HSBC equity research
- Prudent spending by consumers should continue short term on the back of persistent inflation
- Defending top-line growth over profitability in focus as companies actively manage their value proposition
- We rate BIM, Migros, Sok and Dino Polska Buy, and retain Hold on Eurocash. We make changes to all TPs....
Consumers are prudent and competition is tough: Food retailers in EM Europe are seeing volume challenges as consumer behaviour starts to appear more prudent on the back of a prolonged period of high food inflation. There are more promotional activities and price investments across major food retailers, which weigh on both top-line growth and gross margin in the short term, although opex is supportive.
Competitive pressure is brewing for Dino Polska and Eurocash with major player (Biedronka) continuing with price investments. In Türkiye, BIM management commented on more promotional activities by supermarkets, adding to competitive pressure. We think the situation will remain in 2H23, alongside food inflation in Türkiye, which reached 72.9% for August 2023. Unlike other regions, with high inflation persisting, we think consumers might become more cautious. However, short-term benefits could continue to accrue for Turkish food retailers as consumers bring forward some grocery purchases in anticipation of higher prices in later periods.
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Valuing Turkish food retailers: Turkish food retailers have re-rated strongly since the start of this year and have now recovered to slightly above the lower end of the PE band (5-year average PE minus one standard deviation). This is still c30% below the 5-year average PE level of 15.6x and c45% below 2024e PE of EEMEA food retail peers. In our view, confidence in macroeconomic stability in Türkiye could lead to further re-rating of multiples towards the historical average.
We now incorporate a DCF plus a multiplesbased valuation approach for food retailers in Türkiye with this report (details inside).
Our calls: We maintain Buy on all our covered Turkish food retailers i.e. BIM, Migros and Sok as we expect further market share consolidation supported by solid balance sheet strength, enabling them to continue investing in expansion plans.
We rate Dino Polska Buy, as we see limited changes to its positive long-term growth outlook. While profitability is under pressure short term, we think it has already accounted for a 21% detraction in share price QTD. We maintain Hold on Eurocash as it continues to face challenges in its retail segment, despite multiple acquisitions and restructuring in the past.
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