Since Americanas (AMER3) went into crisis with the billion-dollar accounting inconsistencies revealed on January 11, the retailer’s shares have dropped R$ 12 to less than R$ 2, with trading sessions marked by a lot of volatility, while its rivals in e-commerce had a 23% rally, as pointed out by Bradesco BBI.
Does this upward movement of rivals make sense? In the bank’s analysts’ assessment, yes, as they see the company’s weaker operations lead to a boost for rivals throughout 2023 and, as a result, pull positive earnings revisions before interest, taxes, depreciation and amortization ( Ebitda, its acronym in English) and earnings per share of companies.
Therefore, in the context where the e-commerce sector in Brazil is facing challenging fundamentals (cash intensive and low returns), a market assessment of the sector as a whole in the scenario of one less competitor is correct.
Luiza magazine (MGLU3), it should be noted, recorded the highest increase in Ibovespa in January, exceeding 60%. However, the bank’s analysts point out that, fundamentally, greater exposure to cyclical categories is less desirable over the long term. In this sense the main overlaps of Magalu and also of Via ([ativo=VIIA]) with Americanas are in durable goods/electronics.
BBI points out that three weeks have passed since the announcement of Americanas and, in practice, the case is far from an outcome – “litigation has just begun, while the independent committee assessment of the retailer is still pending, and the terms of the proposal, the restructuring processes linked to the judicial recovery are uncertain”, evaluate analysts.
“Although many outstanding issues remain, Americanas’ market presence has already been severely damaged and, therefore, the competitive e-commerce environment in Brazil should improve,” he comments. “The potential market share left on the table is substantial and so this time perspective could be enough to support share prices of e-commerce companies longer.”
In light of this, analysts point out that the gradual redistribution of the 16% market share (market share) in Americanas online environment among players can increase competitive rationale, leading to some relief in margins, resulting in better outcomes for the industry as a whole.
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In terms of profitability, the potential space left by Americanas would mean an Ebitda opportunity of R$ 3.3 billion, considering the retailer’s net sales of R$ 28 billion in the last 12 months, which analysts expect to be distributed among the companies in the sector. and obtained over a period of two years or more.
To validate the thesis of the redistribution of market share, analysts cited the case of Walmart Brasil, which deliberately decided to abandon online operations to promote profitability, almost completely reducing its market share from about 3.0-3.5% in two years, which suggests that online participation easily converts to other players. “Americanas’ 74 percent GMV (gross volume of goods) exposure to online channels leads us to believe that most of the market share rebalancing could be much faster than in the Walmart Brasil situation,” BBI points out.
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BBI further strengthened the view that sustainably expanding the capacity of low cost/high recurrence products is needed to support sustainable restock re-stocking, based on the comparison between Amazon (genuine network/platform) and Best Buy ( pure electronics retailer), which demonstrated how structural fundamentals (growth and return profiles) influence valuation levels.
Therefore, the bank has chosen Mercado Livre (MELI34) as its first choice in the e-commerce sector. The thesis is supported by (i) higher earning power and earnings per share (higher GMV diversification, lower exposure to cyclical categories, wider geographical presence and lower financial leverage); and (ii) higher intrinsic returns (significantly higher short- to long-term ROE, or return on equity); and, therefore, (iii) lower implicit risks also supported by its best execution.
Thus, analysts reiterated that they remain cautious on “over-reliance” on highly discretionary/high ticket categories, which have proven cyclical and offer low returns, thus maintaining a neutral recommendation for Magazine Luiza and Via.
The “American effect” is already being felt on the market
This week, Morgan Stanley conducted a study monitoring high-frequency data, concluding that Americanas are already showing signs of weakness and are withdrawing from e-commerce participation.
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“Daily website visits and application usage data indicate that Americanas has withdrawn traffic since the announcement of accounting inconsistencies. Using data from SimilarWeb, we see that in the first 10 days of the year, the 7-day moving average for unique visitors to the Americanas site was between 2.9 and 3.2 million,” analysts estimate.
The latest data from January 28 shows that the 7-day moving average was 1.5 million visitors, or 54% below the January 10 level. Additionally, Morgan’s analysts pointed to an increase in the “bounce rate,” or percentage of consumers who access Americanas’ website but don’t click on any links.
Looking at other data, Morgan points out that Americanas appears to be off the curve on the downside, although it is in an early stage to see a large direct increase in traffic to peers. Also, regarding the potential beneficiaries of this loss of strength by AMER, the web data shows a high overlap in audiences with Mercado Livre and Magalu, while your research data indicates a high overlap in shoppers with Shopee and Mercado Livre.
Looking at investment theses, like BBI, Morgan also reinforces its preference for Mercado Livre, with an overweight recommendation (exposure above the market average, equivalent to buying) and a target price of US$ 1,550 for assets traded on the Nasdaq, indicating a potential return even in a scenario in which the changes with the “Americanas effect” do not materialize.
For Magalu, the bank’s analysis shows the retailer as the large proportional beneficiary; however, with the recent sharp rise in the stock, he maintains a recommendation of equal weight (exposure in line with the market average, equivalent to neutral), seeing the potential with the “Americanas effect” already discounted.
The greatest pessimism is with Via, with analysts maintaining an underweight recommendation (below market average exposure, equivalent to sell) due to, despite lower price-to-earnings multiples relative to peers, a higher interest expense ( 6.2% of revenues expected for 2023) will continue to weigh on its financial flexibility, even as it benefits from incremental sales.
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