Digital Expansion And New Services Will Bring In More Customers

Key Takeaways

• Expansion in physical and digital operations, along with new services, enhances revenue potential and market share, supporting future margin improvement.
  
• Financial efficiency through strategic asset monetization and strong financial services performance bolsters earnings stability and balance sheet health.
  
• Atacadão's pricing strategy and interest rate challenges, alongside retail revenue decline and rising SG&A expenses, pose risks to profitability and financial stability.

Catalysts

Engages in the wholesale and retail of food, clothing, home appliances, electronics, and other products in Brazil.

• Atacadão's strong performance with same-store sales growth of 5.6% and expansion with new store openings indicates potential for increased revenue growth due to increased market share and customer base.
  
• The introduction of new services at Atacadão stores, such as self-checkout counters and expanded bakery, butcher, and deli services, is expected to drive higher traffic and sales, particularly from B2C customers, potentially improving net margins as these services mature.
  
• Expansion of digital operations and significant growth in GMV by 21% year-over-year could lead to increased earnings through enhanced online sales penetration, which may command higher margins than traditional sales channels.
  
• The Carrefour Bank's robust performance amidst regulatory changes, with earnings up by 13% and decreased delinquency levels, presents a favorable outlook for earnings growth through sustained financial services income and improved credit portfolio quality.
  
• The monetization of real estate assets through sales leaseback agreements and a focus on optimizing capital allocation suggest potential for improved financial efficiency and reinforcement of the balance sheet, supporting future margin expansion and investment in growth.

Atacadão Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Atacadão's revenue will grow by 6.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.0% today to 1.8% in 3 years time.
• Analysts expect earnings to reach R$2.4 billion (and earnings per share of R$1.22) by about February 2028, up from R$25.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as R$1.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.3x on those 2028 earnings, down from 623.4x today. This future PE is greater than the current PE for the BR Consumer Retailing industry at 11.9x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 19.67%, as per the Simply Wall St company report.

Atacadão Future Earnings Per Share Growth

Risks

• The company's gross margin decreased due to Atacadão's larger relative share, which offers smaller gross margins because of its price positioning, potentially impacting net margins and profitability.
  
• The company faces the challenge of interest rate caps impacting its bank's financial margin, which could affect future earnings and overall financial health.
  
• Despite strong overall growth, the retail segment experienced an 8% decrease in overall revenue, primarily due to store closures, which could pose risks to revenue stability.
  
• The company reported a need for increased working capital due to strong September sales, indicating potential liquidity pressure if similar trends occur without offsetting revenue increases.
  
• The hefty SG&A increase for Sam’s Club, primarily due to new store expansions, could hinder short-term profitability if sales do not quickly compensate for these higher operational expenses.

Valuation

• The analysts have a consensus price target of R$9.017 for Atacadão 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$13.0, and the most bearish reporting a price target of just R$6.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$136.1 billion, earnings will come to R$2.4 billion, and it would be trading on a PE ratio of 13.3x, assuming you use a discount rate of 19.7%.
  
• Given the current share price of R$7.39, the analyst price target of R$9.02 is 18.0% 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.