“Edison’s accessible and high-quality research gives us the opportunity to communicate an independent perspective of Tyman to a wide variety of potential stakeholders.”
Currency in EUR
Last close As at 09/06/2023
EUR21.90
▲ −0.80 (−3.52%)
Market capitalisation
EUR77m
Research: Consumer
Portobello demonstrated strong revenue growth in H122 as it executed its retail-focused expansion strategy. Significantly, given the greater pressures on consumer discretionary income, the more established stores grew on an underlying basis, according to management. It believes the value-based retail offer is well positioned for more difficult economic times. Lower profitability reflects price investment to drive footfall and upfront investment in new trading space. Our operational estimates are unchanged, but our DCF-based valuation reduces to €115/share (€121/ share previously) to reflect a higher bond yield and net debt position.
Portobello SpA |
Offering value in tough times |
H122 results |
Retail |
23 September 2022 |
Share price performance
Business description
Next events
Analysts
Portobello SpA is a research client of Edison Investment Research Limited |
||||||||||||||||||||||||||||||||||||||||||||||||||
Portobello demonstrated strong revenue growth in H122 as it executed its retail-focused expansion strategy. Significantly, given the greater pressures on consumer discretionary income, the more established stores grew on an underlying basis, according to management. It believes the value-based retail offer is well positioned for more difficult economic times. Lower profitability reflects price investment to drive footfall and upfront investment in new trading space. Our operational estimates are unchanged, but our DCF-based valuation reduces to €115/share (€121/ share previously) to reflect a higher bond yield and net debt position.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/20 |
62.7 |
8.3 |
1.96 |
0.0 |
9.8 |
N/A |
12/21 |
85.5 |
13.0 |
2.61 |
0.0 |
7.3 |
N/A |
12/22e |
137.9 |
17.8 |
3.33 |
0.0 |
5.7 |
N/A |
12/23e |
211.0 |
28.0 |
5.07 |
0.0 |
3.8 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
H122 results: Revenue growth, margin dilution
Portobello’s revenue grew by 81% year-on-year in H122 to €48.8m, with all divisions contributing strong growth. According to management, like-for-like growth in more established stores was positive. Investment to drive footfall and the upfront costs in retail space growth diluted profitability margins. Management believes the former is temporary and the latter should improve as trading space matures. Relative to revenue, free cash flow consumption was broadly stable as lower profitability and higher capital investment were offset by lower investment in working capital. More debt funding led to an increase in the net debt position to €27.6m (€17.3m end FY21).
Forecasts: Operational forecasts maintained
Our operational forecasts for FY22 and FY23 are unchanged despite the more challenging economic background, given the strong revenue performance in H122 and lower assumed revenue growth for H222 (52% versus 81% in H122). H2 is typically a seasonally more important period given the inclusion of the festive period, and Retail should benefit from the continued expansion of its store portfolio and maturing trading at existing stores. We have yet to incorporate forecasts for the recently acquired ePrice due to uncertainty about its accounting treatment (consolidation or equity accounting), which will be clarified in the next few months.
Valuation: Discount to peers and DCF valuation
Portobello’s share price has been weak, as have the share prices of many consumer-facing companies due to increased macroeconomic uncertainty. Portobello continues to trade at a significant discount to its global peers, albeit valuation comparison is complicated by Portobello not yet reporting using International Financial Reporting Standards. Our DCF-based valuation reduces to €115/share (€121/share previously) to take account of a higher Italian bond yield, Portobello’s higher net debt position and the acquisition of ePrice.
H122 results: Strong revenue growth, lower margin
Income statement
Portobello’s H122 results demonstrated strong y-o-y revenue growth of c 81% to €48.8m, while gross profit grew by c 44% to €19.1m (H121 €13.2m) and EBITDA declined by 12% to €6.4m (H121 €7.3m). Against a deteriorating economic backdrop, all of Portobello’s revenue streams grew.
