Upcoming Store Openings In Romania And Israel Will Broaden Market Presence

Key Takeaways

• Store expansions and franchise agreements in various markets suggest increased revenue potential and growth opportunities.
  
• Commitment to shareholder returns through dividends and share buybacks indicates potential for enhanced shareholder value and EPS.
  
• Supply chain disruptions, limited franchise expansion, destination store focus, and demographic challenges could impede Jumbo's revenue and profit growth.

Catalysts

Engages in the retail sale of toys, baby products, gift articles, household products, stationery, seasonal and decoration items, books, and related products primarily in Greece, Cyprus, Bulgaria, and Romania.

• Store expansions in Romania, Nicosia, and Bucharest, along with future openings in Timisoara and Cluj-Napoca, point towards increased revenue potential through greater market presence and new customer acquisition.
  
• The franchise agreement and expansion in markets like Israel, with higher disposable income compared to Greece, could drive revenue growth and increase profit margins due to the franchise model.
  
• Continued sales growth seen in the first 8 months of 2024 across key regions, including robust performance in Romania and Bulgaria, indicates potential for revenue and earnings growth if trends persist.
  
• The company's commitment to shareholder returns through dividends and a share buyback program could enhance earnings per share (EPS), reflecting increased value to shareholders.
  
• Strategic decisions to maintain cost efficiency and manage supply chain disruptions without compromising margins suggest potential stability or improvement in net margins despite market challenges.

Jumbo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jumbo's revenue will grow by 6.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 28.5% today to 26.3% in 3 years time.
• Analysts expect earnings to reach €351.7 million (and earnings per share of €2.59) by about April 2028, up from €318.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.3x on those 2028 earnings, up from 11.5x today. This future PE is greater than the current PE for the GB Specialty Retail industry at 11.4x.
• 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 10.82%, as per the Simply Wall St company report.

Jumbo Future Earnings Per Share Growth

Risks

• The ongoing hostilities around the Suez Canal are causing major disruptions in the supply chain, which could negatively affect Jumbo's day-to-day operations and thereby impact its revenue and profit margins.
  
• Jumbo has not planned for further franchise operations beyond their current capacity, prioritizing core operations instead, which may limit potential revenue growth from new markets.
  
• Jumbo's strategy involves buying destination stores as opposed to more cost-efficient convenience stores. This may increase operational costs and impact net margins adversely if consumer preferences shift towards convenience.
  
• The company's reliance on refusing high transportation costs amid supply chain disruptions can lead to delayed inventory replenishment, affecting revenue during peak seasons like Christmas.
  
• Inflationary pressures and demographic challenges, such as low birth rates in certain markets, could limit consumer spending, thereby impacting sales growth and earnings across countries where Jumbo operates.

Valuation

• The analysts have a consensus price target of €33.375 for Jumbo based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €1.3 billion, earnings will come to €351.7 million, and it would be trading on a PE ratio of 17.3x, assuming you use a discount rate of 10.8%.
• Given the current share price of €27.32, the analyst price target of €33.38 is 18.1% 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.