COUNTRY: GREECE PRICE: 4.60 SECTOR: RETAIL ATHEX Index: 2, DATE: September 21 st, 2004 TARGET PRICE: 5.8

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1 AN AFFILIATE OF THE NATIONAL BANK OF GREECE GROUP BUY COUNTRY: GREECE PRICE: 4.60 SECTOR: RETAIL ATHEX Index: 2, DATE: September 21 st, 2004 TARGET PRICE: 5.8 Amalia Karamitsoli Equity Analyst Costas Theodorou Head of Research Equity Research Athens, Greece JUMBO: STRONG FY 04 RESULTS Strong Margin Improvement and Positive FCF Jumbo reported strong FY 04 results, due to higher than expected sales in Olympic products and margin improvement. The company s pre tax margin was the second best over the last 10 quarters. We are particularly pleased with the positive cash flow generation of the company in 04. We had estimated that the company would be cash flow positive in FY 2005 but this occurred a year earlier. The factors, which contributed to this were the margin expansion and the improvement in working capital. Inventory days had been down year on year from 352 days to 336 days. During Q4 (March- June 04) the company did not open any new outlets. In 2004 the company operated 33 stores in total vs 29 outlets in 2003 We reiterate our BUY recommendation on the company s stock (T.P. 5.8). During the past 3 months the stock has outperformed both the Greek market and the small cap index (FTSE/ASE-80 declined c. 12% the past 3 months). EQUITY RESEARCH BABr.AT Fundamental Data Year to June. Sales ( m) EBITDA ( m) EBIT ( m) Net Profit ( m) EPS ( ) P/E (x) FCF Yield (%) EV/EBITDA (x) 2003A x -5.6% A x 0.7% E x 1.6% F x 6.2% 5.0 BABr.AT Share Data Last month 4.1% ATHEX 1-month 6.2% 52w High month 9.0% ATHEX 3-month 0.3% 52w Low month 0.9% ATHEX 12-month 16.0% Shares Outstanding: 45.62m Market Capitalization: m Source: National Securities, Jumbo, Closing prices as of 21/09/2004 This report has been prepared by National Securities Co S.A. independently of the Company and the forecasts, opinions and expectations contained herein are entirely those of National Securities. While all reasonable care has been taken to ensure the facts stated herein are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable, National Securities has not verified the contents hereof and accordingly neither National Securities, the company, nor any of their respective directors, officers or employees shall be in any way responsible for the contents hereof, and no reliance should be placed on the accuracy, fairness or completeness of the information contained in this document. No person accepts any liability whatsoever for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith. National Securities and/or persons connected with it may have acted upon or used the information herein contained or the research or analysis on which it is based before its publication. National Securities may in the future participate in an offering of the Company s securities.

2 Investment Summary Jumbo offers 27% upside from current price levels to investors according to our valuation models. We re-iterate our Buy rating adjusting our target price slightly up to EUR 5.8 per share from EUR 5.7. During the past 3 months the stock has outperformed both the Greek market and the small cap index (FTSE/ASE-80 declined c. 12% the past 3 months). Jumbo trades at a P/E x to our target price, while the Market s P/E 05 stands at 12.06x (according to our estimates). Jumbo Valuation Multiples at Target Price Ratio P/E 10.8x 9.3x 9.0x EV/EBITDA 7.0x 6.1x 5.9x P/BV 3.5x 2.8x 2.7x In our models we have revised our margin assumption and reduced slightly the company s Cash Conversion Cycle. Our EPS estimates following our model revisions, are presented in the table bellow. JUMBO: EPS REVISIONS (in eurocents) EPS (old) EPS (new) Source: National Securities National Securities Research Page 2

3 FY 04 Results Review Jumbo FY 04 results were strong revenues increased by 26.14% y-o-y and profits grew by 45.45% - due to higher than expected sales of the Olympic products. The highlight of this year s results is the positive cash flow generation. We had estimated the company would be cash flow positive in FY 2005 but this occurred a year earlier. The factors, which contributed to this, were the margin expansion and the improvement in working capital. Inventory days had been down year on year from 352 days to 336 days. The company s pre tax margin was the second best over the last 10 quarters. Jumbo Quaterly Follow up Stores Sales Operating Margin Pre-Tax Margin % 8.87% Q % 4.27% Q % 26.81% Q % 20.84% Q % 13.34% % 17.89% Q % 13.77% Q % 26.19% Q % 10.81% Q % 11.40% % 17.88% Q % 12.12% Q % 21.18% Q % 11.03% Q % 17.11% % 16.84% Q % 11.94% Q % 23.10% Q % 10.23% Q % 22.96% % 18.53% Source: The company, National Securities calculations (during 04 the company closed down a store) In Q4 there was no addition in the company s network. During 2004 the company added 5 new branches in total, out of which in one it bought also the property (Chania store). National Securities Research Page 3

