Shira Ahiez (photo by Ilan Bashor)
The IBI investment house begins to cover Max Stock shares with an ‘excess yield’ recommendation and a target price of NIS 8.4. The target price is about 30% higher than the stock price on the stock exchange.
The analyst Shira Ahiez writes in the reasons for the recommendation that “in days when inflation and interest rates are on the rise, Max Stokoe 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.
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“Max Stock is a leading discount retailer in the home world that operates through 55 stores (as of the end of the third quarter of 2022) under 2 formats: Max and Max Mini. We believe that Max Stock’s nationwide distribution is far from exhausted, when in our estimation an annual opening of 4 branches is expected Owned (net) in the next three years will support both the top line and the increase in market share.
“Thus, at the conclusion of 2025, the company is expected to double its trading space compared to 2019. In the coming year, we expect the accelerated growth trend to continue, while in 2024 we will even expect a double-digit growth rate due to the maturation of new branches that have opened and the continued expansion of the number of branches.
“Also,” writes Ahiez, “in our estimation, the drop in sea freight prices is expected to lead to an improvement in the gross profit margin next year. In addition, in 2023 we expect an improvement in the reported operating profitability (compared to 2022) in light of, among other things, a significant drop in share-based payment recorded since the company’s initial public offering on the stock exchange in September 2020, which is expected to be almost fully completed in the fourth quarter of 2022.
“Max Stock operates in a market saturated with competition, which is expected to strengthen in the future, among other things due to the entry of food marketing chains into the field alongside the penetration of new international players. In our estimation, compared to competitors, Max Stock is positioned at an excellent point in terms of brand strength, the shopping experience and the diverse value proposition in the chain’s branches Also, the company is equipped with several growth engines, which include the expansion of the range of products that the chain offers to its customers alongside expansion in the local and international market.
“Bottom line, we believe that at the current point in time and after a significant decline, the investment in Max Stock is attractive both in terms of pricing and in terms of the growth engines at hand, all this when in our estimation the company is expected to present an improvement in the reported operating margin in 2023 (compared to 2022). Also, we We estimate that the economic environment is expected to support changing consumer preferences for the company’s products.”
The first recommendation for Max Stock, therefore, is an ‘excess yield’ recommendation at a target price of NIS 8.4 per share, which is about 32% higher than its current market price. Max Stock trades at a net profit multiple of 15 LTM alongside an adjusted net profit multiple of 12 which is significantly lower compared to the average of competitors from the USA which is about 30. Ahiez’s valuation model does not reflect an additional upside that could arise thanks to the new international activity in Portugal.
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