competition.
€ Mn
2010
2011E
2012E
2013E
2014E
2015E
2020E
Sales
719.1
721.7
727.3
725.2
728.7
744.6
861.4
EBITDA
44.2
44.0
44.4
44.2
44.4
45.4
52.5
EBITDA margin (%)
6.2%
6.1%
6.1%
6.1%
6.1%
6.1%
6.1%
Depreciation
9.18
9.77
10.57
10.89
11.21
11.52
13.08
EBIT
35.04
34.25
33.79
33.35
33.24
33.90
39.47
EBIT margin (%)
4.9%
4.7%
4.6%
4.6%
4.6%
4.6%
4.6%
Source: Company data and Nova ER Team for estimates
Madeira
Exhibit 35 – Madeira sales forecasts
The food retail market in Madeira is in a stage of high stability and we do not
expect JMT to open more stores in the next 10 years. Therefore, according to our
2
predictions we expect JMT to maintain its current selling area of 14.300m . Our
sales forecasts are expected to grow at a 3.2% CAGR in the next 5 years, slightly
below the 4.7% obtained in the past 5 years (see Exhibit 65 of Appendix 6).
Driven by the floods that occurred in Feb 2009, 2 of the most important PD of
Madeira were affected, triggering a 10bp decrease in EBITDA margin in 2010,
from 4.8% to 4.7%. However, as the reconstruction investment was done in 2010
and they are already operating in the market, we expect EBITDA margin to reach
Source: Company data and Nova ER
Team for forecasts
2009 values again and remain constant on the 10 following years.
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Exhibit 36 – Madeira Operational Forecasts
€ Mn
2010
2011E
2012E
2013E
2014E
2015E
2020E
Sales
128.7
142.2
142.6
145.0
147.6
150.8
174.4
6.0
6.8
6.8
7.0
7.1
7.2
8.4
EBITDA margin (%)
4.7%
4.8%
4.8%
4.8%
4.8%
4.8%
4.8%
Depreciation
3.83
4.01
4.17
4.33
4.48
4.63
5.34
EBITDA
EBIT
2.15
2.82
2.67
2.63
2.60
2.61
3.03
EBIT margin (%)
1.7%
2.0%
1.9%
1.8%
1.8%
1.7%
1.7%
Source: Company data and Nova ER Team for estimates
Biedronka
Exhibit 37 – Biedronka’s new openings
forecasts
Biedronka is the most important business unit of JMT as it counted for 55.3% of the
company’s total sales in 2010. Regarding the positive economic environment lived
in Poland and the potential growth of the food retail market, JMT has established
an ambitious plan of expansion for Biedronka. In 1Q11, Biedronka counted for
66% of the total stores opened by MGD in Poland. According to the group’s
guidelines and information made available during its investor’s day presentation,
1,428 stores are expected to open until 2015 corresponding to 3,000 stores and
585 in the following 5 years, expecting to own 3,500 stores in 2020. Thus, a large
increase in stores is expected until 2015, slowing down progressively thereafter
until 2020. We expect the stores’ number to grow at a CAGR of 7.8% until 2020.
Sales productivity will decrease until 2015 at a CAGR of -2.6% due to the high
Source: Company data and Nova ER
Team for forecasts
number of openings and increase thereafter at a CAGR of 3.7%. Most of retailers
are concentrated on large and medium sized cities, where the number of new
attractive locations is limited. In contrast, rural areas and small sized cities are
far from saturation and mainly dominated by traditional retail. Hence, Biedronka
might consider taking over some small and independent players in order to gain
new locations to further expand its chain. Moreover, having an expansion team
Exhibit 38 – Biedronka’s sales forecasts
per each Polish region like Biedronka, responsible for searching for new
locations, increases the capacity of growing organically and inorganically.
Beyond searching for growth opportunities, it is crucial to analyze the suppliers’
capacity to answer to this rapid growth. As local and small providers, they
cannot produce products for all Biedronka stores, not even if they were specialized
in only one product. In 2010, around 90% of the food products sold by Biedronka
were bought from local suppliers. Currently, the group pursues a tremendous
bargaining power over suppliers as they’re market leaders and deal with 450 local
providers in order to diversify the risk of failure and rapidly respond to market
opportunities. Moreover, a procurement sustainability policy was established in
2010, which ensures a supplier selection process based on strict and demanding
Source: Company data and Nova ER
Team for forecasts
criteria, allowing lasting business relations to be built. Regarding the higher number
PAGE 18/39
JERÓNIMO MARTINS, SGPS
COMPANY REPORT
of openings, we believe Biedronka will probably need to enlarge its suppliers’
portfolio. Nonetheless, following JMT past ability to accomplish its expansion plans,
we believe the proposed objectives are perfectly reachable and so, we expect a
selling area CAGR of 7.7% for the next 10 years (see Exhibit 66 of Appendix 6).
Hence, and believing there will be a significant improvement in families’ living
standards of middle class as long as Poland converges to EU standards, we
forecast a sales CAGR of 8.4% for the next 10 years.
Regarding EBITDA margins, we expect a smoothly decrease on margins to 6.8%
until 2015, regarding the higher operational costs driven by the ambitious
investment plan during this period. Afterwards we expect it to recover until it
reaches 7.3% mainly due to the progressive increment on sales coming from
mature stores. It is only forecasted a 50bp increase as competition is expected to
be higher in the future. Aligned with our expectations, Biedronka’s EBITDA margin
has increased 60bp from 6.5% to 7.1% in 1Q11 YoY.
Exhibit 39 – Biedronka Operational Forecasts
€ Mn
2010
2011E
2012E
2013E
2014E
2015E
2020E
Sales
4,805.9
5,311.5
5,906.1
6,324.6
7,141.2
7,677.6
10,729.0
EBITDA
386.9
377.1
419.3
436.4
492.7
522.1
783.2
EBITDA margin (%)
8.1%
7.1%
7.1%
6.9%
6.9%
6.8%
7.3%
Depreciation
84.88
119.56
155.34
188.79
232.72
270.68
321.98
EBIT
301.99
257.56
264.00
247.61
260.02
251.40
461.24
6.3%
4.8%
4.5%
3.9%
3.6%
3.3%
4.3%
EBIT margin (%)
Source: Company data and Nova ER Team for estimates
Industry
When comparing to the previous business units, industry will be more affected by
the current macroeconomic environment. As mentioned before, people are more
price sensitive, opting more for PLs than MBs. Moreover, the purchasing power is
expected to decrease in line with the wages restraints imposed by the Troika.
Therefore, we expect sales to increase at a CAGR of 2.1%, aligned with the
GDP expected behavior. In 1Q11, sales fell by 4.6% mainly due to the Easter
negative impact. For 2011 our expectations include a 0.14% growth on sales.
Regarding EBITDA margins, we believe in a fall of 0.2% until 2013, remaining
stable at 14.3%.
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Exhibit 40 – Industry Operational Forecasts
€ Mn
2010
2011E
2012E
2013E
2014E
2015E
2020E
Sales
195.1
195.4
195.9
199.2
202.7
207.2
239.7
EBITDA
28.4
27.9
28.0
28.5
29.0
29.6
34.3
14.5%
14.3%
14.3%
14.3%
14.3%
14.3%
14.3%
Depreciation
3.09
3.16
3.24
3.32
3.40
3.47
3.88
EBIT
25.28
24.78
24.78
25.17
25.60
26.15
30.40
EBIT margin (%)
13.0%
12.7%
12.6%
12.6%
12.6%
12.6%
12.7%
EBITDA margin (%)
Source:
Company data and Nova ER Team for estimates
S
Services
We forecast a sales CAGR of 2.1% and we expect EBITDA margins to remain
stable at 1.6%. The absence of Easter in 1Q11 had a direct and significant
impact in Hussel’s sales, resulting in a sales’ fall of 4.8%.