Exhibit 1: Summary income statement
€m |
H121 |
H221 |
FY21 |
H122 |
- Media |
14.9 |
39.6 |
54.6 |
24.6 |
Growth y-o-y |
(11%) |
50% |
27% |
64% |
- Retail |
3.5 |
8.0 |
11.5 |
9.8 |
Growth y-o-y |
59% |
134% |
105% |
180% |
- B2B |
8.6 |
10.8 |
19.4 |
14.5 |
Growth y-o-y |
92% |
13% |
37% |
68% |
Revenue |
27.0 |
58.5 |
85.5 |
48.8 |
Growth y-o-y |
16% |
49% |
36% |
81% |
- Other revenue |
2.4 |
0.3 |
2.7 |
0.2 |
Value of Production |
29.4 |
58.7 |
88.2 |
49.0 |
Gross profit |
13.2 |
19.7 |
32.9 |
19.1 |
Gross margin |
44.9% |
33.5% |
37.3% |
38.9% |
EBITDA |
7.3 |
9.2 |
16.5 |
6.4 |
EBITDA margin |
24.9% |
15.7% |
18.7% |
13.1% |
Net finance costs |
(0.2) |
(0.7) |
(0.9) |
(0.4) |
PBT |
6.2 |
7.4 |
13.0 |
4.3 |
Tax |
(1.8) |
(2.4) |
(4.2) |
(1.6) |
Tax rate |
29.7% |
32.1% |
32.3% |
36.2% |
PAT |
4.4 |
5.0 |
8.8 |
2.7 |
Source: Portobello., Edison Investment Research
Ongoing expansion of the store base, increasing average size of newer stores and maturing previously opened stores led to c 180% year-on-year growth in Retail revenue to €9.8m (H121: €3.5m). The company added six new stores in the period, ranging in average size from 780sqm to 1,500sqm, which compares with the company’s first stores opened, which were typically 200–250sqm. According to management, the stores opened before the start of the year have bucked industry-wide malaise by growing revenue.
Exhibit 2: Retail performance
H121 |
H122 |
FY21 |
H122 |
|
Retail revenue (€m) |
3.5 |
8.0 |
11.5 |
9.8 |
Stores at period end |
14 |
21 |
21 |
27 |
Space at period end (sqm) |
5,000 |
12,988 |
12,988 |
20,000 |
Sales per average store (Euro '000) |
249 |
407 |
657 |
407 |
Sales per average square metre (€) |
700 |
890 |
1,280 |
592 |
Source: Portobello, Edison Investment Research
Against a COVID-affected H121, when revenue declined by 11%, Media revenue grew by 64% year-on-year to €24.6m. Portobello’s B2B revenue grew by 68% to €14.5m.
Increased promotional activity to attract more customers and initial cost investment in the new (larger) stores opened during the period before they reached trading maturity (EBITDA break-even in six months) led to the decline in gross margin (by 6pp to 38.9% in H122) and EBITDA margin (by 11.7% pp to 13.1% in H122).
Further down the P&L, the net finance charge doubled to €0.4m as Portobello’s gross debt position increased (see below), and the effective tax rate increased to 36.2% from 29.7% in H121, which benefitted from tax credits.
Cash flow and balance sheet: Investing for future growth
Portobello’s free cash flow consumption of €9.3m increased from €4.9m in H121. In absolute terms, the delta in operating cash flow was a reduction of €2.9m, mainly due to working capital investment increasing by €2.7m to €12.4m and lower absolute net income, which declined by c €2m to €2.7m. Capital investment in tangible and intangible assets grew from €1.3m to €2.9m. Relative to revenue, free cash flow consumption was broadly stable as lower net income and higher capital investment were offset by lower investment in working capital.
