Jumbo. Sector: Retail. Resilient growth. Greek Equity Research. September 25, Outperform

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1 Greek Equity Research Sector: Retail Jumbo Resilient growth FY09 results in line with estimates & guidance Revenues increased by 15.8% to 467.8m, EBITDA increased by 11.1% to 139.6m and EAT increased by 16% to 95.7m. Results are in line with our estimates and management guidance. DPS stands at 0.23 (ex-div Dec 23 rd ). Jumbo model proves resilient Greek retail sales declined by 14% in the first 6 months of 2009, while Jumbo managed to increase sales by almost 16% over the same period. A large part of this growth was due to the operation of 4 new stores and the expansion of total selling space by ca14%. The management guides that 2/3 of the growth comes from LFL sales. In our view, Jumbo proved the defensive nature of its business model over the last year, which lowers cyclicality risks going forward. We expect Jumbo to continue to outperform the retail segment through network development and additional market share gains. The management targets top line growth of 8% in the fiscal year ending June 2010 compared to over 15% historically. The slowdown is attributed primarily to the exclusion of electronic consoles from the product mix, as well as to the opening of two new stores in the current year vs the usual 3-4 openings p.a. We raise our TP to 10.5 We maintain a positive stance on Jumbo, on the back of its strong brand name, attractive market positioning and strong growth prospects in Greece and SEE. Its business model includes significant expansion potential not only geographically but also within the broader retail segment, supported by a well-established network of outlets, warehouses and modern logistics. On the risks side, consumption dynamics are important despite the resilient model, while high concentration of duty under the CEO remains a concern. Jumbo trades 11.5x 2010E EPS, which is 15-20% in discount to European retailers. We raise our target price from 7.5 to 10.5 and we assign an outperform recommendation. Estimates m e 2011e Revenues EBITDA Net Profits EPS ( ) DPS ( ) Issue Date: September 25, 2009 Last Price (Sept 24) 9.0 Target Price: 10.5 Recommendation: Raised to: Outperform Jumbo Share Price /25/08 1/25/09 5/25/09 Stock Data Reuters RIC Analyst ASE Costas Karagiorgos Equity Research Analyst Tel: JUMBO ckaragiorgos@eurobanksec.gr BABr.AT Bloomberg Code BELA GA 52 Week High Week Low 3.63 Abs. performance (1m) 21.9% Abs. performance (YTD) 107.3% Number of shares 121m Market Cap ( m) 1089 Avg Daily Volume 191k Est. (09-11) EPS CAGR 8% Free Float 71% Valuation Ending June e 2011e P/E Price/ Sales EV/EBITDA Net Debt /EBITDA Yield 1.8% 2.2% 2.5% 2.5% 2.7% ROE 34.9% 32.6% 29.9% 25.6% 22.9% Source: Company, Eurobank EFG Securities estimates Contact Details Eurobank EFG Securities Research Tel: research@eurobanksec.gr Fax:

