Label Vie's Financial Performance
The Moroccan retail sector has been undergoing major changes for several years now. These are fueled by two main observations. The first one is linked to the intensification of competition in “proximity distribution” following the scaling up of BIM, the arrival of the Egyptian retailer Kazyon, which aims to double its stores by 2025, as well as the development of Marjane City concept of Marjane Group. The second concerns the reconfiguration of the food basket as a result of two years of high inflation in Morocco. In this regard, it is important to note that the middle-income customer category represents nearly 60% of the market.
Nevertheless, over a long-term horizon, the Moroccan retail sector offers positive outlook supported by: (1) A relatively low penetration rate, (2) A favorable age pyramid to modern retail sector, and finally, (3) Accelerated digitalization of the economy and the rise in e-commerce.
A new strategic shift
In this evolving sector context, Label Vie is embarking on a new strategic shift. This involves accelerating the pace of its openings by 2028E while focusing on proximity stores, now considered the new growth drivers. Following our financial valuation, we come out with a target price for Label Vie stock at MAD 5,295, offering an upside potential of +13% over a 12-month horizon. To this end, we recommend BUYING Label Vie stock.
The key points of our analysis are as follows:
- In 2024, Label Vie rethought its strategy to address rising competition and changes in household food basket in Morocco. The operator plans to open 774 new stores over 2024-2028E to bring its network to 953 stores. This would focus more on Hypercash and Supeco, currently considered the new growth drivers;
- During the period 2024-2028E, we forecasts a revenue AAGR of +18.1% driven by the expansion of the distribution network, a target EBITDA margin of 9.3% which takes into account the ramp-up of lower margin segments and a net income AAGR of +15.0% to approach MAD1.0 Bn by 2028E;
- The investment planned would exceed MAD 7 Bn, i.e. an average CAPEX/Sales ratio of 7.7%. Thanks to its cash generation capacity, the CAPEX will be financed mainly by self financing. Also, the Group has a significant real estate portfolio that could be subject to "monetization";
- We believe the Group's debt remains under control, with a target Net Gearing of 47% by 2028E. This level is consistent with the risk profile of the retail sector and the standards observed among international peers;
- At the end of this strategic plan, Label Vie stock would trade at discounts compared to international peers, i.e. -16% at the P/E 28E level (14.3x Vs. 16.9x) and -25% at the EV/EBITDA 28E level (6.9x Vs. 9.2x).