Exhibit 41 – Services Operational Forecasts
€ Mn
2010
2011E
2012E
2013E
2014E
2015E
2020E
Sales
86.5
86.6
86.9
88.3
89.9
91.9
106.3
EBITDA
1.4
1.4
1.4
1.4
1.5
1.5
1.7
EBITDA margin (%)
1.6%
1.6%
1.6%
1.6%
1.6%
1.6%
1.6%
Depreciation
1.28
1.24
1.22
1.19
1.17
1.15
1.09
EBIT
0.14
0.18
0.21
0.26
0.31
0.36
0.65
EBIT margin (%)
0.2%
0.2%
0.2%
0.3%
0.3%
0.4%
0.6%
Source: Company data and Nova ER Team for estimates
Investment Forecasts: CAPEX
Exhibit 42 – CAPEX breakdown (2010)
With the aim of computing CAPEX, we’ve looked upon investments related to
the opening stores, current stores’ revamping, Plus stores conversion and
finally costs related with distribution centers. According to information
released, JMT predicts to spend €1.7Bn during the next 3 years, from which
75% will be applied in Poland. Nevertheless, this goal seems to be very
optimistic to us when compared to our CAPEX forecasts. For the same period
we’ve considered a CAPEX of around €2.2Bn from which 70.3% will be allocated
Source: Company Data
to Poland. It is important to mention that, in Poland, each distribution center is
responsible for supplying between 150 to 180 stores. Thus, distribution
centers’ CAPEX is strongly related to the stores increment. In 2010 the company
had 9 distribution centers, covering 9 of the 16 Polish regions. We highlight the
fact that Biedronka’s new stores are cheaper than PD stores, not only due to
cheaper land but also because bakery, butchery and fishery are not included in
Biedronka’s model, incurring in lower investment costs. We recall that Plus stores
in Poland are totally converted and it will also happen in Portugal in 2012.
Industry and Services’ CAPEX was considered to be stable, only changing with
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
inflation rate. As expected, CAPEX/Sales ratio increases until 2015 and
Exhibit 43 – Costs (€ Mn)
Retail Mainland
New store
Revamping
Logistics
Biedronka
New store
Revamping
Distribution center
Recheio
New store
Revamping
Industry and Services
New store
Revamping
decreases gradually until it reaches 3.5% in 2020. It will never achieve a zero
value since, after some time, stores need to be modernized to continue attracting
3.25
2.88
2.8
clients. It seems reasonable to assume a percentage in terms of total stores: 7%,
7.9% and 5.5% of total stores of Biedronka, Retail Mainland and Recheio
respectively are revamped every year.
1.28
1.04
25
3.79
2.88
1.2
4.8
Source: Company data and ER
Team for estimates
Exhibit 44 – CAPEX Forecasts
€ Mn
2010
2011E
2012E
2013E
2014E
2015E
2020E
CAGR
Distribution Centers
52.3
72.6
48.2
72.2
73.6
96.7
23.1
-7.8%
Expansion
170.7
315.6
355,0
373.7
426.4
465.8
159.3
-0.7%
Revamping
211.2
252.1
275.4
292.7
322.8
347.8
412.2
6.9%
45.2
45.9
-
-
-
-
Conversion
Total Capex
434.2
685.6
724.5
738.6
822.9
910.3
594.6
Capex/Sales
5,0%
7.2%
7.1%
6.9%
7.1%
7.4%
3.6%
3.2%
Source: Company data and Nova ER Team for estimates
Exhibit 45 – CAPEX Breakdown
€ Mn
2010
2011E
2012E
2013E
2014E
2015E
2020E
CAGR
Retail Mainland
115.9
152.6
150.4
99.9
99.3
100.2
111.3
-0.4%
Recheio
29.2
19.6
23.9
16.2
16.4
16.7
18.3
-4.6%
Madeira
12.4
5.9
6.0
6.1
6.2
6.3
6.8
-5.8%
Biedronka
270.7
501.2
538,0
610.1
694.5
780.6
451.1
5.2%
6,0
6.1
6.2
6.3
6.4
6.5
7.1
1.7%
434.2
685.6
724.5
738.6
822.9
910.3
594.6
3.2%
Industry and Services
Total Capex
Source: Company data and Nova ER Team for estimates
Financing Forecasts: Debt and NWC
Exhibit 46 – Peers’ comparison in 2010
(days)
To forecast Net Working Capital we’ve made use of 3 activity ratios: inventory
turnover, accounts payable turnover and accounts receivable turnover.
Over the past 5 years JMT was able to improve its days NWC in 8 days, mainly
due to a reduction in days inventory and days receivables. We believe days
inventory will decrease to 18 in 2020 as currently JMT only operates with PD,
which has a more food based assortment (high % of perishables which validation
date is short) than Feira Nova. Regarding receivables, following the past
tendency, we assume JMT will tend to receive progressively earlier from
consumers reaching 6.0 days in 2020. Similarly, we believe JMT will tend to pay
suppliers earlier, achieving 95.0 days in 10 years. As a result, JMT will maintain
its past tendency of increasing its days NWC and so decrease its NWC
Source: Bloomberg
needs. These demonstrate the higher company’s ability to finance its operational
activities without current debt support. Moreover, JMT presented better results in
2010 than the majority of its peers.
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Exhibit 47 – Net Working Capital Progression
Days Inventory
2006
26.4
2007
26.0
2008
25.2
2009
20.6
2010
19.1
2020E
18.0
Days Receivable
12.5
10.5
9.1
9.5
7.6
6.0
Days Payable
107.6
108.7
101.8
101.5
98.0
95.0
Days WC
(46.2)
(59.8)
(49.3)
(54.5)
(53.9)
(55.8)
Source: Company data and Nova ER Team for estimates
Exhibit 48 – Net Debt Evolution (€)
Cutting in debt is one of JMT’s top priorities for the future. The group has been
Net Debt/EBITDA
1.42
1.04
able to reduce its debt and, so, its debt to equity ratio in the previous 2 years
0.72
0.66
investments with generated cash flows. We’ve maintained the previous tendency
next 10 years. Nevertheless, according to our analysis, JMT’s net debt will
2015E
0.82
0.93
0.98
1.06
2020E
0.67
part followed by capital increases, aligned with the considered D/E target. Since
2008
2009
2010
2011E
2012E
2013E
2014E
(1.13 in 2008, 0.83 in 2009 and 0.75 in 2010), paying a great part of its
in our model as well, by considering a lower debt to equity target (0.625) for the
highly increase during the next 5 years in order to answer to its polish
expansion plan, and decrease afterwards. These higher levels of debt will be in
Source: Company data and Nova
ER Team for estimates
56.1% of JMT is owned by only one shareholder, Sociedade Soares dos Santos,
it is important that it has financial capacity to contribute to these capital
increases. Otherwise, the aggressive Polish expansion plan may not be
accomplished and our JMT’s target would be affected26. As long as the company
expansion plan becomes stable, debt and equity absolute values diminish. We
forecast a Net Debt/EBITDA ratio of 1.06 to 2015, slightly higher than in 2010,
and 0.67 to 2020. We highlight the fact that a great part of the investment will still
be paid by generated cash flows during this period. In our analysis, 77% of the
total debt is long-term debt while the remaining 23% is short-term debt. Also
because of the aggressive expansion plan we’ve assumed a 30% dividend
payout ratio, that is, 30% of the generated profit will be given to shareholders
while the remaining 70% will be used to finance the Polish investment.
Discounted Cash Flow Model
WACC takes into account 3
factors:
i) the company’s financial
structure
ii) its cost of equity (re)
iii) its cost of debt (rd).
