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Research: Consumer
Portobello’s (POR’s) H123 results demonstrated strong revenue growth as the store expansion continued against an increasingly challenging macroeconomic backdrop. However, profitability was negatively affected by inflationary cost pressures. The unexpected and unfavourable out-of-court settlement to pay a counterparty’s VAT means POR will focus on cash generation in the near term, allowing its existing store base to mature and pausing the new store opening programme, likely through H124. We reduce our FY23–24 revenue forecasts by 11–12% and our EBITDA forecasts by c 21%.
Portobello SpA |
Focusing on cash generation |
H123 results |
Retail |
30 October 2023 |
Share price performance
Business description
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Portobello SpA is a research client of Edison Investment Research Limited |
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Portobello’s (POR’s) H123 results demonstrated strong revenue growth as the store expansion continued against an increasingly challenging macroeconomic backdrop. However, profitability was negatively affected by inflationary cost pressures. The unexpected and unfavourable out-of-court settlement to pay a counterparty’s VAT means POR will focus on cash generation in the near term, allowing its existing store base to mature and pausing the new store opening programme, likely through H124. We reduce our FY23–24 revenue forecasts by 11–12% and our EBITDA forecasts by c 21%.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
85.5 |
13.0 |
2.63 |
0.0 |
2.6 |
N/A |
12/22 |
129.9 |
18.6 |
4.63 |
0.0 |
1.5 |
N/A |
12/23e |
160.8 |
16.5 |
3.72 |
0.0 |
1.9 |
N/A |
12/24e |
197.3 |
24.2 |
4.37 |
0.0 |
1.6 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. EPS is fully diluted.
A challenging first half
POR’s H123 revenue grew by 33% y-o-y, with growth in Retail (35%) and B2B (65%) above the group average. Retail growth was driven by the addition of four net new stores to 35 by the period end, eight more than at the end of H122. The more challenging economic environment, including higher discounting, and the maturation period of newly opened and larger stores was reflected in a decline in average sales per store and sales densities. The underlying gross margin declined by 640bp y-o-y to 32.5% due to greater discounting and inflation in cost of goods sold, but cost savings tempered the decline in EBITDA margin to 9.2% versus H122’s 13.1%, with EBITDA of c €6m. POR reported exceptional items for an unfavourable and unexpected €10.4m for VAT that should have been paid by a counterparty and direct taxes from 2017–20 and €2.2m for media inventory from a supplier that went into liquidation. The former is to be paid over three instalments by the end of March 2024 (the first €5.5m has already been paid), from operating cash flow and new financing currently under negotiation. At the end of H123, POR’s net debt position increased to €44.9m (€42.7m at end FY22), including a cash position of €4.5m (€2.8m at end FY22).
New store opening plans deferred
We now assume no net new store growth in H223 (versus seven for FY23 previously) and five net new stores in FY24 (11 previously). As a result, we reduce our FY23 EBITDA forecast by 21% to €21.9m (from €27.8m), with a margin of 13.6% (vs 15.1% previously), and our FY24 forecast to €28.2m (from €35.5m).
Valuation: Significant discount to peers
POR’s FY23e and FY24e P/E multiplies of 1.9x and 1.6x are at a significant discount to the peer median of c 13x for FY23 and c 11x for FY24. We believe POR’s net debt position versus its equity base of c €31m is weighing on its valuation, hence a focus on cash generation and debt reduction would be supportive of a higher share price.
Exhibit 1: Financial summary
€m |
2020 |
2021 |
2022 |
2023e |
2024e |
||
Year end 31 December |
IAB |
IAB |
IAB |
IAB |
IAB |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
62.7 |
85.5 |
129.9 |
160.8 |
197.3 |
Value of production |
|
