Expanding Networks And Calculated Investments Poised To Drive Growth In Thriving Markets

Key Takeaways

• Strategic investments in store infrastructure and value propositions may enhance consumer experience and drive revenue growth.
  
• Efforts on cost management and a favorable margin mix could stabilize net margins and boost future earnings.
  
• Weak consumer demand, intense competition, and rising costs squeeze margins, threatening Jerónimo Martins SGPS's profitability.

Catalysts

Operates in the food distribution and specialized retail sectors in Portugal, Poland, and Colombia.

• Continued network expansion in established markets, like opening 104 new stores in Poland and plans for further expansion in Colombia, is likely to drive future revenue growth.
  
• The focus on improving value propositions and maintaining price competitiveness amidst high competition is expected to support market share gains and potentially boost revenue.
  
• Strategic investments in infrastructure and refurbishment of stores, such as the rollout of new concepts at Pingo Doce, could enhance consumer experience and increase sales volumes, impacting revenue favorably.
  
• Efforts to protect business efficiency and mitigate cost pressures, along with strategic cost management, could help stabilize and potentially improve net margins, impacting future earnings.
  
• The positive margin mix from selective price investments and category expansions in Pingo Doce and Ara suggests the potential for improved gross margins, which could enhance overall earnings.

Jerónimo Martins SGPS Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jerónimo Martins SGPS's revenue will grow by 6.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.9% today to 2.1% in 3 years time.
• Analysts expect earnings to reach €840.4 million (and earnings per share of €1.34) by about November 2027, up from €638.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €956.8 million in earnings, and the most bearish expecting €644 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.2x on those 2027 earnings, up from 18.4x today. This future PE is lower than the current PE for the GB Consumer Retailing industry at 23.7x.
• 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 6.62%, as per the Simply Wall St company report.

Jerónimo Martins SGPS Future Earnings Per Share Growth

Risks

• The rapid decrease in food inflation, alongside significant cost increases and weak consumer demand, is putting pressure on margins, which could negatively affect net earnings.
  
• Intense competition in the food retail sector requires continuous price investments, potentially leading to decreased gross margins and affecting profitability.
  
• The operational deleveraging from basket deflation combined with significant wage increases in Poland and other regions could further squeeze net margins and increase financial strain.
  
• The impact of higher financial costs, including increased waste of financing costs in Colombian pesos, contributes to declining net earnings per share, affecting overall profitability.
  
• Calendar mismatches and refurbishments leading to variations in quarterly holding costs can create unpredictability in expense forecasts, possibly impacting financial planning and profitability.

Valuation

• The analysts have a consensus price target of €21.25 for Jerónimo Martins SGPS 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 €26.0, and the most bearish reporting a price target of just €15.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €39.9 billion, earnings will come to €840.4 million, and it would be trading on a PE ratio of 19.2x, assuming you use a discount rate of 6.6%.
  
• Given the current share price of €18.72, the analyst's price target of €21.25 is 11.9% 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.