In order to use the Discounted Cash Flow model, the appropriate discount rate
must be addressed. Hence, a WACC for each one of the 6 business units has to
be computed to discount the already projected free cash flows. WACC27 is the
most appropriate discount rate as it takes into account 3 factors: i) the
company’s financial structure (D/E) which is assumed to be constant at
25 Regarding the company’s public guidelines for the next years and its cutting in debt goal, we believe the 60% target is the m ost
appropriate capital structure to be considered in our model. It is important to mention that any internationalization process or acquisition
that may occur in 2012 or the next years, will forcibly have an impact on the debt structure of the company. Nevertheless, as these
scenarios were not included in our valuation model, WACC values do not incorporated them as well.
26 This issue is further explained in our smooth investment scenario chapter
27 WACC
𝐸𝑞𝑢𝑖𝑡𝑦
𝐷𝑒𝑏𝑡
= 𝐸𝑞𝑢𝑖𝑡𝑦 +𝐷𝑒𝑏𝑡 * re + 𝐸𝑞𝑢𝑖𝑡𝑦 +𝐷𝑒𝑏𝑡 * rd *(1-tc)
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
60% in the next 10 years, ii) its cost of equity (re) and finally iii) its cost of
debt (rd). To reach the cost of equity for each business unit, 3 inputs are needed:
Exhibit 49 – Betas from comparable
companies
Sonae
Carrefour
Tesco
Ahold
Metro
Sainsbury
Wm Morrison
Colruyt
Casino
Eurocash
Emperia
Magnit
BIM
X5 Group
Migros
Beta Levered
0,89
0,90
0,64
0,50
1,04
0,80
0,61
0,27
0,87
0,42
0,41
0,10
0,62
1,94
0,54
Beta Unlevered
0,39
0,72
0,49
0,40
0,82
0,61
0,55
0,17
0,53
0,39
0,37
0,10
0,56
1,73
0,43
risk-free rate, levered beta and market premium. Regarding the risk-free rate,
we’ve made use of the 10-year German bonds for Portugal and the 10-year
Polish bonds for Poland. As the most solid country in economic terms of the EU,
Germany presents the lowest risk of default. However, in contrast to Portugal, we
cannot use German bonds for Poland because all the FCFs are computed in
their local currencies, that is, Portuguese FCF in Euros and Polish FCF in
Zlotys. To capture the industry’s systematic risk, we need to assess levered
beta. Firstly we selected a significant number of comparative companies (15) that
we divided in 2 groups, i) Western European Food retailers with low contact with
emergent markets (mature markets) and ii) Central and Eastern European Food
Source: Bloomberg
retailers particularly exposed to emergent markets (see Appendix 7). The first
Exhibit 50 – 5 years’ yields of
Portuguese companies and JMT’s peers
group was used to assess Portuguese operations while the last one was used for
the Polish operations (Biedronka). Afterwards, we’ve made a regression28 based
on the past 4 years, to find out levered betas of each company. Removing the
levered effect29 from the beta of each comparable, we were able to compute the
industry unlevered beta by making an arithmetic average of the companies’
unlevered betas. Then, by applying JMT debt to equity ratio target, we were able
to achieve JMT’s levered beta. Market premium30 addresses the risk inherent to
an economy. The specific risk of each country where the company operates
(political and economic) was captured by adding an extra premium to the market
premium. The extra premium corresponds to the difference between the
Source: Bloomberg
Exhibit 51 – 10 years’ yields of
Portuguese companies and JMT’s peers
country’s respective Credit Default Swap (CDS) and the “risk-free” CDS, which is
once again from Germany, compensated for the volatilities of both the equity
index and the country’s 10-year bonds31. The country risk in Portugal is much
higher than in Poland, regarding the Portuguese current macro environment and
high risk profile. Finally, by using the CAPM model we got a cost of equity of
8.66%, 8.69% and 12.26% for Portugal, Madeira and Poland, respectively.
Regarding cost of debt, as JMT does not have a credit rating, we’ve searched
for debt yields of JMT’s peers, especially Sonae. Nevertheless, as Sonae doesn’t
have a credit rating as well, we’ve searched for other relevant Portuguese
Source: Bloomberg
companies like PT and EDP. Concerning 10 years’ yields, JMT’s peers present
values around 4% while PT and EDP show much higher values, between 6% and
28 CAPM model: Enterprise return = risk-free + β*(rm-rf)
We’ve made use of Stoxx Europe 600 index as a market reference.
29 Βu =
ΒL
(1+ 1−𝑡𝑐 ∗
𝐷𝑒𝑏𝑡
𝐸𝑞𝑢𝑖𝑡𝑦
)
30 Market premium = mature market premium + country risk
Mature market premium = market return – risk free, which we considered to be 4% following current financial theories
31 Country risk premium = CDS spread * Equity index volatility / Bond holding returns volatility
PAGE 23/39
JERÓNIMO MARTINS, SGPS
COMPANY REPORT
7%. Being two of the biggest Portuguese companies of PSI20 whose market
caps are 6.8 Bn and 9.4 Bn respectively, PT and EDP were affected by the
Exhibit 52 – DCF Assumptions
Portugal
3,28%
0,519
0,729
Madeira
3,28%
0,519
0,734
Poland
6,29%
0,596
0,861
Country premium
3,37%
3,37%
2,94%
Market premium
7,37%
7,37%
6,94%
Cost of equity
Tax rate
Pre tax cost of
debt
After tax cost of
debt
Target D/E
D/(E+D)
WACC
8,66%
0,265
8,69%
0,25
12,26%
0,19
6,17%
6,17%
6,67%
4,53%
4,63%
5,40%
50%
33%
7,28%
50%
33%
7,33%
50%
33%
9,98%
Rf
Beta U
Beta L
Source: Bloomberg and Nova ER Team
Portuguese republic downgrades, presenting a credit rating of BBB- and BBB
according to S&P. We believe JMT’ cost of debt will be aligned with PT and EDP
values instead of its peers, since all Portuguese companies are being penalized
by the Portuguese macroeconomic environment. Hence, we’ve assumed a pretax cost of debt of 6.17%
32
33
and 6.67% for Portugal and Poland, respectively.
Regarding terminal value growth rates, we assume that in 2020 both markets will
have reached a more mature stage such that the market will tend to stagnation
and JMT’s growth rate will be aligned with long-term inflation rate values. We
believe that in Portugal, JMT will grow 1.9% in perpetuity while in Poland the
market will allow for a 2.5% growth rate. Poland growth rate is much higher than
Portugal as we believe the Polish market will provide greater growth
opportunities.
Sum of the Parts Approach
Finally, after discounting the FCFs of all business units we are able to compute
JMT’s enterprise value by using a sum of the parts approach. It is important to
mention that, according to our analysis, Biedronka contributes to 78.6% of
JMT’s value, which mean that JMT is very dependent on the Polish market.
Hence, we were very careful on establishing our DCF assumptions for
Biedronka, as a small change on Biedronka’s WACC can highly affect our JMT’s
price target (see Exhibit 66 of Appendix 7). The large exposition to the Polish
market constitutes a high risk for JMT, as it is very exposed to zloty devaluations.
Regarding Portugal, we believe the main risk is related to the possibility of
Exhibit 53 – Business Units’ ROICs
Biedronka
Pingo Doce
Recheio
Madeira
Industry
Services
WACC
9.98%
7.28%
7.28%
7.33%
7.28%
7.28%
Source: Nova ER Team
ROIC
17.9%
11.3%
11.4%
6.3%
10.7%
4.3%
Portugal leaving the Euro. Nevertheless, we believe this scenario is unlikely to
happen, as it would represent the failure of the EU model.
