Q2 results were impressive, with both IKEA and sporting goods businesses growing their sales double-digit (L4L), on higher prices but mainly on higher volume, given supply/product availability issues have been resolved. Gross margin improved qoq/flat yoy and operating leverage sent EBITDAL +76% yoy. Management says H2 will be higher than H1 in absolute terms, although we expect the growth rate to face a stronger base.

’If you cannot explain it simply, then you do not understand it well enough.’’ Testing ourselves, we share our understanding of each Greek investment case we cover within a few lines.
Conclusions: Our base case scenario is materializing, i.e., Mitsotakis administration renewing its mandate and Greece avoiding a recession. Equities have re-rated and are +36% YTD, so now…

What’s new? With this note we are re-vising the investment case of Fourlis. Q4 marked a strong finish in what was overall a bad 2022, hit by supply chain constraints and cost inflation (incl. energy). But it also means we have one more full year of Trade Estates, the hopefully-soon-to-be-IPOed REIT subsidiary of the group. Therefore, a better way of assessing the value between the latter and the core, retail, business of Fourlis.
Conclusion. At E207m the current market cap of Fourlis equals the E194m NAV of its owned assets (through Trade Estates REIT = 92% stake x E211m total NAV), with the retail business (IKEA + Intersport) valued at E12.9m. The latter matches the 2022 reported net earnings of the retail business (including E8.5m of real estate revaluation gains).
Not exactly a surprise given the weak clean/adjusted performance of the latter in 2022, in part reflecting the transfer of value towards Trade Estates.

In this note we outline the investment summaries of all Greek names we cover. We start off with a few points on macro and politics and our OI rated names, highlighting any changes compared to our previous assessment in June 2022.

Inflation, inflation, inflation
Real GDP grew by +7.8% yoy in H1 reflecting strong domestic demand (+9.5% yoy) and rebounding tourism (beating record 2019), while the inflation rate ran +12% yoy in the 12 months to September, pushing nominal GDP even higher at +16.9% yoy. This is important because it dilutes the public debt/GDP ratio (from 199% in 2021 to 170% in 2023, IMF), without increasing the financing needs of the sovereign (1.5% GDP annual), as most of the sovereign debt is fixed at low rates (76% owed to official creditors), and it allows the government to spend both during the pandemic (20% of GDP) and the energy crisis (2% of GDP).

The catalysts for 2023 include GDP growth staying in positive territory, winning back investment grade and to avoid a political turmoil from scheduled elections. This is our base case scenario for Greece. However, we cannot escape our conservative disposition. Therefore, we keep a single OI rating among GR banks (NBG) while upgrading Bank of Cyprus to OI. We stick to our OIs on OPAP (dividend yield), PPC (renewables), Motor Oil (renewables) and Jumbo (valuation).
OTE looks more attractive below E16/share and the same goes for Hellenic Exchanges below E3/share, which we consider to be a proxy for the banks, assuming you can afford to invest in a such low market cap name. We urge readers to ignore any sirens singing ‘everything is a buy’ in Greece. We believe the day of reckoning is here and fundamentals play the key role. Our GR universe (x-banks) trades 6x EBITDA and 10x earnings 2023 while on a dividend yield of 5%. These multiples are cheaper than four months ago (6.7x EBITDA and 10.9x earnings) thanks -mainly- to the market de-rating.

What’s new? Fourlis reported weak H1 results last week with revenues and clean EBIT at E213m and E2.8m or +15%/-67% yoy, reflecting higher opex (+40%) and despite gross margin rising by +300bps yoy. Results are burdened by E5m-E6m additional energy costs and foregone revenues of E8m-E10m due to out-of-stock products.
Still, the big news was the guidance provided for 2025 in the conference call that followed. Management expects sales of E750m and EBIT margin of 7.5%-8.0% from the retail business alone (IKEA, Intersport, and Holland Barrett) post rental expenses paid to (equity consolidated by then) Trade Estates REIT. In other words, EBIT will reach c. E60m in 2025 without counting for any contribution from Trade Estates REIT.
Sales of E750m in 2025 (from E500m in 2022E; +50%) break down to E450m from IKEA (from c. E315m in 2022E), E250m from Intersport (from c. E185m in 2022E) and E50m from Holland Barrett (from E0m in 2022E); while retail EBIT of E60m in 2025 compares with E12.5m-E15.0m in 2022 (2.5%-3.0% margin; +4x higher); or E20m if we adjust for the higher energy costs (vs. 2021) which presumably should normalize going forward.
Fourlis guidance is based on a) three new, medium-sized, IKEA stores (8-10k sqm) in Patras, Heraklion and Ellinikon; b) E15m-E20m per new IKEA store; c) higher overall consumer spending; d) the addition of Holland Barrett; e) gross margin of 42% (from 45%); and f) opex at 35% of sales (from 42%).
Conclusion: We reiterate DOI with our PT at E3.6 (from E4.6). The business plan is obviously ambitious. Management is making a big bet on new sales per IKEA and Intersport stores with the resulting EBIT driven from operating leverage. If they pull it off, Fourlis is a great investment opportunity at current prices, trading at c.4.0x EBITDAL 2025E (guidance).