Jumbo (BABr.AT, OW, TP EUR11.0) Potential 500bps VAT cut to 18% triggers 2016 profit upgrades of 12% to EUR137m (+25% yoy)

Jumbo (BABr.AT, OW, TP EUR11.0)

Potential 500bps VAT cut to 18% triggers 2016 profit upgrades of 12% to EUR137m (+25% yoy)


Greece/Taxation: According to press reports, Greek government is planning to implement a flat 18% VAT rate for all services and commodities with the exception of medicines.


This tax-reform should come into force in H2 2015 leading to:


  • a 5% reduction in the 23% VAT rate imposed on many products and services,


  • but also a 5% hike for key commodities (ie food, electricity, catering, books & stationery).


In all, a potential flat 18% VAT rate should boost earnings outlook for retailers (especially Jumbo as domestic sales accounted for 75% of group total in fiscal H1 2015a).



Our view:

Assuming that: a) VAT cut to a flat 18% takes effect as of July 2015, and b) Jumbo prices remain stable at current levels (since we believe Jumbo will not pass a potential VAT reduction to clients), this should, ceteris paribus, lead to group gross margin enhancement of 304bps to 55.24% (+420bps as far as Greece is concerned) vs our base line estimate of 52.2% for fiscal 2016e.


This, in turn, should trigger fiscal 2016e group net earnings upgrades of 12% to EUR137.3m against our call of EUR122.4m.


Key assumptions:


  • VAT cut of 500bps to 18% positively affecting fiscal 2016e ex-bookies Greek sales of EUR424.1m (66.6% of total). That said, total Greece sales (including EUR36.9m bookies contribution) should reach EUR461m in fiscal 2016e, up 6% y-o-y, on our forecasts


  • On the flip side, VAT on bookies/stationery, which make up 8% of domestic sales, will rise to 18% from 13% currently


  • Fiscal 2016e group sales to reach EUR636.8m (+9.5% y-o-y from EUR581.4m in 2015e); we see Jumbo international operations at EUR175.8m, up 19.9% y-o-y (27.6% of group total)



Potential 2016e group EPS upgrades on 18% flat VAT implementation

Current BETAe Post flat 18% VAT Revisions
Sales 636.8 636.8 0.0%
   % change 9.5% 9.5%
Gross Margin 52.2% 55.2% 304bps
EBITDA 172.9 192.3 11.2%
   % change 10.4% 22.8%
   EBITDA Margin 27.2% 30.2%
EBT 156.6 175.9 12.4%
   % change 11.2% 25.0%
   EBT Margin 24.6% 27.6%
Net Profit 122.4 137.3 12.1%
   % change 11.5% 25.3%
   Net Margin 19.2% 21.6%
EPS 0.90 1.01 12.1%



Kind regards,



Spiros Tsangalakis

Senior Equity Analyst

BETA Securities S.A.

29 Alexandras Ave.

GR – 11473

Athens, Greece