Migros expects positive momentum

Dünya Executive - - REPORT - Batuhan Karabekir, analyst, Berenberg

In 2016, Migros achieved its strongest top-line growth in a decade at 18 percent year-on-year, despite operating in a challengin­g market characteri­zed by declining food-price inflation, tough competitio­n in smaller store formats, poor consumer sentiment and rising costs, as well as macroecono­mic and political volatility. The company managed to grab market share by driving traffic through its strong customer offering that focuses on price, proximity and quality. It continued to grow its selling space. Maintainin­g a fairly stable gross margin and benefiting from operating leverage, Migros’ EBITDA margin contracted by only 10 basis points and withstood pressures from the 30 percent rise in minimum wages in 2016. Despite strong growth at the operationa­l level, the company’s earnings per share (EPS) was once again in the red, due to non-cash foreign exchange losses driven by its 3 billion lira debt position, of which 87 percent is denominate­d in euros. Migros expects continued positive momentum in 2017, including the recently acquired Tesco-Kipa brand to grow the top-line by 30-35 percent and achieve an EBITDA margin of 5 to 5.5 percent. Migros trades at 5.8 times enterprise value before EBITDA on 2018 estimates, a roughly 30 percent discount to emerging European food retailers’ averages due to its euro-denominate­d debt, which creates EPS volatility. (March 13)

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