Comparing business units’ ROICs with its respective discount rates, we conclude
that all the business units of the company are creating values (ROIC>WACC)
with exception of Madeira and Services. Nevertheless, they do not represent a
relevant risk for JMT, as they only counts for 0.3% of the company’s value.
32 JMT’s market cap (8.5 Bn) is closer to EDP than PT. Hence, we assumed a JMT’s cost of debt closer to the EDP one. Nevertheless,
as JMT present a lower D/E ratio (0.87) than EDP, a slightly lower value was considered.
33 Since the Polish reference rate (WIBOR) is traditionally higher than EURIBOR (Portuguese reference rate), polish cost of debt should
be higher than the Portuguese one as well. Thus, we’ve assumed a differential of 50 bps higher for the Polish Debt.
PAGE 24/39
JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Exhibit 54 – Valuation: Sum of the Parts Breakdown
€ Mn
Retail Mainland
Stake
Method
EV
Attributable to
JMT
%
51%
DCF (WACC =7.28%; g=1.9%) 2692,8
1373,3
15,2%
Recheio
100%
DCF (WACC =7.28%; g=1.9%)
402,4
402,4
4,4%
Madeira
75,5%
DCF (WACC =7.33%; g=1.9%)
21,4
16,1
0,2%
Biedronka
100%
DCF (WACC =9.98%; g= 2.5%) 7120,3
7120,3
78,6%
Industry
Services
45%
100%
DCF (WACC =7.28%; g=1.9%)
DCF (WACC =7.28%; g=1.9%)
141,6
8,0
1,6%
0,1%
314,8
8,0
Total Enterprise Value
9061,8
Consolidated Net Debt
439,7
Debt attributable to Minorities
174,3
Equity value
8796,5
# Shares (millions)
629,3
Price Target (€)
13,98
Source: Nova ER Team for estimates
Smooth investment scenario
Exhibit 55 – Sociedade Soares dos
Santos contribution to JMT’s capital
increases (base model)
As mentioned before, Sociedade Soares dos Santos is JMT’s major shareholder,
€ Mn
Total Capital
Increases
/Extraordinary
Dividends
Capital
Increases
(56.1%)
Dividends
(56.1%)
Additional
Money
(56.1%)
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
76.6
-34.1
100.0
261.1
448.4
442.1
378.2
299.4
196.8
64.1
43.0
0.0
56.1
146.5
251.6
248.0
212.2
168.0
110.4
36.0
0.0
46.0
44.2
45.6
45.5
53.6
60.3
69.5
78.2
88.5
43.0
0.0
11.8
100.9
206.1
194.4
151.8
98.5
32.2
0.0
Source: Nova ER Team for estimates
owning 56.1% of the company. Thus, and as it is assumed in our base model, in
the need of a capital reinforcement to finance the Polish expansion, JMT is
highly dependent on the financial capacity of this shareholder. Regarding our
predicted capital increments and the 30% payout ratio considered, there’s the
possibility of Sociedade Soares dos Santos not having the required capital to
invest. If that proves to be true, two scenarios are possible: i) it sells part of its
share and loses JMT’s control or, ii) maintaining the same goal of having 3500
stores in 2020, the number of Biedronka stores will gradually increase in contrast
to our base model. We believe the first scenario is very unlikely to occur and
thus, only the latter scenario will be considered. The difference to our base model
is that the number of opening stores (Biedronka) per year was established so that
the capital increments needed are lower or equal to the dividends paid (30%
payout ratio), assuring that the shareholders have enough money to invest,
specially Sociedade Soares dos Santos.
Exhibit 56 – Biedronka’s total number of stores considered in both scenarios
2010
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
Basis Model
1,649
1,849
2,062
2,300
2,627
3,000
3,102
3,202
3,302
3,402
3,500
2nd Scenario
1,649
1,778
1,917
2,067
2,228
2,402
2,590
2,793
3,011
3,246
3,500
Source: Nova ER Team for estimates and company data
Exhibit 57 – Sociedade Soares dos
Therefore, capital increments are distributed over time, even resulting
Santos contribution to JMT’s capital
extraordinary dividends paid in some years. Nevertheless, since a lower number
increases (smooth investment scenario)
€ Mn
Total Capital
Increases (+)
/Extraordinary
Dividends (-)
Capital
Increases
(56.1%)
Dividends
(56.1%)
(Dividends Capital
increases)
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
22.6
-162.2
-111.1
-48.2
34.0
76.8
101.1
120.8
133.6
129.1
12.7
-91.0
-62.3
-27.0
19.0
43.1
56.7
67.8
75.0
72.4
0.0
84.7
84.1
87.7
90.0
104.5
113.6
126.7
139.1
154.0
-12.7
175.7
146.4
114.7
71.1
61.4
56.8
58.9
64.1
81.6
in
of
opening stores is considered until 2015 and stores only sell at full capacity after 3
years, within this scenario JMT would not take full advantage of the Polish growth
opportunity. Until 2015, sales would grow at a lower CAGR (6.2%) than the
previous predicted 7.4%, strongly affecting cash flows and our JMT’s price target.
Source: Nova ER Team for estimates
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
This would change our PT from the current €13.98 to €9.07. In this scenario, our
recommendation would change as well, to SELL.
Multiples Comparison
The multiples comparison is a widely accepted method which consists in
comparing companies with the same characteristics as JMT (comparables),
operating in the same markets, with our evaluation results. Nonetheless, no such
Different companies were
chosen so as to diversify and
avoid a distorted analysis.
company exists perfectly equal to JMT, operating only in Portugal and Poland. A
significant part of JMT’s direct competitors are not even listed, like Intermarché, Lidl
or Netto. Even if it existed, companies can use different accounting methods to
determine their operating earnings besides having different capital structures.
Hence, EV/EBITDA and P/E are not the best choices, as the first one takes into
account the impact of the rental income and companies own different weights of
their property34 and, P/E takes into account the different capital structures of the
companies, both leading to misleading results. With the aim of getting a rational
average for the multiples, we think EV/EBITDAR multiple is the best choice as it
adjusts EBITDA for the impact of the rental income. We’ve chosen 4 different
companies so as to diversify and avoid a distorted analysis centered on only one of
them. As Bloomberg consensus’ estimates are not available for EV/EBITDAR
multiple, we’ve made our own estimates by assuming that future rents will maintain
its 2010 weight over sales constant. Getting Bloomberg consensus estimates for
EBITDA we were able to compute EBITDAR for each one of the selected
companies.
From our EV/EBITDAR analysis, we conclude that our JMT EV/EBITDAR is
significantly higher than its comparables’ average. We believe this difference is
related with the lower values of EBITDA we estimate (4.2% CAGR 2010-2013E)
when compared to its peers (10.1% CAGR 2010-2013E). These reduced
EBITDA values are a result of our cut on EBITDA margins from 7.5% in 2010 to
6.9% in 2013, regarding the negative impact of Portugal’s austerity plan and also
the polish aggressive expansion plan till 2015. In contrast, the Bloomberg
consensus estimates improvements on EBITDA margins of all JMT’s peers.
34 For instance, Sonae MC doesn’t own any property, renting everything, while JMT owns 50% of its stores’ properties in Portugal and
80% in Poland.
PAGE 26/39
JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Exhibit 58 – Valuation per multiples (Mn)
Source: Bloomberg Consensus and Nova ER Team for estimates
Exhibit 59 – Consumer expenditure on
health goods and medical services
(2004-2009)
“Apteka Na Zdrowie”
In Poland, JMT maintains its pharmacy network under the brand Apteka Na
Zdrowie, following its established partnership with the National Association of
Pharmacies in Portugal (ANF). Currently, JMT owns 24 pharmacies. Although in
separate and independent facilities in accordance with the Polish pharmaceutical
law, the group’s idea is to take advantage of Biedronka’s locations. In 2010, the
business performance was very positive, reaching a sales growth of 19.5% YoY.
