February 1, 2023
Goldman Sachs downgrades Americana (AMER3) to Sell, Magalu (MGLU3) to Neutral and points to a new competitor in the sector

Goldman Sachs downgrades Americana (AMER3) to Sell, Magalu (MGLU3) to Neutral and points to a new competitor in the sector

Another large bank revised its estimates for Brazilian e-commerce after results for the third quarter of 2022 (Q3 2022) and Black Friday.

Goldman Sachs highlighted some points to be made for the Brazilian retail market in 2023 and lowered its e-commerce estimate, lowering the recommendation to Magazine Luiza.MGLU3(buy a neutral, with an Americana cut)Amer 3(From neutrality to selling and maintaining a recommendation)VIIA3) for sale.

Analysts cut the recommendation for Magalu noting that they are on the sidelines of assets until the company finds a new balance between growth and profitability. The target price for the asset is R$3.80, or a potential upside of 11% compared to Thursday’s close.

They recall that since they added MGLU3 shares to their list of assets to buy in the Americas on November 19, 2019, MGLU3 has already fallen by 70%, compared to a 2% rise in Ibovespa, and estimates that the company will separate itself from its smaller, less-capitalized peers to offset macro weakness, making It shows market share gains in what remains a relatively fragmented retail durable goods market in Brazil.

However, with the rapidly changing interest and financing market, Magalu’s management has shifted its focus from growth to profitability and analysts estimate they haven’t looked at how much this will affect the company’s ability to grow, earn or even defend its share of the store. “We estimate that Magalu lost about 75 basis points from the Brazilian e-commerce market in 2022 (or about 230 basis points excluding the positive impact of the KabuM consolidation!),” the analysts note.

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They estimate that they will become more positive with the company in the scenario of improving the prospects of the national economy and lowering interest rates.

As for Americanas, the recommendation to sell was downgraded, as analysts expect earnings before interest, tax, depreciation, and amortization (EBITDA, in English) to show up and earnings growth to remain limited in the next 12 months. Target price for AMER3 is R$10, or 5% lower than the previous close.

“We are below the Bloomberg consensus on our expected earnings forecasts for 2023 and 2024 and believe that a further downgrade in future estimates could affect the share price. Americana carries relatively high financial leverage, with net debt on Ebitda being 3.9 times (in the classic definition, excluding Leases, as of Q3 2022) and net financial expenses accounted for 61% of Ebitda in the past 10 months,” analysts estimated.

In addition to the intense competition in the online space and the need to reinvest in its network of stores Offline (Physically) Limits space for margin expansion and better cash generation. They noted, “While we recognize that full operational integration of its offline and online businesses makes sense, we believe that the integration of key IT systems may create risks for 2023.”

Analysts note that Americana shares are down more than 60% for the year, with disappointing growth and cash generation driving most of the weak performance. The company reported a lower-than-expected 3% growth in Online Gross Merchandise Volume (GMV) and operating cash burn of R$300 million in the last 12 months. They further forecast that Americana lost approximately 180 basis points of Brazil’s e-commerce market in 202E. For 2023, Americana’s online GMV is expected to increase by 11%, below the expected market growth of 15%.

AMER’s new CEO, Sergio Real, will lead the company from January 2023. Analysts acknowledged that announcements of corporate restructuring could instill a new sense of optimism in investors, and that could present an upside risk. “However, we also believe results may take time, as the new leadership will need to work on several different fronts, from differentiating its offering in the online space, updating the in-store experience for its offline stores and integrating recent acquisitions,” they assess.

As for Via, also with a recommendation to sell, the price target is R$2.10, or 4% lower than yesterday’s close.

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Goldman Sachs indicates a relative preference for Magalu over Americanas, seeing scope for MGLU to offset the headwinds/investment needs of its online operations while improving performance in its brick-and-mortar stores.

For Americanas, it recognizes that flagship store operation tends to generate high cash. However, we think the process will need to go through a capital expenditure cycle [investimentos em capital] Heavier reforms to maintain competitiveness after years of lack of investment.

“For many years, the competition was relatively limited, which allowed the company to defend its market share while maintaining a minimum level of maintenance / renewal. However, with Oxxo (owned by Femsa) rapidly gaining scale (about 200 stores in São Paulo), it appears In addition, part of the store mix may have moved online faster than initially anticipated, particularly in electronics (about 25% of the mix), but also to some extent in basic apparel and toys,” the analysts note. .

Among publicly traded companies, analysts expect Mercado Livre (Millie 34) in distancing itself from its traditional e-commerce rivals in 2023, replicating the company’s NASDAQ-traded shares as the only stock with a buy rating in the sector, with a price target of $1,450, or 56% up from Eve’s close.

“We also expect steady investments from Amazon in building its presence in the country to maintain competitive dynamism. Therefore, despite the marked weak performance year-to-date, we continue to see structural headwinds for MGLU, AMER and VIIA and thus downgrade MGLU to Neutral and AMER For sale, while keeping VIIA for sale,” the analysis team summarizes.

It should be noted that this week too Morgan Stanley cuts its outlook for Magalu, Americanas and Via, Highlight Mercado Livre as a top pick in the segment.

Among Brazilian retailers, Goldman analysts recommend more defensive names such as Assaí (ASAI30 and Carrefour (CRFB3), as well as Lojas Renner (LREN3), RD (formerly Raia Drogasil RADL3), arezo (ARZZ3), owner of Centauro SBF (SBFG3) and pizza (PETZ3), all with a buy recommendation.

“As in previous years, we expect the consumer macroeconomic outlook to remain a major point of discussion, especially with contrasting forces at work. In this case, inflation (high but falling), high interest rates (but likely to peak), and the labor market (generally positive) and the credit market (financial leverage and debt service burden at historically high levels).

The Brazilian consumer enters 2023 with gradually easing inflationary pressures, continued fiscal support and strong growth in total real wages. However, household leverage remains near the highest point since 2005, when the central bank began reporting on this metric, and the still-high lending rates are likely to continue to affect monthly disposable income through the first half of 2023.” , evaluation.

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