SAO PAULO – After Magazine Luiza’s (MGLU3) shares sank nearly 9% on the Stock Exchange on Friday (10), the company released a statement citing possible reasons for the move and held a conference call with analysts to bring new signals.
According to Bradesco BBI, which participated in the online meeting, the company gave a positive tone to analysts, reiterating that August was one of the most difficult months to compare compared to 2020 and that the company’s growth plans for 2021 are on the right path.
“So while the monthly figure may have disappointed given the slowdown, we think it’s fair that management is stressing that the baseline needs to be used as context,” writes the analysis team.
In the bank’s assessment, the stock price movement on Friday seems exaggerated in a context of growth that remained better than expected at the beginning of the year. Short-term concerns around competition, however, are valid, they write.
Bradesco also draws attention to the 100,000 active sellers on Magalu’s marketplace in the third quarter of 2021, which, according to analysts, offset part of the headwind of the difficult comparison base in the 1P electronics category (on its own platform).
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“We understand that recruiting new sellers (in part using store base) is on track and this is helping to further diversify the category mix. One point that management highlighted is that the profile of sellers is very different from that which has been shipped by competitors, especially by new entrants, and therefore, they do not feel a competitive threat in this area”, writes the analysis team.
competition on radar
For Bradesco BBI, the market’s main concern with the company is the increase in competition, with the growth of companies such as Shopee and Ali Express.
“We agree that new entrants do not have the competitive advantages that Magazine Luiza has – such as efficient logistics, a strategic store chain and a strong brand – and that they are unlikely to consume Magalu’s long-term market share,” the analysts write. .
“That said, these players have the potential to cause disruptions in the short term (as we are already seeing in the case of marketing costs) and we suspect that this is a problem that may continue to weigh on stocks, especially in the current environment of macroeconomic uncertainty and ‘ risk-off’.”
In addition to the competition, the bank claims that it has a more cautious view on MGLU3 shares since the beginning of the year, given the valuation the company and a more cautious analysis regarding growth. According to the analysis team, both factors have improved since then and today, the relationship between risk and return is more attractive.
However, Bradesco BBI continues with its neutral position in MGLU3 after the “sell-off”, and highlighted having reduced the target price for the shares from R$27 to R$25, albeit with an upside potential of 43% compared to the closing of last Monday (13).
Interest rate increase
In a statement released on Monday (13), Magalu stated that the “atypical fluctuations” can be attributed to news published by the press or by specialized consultants, “which have no direct relationship with Magalu or with its long-term fundamentals” .
Among them, the company cites the result of the IBGE’s Monthly Survey of Commerce, presented in an article in the newspaper Economic value, entitled “Perfect Storm Hits Electronics”, as well as reports from consultancy YipitData and news about the capital increase of an Asian company in the sector.
In a report, Itaú BBA writes that the fall in shares at the end of last week can mostly be attributed to signs of slower growth in the third quarter of 2021 than expected by the market.
“In our view, the notice to the market addressed this issue, showing that, at the end of the day, the company continues to gain market share at a solid pace. We note, however, that the rise in interest rates along with the high duration Magalu’s prices may also be weighing down on equities, and we expect this factor to continue to put some pressure on e-commerce name valuations,” analysts write.
Itaú BBA has a recommendation performer (above the market average) for the company’s shares and target price of R$ 24, or an increase of around 38% compared to the previous day’s closing.
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