Following Euromonitor, in 2009, the growth rate of pharmaceuticals was about
5.4%. There has been a progressive increase on Polish senior citizens, whose
numerous diseases are expected to create a greater demand for medicines. In
2009, GUS stated that about 19.4% of Poles have ages higher than 60 years old
and the life expectancy was of 72 and 80 years old for males and females,
Source: Official statistics and
Euromonitor International
respectively. Furthermore, the expenditure on medicines per capita is still below
the Western countries’. We believe this gap will diminish at the same time as the
differences on wages per capita get smoother and the purchasing power rises.
Exhibit 60 – Polish Pharmaceutical
market value (PLN) and growth rates
According to PMR publications, the Polish pharmaceutical market is very well
developed and in 2009 it was considered the 6th largest in terms of sales value
in Europe. Following BMI’s latest Pharmaceuticals and Healthcare Business
Environment Ratings (BERs) index, Poland was also considered the 2
nd
fastest
growing market in Europe, with a score of 62.5/100, indicating a stable and
favourable business environment. Following Euromonitor, for the future
(2009-2014), the market is expected to continue expanding at a CAGR of
7.04%, that is, to an absolute value of 41.80 Bn zlotys. For the remaining period,
until 2019, a lower CAGR is expected, of 3.3%. The pharmaceutical industry
seems to be somehow resistant to economic downturns since the sales’ level of
prescription drugs is not submitted to the market rules but linked to changes
Source: PharmaExpert and PMR
Publications
made to the list of reimbursed medicinal products established by the Polish
Ministry of Health. It may eventually help to boost sales, as in difficult times the
purchase of non-prescript drugs against stress and depression rises due to the
fears of job dismissals.
PAGE 27/39
JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Even being a marginal business at the moment, we have large expectations for
the future given the potential of Apteka Na Zdrowie. Biedronka’s predictions
Even being a marginal
business at the moment,
we have large expectations
on the future of Apteka Na
Zdrowie.
to achieve a total of 3,000 stores in 2015 and 3,500 in 2020, gives Apteka Na
Zdrowie the chance to grow in number of stores as well. Not having sufficient
data about Apteka Na Zdrowie to support concrete conclusions, we still believe it
can reach high profitability and contribute to increase our JMT’s price target.
Further Internationalization
Because food retail is in a
mature stage in western
countries, it becomes
crucial to operate in
emergent markets.
Because food retail is in a mature stage in western countries and the crisis
effects will be felt for at least 3 more years, these markets will face future lower
growth rates. Therefore, it becomes crucial to operate in emergent markets and
take advantage of their potential. This is exactly what is happening with JMT.
With the Polish opportunity almost exploited in 2015/2020 and the Portuguese
position consolidated, it becomes a priority to join a new geography in 2012. In
the previous years, JMT has been carefully analyzing many hypotheses,
providing for successful projects to avoid committing repeated mistakes as the
ones made when entering Brazil. To choose this new economy JMT established
We believe Brazil or Russia
are
To choose
two probable
the new
geographies
geography JMT
according
established
to
JMT’s
some criteria
perspective.
about the
market and the type of
format they should
implement.
some criteria about the market and the type of format suitable for implementation.
It is looking for a country of high dimension, with economic and institutional
structures and also offering basic supply infrastructures. It seeks the
implementation of its business models regarding the food retail market, directed
to the mass market and with a local approach at competitive prices. JMT
intends to announce its decision by 2H11. If no business plan is presented, JMT
will probably increase its payout ratio. Because JMT possesses a vast
experience in the Portuguese and Polish food retail sectors, countries located
near Portugal or Poland, or having a cultural connection with them would make
the integration process easier when compared to starting a business in a
completely new country. JMT would make use of its detailed knowledge on
customers’ consumption patterns as well as benefit from the use of some of its
resources such as existent suppliers and distribution centres at the very
beginning. In one of the “My Way” conferences at NOVA a year ago, JMT’s
Chairman said that despite the first attempt not going well, Brazil is not
completely out of their radar. Angola isn’t considered an option, as in an interview
to “Expresso”, a Portuguese newspaper, JMT’s CEO said the Angolan market is
too small to satisfy JMT’s perspectives. Not knowing which country JMT will
choose, a 3rd geography was not included in our valuation model. Nevertheless,
we believe pilot projects may arise, trying to explore the potential growth of JMT’s
business models in new countries (see Appendix 9).
PAGE 28/39
JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Financial Ratios
2010
Growth & Margins
Revenues
EBITDA
EBITDA margin
EBIT margin
Profitability
Gross Margin
Return on Capital Employed
ROE
ROA
Return on Sales
Liquidity
Current Ratio
Cash Ratio
Quick Ratio
Working Capital
CFO/Debt
Leverage
Debt/Assets
ST Debt/Debt
LT Debt/Debt
D/E
Net Debt/Equity
Debt/EBITDA
Interest Coverage Ratio
Activity
Fixed Assets Turnover
Inventory Turnover
Inventory Turnover (days)
Receivables Turnover
Receivables Turnover (days)
CFO/Capex
Capex/Depreciation
Capex/Sales
Valuation
EV/Revenues
EV/EBITDA
EV/EBIT
EV/Capital Employed
2011E
2012E
2013E
2014E
2015E
2020E
18,8%
23,7%
7,5%
5,3%
9,6%
2,9%
7,1%
4,7%
7,0%
7,1%
7,1%
4,5%
5,3%
2,7%
6,9%
4,1%
9,0%
9,0%
6,9%
3,9%
6,2%
5,3%
6,8%
3,7%
7,1%
7,1%
7,1%
4,5%
18,8%
23,9%
24,8%
6,7%
4,8%
18,8%
20,0%
19,3%
5,9%
3,8%
18,8%
18,2%
17,0%
5,4%
