Omnichannel Strategy Will Strengthen Competitive Position

Key Takeaways

• Ceconomy's omnichannel and market expansion strategies are strengthening its competitive position and supporting potential future revenue growth.
  
• Growth in Retail Media, Marketplace, and personalized customer experiences are crucial for significant EBIT growth and increased profitability.
  
• Aggressive competition and strategic challenges in Poland, Turkey's market volatility, and restructuring costs could impact Ceconomy's overall revenue growth and net margins.

Catalysts

Engages in the consumer electronics retail business.

• Ceconomy's focus on omnichannel strategy is showing strong results, with a 6% increase in online conversion rates and a rise in app visits by 23%, which is expected to positively impact future revenue growth.
  
• The company's strategic expansion and market share gains, notably a 110 basis point increase in Germany, indicate a strengthened competitive position and potential future revenue growth.
  
• Ceconomy's growth businesses, such as Retail Media and Marketplace, are accelerating, with Marketplace growing by approximately 90% year-over-year. These areas are poised to support significant future EBIT growth.
  
• Ceconomy plans to fully integrate its Services & Solutions portfolio into its marketplace, hinting at further revenue growth opportunities and increased profitability.
  
• The focus on leveraging data for personalized customer experiences is likely to boost customer loyalty and satisfaction, which could enhance long-term revenue growth and improve net margins.

Ceconomy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ceconomy's revenue will grow by 1.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.3% today to 1.4% in 3 years time.
• Analysts expect earnings to reach €338.6 million (and earnings per share of €0.55) by about March 2028, up from €77.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €223.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.5x on those 2028 earnings, down from 21.1x today. This future PE is lower than the current PE for the GB Specialty Retail industry at 15.9x.
• Analysts expect the number of shares outstanding to grow by 1.67% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.3%, as per the Simply Wall St company report.

Ceconomy Future Earnings Per Share Growth

Risks

• Ceconomy faces a particularly aggressive market environment in Poland where they have lost sales and market share, which could pressure overall revenue growth if not addressed.
  
• The reported EBIT was negatively impacted by nonrecurring items including impairments in Poland, Dilution of ownership stake in Fnac, and hyperinflation accounting in Turkey, affecting net margins.
  
• Ceconomy operated in a highly competitive market, especially during peak seasons, leading to a 40 basis points decline in gross margins despite increases in sales, potentially impacting overall profitability.
  
• Volatility in markets like Turkey, where growth is anticipated to slow down and inflation remains a concern, could affect earnings from these regions.
  
• Restructuring demands, particularly in Poland, and strategic efforts to turn around operations may involve costs that impact net margins and short-term earnings.

Valuation

• The analysts have a consensus price target of €3.307 for Ceconomy 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 €3.8, and the most bearish reporting a price target of just €2.7.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €23.9 billion, earnings will come to €338.6 million, and it would be trading on a PE ratio of 6.5x, assuming you use a discount rate of 9.3%.
  
• Given the current share price of €3.34, the analyst price target of €3.31 is 1.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.