DIA Suffers 70% Fall In Sales So Far This Year: Take-Over More Likely After Profit Warning

DIA suffers 70% fall in sales so far this yearThe reduction DIA's forecast for 2018 does not include the potential impact of hyperinflation in Argentina

The Board of the supermarket chain DIA has issued a profit warning because of the fall in the volume of sales and the increase in operating costs, which has caused it to revise its estimation of Ebitda for 2018 to between 350-400 million euros. The Board also announced the resignation of Ana Maria Llopis as chairperson, although she will remain on the Board until the end of the year. On the other hand, Stephan Ducharme (Board member in representation of LetterOne, which owns 29% of DIA) has been named deputy Chairman, and has assumed the functions of the Chairman until a successor is named. Sergio Ferreiro has been named as a Board member in representation of LetterOne.

The reduction of the forecast for 2018 does not include the potential impact of hyperinflation in Argentina, a country which accounts for 15% of sales. The company will also carry out a negative equity adjustment of 70 million euros in the financial statements for 2017. The company will also suspend the payment of a dividend in 2019.

The downward revision of the Ebitda for 2018 supposes a greater fall than expected by the analysts at Bankinter (-12%) and will force them to revise their projections and valuation of the company, in light of the strategic plan that the company is going to present in October.

“A change in the direction of management is essential for a business model which has not been successful and which has caused a 70% los of value in 2018.”

On the other hand, this strong fall in price today makes a possible takeover bid by LetterOne cheaper. Mihail Fridman, through his company LetterOne, entered the capital of DIA in July 2017 and has been increasing his holding up to the limite of 30%, which would force him to launch a takeover bid.

Until now a takeover bid looked unlikely. Now everything seems to show that the Russian already controls or intervenes actively in the company, given that the Board has announced significant changes in the equipment and management of the company. This increases the possibility of a takeover bid.

For their part, the experts at Renta4 mark an Objective Price of 1.19 euros/share (-37% of the previous OP) and a potential revaluation of 19%.


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