3,5%
18,8%
15,8%
14,9%
4,8%
3,2%
18,8%
14,9%
13,7%
4,5%
3,1%
18,8%
13,7%
12,4%
4,1%
2,9%
18,8%
21,6%
23,3%
7,0%
4,1%
40,6%
13,7%
24,0%
(1.321,3)
90,1%
40,6%
13,9%
23,9%
(1.426,4)
83,2%
39,9%
13,6%
23,4%
(1.547,5)
68,3%
39,6%
13,6%
23,1%
(1.637,6)
61,2%
39,2%
13,4%
22,7%
(1.790,2)
64,6%
38,9%
13,3%
22,5%
(1.905,3)
58,5%
39,2%
13,7%
22,5%
(2.450,3)
84,4%
18,6%
23,1%
76,9%
68,4%
41,5%
1,2
5,5
16,8%
22,2%
77,8%
54,8%
31,1%
1,2
9,1
18,4%
22,3%
77,7%
58,4%
36,5%
1,3
7,6
19,1%
22,4%
77,6%
59,7%
38,8%
1,4
6,5
19,5%
22,5%
77,5%
59,7%
39,8%
1,5
6,1
20,0%
22,5%
77,5%
59,7%
40,7%
1,5
5,5
17,9%
22,5%
77,5%
59,7%
35,3%
1,1
8,7
3,9
19,1
19,1
47,8
7,6
1,6
2,3
5,0%
3,6
19,3
19,0
49,0
7,5
0,9
3,0
7,2%
3,4
19,4
18,9
50,2
7,3
0,9
2,7
7,1%
3,2
19,5
18,7
51,4
7,1
0,9
2,5
6,9%
3,1
19,6
18,6
52,6
6,9
0,9
2,4
7,0%
3,0
19,7
18,5
53,9
6,8
0,8
2,4
7,3%
3,5
20,3
18,0
60,8
6,0
1,9
1,3
3,5%
0,95
13,1
20,4
4,1
0,89
12,2
19,9
3,6
0,84
11,9
20,6
3,3
0,77
10,9
19,7
2,9
0,73
10,4
19,5
2,7
0,54
7,3
11,9
2,6
PAGE 29/39
JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Financial Statements (€ Mn)
BALANCE SHEET
Tangible Assets
Intangible Assets
Other non current assets
Total Non-current assets
Inventories
Accounts receivable
Cash and cash equivalents
Other current assets
Total Current assets
Total assets
Share capital
Share premium
Capital increase
Retained earnings
Extraordinary Dividends
Minority Interests
Total Shareholders equity
Borrowings Long term
Total non current liabilities
Trade creditors, accrued costs and deferred income
Borrowings short term
Total Current Liabilities
Total Liabilities
Total Shareholders equity and liabilities
INCOME STATEMENT
Net Sales & Services
EBITDA
EBITDA margin
Depreciation
EBIT
EBIT margin
Total financial costs
EBT
Total income tax
Net Income
Minority Interests
Net Income attributable to JM
CASH FLOW STATEMENT
Net Income
Depreciation
Var NWC
Cash Flow from Operations
Investments in non current assets
Investments in non current liabilities
Capex
Cash Flow from Investments
FCF
Var equity
Var debt
Cash Flow from Financing activities
Var Cash
Cash
2010
2192,8
863,4
139,1
3255,6
368,7
181,8
303,9
48,9
903,4
4159,0
629,3
22,5
136,0
2011E
2611,6
867,1
169,3
3648,0
401,7
194,6
334,9
44,4
975,6
4623,6
629,3
22,5
77
339,2
286,7
1.131,8
595,0
802,4
1.895,4
179,2
2.224,8
3.027,2
4.159,0
286,7
1.412,6
602,78
825,7
2070,5
171,8
2.402,0
3.210,5
4.623,6
2012E
2979,9
871,1
200,0
4051,0
427,4
203,3
351,5
47,0
1029,2
5080,3
629,3
22,5
0
607,2
-34,1
286,7
1.603,9
727,92
950,8
2208,9
208,8
2.576,8
3.510,5
5.080,3
2010
8.691,0
2011E
9.528,0
2012E
10.197,1
2013E
10.736,1
2014E
11.705,1
2015E
12.431,4
2020E
16.837,1
653,1
672,3
719,7
738,8
805,6
847,9
1.201,5
7,5%
(191)
462,1
5,3%
(84)
378,6
(79)
299,5
(19)
7,1%
(227)
444,8
4,7%
(49)
395,8
(87)
308,9
(36)
7,1%
(265)
454,4
4,5%
(60)
394,8
(87)
310,4
(37)
6,9%
(300)
439,0
4,1%
(67)
371,8
(85)
300,5
(38)
6,9%
(345)
460,8
3,9%
(76)
384,9
(88)
311,5
(41)
6,8%
(384)
464,1
3,7%
(84)
380,0
(90)
315,0
(45)
7,1%
(442)
759,9
4,5%
(87)
672,7
(165)
598,1
(72)
280,5
272,6
270,7
270,2
525,6
273,3
2013E
3314,0
875,3
228,4
4417,6
447,4
209,0
367,4
49,3
1073,1
5490,7
629,3
22,5
100
662,3
0,0
286,7
1.759,0
815,17
1038,3
2318,4
234,9
2.710,7
3.731,7
5.490,7
2014E
3746,4
879,6
264,2
4890,3
485,0
222,4
393,3
53,5
1154,3
6044,6
629,3
22,5
261
720,3
0
286,7
1.978,1
916,19
1139,6
2519,7
265,2
2.944,5
4.066,4
6.044,6
262,9
2015E
4122,4
884,2
296,1
5302,7
512,2
230,6
414,8
56,8
1214,3
6517,0
629,3
22,5
448
736,5
0
286,7
2.181,6
1009,97
1233,8
2667,7
293,4
3.119,6
4.335,4
6.517,0
2020E
4702,8
911,0
347,0
5960,8
673,9
276,8
551,5
76,9
1579,1
7539,9
629,3
22,5
64
1198,6
0
286,7
2.259,4
1045,33
1271,8
3556,8
303,7
4.029,4
5.280,5
7.539,9
2009
200,4
2010
280,5
2011E
272,6
2012E
273,3
2013E
262,9
2014
270,7
2015
270,2
2020
525,6
168,3
(116,6)
485,3
18,6
17,6
296,3
(297,3)
188,0
(65,8)
(125,9)
(191,7)
(3,7)
191,0
(226,1)
697,6
13,8
(7,5)
381,0
(402,3)
295,4
(214,4)
(0,6)
(215,0)
80,4
227,5
(144,5)
644,6
-26,4
0,0
646,3
(619,9)
24,7
8,2
0,4
8,6
33,3
265,2
(100,8)
639,3
34,7
0,0
633,6
(668,3)
(28,9)
(81,9)
162,1
80,1
51,2
299,8
(79,8)
642,6
32,6
0,0
633,9
(666,4)
(23,8)
(107,8)
113,4
5,6
-18,2
344,8
(148,2)
763,7
40,2
0,0
777,2
(817,5)
(53,8)
(51,6)
131,3
79,8
26,0
383,8
(108,5)
762,5
36,4
0,0
759,8
(796,2)
(33,7)
(66,7)
121,9
55,2
21,5
441,7
(171,2)
1138,5
15,4
0,0
549,0
(564,4)
574,1
(534,2)
(5,4)
(539,6)
34,5
223,5
303,9
334,9
351,5
367,4
393,3
414,8
551,5
PAGE 30/39
JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Appendix
1. Grocery Retailers Shares (%)
Exhibit 61 – Grocery Retailers Brand Shares (%)
Brands
Pingo Doce
Continente
Intermarché Super
Modelo
Jumbo
Lidl
Minipreço
E Leclerc
Intermarché Contact
Feira Nova
Ulmar Supermercados
Pão de Açúcar
Others
2007
6.5%
6.5%
6.4%
6.0%
5.9%
4.3%
2.0%
4.60%
1.6%
0.3%
62.4%
2008
10.6%
8.2%
6.5%
6.3%
6.0%
4.4%
2.6%
2.00%
1.5%
0.60%
55.4%
2009
11.2%
8.5%
7.2%
6.6%
6.0%
4.2%
2.7%
2%
1.4%
1.00%
53.6%
2010
12.1%
8.8%
7.7%
7.6%
6.8%
5.8%
4.0%
2.8%
1.8%
1.60%
1.3%
1.00%
42.6%
Source: Euromonitor International
2. Shareholders Description
Exhibit 62 – Shareholders Structure
Shareholders
Sociedade Francisco
Manuel dos Santos,
SGPS, S.A.
Directly
Heerema Holding
Company Inc.
Through Asteck, S.A.
Carmignac Gestión
Directly
BNP Paribas Investment
Partners, Limited
Company36
Directly
Number of shares held
% Capital
% Voting
rights35
353,119,573
56.114%
56.190%
62,929,500
10.0%
10.014%
17,254,270
2.742
2.746%
12,793,488
2.033%
1.7322%
Source: Company data
35 % Voting rights = Number shares held /(Total nº JMT shares – Own shares)
36 This number of shares indicated refers to 2
nd
March, 2011, date of the last communication made by JMT
PAGE 31/39
JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Asteck is a Luxembourg company controlled by Heerema, a Dutch multinational
responsible for building platforms and transportation to the oil and gas industries.
Carmignac Gestión is an investment fund company founded in 1989. For 20
years Carmignac Gestión has been developing international management
experience across all asset classes.
