The year has not been an easy one for shareholders of the Magazine Luiza (MGLU3), which saw the retailer’s shares go from R$ 26 in January to the current R$ 17. But the situation drew even more attention last Friday, when the shares retreated 9%, leading the company to disclose a communicated about the possible reasons for the drop and call analysts for a conference call.
At the online event, Magazine Luiza sent an optimistic message, highlighting that its growth plans are on the right path, despite the challenges experienced in August. According to the Bradesco BBI, which participated in the event, the company reiterated that this month was one of the most difficult compared to 2020. Analysts at BBI said that the adjustment that took place on Friday seemed exaggerated.
However, concerns remain, especially regarding the increase in inflation in the country and to increased competition. With that, on this Tuesday, BBI reduced the Target Price of the MGLU3 shares from R$27.00 to R$25.00 and reiterated neutral recommendation.
According to Goldman Sachs, the horizon is challenging for Magazine Luiza in the short term. In a report released on Tuesday (13), the bank highlights that the annual comparison in the balance sheet for the third quarter should be tight. “A deceleration in the gross sales volume (GMV) in the annual comparison, with fierce competition and the end of the stimulus is already expected, in our view”, say the bank’s analysts, in a report, on the results of 3Q21 of Magazine Luiza.
O Goldman Sachs estimates that Magazine Luiza’s direct sales GMV should grow 20% in the third quarter, against 40% in the second quarter. But that shouldn’t hurt the retailer, which maintains its focus on marketplace sales, “an important long-term lever,” according to analysts.
Strong competition for Magazine Luiza
The concerns of analysts of BBI in relation to the company’s valuation and short-term growth, the bank took a cautious view of the retailer. For BBI, the main concern of the market in relation to Magalu concerns the advancement of competition, with the growth of companies such as shopee it’s the Ali Express.
“These players have the potential to cause disturbances in the short term (as we are already seeing in the case of marketing costs) and we suspect that this is a problem that could continue to weigh on the shares”, says the report.
However, the investment bank makes the reservation that none of these international companies has the competitive advantages that the Magalu holds in Brazil.
“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. .
Caution points, according to Goldman Sachs
According to analysts at the American bank, Magalu’s focus in the coming months will be on building the digital ecosystem, by integrating its recent acquisitions, and on organic growth initiatives.
“We believe Magazine Luiza’s growth trajectory remains attractive, with continued market gain helping to mitigate some of the drop in consumption,” analysts write.
But there are risks, and they are as follows, according to Goldman Sachs:
- increased competition from incumbent operators and new entrants to the business market;
- higher-than-expected investments, negatively putting pressure on margins, cash flow and returns;
- potential execution risks when accelerating 3P market growth;
- higher-than-expected logistics costs, with growth to lower density regions, and competition remains broadly aggressive in free delivery coverage and general delivery subsidies.
According to the bank, among the board’s strategies is the creation of a wide range of products that would help Magazine Luiza to combine online demand with local stocks. This would reduce delivery costs and increase sales of low-medium ticket products.
Goldman Sachs has purchase recommendation for Magazine Luiza, with target price at BRL 25, just like the BBI. This figure represents a potential upside of 42.3% over Monday’s close.
Magazine Luiza’s latest quote
At 3:50 pm this Monday, the Magazine Luiza quote the Ibovespa rose 0.63%, with shares trading at R$17.57.
In the last 12 months, the papers of the Magazine Luiza accumulate devaluation of 22.49%, with the maximum quotation at R$28.26 and the minimum at R$17.18.