Thursday, December 08, 2022

Inditex, tested under inflationary woes

Inditex is going through its worst stock market phase. There has been a series of incidents in the past two years that have damaged it in particular. First it was an epidemic—with months of imprisonment—; Then, Russia’s invasion of Ukraine—a country it has abandoned—; Then there is the supply problem and rising commodity prices, and now the fear of inflation and recession looms large. This year it saw the stock market fall 24% (H&M lost 37%), and after marking last May 2013 lows and subsequently attempting a recovery, it has weakened again. .

The action is proceeding under one main axis: inflation and rate hikes that could make consumption worse. Most analysts believe the decline in stocks to be excessive, but conviction and suspicion remain.

Divacons-Alphavalue has added Inditex to its model portfolio as the best in European retail. As positive points, it highlights that “it has one of the best online and offline integrated models with excellent inventory control and fast deliveries; an extremely flexible supply chain with more than half of the manufacturing being located in neighboring countries.” The chain limits the impact of challenges, and has a strong liquidity position.”

But he also points to some factors that could be pressing: “Inflation is creating uncertain consumer behavior in the Western world and Zara still generates most of the group’s profitability (69% of gross profit).” Nevertheless, the positive about Textile for Divacons-Alphavalue has more weight and is recommended to add. “The growth story is impressive and inspired by all geographies.” “Their business model is strong thanks to an exceptional supply chain,” he says.

The most immediate appointment of interest to investors are its fiscal second-quarter results due for release on September 14. Ivan San Felix from Renta 4 calculates an 11% increase in sales and a 26% increase in profit; The market consensus forecasts growth of 12% and 22%, respectively.

This will be an important moment, as it will be possible to measure the effect of a continued increase in prices. In the first quarter, Inditex earned 80% more after making a provision of 216 million for Ukraine. “We believe the stock’s weakness is due to growing fears of slowing consumption in a more unfavorable macro environment; this discounts the highly negative environment”, says San Felix.

For its part, Goldman Sachs, which has just raised its valuation to EUR 30 (which represents an upside potential of 38%) and offers buy advice, states that “the most recent data in the United Kingdom indicates a strong and consistent demand for Zara, Germany and the USA; looking ahead, we have raised our revenue growth forecast for the second half of 2023 to 4% from the previous flat level, despite still weak European consumer forecasts. Assuming a weak pre-Covid trend due to [o de bajo coste]Like H&M and Inditex.

Credit Suisse is one of the few downside firms with the group giving the stock underweight (69.4% of the market recommends buying and 22.2% holding), “because future growth rates are significantly lower than those of the past 10 years.” Its growth prospects will inevitably slow down in the medium term.” For the bank, the stock is overvalued. Inditex may maintain premium valuation only as long as the income meets or exceeds the requirements. However, analysts have set an average 12-month target price of EUR 28.33, which is 30.5% higher than the current price.

President. Marta Ortega has been the non-executive chairperson of the Inditex Group since April 1. His mandate has come at a difficult time on the stock market. Since Pablo Isla’s replacement was announced in November, the stock has declined 28%, a decline largely driven by the war and economic uncertainty in Ukraine. The company maintains a tug of war with Iberdrola to take the podium at Ibex. At the moment, it is still number one with a value of 67,600 million euros.

remuneration, Inditex will pay a dividend of EUR 0.93 per share charged for the 2021 results, representing an increase of 33% over the previous year and a distribution of approximately EUR 2,900 million. This will be done in two payments of 0.465 each. The first took effect in May and the second will be delivered on November 2. Pay out is located at 60%.

buy back. Inditex undertook a temporary share repurchase program between July 13 and July 20 for 2.5 million shares, representing 0.08% of its share capital.

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