Portobello SpA — Focusing on cash generation

Portobello SpA (MIL: POR)

Last close As at 16/04/2024

EUR6.00

−0.06 (−0.99%)

Market capitalisation

EUR32m

More on this equity

Research: Consumer

Portobello SpA — Focusing on cash generation

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%.

Russell Pointon

Written by

Russell Pointon

Director, Consumer

Woman shopping vegetables at the supermarket

Consumer

Portobello SpA

Focusing on cash generation

H123 results

Retail

30 October 2023

Price

€6.9

Market cap

€24m

Net debt (€m) at 30 June 2023

44.9

Shares in issue

3.5m

Free float

33%

Code

POR

Primary exchange

Euronext STAR Milan

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(32.4)

(61.0)

(60.3)

Rel (local)

(30.5)

(57.5)

(66.5)

52-week high/low

€34.30

€6.90

Business description

Portobello aims to build a national Italian retail presence (from 35 stores at end H123) via a roll-out of its own stores and franchises. It uses a combination of barter (own and third-party media) and cash purchases to source branded products from its suppliers.

Next events

FY23 results

March 2024

Analysts

Russell Pointon

+44 (0)20 3077 5700

Milo Bussell

+44 (0)20 3077 5700

Portobello SpA is a research client of Edison Investment Research Limited

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*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

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


General disclaimer and copyright

This report has been commissioned by Portobello SpA and prepared and issued by Edison, in consideration of a fee payable by Portobello SpA. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Portobello SpA and prepared and issued by Edison, in consideration of a fee payable by Portobello SpA. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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