BNP Paribas is a European leader in global banking and financial services, being
one of the strongest banks in the world (Rated AA by Standard & Poor's).
3. PD’s and Recheio’s Private Labels
The existent difference between the PLs’ share of PD and Recheio is related to
(both 38% and 17.1% PL shares do not include perishables):
i)
Regarding PD, the 38% share of PLs reflects not only sales of food
related products whose brand is “Pingo Doce”, but also other brands
available in specific categories such as “Essentya” in shampoos and hair
products, “Ultra Pro” in cleaning products and domestic hygiene, “Active
Pet” in food for pets.
ii)
Regarding Recheio, three brands make part of the PL portfolio:
Masterchef, Gourmês and Amanhecer. While the first two are focused on
the HoReCa channel, the latter addresses Traditional Retail channel.
Masterchef and Gourmês are recent brands and therefore have not yet
achieved their full sales potential. Moreover, Recheio’s sales reflect a
strong weight of the beverages category, where there are no private
label products available, and Traditional retailers (40% of sales)
purchase almost all products from manufacturer brands.
4. Supermarkets, Hypermarkets and Discount
definitions
Supermarket
A supermarket is a grocery store where people can buy food, home care and
personal care products. In general, in a supermarket we can find a bakery, a
butcher and a perishables area. It is a type of self-service retail and its size can
2
2
go from 200m to 5,000m . To be able to practice lower prices, supermarkets
limit their assortment of products with a high rotation and in general, do not offer
home delivery service.
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Hypermarket
Hypermarkets function in a self-service regime as well and are usually
established in shopping centers or in the vicinity of large cities. With a sales area
higher than 5,000m2, hypermarkets offer a wide range of products, including the
ones offered by supermarkets and also electronics, audio and video products,
th
appliances, toys, clothes, cars’ related products, etc. Since October 15 2010,
hypermarkets were allowed to open on Sundays just like supermarkets and
discounters. Generally, hypermarkets offer home delivery services.
Discount/Hard discount
In general, a discount store offers only food products which are in majority from
its own brand, and is very similar to a supermarket in dimension. It does not have
bakery, nor butcher areas and its main differentiation factors are the focus on
prices and PLs. Discounters are more concerned with offering a wide range of
PLs than paying attention to store design or customer service.
5. Methodology for MGD estimates
To estimate Modern Grocery Distribution growth rates for the next 10 years,
we’ve built a model based on GDP growth rate, inflation rate, growth rate of
the food retail market according to its life cycle stage, increasing tendency of
the private labels and a confidence index. This methodology was used for
both Portuguese and Polish forecasts.
The growth rate of the food retail market reflects the market stage, that is, we got
a lower growth rate for Portugal than for Poland (0.82% against 1.56% in 2010),
as the market is already in a mature stage while Poland is still in a development
phase. To compute this rate, from the MGD growth rate of 2010 (Euromonitor
International data), we’ve taken the GDP, inflation, confidence index and PLs
effects in order to get the food market intrinsic growth rate of Portugal and
Poland.
The increasing tendency of PLs was already explained in the “PLs phenomenon”
chapter.
The confidence index plays an important role in Portugal, as the country is
crossing a moment of high political and economical uncertainty and the market is
highly influenced by an emotional and speculative feeling. This variable was not
considered in the Polish model, as good growth expectations are expected
regarding its economy.
PAGE 33/39
JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Our MGD forecasts for Portugal (CAGR of 3.8% for the next 10 years) are much
lower than past values as we took into account the negative macro outlook by
incorporating GDP. Regarding Poland, lower values were estimated than the past
ones as well (CAGR of 7.4% for the next 5 years against 12.8% of the previous
5), in believing that MGD growth will tend to slowdown as Poland converges to
European standards.
6. Operational Forecasts
Exhibit 63 – Retail mainland Operational Forecasts
2010
2011E
2012E
2013E
2014E
2015E
2020E
Store Openings
14
14
5
3
3
2
2
Total Stores
349
347
352
355
358
360
369
Sales area ('000 sqm)
437.3
444.7
450.0
453.1
455.9
458.2
467.9
Sales area growth
0.6%
1.7%
1.2%
0.7%
0.6%
0.5%
0.5%
Sales/sqm (000 €)
6.85
6.90
6.97
7.18
7.44
7.76
10.09
Sales (€ Mn)
2,755.8
3,070.6
3,138.3
3,253.9
3,395.1
3,559.3
4,726.3
Sales growth
9.9%
11.4%
2.2%
3.7%
4.3%
4.8%
6.5%
Source: Company data and Nova ER Team for estimates
Exhibit 64 – Recheio Operational Forecasts
Store Openings
Total Stores
2010
2011E
2012E
2013E
2014E
2015E
2020E
3
1
2
0
0
0
0
36
37
39
39
39
39
39
Sales area ('000 sqm)
123.5
127.0
133.8
133.8
133.8
133.8
133.8
Sales area growth
8.0%
2.8%
5.4%
0.0%
0.0%
0.0%
0.0%
Sales/sqm (000 €)
5.84
5.68
5.43
5.41
5.43
5.55
6.42
Sales (€ Mn)
Sales growth
719.1
721.7
727.3
725.2
728.7
744.6
861.4
4.6%
0.4%
0.8%
-0.3%
0.5%
2.2%
3.5%
2013E
2014E
2015E
2020E
Source: Company data and Nova ER Team for estimates
Exhibit 65 – Madeira Operational Forecasts
2010
2011E
2012E
Store Openings
0
0
0
0
0
0
0
Total Stores
15
15
15
15
15
15
15
14.3
14.3
14.3
14.3
14.3
14.3
14.3
-0.3%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Sales area ('000 sqm)
Sales area growth
Sales/sqm (000 €)
9.96
9.98
10.00
10.17
10.35
10.58
12.24
Sales (€ Mn)
128.7
142.2
142.6
145.0
147.6
150.8
174.4
Sales growth
8.0%
10.5%
0.3%
1.7%
1.8%
2.2%
3.5%
Source: Company data and Nova ER Team for estimates
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Exhibit 66 – Biedronka Operational Forecasts
2010
2011E
2012E
2013E
2014E
2015E
2020E
197
215
230
256
348
393
113
Total Stores
1,649
1,849
2,062
2,300
2,627
3,000
3,500
Sales area ('000 sqm)
938.2
1,049.3
1,167.8
1,299.9
1,481.5
1,688.8
1,966.9
Store Openings
Sales area growth
15.2%
11.8%
11.3%
11.3%
14.0%
14.0%
2.8%
Sales/sqm
5,122.37
5,042.76
5,022.13
4,816.86
4,756.59
4,472.02
5,345.11
Sales
4,805.9
5,311.5
5,906.1
6,324.6
7,141.2
7,677.6
10,729.0
Sales growth
29.0%
10.5%
11.2%
7.1%
12.9%
7.5%
7.9%
7
Source: Company data and Nova ER Team for estimates
7. Sensitivity Analysis: Biedronka DCF assumptions
Exhibit 67 – JMT’s target vs Biedronka DCF assumptions
WACC
Terminal Value growth
2.05%
2.2%
2.35%
2.5%
2.65%
2.8%
9.4%
9.6%
9.8%
9.98%
10.2%
10.4%
10.6%
14.10
14.33
14.56
14.80
15.05
15.32
13.84
14.05
14.27
14.50
14.74
14.99
13.59
13.79
14.00
14.22
14.44
14.68
13.38
13.57
13.77
13.98
14.19
14.42
13.12
13.31
13.50
13.69
13.90
14.11
12.91
13.08
13.26
13.45
13.64
13.85
12.70
12.87
13.04
13.22
13.40
13.60
Source: Nova ER Team for estimates
8. Comparables Profiles
Sonae Distribuição is a sub-holding of Sonae Group, a Portuguese company,
which operates exclusively in the retail market. Sonae Distribuição functions in
Portugal since 1985 in both grocery and specialized (non grocery) retailing.
