LONDON (Alliance News) - Liberum reiterates its Buy recommendation on European electrical goods retailer Darty, saying that many investors have overlooked the opportunity that it offers.
"Many investors have overlooked Darty. This is understandable as the business has gone through major reforms over the past few years, but there is now a disconnect between the valuation and the future prospects in our view," Liberum says.
"On the one hand it offers exposure to the recovery in consumer spending in Europe but on the other it offers an additional play in the online electrical market in Europe," the broker adds.
Liberum notes that Darty's recent acquisition of online electrical retailer Mistergooddeal.com broadens the group's customer base and gives it exposure to the entry price level in the market combined with the structural dynamics that an online retailer provides. It says that the shares reflect little to no value for the opportunities that Mistergooddeal.com bring to the company.
"Our forecasts are prudent and do not reflect any potential upside from a recovery in consumer spending, or reflect the benefits that would flow from improving product mix towards structurally higher margin white goods or any further cost savings from restructuring. A 1% change in France [like-forlike] sales translates to a 9% change in group profit and a 10 [basis point] change in gross margin has a 6% impact to profits," Liberum says.
"The business is now in a strong position and the opportunity to regain 260bps of lost gross margin (in its core French market) over the past 4 years is not only significant but a very real one," the broker adds.
Liberum also highlights the strength of Darty's 'Nouvelle Confiance' strategic plan, saying that it will benefit from the EUR50 million reduction in costs which alone should deliver strong operational gearing benefits when the top-line starts to recover.
The broker forecasts a pretax profit of EUR61.8 million for the financial year 2016, up 30% on the prior year.
Liberum has a price target of 100 pence on the stock. Shares in Darty are trading down 1.1% at 70.00 pence late Wednesday morning.
By Karolina Kaminska; karolinakaminska@alliancenews.com @KarolinaAllNews
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