Bankinter | Inditex’s Q3’22 results (August-October) met expectations. Sales were up 11% vs expected 9%. Despite some deterioration in a difficult context, margins are holding up at levels close to historic highs (M. EBIT 21.3% vs 21.7% in Q3’21). The Q4 kickoff, which includes the Christmas season (on average 30% of annual sales), is good.
In the first 5 weeks (from November 1 to December 8) sales grew 12%, gaining traction compared to Q3. In spite of the expected slowdown in the coming quarters, good cost control along with the capacity to hike prices are defending margins at much higher levels than those of its competitors (H&M M. EBIT of 5.2% in Q3’22 vs 21.3% at Inditex); closer to luxury companies (LVMH 26.7%; Kering 28.41% in 2021).
In 2023, we expect less pressure from increases in raw material prices and freight costs. That said, the adverse effect of exchange rates will persist. Free cash flow generation will remain resilient given reduced investment needs, and a strong net cash position, close to 10 billion euros, will allow for continued improvement in shareholder retribution.
After a 12% decline in the stock market in 2022, the multiples are more comfortable (PER 23 of 17,8x vs a historic average of 28,7x; dividend yield of 5.0%). We are raising our recommendation to Buy (from a previous Neutral) and the Target Price to 27,5 euros/share (vs the previous 26,5 euros/share).