|
64.0 |
88.2 |
130.5 |
161.4 |
197.9 |
Cost of Sales |
(42.6) |
(52.6) |
(77.3) |
(101.8) |
(124.1) |
||
Gross Profit |
20.1 |
32.9 |
52.6 |
59.1 |
73.3 |
||
EBITDA |
|
|
10.9 |
16.5 |
24.6 |
21.9 |
28.2 |
Operating profit (before amort. and excepts.) |
|
|
8.6 |
13.9 |
19.9 |
18.8 |
25.6 |
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
(0.6) |
(0.6) |
||
Exceptionals |
0.0 |
(0.6) |
0.0 |
0.0 |
0.0 |
||
Share-based payments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Reported operating profit |
8.6 |
13.3 |
19.9 |
18.2 |
25.0 |
||
Net Interest |
(0.3) |
(0.9) |
(1.3) |
(1.8) |
(1.9) |
||
Exceptionals |
0.0 |
0.0 |
(6.4) |
(10.6) |
0.0 |
||
Profit Before Tax (norm) |
|
|
8.3 |
13.0 |
18.6 |
16.5 |
24.2 |
Profit Before Tax (reported) |
|
|
8.3 |
12.5 |
12.2 |
5.3 |
23.6 |
Reported tax |
(2.3) |
(4.2) |
(4.5) |
(1.7) |
(7.6) |
||
Profit After Tax (norm) |
6.0 |
8.8 |
14.1 |
11.2 |
16.5 |
||
Profit After Tax (reported) |
6.0 |
8.3 |
7.7 |
3.6 |
16.1 |
||
Minority interests |
0.0 |
0.0 |
2.7 |
2.7 |
0.0 |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
6.0 |
8.9 |
16.8 |
13.9 |
16.5 |
||
Net income (reported) |
6.0 |
8.3 |
10.3 |
6.3 |
16.1 |
||
Average Number of Shares Outstanding (m) |
2.8 |
3.1 |
3.4 |
3.5 |
3.5 |
||
EPS - basic normalised (€) |
|
|
2.15 |
2.86 |
4.90 |
3.97 |
4.69 |
EPS - normalised fully diluted (c) |
|
|
195.6 |
262.8 |
462.8 |
372.1 |
436.9 |
EPS - basic reported (€) |
|
|
2.15 |
2.68 |
3.03 |
1.80 |
4.58 |
Dividend (€) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
38.3 |
36.4 |
51.9 |
23.8 |
22.7 |
||
Gross Margin (%) |
31.5 |
37.3 |
40.3 |
36.6 |
37.0 |
||
EBITDA Margin (%) |
17.0 |
18.7 |
18.8 |
13.6 |
14.2 |
||
Normalised Operating Margin (%) |
13.4 |
15.7 |
15.2 |
11.7 |
12.9 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
5.1 |
8.4 |
14.2 |
11.4 |
10.5 |
Intangible Assets |
2.9 |
5.3 |
6.3 |
4.6 |
3.5 |
||
Tangible Assets |
0.7 |
2.0 |
3.3 |
3.4 |
3.6 |
||
Investments & other |
1.4 |
1.1 |
4.6 |
3.5 |
3.4 |
||
Current Assets |
|
|
47.4 |
78.2 |
100.1 |
119.1 |
141.6 |
Stocks |
16.4 |
43.9 |
56.3 |
68.7 |
81.0 |
||
Debtors |
2.6 |
4.3 |
6.4 |
9.6 |
11.5 |
||
Cash & cash equivalents |
2.6 |
2.5 |
2.8 |
3.4 |
4.9 |
||
Other (Including prepaid advertising) |
25.7 |
27.5 |
34.6 |
37.4 |
44.1 |
||
Current Liabilities |
|
|
(23.9) |
(36.9) |
(39.7) |
(44.2) |
(44.8) |
Creditors (including deferred income) |
(15.8) |
(23.6) |
(12.5) |
(15.1) |
(17.6) |
||
Tax and social security |
(3.7) |
(7.0) |
(11.0) |
(13.0) |
(11.0) |
||
Short term borrowings |
(4.3) |
(6.2) |
(16.2) |
(16.2) |
(16.2) |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(12.5) |
(14.7) |
(31.7) |
(39.7) |
(44.7) |
Long term borrowings |
(12.2) |
(13.5) |
(29.3) |
(37.3) |
(42.3) |
||
Other long term liabilities |
(0.3) |
(1.1) |
(2.4) |
(2.4) |
(2.4) |
||
Net Assets |
|
|
16.1 |
35.0 |
42.9 |
46.6 |
62.6 |
Minority interests |
0.0 |
0.0 |
(2.7) |
(5.4) |
(5.4) |
||
Shareholders' equity |
|
|
16.1 |
35.0 |
40.3 |
41.2 |
57.3 |
CASH FLOW |
|||||||
Operating Cash Flow |
10.9 |
16.5 |
24.6 |
22.5 |
28.8 |
||
Working capital |
(14.8) |
(23.8) |
(33.7) |
(15.9) |
(18.4) |
||
Exceptional & other |
(0.3) |
(0.9) |
(5.9) |
(9.2) |
(2.6) |
||
Tax |
(0.8) |
(0.9) |
(0.5) |
(1.7) |
(7.6) |
||
Net operating cash flow |
|
|
(5.0) |
(9.2) |
(15.7) |
(4.3) |
0.2 |
Capex |
(2.8) |
(2.7) |
(5.1) |
(1.4) |
(1.7) |
||
Acquisitions/disposals |
(0.6) |
(2.1) |
(3.3) |
0.0 |
0.0 |
||
Net interest |
(0.3) |
(0.5) |
(0.9) |
(1.8) |
(1.9) |
||
Equity financing |
0.1 |
10.0 |
(0.2) |
0.0 |
0.0 |
||
Borrowings |
10.2 |
3.3 |
25.8 |
8.0 |
5.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
1.0 |
(0.3) |
0.0 |
0.0 |
||
Net Cash Flow |
1.6 |
(0.2) |
0.4 |
0.5 |
1.6 |
||
Opening cash |
|
|
1.0 |
2.6 |
2.4 |
2.8 |
3.3 |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing cash |
|
|
2.6 |
2.4 |
2.8 |
3.3 |
4.9 |
Closing net debt/(cash) |
|
|
13.9 |
17.3 |
42.7 |
50.2 |
53.6 |
Source: Company accounts, Edison Investment Research
|
|
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