Bankinter | Inditex’s 2021 results (closed at 31 January 2022) have not met expectations and the outlook is deteriorating. The model is showing resilience, with strong cash flow generation. However, forecasts for 2022 are getting complicated.
On the revenues side: activites in Russia and Ukraine suspended (9% of stores), outbreaks of Covid-19 in China (5% of stores) and the deterioration in confidence and purchasing power of consumers in Europe and US against a backdrop of the uncertainty of conflict and the increase in energy prices other basic products.
And on the margins side: the pressure of transport, energy and raw materials’ costs make it difficult to achieve the Gross Margin target of 57.5% and the expansion of the EBIT Margin. This context already surfaced in Q4 2021, with an “extraordinary” impact of 400 million euros reflecting the current environment of slower growth and margin pressure.
Despite a drop of 28% over the year, we believe the risks and low visibility will put the brakes on a the potential revaluation of the stock in the short-term, despite more comfortable multiples (PER 2022 17.3x, EV/EBITDA 7.5x).
Recommendation: Neutral, Target Price 26,5 euros/share.