2 Jumbo quarterly performance ( m) Q-ending June 08 yoy Sept 08 yoy Dec 08 yoy March 09 yoy June 09 yoy Revenues % % % % % EBITDA % % % % % EBITDA margin 36.7% 22.9% 32.1% 25.5% 36.3% EAT % % % % % Jumbo maintained its momentum of double-digit growth throughout the year, while sustained margins despite the strength of the USD. Impressive performance in our view, considering the deteriorating macro environment and the sharp drop in consumption (retail sales -14% in H109). The scenery becomes more challenging next year due to product mix changes (exclusion of electronic consoles), additional pressures in consumption and slower network development. However Jumbo maintains three main competitive advantages, which seem to work well in good and difficult times for the economy: a) a strong brand name with a clear customer perception of low cost destination b) high visit rates with low elasticity due to the absence of direct competition c) a well-established retail network with good logistics and strong warehouse support. We believe these three advantages are the value generator of Jumbo, while they constitute a success factor for future manoeuvres. On the other hand, the highly centralized decision making and the high concentration of duties on the CEO remains a main risk in our view. Valuation We roll over our valuation and we lower WACC (8.1%), reflecting a lower risk profile. We also adopt a more positive long-term stance raising LT FCF growth from 1% to 2%. As a result we increase out target price from 7.5 to Our medium term estimates are rather conservative, however we will not proceed with any changes at this stage, waiting for additional evidence on consumer behaviour (which may also be affected by the government s measures at a macro level). DCF Assumptions Discounted Cash Flows 2010e 2011e 2012e 2013e 2014e Long term risk free rate: 4.8% Cost of Borrowing (after tax): 2.9% 3.0% 3.0% 3.0% 3.0% Beta 0.7 Cost of Equity: 8.9% 8.9% 8.9% 8.9% 8.9% Equity Risk Premium: 5.9% WACC: 8.1% 8.1% 8.1% 8.1% 8.1% Expected perpetual FCF growth: 2.0% FCF: Present value of FCF: Valuation Results Euro (m) PV of FCF to Residual value of FCF 1,122 Operations value 1,429 minus Debt (2010e) 49 Shareholder value 1,374 Number of shares (m) 130 Value per share (euro) Source: Company, Eurobank EFG Securities estimates Jumbo 2

3 Balance Sheet Euro (m) e 2011e Net fixed assets Debtors Stocks Cash & cash equivalents Current assets Total assets Equity Long term debt Long term liabilities Trade creditors Short term debt Other short term liabilities Current liabilities Total liabilities & equity Income Statement Euro (m) 2008 yoy 2009 yoy 2010e yoy 2011e yoy Sales % % % % Cost of sales % % % % Gross profit % % % % Other operating income 5 0.0% 3 0.0% 2 0.0% 2 0.0% Administrative cost % % % % Distribution cost % % % % EBITDA % % % % Depreciation % % % % EBIT % % % % Investment income 2 0.0% 3 0.0% 2 0.0% 2 0.0% Interest cost % % 7-4.0% 8 5.6% Ordinary profit % % % % Extraordinary Items 0 0.0% 0 0.0% 0 0.0% 0 0.0% Earnings before tax(ebt) % % % % Tax % % % % Earnings after tax(eat) % % % % Cash Flow Euro (m) e 2011e EBIT minus tax on EBIT Net operating profit after tax plus: Depreciation Working capital Operating Cash Flow Capital expenditure Free Cash Flow Jumbo 3

4 10 Filellinon Street Athens Greece Telephone: Facsimile: Institutional Sales Theodore Frangopoulos Head of Institutional Client Business tfrangopoulos@eurobanksec.gr Foreign Institutional Sales Thanos Ipirotis Institutional Sales tipirotis@eurobanksec.gr Penny Marioli Institutional Sales Trading pmarioli@eurobanksec.gr Ilias Dionisopoulos Institutional Sales Trading idiosysopoulos@eurobanksec.gr Domestic Institutional Sales Stratis Aliprantis Domestic Institutional Sales saliprantis@eurobanksec.gr George Kapsoulakis Domestic Institutional Sales gkapsoulakis@eurobanksec.gr Research John Kalantzis Head of Research jkalantzis@eurobanksec.gr Aggelos Groutas Food & Beverages agroutas@eurobanksec.gr Helen Herra Banks, Financials hherra@eurobanksec.gr Costas Karagiorgos Telecoms, Cement, Airlines, Holding Companies ckaragiorgos@eurobanksec.gr Mina Lagounari Oil & Energy, Construction mlagounari@eurobanksec.gr Eftyhia Yiagou Gaming, Metals eyiagou@eurobanksec.gr Katerina Zaharopoulou Retail, Consumer Goods kzaharopoulou@eurobanksec.gr Jumbo 4

