| Shira Ahiez, retail analyst IBI Investment House |
The Yohannoff Company (TASE:) published on Sunday the reports for the third quarter of the year and presented a report with expectations, with growth alongside an erosion in the operating margin compared to the corresponding period.
We continue to recommend the Yohannoff company with an excess yield recommendation, when our updated target price for the third quarter reports is NIS 229 per share.
| The main results:
Revenues grew by 4.1% in the quarter (expected), in our estimation thanks to the opening of 2 new branches in the last year (Eshot Ya’akov, Rishon Lezion) along with the full implementation of 2 branches that were opened during the corresponding quarter (Tel Aviv, Be’er Sheva), the timing of the Tishrei holidays and a growth of approx. -18% in cheap stock activity.
On the other hand, we believe that the significant increase in the volume of flights abroad compared to the corresponding quarter clouded the growth.
The growth in the revenue line included a 1.5% increase in SSS alongside a 0.4% increase in sales per square meter, with the Yohannoff chain presenting positive SSS data compared to competitors that published their financial results (Tiv Taam which presented a 6.9% decrease and Victory which presented stagnation in this parameter). Thus we note that according to IBI processing of Storenext data, the consumer goods market in Israel showed an increase of 3.6% in the third quarter of the year (compared to the corresponding one), mainly thanks to the month of September which showed a strong growth of 8.4% in the volume of financial sales.
Gross profitability improved to the level of 27.6% in the quarter (slightly above expectations, compared to 27.1% at the same time), in our estimation mainly in light of an increase in consignment activity, an improvement in the trading conditions of Zol Stock and expansion in the private label sector.
However, the operating profitability decreased to the level of approximately 7% in the quarter (expected, compared to 7.4% at the same time), in our estimation against the background of the expansion of the structure of the operating expenses due to the expansion moves of the network along with an increase in a variety of inputs (such as electricity, depreciation and fuel).
In total, Yohananoff presented a net profit of NIS 32.5 million in the quarter (expected, compared to NIS 29.3 million at the same time). In accordance with expectations, a loss of approximately NIS 4 million was recorded due to the revaluation of financial assets (the investment in A2Z) which clouded the bottom line, this compared to a more significant loss of NIS 15.3 million in the third quarter of 2021. Excluding losses from financial assets, the net profit in the quarter The third of the year amounted to about NIS 36 million (compared to about NIS 41 million in the corresponding period).
| A look ahead and conclusions
We believe that the Yohannoff chain, similar to the other competitors in the sector, is at the beginning of a challenging period that includes price increases alongside a real decrease in demand, all while the increase in the inflation environment, which causes the price of a variety of inputs, is expected to continue to cloud the structure of operating expenses in the future.
However, the continuation of the chain’s expansion trend, which includes 4 new branches that will open by the end of the year, will in our estimation support growth above the market rate while increasing the company’s market shares.
Meanwhile, let’s recall that during the quarter, Yohannoff completed a bond issue amounting to NIS 204 million (at a fixed interest rate of 3.94%) and took out a bank credit amounting to NIS 175 million, which are expected to support the company’s growth plans.
In terms of pricing, we continue to recommend Yohannoff with an excess yield recommendation, with our updated target price for the third quarter reports at NIS 229 per share.