4 Stores Square Meters Q Q Q Q Halkida 8,000 August 03 Maroussi 3,650 December 03 Chania 7,500 December 03 Ilion 4,800 March 04 Agia Paraskevi 4,400 December 03 Source: The company Dividend Policy For the FY 04 the company will pay a 17 eurocents dividend per share (subject to approval by the shareholders). This implies a dividend payout ratio of 31.52%. We assume that the company will increase its dividend payout ratio as its growth decelerates. For 04/05 we assume a 40% dividend payout ratio. The company announced that the AGM would take place at November 24 th, The company will start pays the dividend in January 10 th, Other Developments JUMBO S.A. on decided to proceed with the submission of a voluntary Public Offer for the acquisition of 100% of the issued share capital and 100% of the warrants (1 warrant for every 4 shares) of the subsidiary Cyprian company JUMBO TRADING LTD at 0.59 Cyprus Pound and 0.06 Cyprus Pound for every warrant, in cash. The purpose of the offer was, to file an application for the deletion/withdrawal of the titles of the subsidiary company from the Cyprus Stock Exchange following its successful completion. JUMBO S.A. held 76.78% of the issued share capital of the Cyprian subsidiary company. The public offer was successfully concluded in May 14 th, 2004 with success. The cost of the acquisition was c. EUR 5m. National Securities Research Page 4

5 Earnings Model-Key Assumptions for FY 05 Sales We estimate that total turnover (including wholesale activity and Cyprus) will increase by 19.39% in 2005 and 10.37% in We assume that the company will set up 6 stores in 2005 out of which five will be in Greece and one in Cyprus. Only in one site the company will buy also the land (Karditsa Store). We estimate annual capital expenditure for the period 04/05 of EUR 25m and for 05/06 EUR 21m. Stores Square Meters Q Q Q Q Corinth 7,000 August 04 Karditsa 9,500 November 04 Volos 5,500 November 04 N.Ionia 6,950 February 05 Alexandroupoli 7,500 February 05 Source: The company Margins We expect EBITDA margins in the next 3 years to stand at 26.20%, 26.26% and 25.85% respectively. Reported 03/04 EBITDA margin had been at 26.88%. We believe that margins in the longer term will gradually decline in accordance to our DCF exercise assumptions. Jumbo:EBITDA Margin Revision EBITDA Margin (old) EBITDA Margin (new) % 26.88% % 26.20% % 26.26% % 25.86% Source: National Securities Working Capital We expect a further improvement in working capital management of the company. Currently, inventory days stand National Securities Research Page 5

6 at 336 while we assume that it will stand at 305 in 04/05. We expect the cash conversion cycle to improve from 247 days reported in June 04 to 231 days in June 06. National Securities Research Page 6

7 Jumbo - Valuation Assumptions June 05 June 06 June 07 June 08 June 09 June 10 June 11 June 12 June 13 June 14 Operating profit Operating margin 21.5% 21.5% 21.1% 20.5% 19.7% 19.0% 18.3% 16.5% 15.5% 14.2% Tax paid Tax Rate on EBIT 27.6% 27.8% 28.4% 29.2% 30.7% 31.5% 32.1% 33.2% 32.5% 32.6% + Depreciation Capital Expenditure Working Capital Needs Cash Flow to the Firm Discounted Cash flows Total Cash flows Long Term Growth Rate 0.0% Terminal Value Value to the Firm Net Debt 92.2 Value to Equity holders Per Share value 5.8 Current Price 4.60 Premium/Discount 27% Source: National Securities National Securities Research Page 7

8 Summary P&L Account June 03 June 04 June 05 June 06 June 07 Revenues Revenue Growth 28.81% 26.14% 19.39% 10.37% 11.58% EBITDA EBITDA Margin 25.44% 26.88% 26.20% 26.26% 25.86% Operating Income Operating Margin 19.98% 22.10% 21.50% 21.49% 21.11% Net Income Net Margin 11.31% 13.04% 12.63% 12.71% 12.75% EPS y-o-y change 27.07% 45.45% 15.59% 3.61% 8.26% DPS Dividend Payout 32.36% 31.52% 40.00% 45.00% 50.00% Source: The Company, National Securities Summary Balance Sheet June 03 June 04 June 05 June 06 June 07 Net Fixed Assets Working Capital Long Term Assets Total Assets Net Debt LT Liabilities Minorities Equity Capital Employeed ROE 28.0% 32.6% 30.3% 28.4% 27.4% ROCE 11.5% 15.1% 15.3% 15.7% 16.3% Source: The Company, National Securities, B/S has been adjusted for the calculation of capital employed Summary Cash Flow Statement June 03 June 04 June 05 June 06 June 07 EBITDA Tax Paid WC changes Other Items Proceeds from share offerings Net Capex Interest Expenses Free cash flow Dividend Net Debt Reduction (increase) Total Free cash flow Yield -5.4% 1.8% 3.4% 8.2% 10.1% Source: The Company, National Securities National Securities Research Page 8

9 National Securities S.A. Research Sales Member of the Athens Exchange Head of Research: C. Theodorou Domestic Institutional Sales 68 Academias street, Athens, Greece N. Papagiannakopoulos S. Bairactaris Tel: K. Pischinas P. Dovolos Fax: K.Tzoutzourakis P. Petritsis A. Karamitsoli International Institutional Sales I. Katsoula S. Malavazos C. Tzimos J. Tolis Key to Investment Ratings Strong buy: Expected to outperform the market by more than 20% Buy: Expected to outperform the market by 5% to 20% Market Perform: Expected to perform in line with the market +/- 5% Market Under perform: Expected to under perform the market by 5% to 20% Sell: Expected to under perform the market by more than 20% National Securities Research Page 9