Migros reported solid Q2 2024 results on August 20th. In Q2 2024, Migros generated TL64,293m revenues indicating 10.6% YoY increase. EBITDA margin came in at whopping 5.3% (+140bps YoY, +429bps QoQ). The key reason for the margin improvement was a 252bps QoQ improvement in gross margin, making nearly half of the improvement while the other half was driven for the share of lower personnel expenses. This performance resulted in an H1 2024 EBITDA margin of 3.4% compared to 1% in Q1 2024. On the other hand, net income was -78.2%YoY and due higher credit card commission expenses (a function of interest rates) as well as lower monetary gains. Net cash position was TL2,038mn – despite a dividend payment of over TL1.1b at the end of May. (up from TL 1,453m in Q124) thanks to strong cash generation. On the other hand, net financial cash stands at rose from TL13b at the end of Q124 to TL15.5b in Q224.
The outlook and our estimates: Following the earnings announcement, the management revised its guidance for this year. The top line growth target was upped from 70% to 75% (Gedik: 79%). More importantly, the EBITDA guidance was upped from 1.8% to between 4.5-5%. The falling impact of the wage hikes made at the beginning of the year should be the key catalyst for the better margin outlook. Hence, we upped our EBITDA margin estimate for 2024 from 2.9% to 4.3%. The guidance also points for the Company to have a stronger H2 2024 given its H12024 EBITDA margin was 3.4%, and due to seasonality, the second half is a busier period for the business. Hence, we have raised our TL9,432m EBITDA estimate to TL TL14,313m, which also raised our TL3,938m net cash estimate to TL6,365m. Our margin estimates are lower than the guidance range, and this provides a probability for these estimates to be conservative. All in all, we continue to believe the business model remains very solid to generate substantial cash going forward, and this also raises to probability for the Company to raise its dividends higher than our estimates and boost ROE further in the future.
Fair value estimate raised from TL 790/share to TL799/share – upside 59%. We have made a minor adjustment to our fair value estimate because out margin assumptions beyond 2024 were already pointing to a recovery. The stock trades at 6.7x EV/EBITDA on 2024E and 4.3x 2025 estimates and a very strong cash generation outlook. The key peer BIM trades at 9.1x on 2024 estimates. Our new target price implies a fair value multiple of 10.5x on 2024 and 6.8x on 2025 estimates. On PE multiples our fair value estimate implies a fair value multiple of 13.4x on our 2025 estimates.