CdM |Inditex (ITX)’s first quarter results released on Wednesday beat expectations; the net profit figure reflects the provision for the suspension of activity in Russia and the Ukraine.
Main figures compared with Bloomberg consensus: Sales 6.742 billion euros (+36.4%) vs 6.237 billion expected. Gross Margin 4.054 billion euros (+36.9%) vs 3.713 billion (e). This means a margin of 60.1% vs 59.9% in Q1 2021 and 59.5% expected. EBITDA 1.917 billion euros (+55.2%) vs 1.750 billion expected; EBIT 1.034 billion euros vs 1.052 billion (e); Net Attributable Profit 760 million euros (+80%) vs 797 million (e). Inditex will propose a dividend of 0,93 euros/share against 2021 results and an extraordinary dividend of 0,40 euros/share in 2022.
Renta 4 analyst team’s opinion: After several months of doubts regarding the company’s progress, we think Q1 results show that Inditex’s business model is solid. In addition, it is very well protected from risks which are currently very much present like inflation or complications in the supply chain. We believe that the focus on digitalisation, the optimisation of stores and the improved client experience will convince investors that Inditex has competitive advantages which position it as the key reference for the sector.
We are revising our Target Price to 30,1 euros/share (vs a previous 35 euros/share), implying a 27% potential revaluation. We reiterate our Overweight stance
Bankinter analyst team’s view:
Although in the medium-term the panorma remains uncertain, with a slowdown in consumption and pressure on costs, we have included Inditex in our Spanish portfolios as a tactical move. And we are raising our recommendation to Buy. After a drop in the year of 19% vs a rise of 1.4% for the IBEX-35, we expect the stock to recover after being penalised for the changes in the management team, the impact of the exit from Russia (8.5% of EBIT) and the deterioration in the outlook for growth and margins.
The recovery in tourism and in social activities, which brings with it a provoked demand for fashion, as well as the outlook for fewer restrictions related to Covid-19 in China, will improve the tone of the stock in the short-term.
During the first quarter, 67 stores in China have been subjected to restrictions due to confinements. However, at the start of Q2 2022 only 4 stores are closed. Free Cash Flow generation will remain resilient given the reduced investment needs, which will allow for a hike in the dividend with a 6% yield.
After the recent stock market decline, multiples are more comfortable (PER ’22 of 18,5x and ’23 of 17,9x vs a historic average of 28,7x). And a model which is turning out to be more resistent than expected in a difficult context. These justify a Buy recommendation (vs Neutral previously), with a Target Price of 26,5 euros/share.