BIM reported a strong Q2 with earnings came in 50% ahead consensus and doubled vs a year ago. The company positively surprised the market with very strong margins driven by 80 bps expansion on gross margin and higher than expected savings in opex (80 bps cut in opex/sales) albeit rising pandemic related costs. In the meantime, LFL growth was outstanding at 41% driven by 66% basket growth while traffic decline is limited vs peers at 15%. Finally, BIM expanded its space by 12%, in line with their store opening plan for the year. Post robust performance, management revised its FY20 guidance as 32% revenue growth (prev 23%), EBITDA margin (pre IFRS) at 6% (prev 5%) and no change in capex. Management will hold its webcast today at 2:30 pm BST.
- With over 7531 stores in operation, BIM is Turkey’s second-largest retailer, ranked below A101 and the largest retailer by value share of <9%. The company is a hard discounter with its stores having an average size of 300-350 sq m and having c.800 SKUs. It has started to diversify its store formats and SKUs through new brand FILE, which is a supermarket format that has selling space 4x bigger than BIM stores and broader SKUs at ~4500. In addition, BIM has overseas operations in Morocco and Egypt.
- BIM seeks to minimize cost per sq m, transferring efficiency gains to consumers in the form of lower prices, driving sales densities and asset turnover.
- Key revenue growth drivers are 1) inflation which has been falling sharply in late 2019 and 2) space expansion that is expected to be c.10% next year. Traffic, on the other hand, has started to show signs of slowdown in its stores since 2H19. The company has been behind the sector in terms of new initiatives and product diversification which we think creates a medium term risk in its store traffic.
- Current valuations are at the CEEMEA average; however offers premium to Turkish retailers. Peers have been recently more active in terms of product diversification and innovation and have almost caught up with BIM if not exceeded on growth.
We value the shares based on an IFRS16-adj DCF model and raise our Dec-20 PT to TL61.1. Key changes are increasing our revenue expectations post strong growth during pandemic period.
Risk to Rating and Price Target
Upside risks are better LFLs, higher inflation, positive contribution from international operations and cost control. Downside risks are cannibalization in stores after fast expansion, competition for space and for customers from other hard discounters eating into margins and returns.
CEEMEA Turkey (ex-Banks), JP Morgan Cazenova