New Stores In Slovakia And Colombia Will Expand Market Reach

Key Takeaways

• Strategic expansion in Slovakia and Colombia and new store openings are set to drive revenue growth and strengthen market presence.
  
• Focus on e-commerce in health and beauty, along with cost efficiency initiatives, will enhance margins and support sustainable growth.
  
• Labor cost inflation and basket deflation pressure margins, while strong competition and weak demand limit growth, with geopolitical risks in expansion areas.

Catalysts

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

• Expansion efforts, including the opening of 385 new stores and the launch of operations in Slovakia, are expected to drive future revenue growth by increasing market presence and customer base.
  
• The focus on e-commerce, particularly in the health and beauty segment, is projected to enhance earnings by tapping into a higher-margin sales channel and increasing market penetration.
  
• Continued investment in store remodeling and the All About Food concept at Pingo Doce aims to improve margins and revenues by enhancing customer experience and boosting sales of higher-margin meal solutions and fresh products.
  
• Strategic expansion in Colombia and investment in new distribution centers are expected to drive revenue growth and strengthen market position, despite challenging socioeconomic conditions.
  
• Efforts in cost efficiency and productivity improvements, especially amid rising labor costs, are crucial for maintaining net margins and supporting sustainable growth through operational efficiency gains.

Jerónimo Martins SGPS Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jerónimo Martins SGPS's revenue will grow by 6.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.8% today to 2.3% in 3 years time.
• Analysts expect earnings to reach €929.4 million (and earnings per share of €1.48) by about April 2028, up from €599.0 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 18.4x on those 2028 earnings, down from 22.5x today. This future PE is greater than the current PE for the GB Consumer Retailing industry at 16.1x.
• 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 7.39%, as per the Simply Wall St company report.

Jerónimo Martins SGPS Future Earnings Per Share Growth

Risks

• The combination of significant labor cost inflation and basket deflation has led to operational deleverage and EBITDA margin pressure, particularly affecting net margins in 2024.
  
• Biedronka, which represents a substantial portion of group sales, is facing strong competition in Poland, impacting its ability to grow volumes and maintain revenue.
  
• Consumer demand remains weak, especially in Poland, with cautious spending behavior and increased savings rather than spending on food, potentially limiting future revenue growth.
  
• Increased interest costs due to Colombian peso financing and higher debt levels have impacted financial expenses, which may continue affecting net earnings.
  
• Expanding operations, particularly in Colombia, requires significant investment and carries economic and geopolitical risks, which could affect the overall financial strategy and earnings stability.

Valuation

• The analysts have a consensus price target of €21.975 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 €15.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €40.8 billion, earnings will come to €929.4 million, and it would be trading on a PE ratio of 18.4x, assuming you use a discount rate of 7.4%.
• Given the current share price of €21.4, the analyst price target of €21.98 is 2.6% higher. 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.