Jumbo: Eurobank Equities raises its target price to 33.4 euros – The stock is among the top picks

New, higher target price for its stock Jumbo at 33.4 out of 31.2 euros it gives Eurobank Equities in its report after the listed company’s 2023 results, while maintaining a “buy” recommendation and noting that it keeps the stock among its top picks.

With the new target price, the brokerage sees 22.5% upside for the stock which, combined with the 9.5% dividend yield, yields total return 32.1%.

Jumbo reported 20% EBIT growth in FY23 thanks to 14% sales growth, resilient gross margins (-15bps yoy, though >3pps higher than 2019 levels) and savings opex (opex just +6% yoy). Combined with net financial income, given the debt-free balance sheet, Jumbo grew net profit by a whopping 22%, beating the +20% built into our estimates a year ago. Mgt suggested another generous €1 DPS after the €0.6 paid in March, adding a c6% yield to July. FY24 forecasts (8-10% growth) look supported at this juncture, despite supply-side challenges and a volume-dependent top line.

Although the shares have somewhat narrowed the valuation gap against other retailers, the valuation remains attractive not only on a relative basis (with the stock at a 20-30% discount to best-in-class) but also on an absolute basis, discounting a rather pessimistic situation. Indicatively, at the current price the shares embody value destruction going forward, as the current EV appears to be below the value implied by current operating earnings, as evidenced by our reverse engineering exercise, embodying <2.5% additional ROIC over the long term. With the risk-reward ratio leaning positively, we reiterate Jumbo as one of our top picks in Greece.

In recent years, Jumbo has emerged as a dividend-paying company, having returned €0.85 billion to its shareholders since 2019 (23% of market capitalization). In calendar 2023 alone cash returns amounted to c11% of current market cap. As a result of very strong cash generation over the same period, Jumbo’s net cash position stood at €444m at the end of 2023, little changed compared to the 2019 period, despite the aforementioned cash returns. Although shareholder remuneration policy is somewhat erratic, in our view a clear trend has emerged, namely that mgt appears to be more willing to direct capital growth towards shareholder returns during periods when expansion opportunities are scarce. or do not meet the internal threshold rates. With FCFE in excess of €2 per share over the next 3 years, we see room for shareholder fees equal to a c8% yield, although we forecast €1.5-1.6 per share to incorporate some conservatism. For CY24 we assume another €1 cash return.

Following the FY23 results, we recalibrated our model making only minor changes to our numbers. We maintain our estimate of +10% sales and EBIT growth for 2024e (filtered to 7% in net profit, due to higher tax), while conservatively forecast c6% growth for 2025e with another gross margin contraction by c20bps (reflecting higher transport costs and restrained pricing). Shares have been trading in a range over the past 3 months, despite upward revisions to earnings, thus leading to a modest downgrade. Our PT (based on DCF using 8.9% WACC) places Jumbo at an undemanding c9.5x 1yr fwd EV/EBITDA, close to a best-in-class EU retailer valuation justified by strong balance sheet, defensive earnings profile and high cash conversion.