Omnichannel Expansion And Automation Will Drive Long Term Competitive Strength

Catalysts

About Migros Ticaret

Migros Ticaret operates a nationwide, omnichannel food retail platform in Türkiye, combining multi format supermarkets with rapidly scaling online grocery and meal delivery services.

What are the underlying business or industry changes driving this perspective?

• Acceleration of online grocery adoption, supported by Migros' 22% FMCG e commerce share and 24% real growth in online GMV, should deepen wallet share and drive sustained high single digit real revenue growth as digital penetration in total turnover rises further.
• Structural shift toward convenience and omnichannel shopping, with 1,881 stores already enabled for online operations and Click and Collect, is likely to lift traffic, increase basket size and underpin like for like revenue growth even in a weak consumption environment.
• Rising importance of efficiency and automation in food retail, evidenced by 30% of capex directed to IT, AI, self checkouts and electronic price tags, is already delivering shrinkage and OpEx savings and should support further EBITDA margin expansion above current 6.5% guidance.
• Long term focus on supply chain excellence and multi format distribution centers, including frozen and fresh categories, is reducing shrinkage by 35 basis points and improving stock turns, which should continue to enhance gross margin and stabilize earnings through cycles.
• Scaling of ecosystem businesses such as MoneyPay, with TRY 48 billion payment volume and TRY 1.2 billion in revenue, and Migros Yemek, with 57% GMV growth, adds new high margin fee and commission income streams that can outgrow core retail and lift consolidated net margin and earnings.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Migros Ticaret's revenue will grow by 12.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.5% today to 3.7% in 3 years time.
• Analysts expect earnings to reach TRY 16.4 billion (and earnings per share of TRY 76.16) by about December 2028, up from TRY 4.7 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting TRY21.3 billion in earnings, and the most bearish expecting TRY12.1 billion.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 19.1x on those 2028 earnings, down from 21.3x today. This future PE is lower than the current PE for the TR Consumer Retailing industry at 29.7x.
• 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 30.5%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A prolonged period of monetary tightening and falling real purchasing power in Türkiye could further weaken shopper appetite, limiting like for like volume and basket size growth despite Migros' omnichannel initiatives, which would cap real revenue growth.
• Wage dynamics and union negotiations around minimum wage and inflation indexing may force higher than planned salary adjustments, eroding the recent operating expenditure efficiencies and putting sustained pressure on EBITDA margin and net margin.
• The strong margin gains from shrinkage reduction and store automation may prove non repeatable, and if technology and supply chain investments yield diminishing returns, gross margin expansion could stall, slowing future earnings growth.
• Intensifying competition in both offline retail and e commerce, combined with potential regulatory changes such as trading hour restrictions, could require deeper promotions and limit store productivity, compressing revenue per square meter and EBITDA margin.
• If online grocery, meal delivery and fintech services like MoneyPay grow more slowly than anticipated or face rising customer acquisition costs, the expected high margin ecosystem income may not scale sufficiently, reducing the upside to consolidated net profit and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of TRY780.39 for Migros Ticaret 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 TRY914.0, and the most bearish reporting a price target of just TRY657.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be TRY444.5 billion, earnings will come to TRY16.4 billion, and it would be trading on a PE ratio of 19.1x, assuming you use a discount rate of 30.5%.
  
• Given the current share price of TRY551.0, the analyst price target of TRY780.39 is 29.4% 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.