UPDATE: METRO

STAY LONG METRO INTO NUMBERS: RUB AND GFK

We continue to like the stock at 15x next year. With attractive exposure to
the European consumer, we continue to think that trends will improve from the
flat Q2 group sales ex-FX that the street expects. Guidance for a slight
increase in FY EBIT should be maintained.

A key driver will be the RUB, and in this context both the >50% move vs the
EUR this year, and the increased level of disrectionary spend at the end of
last year/beginning of this are helpful.

We also like the exposure to the European and especially German consumer

German consumer confidence at the highs.” Income expectations in Germany at
highest level since reunification” Gfk survey link

Investor day Tuesday and Wednesday

We stay long and look for our first PT of 35 (+30.57%)

 

BEATEN DOWN, EASTERN EUROPEAN BUSINESS VALUED AT ZERO WITH NUMEROUS POTENTIAL CATALYSTS AHEAD: BUY

Wednesday • 13 August 2014 • 09:56am

YTD MEO is -30% vs DAX -5% on back of Russian IPO pulled and current Russia/Ukraine worries

Stock spiked +7.8% on the initial announcement of the IPO while it has fallen 20% over the past month on geopolitical worries with regards to Russian IPO and currency shifts

Russian IPO put on hold earlier this year, analysts’ initially valued the Russian Cash & Carry IPO at between EUR 1bn – EUR 1.75bn

Russian Cash and Carry business only generates revenues of EUR 4.1bn (6% of the group’s sales)

Recent Cash and Carry asset sale in Vietnam valued at EUR 655m, this will provide funding for growth which eases the need for the cash from the awaited Russian IPO. Funds will be used to move faster forward with the expansion and reducing the debt

EBITDA from the entire Eastern Europe regions estimated at EUR 735m, subtracting this from the current BBG consensus we see the company trading at a 14% discount relative to the comps

Including the Eastern European income we see MEO GY trading at a discount of between 60-70% to the comps compared to 40% ahead of the Ukraine situation.

The retail sector is not usually very affected by political turmoil and the Russian business only imports around 10% of its food. Since sanctions they now import Fruit and vegetables from Turkey as they are not in the EU and therefore sanctions do not apply

Minimal effect of the sanctions so far

We believe that fundamentally not much has changed for the group and the Vietnam asset sale will provide the capital needed to reinvest in the business

We believe that the Eastern European business is currently unjustly priced close to zero and see the stock recovering in the short term to EUR 29 level while we have a medium term price target of EUR 36 expecting the Eastern European business again to be fully priced.

Possible catalysts include:

An ease to the geopolitical tensions

Russian IPO back on track (spoke to company this morning if you would like more details)

The speculated spin off of Media-Saturn following a power struggle with founder

Potential sale of Galeria Kaufhof. Still seen as non-core and a business that is growing

The outside possibility of a break-up of the entire group. (extremely unlikey)