Regarding food retail, the group is the market leader in Portugal, operating in the
hypermarkets segment through the brand Continente and in the supermarkets
segment with Modelo. Following a new strategy, this year the company has
started to convert Modelo stores into Continente ones. The group intends to
expand its food retail model abroad this year, to Angola and Turkey.
Carrefour Group is a French company, created in 1959 and is considered the
world’s second largest grocery retailer and the largest in Europe. The company
operates through 5 different formats, hypermarkets with the brands Carrefour
and Atacadão, supermarkets mainly through Champion and GS, hard discount
with the brands Dia%, Minipreço and Ed, convenience stores and finally,
cash&carry through Promocash, Docks market and Gross. It operates in 34
countries in Europe, Latin America and Asia, with 57% of the group’s turnover
coming from outside of France.
Tesco plc is a British global retailer created in 1929. It is the world’s third largest
retailer right after Wall-Mart and Carrefour, being leader in the grocery market in
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
the UK as well. Its grocery business unit operates through 4 store formats,
Express, Metro, Superstore and Extra. The group operates in 14 countries
across Asia, Europe and North America.
Ahold is a Dutch supermarkets chain operating in Europe and the United States,
whose main focus is on food retail and online grocery delivery. In the United
States they own strong local supermarkets brands like Stop&Shop, Giant Food
and Martin’s Food Markets. It also owns the largest online grocery delivery
service of the United States. In Europe, the group is market leader in
Netherlands with the Albet Heijn supermarkets chain. It is also present in Czech
Republic, Sweden, Norway, the Baltics and Slovakia. In total Ahold owns 2,919
stores.
Metro AG is a retailing group established in Dusseldorf, Germany. It is leader in
the German grocery market and was established in 1964. Metro also operates in
33 countries in Europe, Africa and Asia (Germany, Poland, Romania, Russia,
Turkey, etc.) through 2,100 outlets. Regarding grocery retailing, Metro is the
world’s market leader in cash&carry through the Metro Cash & Carry outlet and it
also owns the very well known Real hypermarkets.
J. Sainsbury plc is the third largest chain of supermarkets in the UK, founded in
1869, operates in a total of 890 stores from which 547 correspond to the
Sainsbury’s supermarkets while the remaining 343 are convenience stores. The
group is able to serve over 19 million UK customers a week and the largest
stores can offer until 30,000 products. Its current market share equals 16%.
Right after J. Sainsbury plc, Wm Morrison Supermarkets plc is the fourth
largest supermarkets chain of the UK. Established in 1899, the group started as
an egg and butter stall in Bradford and today its main business is mainly food
and grocery. Firstly more focused on northern England, however by taking over
Safeway, it owns today 403 stores all across the UK.
Colruyt is a Belgian company, founded in 1925, which is one of the main players
in its country. Besides Belgium, the group is present in France, Luxembourg and
the Netherlands. It is mostly known by its discount supermarket chain called
Colruyt, which competes directly against Aldi and Lidl. The company’s food retail
brands also include the grocery store chain named Okay and its organic
supermarket Bio-Planet. In France, Colruyt operates through Coccinelle chain of
supermarkets too.
Casino Group or Casino Guichard-Perrachon is a French multinational
company who carries out its retail and distribution activity in hypermarkets and
supermarkets in Europe, Southeast Asia, India and South America. The group
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
consolidated net sales were €29.1Bn that came out from 11,663 stores
worldwide, from which 9,461 are in France. From a vast portfolio of formats and
brands, Casino’s most important brands are the hypermarkets Géant Casino,
Casino Supermarkets and Monoprix as convenient stores and Leader price in the
discount format.
Besides other activities, Eurocash is a Polish company and works on the
wholesale distribution market of the Fast Moving Consumer Goods (FMCG) only
in Poland, being leader in its segment. The group main function concentrates on
wholesale supply of these products to a broad range of traditional retailers across
the country. The group owns a total of 117 discount cash&carry.
Similarly to Eurocash, Grupa Handlowa Emperia is a Polish retailer engaged in
the retail and wholesale of food products, cosmetics, and household chemistry
products. The company distributes FMCG products through a chain of
cash&carry locations and distribution centers in Poland. They also own a chain of
supermarkets offering a wide range of food products.
BIM is a Turkish company founded in 1995. The company’s main goal is to offer
customers basic food items and consumer goods at the best prices and right
quality. The group operates through its hard-discount model where it offers 600
different products. Besides its aggressive expansion throughout Turkey, the
group has also invested in going abroad and it is now present in Morocco. BIM
owns a total of 2,285 stores.
Magnit is a Russian retailer founded in 1994 and leader in the Russian market
by number of stores. Magnit operates with 3,228 outlets in more than 974
Russian locations. Since 2006 the company’s main goal has been opening
grocery stores in the hypermarket format in every city of the country.
X5 Group is a Russian company, founded in 1995, which operates under three
formats: soft discounters, supermarkets and hypermarkets. The group is
considered the largest retail company in terms of sales in Russia. Its main goal is
to consolidate their market position in Russia and become the absolute leader in
the food retail market in Russia. X5 Group is only inserted in the Russia and
Ukraine food retail markets.
Migros Ticaret is a Turkish supermarket chain that has been operating in the
market for the last 56 years. The group was the pioneer of the modern retail
sector in Turkey and today owns stores in Azerbaijan, Bulgaria, Kazakhstan,
Kyrgyzstan and Macedonia.
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
9. Pilot Projects
As stated by Alexandre Soares dos Santos during the presentation of the 2010
results, JMT launched a new business concept on May 24th 2011, in Warsaw.
The company opened a pilot store, in the drugstore sector, under the name Hebe
which refers to the Greek goddess of eternal youth. This store will be offering
services and products like body lotions, facial, hair and nail care products,
makeup, jewelry, flowers, books and even pet products. According to JMT, the
development of this business will be set according to the obtained results with
this first store.
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JERÓNIMO MARTINS, SGPS
COMPANY REPORT
Disclosures and Disclaimer
Research Recommendations
Buy
Expected total return (including dividends) of more than 15% over a 12-month
period.
Hold
Expected total return (including dividends) between 0% and 15% over a 12-month
period.
Sell
Expected negative total return (including dividends) over a 12-month period.
This report was prepared by Margarida Atanásio Carreira, a student of the NOVA School of Business
and Economics, following the Masters in Finance Equity Research – Field Lab Work Project,
exclusively for academic purposes. Thus, the author, which is a Masters in Finance student, is the
sole responsible for the information and estimates contained herein and for the opinions expressed,
which reflect exclusively his/her own personal judgement. This report was supervised by professor
Rosário André (registered with Comissão do Mercado de Valores Mobiliários as financial analyst) who
revised the valuation methodology and the financial model. All opinions and estimates are subject to
change without notice. NOVA SBE or its faculty accepts no responsibility whatsoever for the content of this
report nor for any consequences of its use.
The information contained herein has been compiled by students from public sources believed to be reliable,
but NOVA SBE or the students make no representation that it is accurate or complete, and accept no liability
whatsoever for any direct or indirect loss resulting from the use of this report or its content.
The author hereby certifies that the views expressed in this report accurately reflect his/her personal opinion
about the subject company and its securities. He/she has not received or been promised any direct or indirect
compensation for expressing the opinions or recommendation included in this report.
The author of this report may have a position, or otherwise be interested, in transactions in securities which
are directly or indirectly the subject of this report.
NOVA SBE may have received compensation from the subject company during the last 12 months related to
its fund raising program. Nevertheless, no compensation eventually received by NOVA SBE is in any way
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