5 IMPORTANT DISCLOSURES This report has been issued by EUROBANK EFG Securities Investment Firm S.A. (VAT No: , Reg, No: 42221/06/B/99/10), a member of the Athens Exchange, a member of the Cyprus Stock Exchange and a member of EUROBANK EFG. EUROBANK EFG Securities Investment Firm S.A. is regulated by the Hellenic Capital Markets Commission (HCMC) with authorisation number 6/149/ This report may not be reproduced in any manner or provided to any other persons. Each person that receives a copy by acceptance thereof represents and agrees that it will not distribute or provide it to any other person. This report is not an offer to buy or sell or a solicitation of an offer to buy or sell securities mentioned herein. The investments discussed in this report may be unsuitable for investors, depending on their specific investment objectives and financial position. The investments discussed in this report are subject to risks and in respect of some investments there is risk for multiplied losses to be caused in respect to the capital invested. The information contained herein has been obtained from sources believed to be reliable but it has not been verified by EUROBANK EFG Securities Investment Firm S.A. The opinions expressed herein may not necessarily coincide with those of any member of the EFG Group. No representation or warranty (express or implied) is made as to the accuracy, completeness, correctness, timeliness of fairness of the information or opinions herein, all of which are subject to change without notice. No responsibility of liability whatsoever or howsoever arising is accepted in relation to the contents hereof by EUROBANK EFG Securities Investment Firm S.A. or any of its directors, officers or employees. EUROBANK EFG Securities Investment Firm S.A. follows procedures under EFG Group policies that set up Chinese Walls, restricting communication between Research and other Departments of the Group so that EUROBANK EFG Securities Investment Firm S.A. complies with regulations on confidential information and market abuse. EUROBANK EFG Securities Investment Firm S.A., or any of its related legal persons, does not hold shareholdings exceeding 5% of the total issued share capital in any of the subject companies mentioned in this report. None of the subject companies mentioned in this report holds shareholdings exceeding 5% of the total issued share capital of EUROBANK EFG Securities Investment Firm S.A., or any of its related legal persons. EUROBANK EFG Securities Investment Firm S.A., or any of its related legal persons, is a market maker of Jumbo EUROBANK EFG Securities Investment Firm S.A., or any of its related legal persons, is not a party to an agreement relating to the production of this report with the subject companies mentioned in this report. Analyst Certification: This report has been written by Costas Karagiorgos (Equity Analyst). Analyst Compensation: The remuneration of Costas Karagiorgos is not tied to the investment banking services performed by EUROBANK EFG Securities Investment Firm S.A. or any of its related legal persons. Costas Karagiorgos did not receive or purchase the shares of the subject companies mentioned in this report prior to a public offering of such shares. Costas Karagiorgos does not have a significant financial interest in one or more of the financial instruments which are the subject of this report or a significant conflict of interest with respect to the subject companies mentioned in this report a) that are accessible or reasonably expected to be accessible to the persons involved in the preparation of this report or b) known to persons who, although not involved in the preparation of this report, had or could reasonably be expected to have access to this report prior to its dissemination to customers or the public. Planned Frequency of Updates: EUROBANK EFG Securities Investment Firm S.A. provides daily and monthly updates as well as updates on companies based on companyspecific developments or quarterly financial results announcements or any other publicly available information. 12-month Rating History Jumbo: Date Rating Stock price Target price September 25, 2009 Outperform May 21, 2009 Market Perform March 3, 2009 Outperform November 20, 2008 Outperform September 25, 2008 Outperform Source: Eurobank EFG Securities EUROBANK EFG SECURITIES SA Rating System: Our rating system is based on the expected performance of the stock relative to the Athens Stock Exchange Composite index over a 12-month period. The underlying assumption is a flat market. Stock Ratings Explanation % of Eurobank EFG Securities Recommendations % of rated stocks to which investment banking services were provided within the last 12 months Outperform Expected outperformance of 10%-20% 31% 14% Market Perform Expected performance in line with the index ie +/- 10% 59% 31% Under Perform Expected underperformance of 10%-20% 5% 0% Restricted Under EFG Group policy and/or regulations which do not allow ratings 5% 100% Source: Eurobank EFG Securities Jumbo 5