| Shira Ahiez, retail analyst IBI Investment House |
Max Stock Company (TASE:) published this year’s reports on Monday and presented a good and above-expected report in terms of gross profitability. Compared to the corresponding quarter, the company presented growth in sales alongside a nice improvement in the gross and operating margin.
Also, a dividend distribution of NIS 60 million was announced, to be paid on 03/04.
Despite the timing of the Tishri holidays compared to the corresponding period, revenues grew by 2.7% in the quarter, in our estimation mainly thanks to the opening of new branches. The timing of the holidays which led to a shortage of trading days compared to the corresponding period (a decrease of 4 trading days) led to an erosion of 2.8% in SSS.
However, the upward trend in the average basket continues this quarter as well with a 1.7% increase in owned branches alongside a 2.1% increase in franchised branches.
Gross profitability stood at 41.2% in the quarter (above expectations, compared to 38.9% at the same time), this against the background of a drop in sea freight prices alongside an improvement in inventory management.
The improvement in gross was largely rooted in operational, where despite costs for opening new branches and the increase in the cost of inputs due to the increase in inflation, a nice improvement was recorded in the operating margin to the level of 12.9% in the quarter (excluding others, compared to 10.8% at the same time).
In our opinion, the improvement in the operating margin was mainly due to the improvement in the gross margin and also thanks to the growth of the activity and the decrease in the share-based payment.
In total, Max Stock presented a net profit of NIS 19.3 million in the fourth quarter of this year, when excluding the share-based payment, it is a net profit of NIS 19.5 million (compared to NIS 17.7 million in the corresponding quarter).
| Looking ahead and conclusions – we remain with an excess return recommendation, with a target price of NIS 8.4 per share.
In the coming year, we expect the accelerated growth trend to continue with the opening of new branches along with the full implementation of branches opened during 2022, when in our estimation Max Stock is expected to benefit from the macroeconomic environment that will lead consumers to look for cheap alternatives compared to the specialized stores and will support the demand for the company’s products.
In our estimation, despite the strengthening trend of the dollar against the shekel, the decrease in sea transportation prices along with the increase in the share of directly imported products will lead to an improvement in the gross margin.
Also, a significant decrease in share-based payment is expected. However, increases in the price of inputs due to the inflation environment along with costs due to expansion in the number of branches will offset part of the improvement.
We would also note that our valuation model does not reflect an additional upside that could arise thanks to the new international activity in Portugal, which is expected to begin in the second half of the year with the opening of 2 branches.
The author is a retail analyst at the IBA investment house and has no personal interest in the subject of the review. This review is not intended to be a substitute for investment marketing that takes into account the data and the special needs of each person