Portobello raised two new tranches of debt (€5m each) to help fund its store expansion plans so that by the period end, the net debt position had increased from €17.3m (end FY21) to €27.6m.
ePrice acquisition: Opportunity to be quantified
Following the period end, the acquisition of a 50% stake in ePrice Operations was completed. ePrice is one of Italy’s leading online shops (fourth placed by market share, according to management) which specialises in the sale of high-tech products and household appliances. Subject to the level of internal investment by the two parties (Portobello and Riba Mundo Tecnologia) in the transaction in the coming weeks, Portobello’s shareholding is likely to reduce, therefore the accounting treatment for the acquisition, ie whether it will be partially consolidated or accounted for as an associate, will be determined. Therefore in the near term, we have not consolidated ePrice’s operating results in our estimates, but have included the initial investment by Portobello, half of approximately €6m, in our cash flow forecasts.
Forecasts: Operating forecasts unchanged
Our operating forecasts for Portobello in FY22 and FY23 are unchanged. We assume a similar rate of growth in space for Retail in H222 (c 8,000sqm), as that added in H122 (c 7,000sqm). The second half of the year should be seasonally more important than the first half due to the inclusion of the festive period and Black Friday, and Portobello should benefit from the maturing store profile. We make changes to our estimated net finance charge to account for the higher gross debt position, which includes the recent investment in ePrice.
Valuation: Discount to global peers
The share prices of consumer-facing companies performed poorly throughout H122 and into Q322 as the macroeconomic outlook deteriorated and pressures on consumer discretionary income increased.
As highlighted in our initiation, Portobello’s business model is unique in the public markets, with a combination of media and retail assets and the use of barter to source products. As such, there is no direct peer with which to compare its valuation. In addition, financial reporting under Italian GAAP rather than IFRS means that enterprise value-based multiples are not meaningful, given for example there is no capitalisation of lease liabilities. In addition, under Italian GAAP, lease costs are expensed through the income statement and EBITDA is lower than under IFRS.
The peer valuation table below shows that Portobello continues to trade at a significant discount to other general merchandise and electricals retailers, which have a range of product exposure and are more mature.
Exhibit 3: Peer valuation
Year-end |
Share price (local ccy) |
Currency |
Market cap (local m) |
EV (local m) |
Sales growth 2022 (%) |
Sales growth 2023 (%) |
EBIT margin 2022 (%) |
EBIT margin 2023 (%) |
EPS growth 2022 (%) |
EPS growth 2023 (%) |
P/E 2022 (x) |
P/E 2023 (x) |
|
B&M European Value Retail SA |
Mar |
333.0 |
GBp |
3,368 |
5,428 |
2 |
6 |
11.4 |
10.7 |
(11) |
(3) |
9.0 |
9.3 |
