Inretail Peru Corp. Company s description. Highlights. EQUITY RESEARCH Quick Note October 15th, Retail Industry

Transcription

1 EQUITY RESEARCH Quick Note October 15th, 2012 Alberto Arispe Marco Contreras Head of Research Analyst (511) (511) Retail Industry Inretail Peru Corp. Inretail Peru Corp. Market Capitalization (USD million) Market Price (USD) Shares Outstanding (million) ADTV - LTM (USD million) Range - 52 weeks (USD) YTD Change Dividend Yield - LTM Trading Source: Bloomberg, Inretail and Kallpa SAB ADTV: Average daily traded volume LTM: Last twelve months (LSE: INRETC1) 2, % n.d. LSE Company s description Inretail Peru Corp. (Inretail) is the company that holds interest in Intercorp Peru Ltd. s businesses related to the retail industry, through three business units: i) Supermarkets (Supermercados Peruanos S.A.), ii) Drugstore chain (Grupo Eckerd Inkafarma), and iii) Shopping centers (Inretail Real Estate Real Plaza). Intercorp Peru Ltd. is the company s main shareholder, even after the issuance of shares carried out recently, in which Intercorp reduced its stake in Inretail. However, it currently holds a 73.5% interest, while 20% belong to new shareholders. A small stake (6.5%) belongs to NG Pharma Corp. YTD Change and ADTV are calculated over the base of IPO's price Financial Ratios P / E P / BV P / Sales EV / EBITDA CA / CL (CA - Inventory) / CL Debt / EBITDA EBITDA / Financial expenses Inventory turnover (days) EPS (PEN) ROE 11.4% 5.8% ROA 5.0% 3.5% Source: Bloomberg, Inretail and Kallpa SAB CA: Current Assets CL: Current Liabilities Highlights i) ii) iii) Leverage to Peruvian consumption: 100% of Inretail s revenues are originated in Peru. We expect a good performance of the Peruvian economy for the next years, with GDP growth rates above 5%. This will increase per capita income and therefore the local consumption, as well as the retail and shopping centers industries. Other integrated retail platforms: Having other platforms such as department stores, home improvement stores, fast foods, movie theatres, etc., that also belong to the holding, represents a competitive advantage for the company which has a mix of retail services that is unique in the Peruvian market. Market leadership: Inretail is leader in all its business units, having the first place by market share in drugstore chains and shopping centers; while it takes the second place in supermarkets (33% market share in 2011). Chart N 1: Shareholders 6.5% 20.0% Source: SMV, Inretail 73.5% Intercorp Peru Ltd New shareholders NG Pharma Corp. iv) Industry s potential: The retail industry has a high development potential, since it is lagging behind other countries of the region. While in Chile and Colombia, supermarket sales reach 5% - 6% of GDP, in Peru the same ratio reaches only 3% (Asociacion Latinoamericana de Supermercados - Latin American Association of Supermarkets). Additionally, according to Asociacion de Centros Comerciales y de Entretenimiento del Peru ACCEP (Peruvian Association of Shopping Centers and Entertainment), as of 2011 Peru had 1.5 malls for each million people, while the region s average is 2.5.

2 Reorganization of the holding and its subsidiaries In August 2012, with the target of improving the structure of the holding's subsidiaries that belonged to the retail industry, the company was reorganized in order to establish a holding that groups the above mentioned businesses. In this way, after the reorganization process, Inretail remained as owner of: Supermercados Peruanos S.A., Grupo Eckerd and Inretail Real Estate Corp. Chart N 2: lnretail - Organization Chart Intercorp Peru Ltd. Intercorp Retail Inc. Intercorp Financial Services (LSE: IFS) Other subsidiaries Inretail Peru Corp. (LSE: INRETC1) Interbank Supermercados Peruanos S.A. Grupo Eckerd (Inkafarma) Inretail Real Estate Corp. Source: SMV, Inretail i) Supermercados Peruanos S.A.: Subsidiary that operates the holding s supermarket business unit, under the brands Plaza Vea, Plaza Vea Super, Vivanda, Mass and Economax. It has 78 stores nationwide and a 33% market share, according to Equilibrium. In addition, it is Inretail s most important business unit, representing 64% of total sales and 46% of the holding s total EBITDA. ii) Grupo Eckerd: Group of companies that operates under Inkafarma brand and whose core business is the commercialization of pharmaceutical and cosmetic products, among others. Currently, it has a network of 466 drugstores nationwide that represents 47% of the revenues of modern drugstore s industry, according to IMS Health. It has more attractive margins than those from the supermarket business unit, as it hasa bigger stake in global EBITDA, compared with sales. iii) Inretail Real Estate Corp.: Subsidiary that operates the shopping centers business unit. The company has 12 shopping centers nationwide under the name Centro Comercial Real Plaza and an 18% market share, estimated by ACCEP. It is the business unit with the highest margins and its results have been supported by its real estate investments revaluation. Chart N 3: Sales by business unit - 1H 2012 Chart N 4: EBITDA by business unit - 1H % 19.0% 33.3% PEN 2,301 million 63.7% Supermercados Farmacias Centros Comerciales 34.6% PEN 187 million 46.4% Supermercados Farmacias Centros Comerciales Source: Inretail, Kallpa SAB Source: Inretail, Kallpa SAB Quick Note 2

