O JP Morgan downgraded the recommendations of Magazine Luiza (MGLU3) It is Via (VIIA3), in the face of greater pessimism in relation to the retail. Magalu’s nomination was cut from overweight — equivalent to the purchase — to neutral, while the owner of Casas Bahia went from neutral to underweight — similar to sale.
In today’s trading session, VIIA3 and MGLU3 led the declines of the Ibovespa (IBOV), with decreases of 10.36%, worth R$ 2.25, and 4.68%, at R$ 3.87, respectively. The shares of the companies closed against the grain of the market, which had an optimistic day.
Joseph Giordano and JP’s team see “challenging” prospects for high-value durable goods retailers. This is due to the pressured disposable income of consumers, especially from low to medium income — Magalu and Via’s customer base.
Analysts expect a “lukewarm” gross volume of goods (GVM) for this year, with Luiza Trajano’s company printing 15% growth and Via 5%. Sales expectations for 2024 were also lowered to 10% in MGLU and 15% in VIIA.
“Along with higher leverage, expectations point to negative results in 2023 for both playersamid pressured free cash flows,” say Giordano and team.
The downturn, according to JP, is partly explained by the fact that none of the retailers have effectively taken advantage of the space left by Americans (AMER3). The main competitors, Free market (MELI34) It is amazon (AMZO34), were the beneficiaries, they say.
Magazine Luiza is preferred
Among the names, JP Morgan has preference for Magazine Luiza. According to analysts, the player has greater potential to benefit from lower interest rates in the future.
Giordano and JP’s team claim that Magazine Luiza has an advantage because it is better prepared in online retail. The segment is still little explored in Brazil, but should improve from now on, making Magalu capture robust growth, they say.
Even so, analysts point out that the macroeconomic scenario remains “difficult”. Pressured demand for high-value items, along with weak GMV and leverage at uncomfortable levels, should keep the retailer’s profit in negative territory.
Via faces challenging scenario
JP analysts believe that Via should also face challenging operational trends, due to the macroeconomic crisis and pressured consumption.
The company currently operates on a “leveraged balance sheet,” which depends on management’s ability to monetize tax credits. That “could hurt potential growth initiatives,” they say.
The recommendation of underweight for Via, this is due to the low visibility of growth and high leverage. Analysts claim that these points should put pressure on the retailer’s profit and loss statement and lead to profit declines.
Source: Moneytimes
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