Opening 15 New Stores In 2024 Will Expand Reach Into Affluent Brazilian Markets

Key Takeaways

• New store openings and maturation improve revenue growth and EBITDA margins, enhancing earnings and market presence.
  
• Focus on high-income markets and operational efficiencies boosts net margins and earnings sustainability.
  
• High debt and operational costs strain profitability amid economic pressures and competitive market dynamics, risking future cash flow and revenue growth.

Catalysts

Engages in the retail and wholesale sale of food products, bazaar items, and other products primarily in Brazil.

• The opening of 15 new stores in 2024, expanding Assaí's reach to 302 locations, is expected to drive revenue growth due to increased market presence and customer base.
  
• The company is focusing on the maturity of newly opened and converted stores to improve EBITDA margins, with the expected ramp-up of these stores leading to enhanced earnings.
  
• Assaí's reduction in net debt and leveraging down to 3.04x has positioned the company to focus on operational efficiencies and revenue growth, positively impacting earnings sustainability.
  
• The expansion into high-income target markets with central location stores is anticipated to elevate net margins through higher-margin products and more affluent customer segments.
  
• The company's strategy of focusing on cash generation and optimization of operational expenses is projected to support growth in net income and maintain financial health.

Sendas Distribuidora Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Sendas Distribuidora's revenue will grow by 9.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.0% today to 1.7% in 3 years time.
• Analysts expect earnings to reach R$1.7 billion (and earnings per share of R$1.33) by about March 2028, up from R$769.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting R$2.2 billion in earnings, and the most bearish expecting R$1.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.1x on those 2028 earnings, down from 13.2x today. This future PE is greater than the current PE for the BR Consumer Retailing industry at 12.7x.
• Analysts expect the number of shares outstanding to decline by 0.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 21.86%, as per the Simply Wall St company report.

Sendas Distribuidora Future Earnings Per Share Growth

Risks

• The company faced a challenging 2024, with market conditions leading to results below expectations. Issues like shifts in the dollar, interest rates, and loss of pension credits impacted revenue and net margins.
  
• Store openings have increased operational expenses, particularly in lease costs for newly converted hypermarket locations, pressuring EBITDA margins and overall profitability.
  
• Despite efforts to deleverage, the company's high debt levels, resulting from significant past investments, could strain future cash flows and limit financial flexibility.
  
• Economic conditions, including consumer purchasing power and food inflation, have pressured sales, especially in strategic regions like the Northeast, potentially affecting future revenue growth.
  
• Competition and market dynamics, including strategies around payment terms and price competition, could impact sales, especially with the B2B segment and reseller dynamics, affecting revenue and net margins.

Valuation

• The analysts have a consensus price target of R$8.992 for Sendas Distribuidora based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$11.5, and the most bearish reporting a price target of just R$7.1.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$95.5 billion, earnings will come to R$1.7 billion, and it would be trading on a PE ratio of 13.1x, assuming you use a discount rate of 21.9%.
• Given the current share price of R$7.55, the analyst price target of R$8.99 is 16.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.