Ceconomy AG |
Sep |
1.4 |
EUR |
676 |
2,971 |
0 |
1 |
1.2 |
1.5 |
(38) |
22 |
3.9 |
3.2 |
Dunelm Group PLC |
Jun |
790.5 |
GBp |
1,611 |
1,896 |
8 |
2 |
12.7 |
11.9 |
4 |
(8) |
10.3 |
11.2 |
Fnac Darty SA |
Dec |
30.7 |
EUR |
835 |
2,475 |
(0) |
1 |
3.0 |
3.1 |
1 |
6 |
6.2 |
5.9 |
Maisons du Monde SA |
Dec |
9.0 |
EUR |
396 |
1,043 |
(7) |
6 |
5.0 |
6.1 |
(57) |
50 |
13.9 |
9.2 |
Puuilo Oyj |
Jan |
5.1 |
EUR |
440 |
519 |
N/A |
8 |
15.3 |
14.5 |
N/A |
3 |
13.1 |
12.7 |
Tokmanni Group Oyj |
Dec |
12.0 |
EUR |
718 |
1,023 |
2 |
5 |
8.1 |
8.3 |
(13) |
9 |
10.8 |
9.8 |
Unieuro SpA |
Feb |
11.3 |
EUR |
237 |
204 |
(2) |
(1) |
1.7 |
1.6 |
(40) |
(15) |
6.9 |
8.0 |
Westwing Group SE |
Dec |
6.0 |
EUR |
125 |
111 |
(17) |
8 |
(6.7) |
(2.0) |
(353) |
(52) |
N/A |
N/A |
European median |
(0) |
5 |
5.0 |
6.1 |
(25) |
3 |
9.7 |
9.2 |
|||||
Dollar General Corp |
Jan |
240.3 |
USD |
54,200 |
59,065 |
10 |
6 |
9.3 |
9.3 |
12 |
10 |
21.0 |
19.1 |
Dollar Tree Inc |
Jan |
141.9 |
USD |
31,770 |
34,500 |
6 |
6 |
8.1 |
8.5 |
25 |
15 |
19.7 |
17.1 |
US median |
8 |
6 |
8.7 |
8.9 |
18 |
12 |
20.3 |
18.1 |
|||||
Total median |
1 |
6 |
8.1 |
8.3 |
(12) |
6 |
10.5 |
9.5 |
|||||
Portobello SpA |
Dec |
19.1 |
EUR |
67 |
95 |
61 |
53 |
13.8 |
13.9 |
28 |
52 |
5.7 |
3.8 |
Source: Refinitiv, Edison Investment Research. Note: Priced at 22 September 2022.
Our updated DCF-based valuation reduces to €115/share (€121/share previously) to take account of the higher Italian bond yield (from 1.9% to 4.2%), Portobello’s higher net debt position and the acquisition value of ePrice. Our estimated WACC has increased to 12.5% (from 12%).
Exhibit 4: Financial summary
€'m |
2020 |
2021 |
2022e |
2023e |
||
31-December |
IAB |
IAB |
IAB |
IAB |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
62.7 |
85.5 |
137.9 |
211.0 |
Value of production |
|
|
64.0 |
88.2 |
139.4 |
212.5 |
Cost of Sales |
(42.6) |
(52.6) |
(91.3) |
(134.9) |
||
Gross Profit |
20.1 |
32.9 |
46.6 |
76.1 |
||
EBITDA |
|
|
10.9 |
16.5 |
22.2 |
34.0 |
Operating profit (before amort. and excepts.) |
8.6 |
13.9 |
19.0 |
29.3 |
||
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
(0.6) |
0.0 |
0.0 |
||
Share-based payments |
0.0 |
0.0 |
0.0 |
0.0 |
||
Reported operating profit |
8.6 |
13.3 |
19.0 |
29.3 |
||
Net Interest |
(0.3) |
(0.9) |
(1.2) |
(1.3) |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
8.3 |
13.0 |
17.8 |
28.0 |
Profit Before Tax (reported) |
|
|
8.3 |
12.5 |
17.8 |
28.0 |
Reported tax |
(2.3) |
(4.2) |
(5.7) |
(9.0) |
||
Profit After Tax (norm) |
6.0 |
8.8 |
12.1 |
19.0 |
||
Profit After Tax (reported) |
6.0 |
8.3 |
12.1 |
19.0 |
||
Minority interests |
0.0 |
(0.0) |
(0.0) |
(0.1) |
||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
6.0 |
8.8 |
12.0 |
19.0 |
||
Net income (reported) |
6.0 |
8.2 |
12.0 |
19.0 |
||
Average Number of Shares Outstanding (m) |
2.8 |
3.1 |
3.4 |
3.5 |
||
EPS - basic normalised (€) |
|
|
2.15 |
2.84 |
3.52 |
5.40 |
EPS - normalised fully diluted (c) |
|
1.96 |
2.61 |
3.33 |
5.07 |
|
EPS - basic reported (€) |
|
|
2.15 |
2.66 |
3.52 |
5.40 |