3 Initial Public Offering In October 3rd Inretail announced the results of an international Initial Public Offering (IPO). Through this offering, 20 million new shares were issued at USD per share. Thus, the company raised USD 400 million (approximately 20% of the company s total shares), which will be used in the expansion of its supermarket and shopping centers business units. Multiple Analysis Company SA Imp. y exp. de la Patago Source: Bloomberg Colombia 7, n.d. 6.7% 4.7% 1.3% Mexico 5, Chile Mexico 1, % Ecuador 1, n.d. 0.9 n.d. Argentina P/BV P/Sales 3, % Mexico 2, % Average 5, % 10.4% 4.1% Cia Brasileira de Distribuica Brazil 13, % 2.3% 12M EV/EBITDA 12M Inretail Peru Corp. Peru 2, % 3.5% Cencosud SA Chile 13, Almacenes Exito SA Organización Soriana SAB Walmart Chile SA Grupo Comercial Chedraui S Corporativo Fragua SAB de Corp Favorita CA Country Market Cap. (USD million) P/E 12M ROE ROA Dividend Yield n.d. 1.2% 0.8% 8.4% 4.3% 0.7% 6.1% 2.1% % 4.3% 0.6% 9.3% 0.5% 25.5% 16.4% 2.5% 8.4% 1.2% 6.3% 1.2% Chart N 5: P/E vs. EV/EBITDA - Peer companies EV/EBITDA Mkt. Cap Cencosud 15.0 Inretail 13.0 Fragua Soriana WMT Chile Chedraui Cia Br. De Dist. 7.0 Patagonia P/E Source: Bloomberg, Kallpa SAB Chart N 6: ROE vs. ROA - Peer companies ROA Mkt. Cap. 10% 9% Fragua 8% Patagonia 7% 6% Cencosud Soriana 5% WMT Chile 4% Chedraui 3% Inretail 2% 1% Cia Br. de Dist. 0% ROE 5% 7% 9% 11% 13% 15% 17% 19% Source: Bloomberg, Kallpa SAB Conclusion From the multiple analysis, we note that Inretail trades with multiples higher than those from its peer companies. It trades at 41.2x times P/E, while the industry s average reaches 23.2x times P/E. On the other hand, if we consider the EV/EBITDA multiple, Inretail trades at 16.9x times, while the industry s average reaches 11.4x times. In addition, the company s profitability remains below the average of its comparable companies, registering a return on equity (ROE) of 5.8% in 2011, while the industry s average reached 13.0%. Nevertheless, it is worth mentioning the retail industry s high growth potential that will emerge as a consequence of the domestic economy s expected good performance, which will benefit the company s profits and margins, improving its multiples in the long term. It is in the hands of Management to make use of these opportunities and to achieve greater operative efficiencies in order to generate greater value for the shareholders. Quick Note 3

4 Financial Statements INCOME STATEMENT (PEN 000) YoY 1H H 2011 YoY Sales of goods Revenues from rentals Revenues from redering of services Total Revenues Cost of sales Gross Income Gross Margin 4,122,441 2,391, % 2,227,906 1,939, % 85,832 72, % 51,826 38, % 33,893 25, % 20,919 16, % 4,242,166 2,489, % 2,300,651 1,994, % -3,087,382-1,821, % -1,665,592-1,456, % 1,154, , % 635, , % 28.0% 27.9% 28.5% 27.7% Sales expenses Administrative expenses Other operating income Other operating expenses Operating Income Operative Margin -778, , % -410, , % -151,939-69, % -92,583-87, % 53,621 41, % 5,966 29, % -13,983-1, % -6,437-13, % 263, , % 131, , % 6.4% 7.3% 5.9% 5.3% Financial income Financial expenses Income before taxes 24,727 10, % 23,676 9, % -101,992-43, % -76,063-45, % 186, , % 79,276 65, % Taxes Net Income Net Margin -62,772-35, % -29,582-19, % 123, , % 49,694 46, % 3.0% 4.4% 2.2% 2.4% Depreciation and Amortization EBITDA Margin EBITDA -100,587-75, % -51,812-50, % 364, , % 183, , % 8.8% 10.4% 8.2% 7.9% BALANCE SHEET (PEN 000) H 2012 Cash and short term deposits Accounts receivable Inventories Current Assets 137, , , ,064 53, ,245 82,424 77, , , , ,230 16,617 35, , , , ,230 1,189,660 1,059,130 Property, plant and equipment, net Investment properties Intangible assets, net Non Current Assets 1,002,450 1,166,698 1,515,172 1,547, , , , ,732 25,547 45,262 1,116,578 1,122,885 5,135 8,873 13,746 27,962 1,476,164 1,825,721 3,406,565 3,521,445 Total Assets 1,854,004 2,380,951 4,596,225 4,580,575 Accounts payable Financial liabilities Current Liabilities 511, ,781 1,103,624 1,081,267 52, ,017 79,682 68,415 14,679 17,614 14,961 18, , ,412 1,198,267 1,168,020 Financial liabilities Non Current Liabilities 380, ,927 1,481,374 1,631,705 49,660 58, , , , ,673 1,666,128 1,824,943 Total Liabilities 1,008,255 1,382,085 2,864,395 2,992,963 Total Equity 845, ,866 1,731,830 1,587,612 Quick Note 4

