Earnings Report /
Turkey

Migros: Another very impressive quarter. Stay tuned...

  • Migros realised TL807mn net income in 3Q22, better than our estimate of TL575mn and consensus estimate of TL567mn

  • The management revised its 2022E (1) topline growth guidance to “c.100%” from “c.80-85%” versus our estimate of 90.6%

  • We see upside risk to our estimates and 12M TP of TL160/shr for Migros

Cemal Demirtas
Cemal Demirtas

Head of Research

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ATA Invest
4 November 2022
Published byATA Invest
  • Migros realised TL807mn net income in 3Q22, better than our estimate of TL575mn and consensus estimate of TL567mn. Supported by strong topline growth, significantly higher than expected EBITDA was the major reason behind higher than expected net income.

  • The management revised its 2022E (1) topline growth guidance to “c.100%” from “c.80-85%” versus our estimate of 90.6% (2) new store openings guidance to c.365 from c.350 new stores (3) capex guidance to c.TL2,200mn from c.TL1,600 and (4) its EBITDA margin guidance to “c.8.5%” from “8.0%” versus our estimate of 8.0%.

  • Considering the inflation trends and latest guidance, we see upside risk to our estimates and 12- month target price of TL160/shr for Migros, despite significant rally during the last 3 months. As a separate note, transformation of Migros ecosystem with new subsidiaries (online business, fintech company, logistics start-up, media assets, EV charging services) might be another hidden value.

Topline growth of 122.3% in 3Q22 was 5.8pts above our estimates. Strong tourism season and back-to-school performance and competitive pricing strategies supported the topline growth. Migros’ market share in total FMCG markets inched up c.40bps y/y, to 8.8% in 9M22 while its share in modern FMCG inched up by 10bps y/y to 15.6%, y/y, during the same period.  Migros opened 69 net new stores in 3Q22, reaching 2,750 stores with 1,725K sqm net sales areas. Online service stores declined to 931 in 3Q22 from 955 in 2Q22.  Online sales increased by 139% y/y to TL2.6bn in 3Q22, constituting 11.9% of Migros’ consolidated revenues.

EBITDA margin of 9.3% (incl. IFRS 16) was 90bps higher than our est. of 8.4% and 60bps higher than consensus est of 8.7%.  Gross margin of 24.6% was 52bps below our estimates whereas opex/net sales ratio of 16.7% was 206bps below our estimates in 3Q22.  Thanks to stronger operational efficiency supported by topline growth, Migros increased its EBITDA margin by 9bps q/q to 9.3% in 3Q22, despite pressure on gross margin. Starting by 3Q22, Migros shared an EBITDA margin (after ETB and unused vacation provisions) guidance of c.8.5% for 2022 which was revised up from the previous guidance of c.8.0%

If we further adjust with interest on term purchases and term sales in order to make apple-to-apple comparison with Bim and other peers, Migros’ adj-comparable EBITDA was at 6.9% versus 6.6% in 2Q22 and 6.8% in 2Q22.

Migros’ Net Cash/EBITDA (excl. IFRS16) increased to 1.0x in 3Q22 from 0.6x in 2Q22.  When we add leasing liabilities of TL4.18bn due to IFRS 16, reported net cash declines to TL0.11bn from TL4,297mn net cash.  Including the IFRS 16 impact, Net Cash/EBITDA now stands at 0.0x in 3Q22 vs -1.00x in 2Q21 and -0.4x in 2Q22.  Excluding IFRS impact, Migros’ net cash position increased to TL4,297mn in 3Q22 from TL1,903mn in 2Q22, supported by strong operating cash flow. Migros had no FX short position as of 3Q22.The company’s balance sheet is fully covered against TL depreciation and interest rates will have very limited negative impact at the bottomline.