Dividend (€) |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
38.3 |
36.4 |
61.3 |
53.0 |
||
Gross Margin (%) |
31.5 |
37.3 |
33.4 |
35.8 |
||
EBITDA Margin (%) |
17.0 |
18.7 |
15.9 |
16.0 |
||
Normalised Operating Margin |
13.4 |
15.7 |
13.6 |
13.8 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
5.1 |
8.4 |
18.0 |
23.7 |
Intangible Assets |
2.9 |
5.3 |
6.1 |
5.4 |
||
Tangible Assets |
0.7 |
2.0 |
6.8 |
13.1 |
||
Investments & other |
1.4 |
1.1 |
5.1 |
5.1 |
||
Current Assets |
|
|
47.4 |
78.2 |
108.6 |
139.4 |
Stocks |
16.4 |
43.9 |
61.0 |
72.6 |
||
Debtors |
2.6 |
4.3 |
8.5 |
15.0 |
||
Cash & cash equivalents |
2.6 |
2.5 |
3.2 |
5.6 |
||
Other (Including prepaid advertising) |
25.7 |
27.5 |
35.9 |
46.2 |
||
Current Liabilities |
|
|
(23.9) |
(36.9) |
(50.5) |
(68.0) |
Creditors (including deferred income) |
(15.8) |
(23.6) |
(35.7) |
(50.0) |
||
Tax and social security |
(3.7) |
(7.0) |
(8.5) |
(11.8) |
||
Short term borrowings |
(4.3) |
(6.2) |
(6.2) |
(6.2) |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(12.5) |
(14.7) |
(28.6) |
(28.6) |
Long term borrowings |
(12.2) |
(13.5) |
(27.4) |
(27.4) |
||
Other long term liabilities |
(0.3) |
(1.1) |
(1.1) |
(1.1) |
||
Net Assets |
|
|
16.1 |
35.0 |
47.5 |
66.5 |
Minority interests |
0.0 |
0.0 |
0.1 |
0.1 |
||
Shareholders' equity |
|
|
16.1 |
35.0 |
47.6 |
66.6 |
CASH FLOW |
||||||
Operating Cash Flow |
10.9 |
16.5 |
22.2 |
34.0 |
||
Working capital |
(14.8) |
(23.8) |
(17.6) |
(14.1) |
||
Exceptional & other |
(0.3) |
(0.9) |
(0.0) |
(0.1) |
||
Tax |
(0.8) |
(0.9) |
(4.2) |
(5.7) |
||
Net operating cash flow |
|
|
(5.0) |
(9.2) |
0.3 |
14.1 |
Capex |
(2.8) |
(2.7) |
(8.3) |
(10.4) |
||
Acquisitions/disposals |
(0.6) |
(2.1) |
(4.0) |
0.0 |
||
Net interest |
(0.3) |
(0.5) |
(1.2) |
(1.3) |
||
Equity financing |
0.1 |
10.0 |
0.0 |
0.0 |
||
Borrowings |
10.2 |
3.3 |
13.9 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
1.0 |
0.0 |
0.0 |
||
Net Cash Flow |
1.6 |
(0.2) |
0.7 |
2.5 |
||
Opening cash |
|
|
1.0 |
2.6 |
2.4 |
3.1 |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing cash |
|
|
2.6 |
2.4 |
3.1 |
5.6 |
Closing net debt/(cash) |
|
|
13.9 |
17.3 |
30.5 |
28.0 |
Source: Portobello, Edison Investment Research
|
|
Research: Investment Companies
Agronomics (ANIC) invests in cellular agriculture companies. In our last note, we discussed a shift in its focus more towards precision fermentation companies, whose development is more advanced, offering greater near-term commercial potential. This week’s announcement that Onego Bio, one of ANIC’s portfolio companies, has entered a partnership with Perfect Day, a US precision fermentation company, is a further step in this direction. The alliance should hasten Onegro Bio’s route to market and financial viability and increase ANIC’s potential to realise further NAV uplifts. Food giant Nestlé’s recent move into precision fermentation is further evidence that ANIC’s increasing interest in this sector may prove timely.
Get access to the very latest content matched to your personal investment style.