5 Appendix: Disclaimer Analyst certification The analyst that prepared this report hereby certifies that: i) the opinions and views expressed in this valuation report, in regard with the issuer and with the company s overview, reflected his/her personal opinion and ii) No part of his/her salary compensation was, is or will be related directly or indirectly to the recommendations expressed in this report. The economic compensation of the analyst that prepared this report is based in several factors, including but not limited to Kallpa Securities SAB s profitability and the profits generated by its different business units, including investment banking. In addition, the analyst does not receive any kind of economic compensation from the companies he/she covers. This valuation report was prepared by Kallpa Securities SAB s employees that maintain the position of Analyst. Persons involved in the elaboration of this report are authorized to maintain shares. Share prices in this report are based on market prices as of closing of the day prior to the publication of this report, unless it is strictly stated. General Statement This document is for informative purposes only. Under no circumstances it should be used / be considered as an offer of sale or an application of purchase of shares or any other securities mentioned in this document. The information herein has been obtained from sources which are believed to be reliable, but Kallpa Securities SAB does not guarantee the trustfulness or accuracy of the content of this report, or the future market values of shares or other securities mentioned in this document. The views and opinions expressed in this document constitute our opinion at the time of this report and are subject to change without any notice. Kallpa Securities SAB does not guarantee analysis updates before any change in the circumstances of the market. The products referred in this document may not be available for purchase in some countries. Kallpa Securities SAB has reasonably designed policies to prevent or to control the exchange of non-public information used by areas such Research and Investment, Capital Markets, among others. Definition of qualification ranges Kallpa Securities SAB has 5 qualification ranges: Overweight +, Overweight, Neutral, Underweight and Underweight -. The analyst will assign the coverage one of these ranges. Underweight - < - 30% > + 30% Overweight + Underweight -30% to -15% +15% to +30% Overweight Neutral -15% to 0% 0% a to15% Neutral The range assigned to each company covered by the analyst in these reports is based on the analysis/monitoring Kallpa Securities SAB has been developing for the company. In some cases, the analyst can express his/her short-term points of view to traders, vendors and some Kallpa Securities SAB s clients but this point of view may differ in time by market volatility and other factors. The fair value calculated by Kallpa SAB is based in one or more valuation methodologies commonly used by financial analysts, including but not limited to discounted cash flows, In Situ valuations or any other applicable methodology. It should be noted that the publication of a fair value does not imply any guarantee that the value will be achieved. Quick Note 5

6 KALLPA SECURITIES SOCIEDAD AGENTE DE BOLSA MANAGEMENT Alberto Arispe CEO (511) TRADING Enrique Hernández Eduardo Fernandini Javier Frisancho Jorge Rodríguez Manager Head Trader Trader Trader (511) (511) (511) (511) CORPORATE FINANCE Ricardo Carrión Manager (511) EQUITY RESEARCH Marco Contreras Edder Castro Fátima Ramírez Analyst Analyst Assistant (511) (511) (511) OPERATIONS Elizabeth Cueva Alan Noa Mariano Bazán Armando Trujillo Manager Analyst - Securities Analyst - Treasury IT (511) (511) (511) (511) ecueva@kallpasab.com anoa@kallpasab.com mbazan@kallpasab.com atrujillo@kallpasab.com MIRAFLORES OFFICE Jose Antonio Avendaño Daniel Berger Victor Hugo Rossel Representative Representative Representative (511) (511) (511) javendano@kallpasab.com dberger@kallpasab.com vrossel@kallpasab.com CHACARILLA OFFICE Hernando Pastor Gerardo del Águila Representative Representative (511) (511) hpastor@kallpasab.com gdelaguila@kallpasab.com EL POLO OFFICE Ana María Castro Gissella Gárate Representative Investment Advisor (511) (511) amcastro@kallpasab.com ggarate@kallpasab.com Quick Note 6