(BFM Bourse) – Inflation is at the heart of household concerns. Several distribution players listed on the stock exchange have recently warned about their results due to the consumption crisis. But for all that, a few companies manage to do well.
Pressure on purchasing power is gradually decreasing, with inflation in France falling to 3.4% year-on-year in November. However, French consumers do not feel this improvement in their wallets and are reducing their purchases of non-essential products. Their confidence is also at its lowest.
And at the dawn of the end-of-year holidays, the TP ICAP Midcap research team looked at consumer behavior and provided some investment ideas to approach this crucial period for distribution players.
A versatile consumer
TP ICAP Midcap firstly paints a portrait of the “versatile” consumer, whose change in purchasing habits has been highlighted by the inflation context. The design office indeed notes “astonishing paradoxes”. If food consumption, for example, fell significantly in 2023 with a drop of 8.5%, households consume less at home but still more outside of home or at home but have had meals delivered from restaurants near their home, he explains.
At the same time, household tourist spending “has never been so important”, notes TP ICAP Midcap, which cites INSEE figures which indicate an increase in summer attendance in 2023, of 3.3% compared to to 2019 and +0.2% compared to 2022.
And in the same consumer universe, fortunes can be diverse, continues TP ICAP Midcap. “In furniture, for example, Maisons du monde suffered very clearly while players like Vente-Unique.com or Westwing raised their targets at the end of the year. In ready-to-wear, Inditex (the owner of Zara, editor’s note ) is showing good performances while Zalando and Boohoo have shown difficulties”, recalls TP ICAP Midcap.
“It is therefore difficult to identify trends in a sector that would outperform others, as consumer volatility is so high,” adds the research office.
And in this context, it is also difficult “to anticipate consumer behavior at the end of the year”, recalls TP ICAP Midcap, which nevertheless adds that its team was able to highlight certain elements.
Which companies should you put in your stock basket?
To stand out, some distribution players have indeed taken the gamble of integrating a marketplace into their model. Remember that a marketplace or market place in the language of Molière, is an intermediary between buyers and sellers through an e-commerce platform which is remunerated by charging a commission on each transaction carried out.
“Faced with the changing needs of consumers who demand a variety of products, advantageous prices and convenient delivery options, marketplaces have been able to respond favorably to these challenges and enjoy popularity among consumers,” explains TP ICAP Midcap.
However, the marketplace is not a panacea, warns the design office. Perverse effects could quickly appear, he continues, and involve a “loss of brand image, customer dissatisfaction and cannibalization”, which are therefore “all factors to monitor”.
So, it is “difficult to bring files to light in this complicated environment but we still think that certain securities deserve better fortune on the stock market”, recalls TP ICAP Midcap. The latter observes the continuation of “very good trends” on two issues in particular.
The design office’s preference is for Vente-unique which has been “sailing” against the trend since the second calendar quarter. The design office makes this clarification because the specialist in online furniture sales is operating over a staggered financial year ending at the end of September.
Between July and September – a period which corresponds to the fourth quarter for Vente-unique – the group has in fact revealed a turnover increasing by 20.4% to 43.34 million euros. This performance can be explained by the double-digit growth of the e-commerce segment (+17.0%), which itself benefited from marketplace commissions in France but especially internationally.
“In a context where discretionary spending is very significantly reduced, Vente-unique seems to continue to attract new customers, undoubtedly thanks to the establishment of its marketplace,” says TP ICAP Midcap. “With an attractive price offer, the group has been able to attract consumers who watch their wallets, like Ikea whose figures in France are well oriented,” adds the research office.
Better yet, the company anticipates a good start to the year 2023-2024, namely double-digit growth (greater than 10%) at the end of its first quarter, i.e. the period covering October to December 2023.
The research office also cites Carrefour, which presents itself “as defensive in the current inflationary context”. The distributor published a sharp increase in turnover in the third quarter despite fears about household purchasing power.
But Carrefour has levers to support its commercial dynamics in this context, including its distributor brand, which bring benefits “in terms of differentiation and loyalty and constitute key tools for improving the image of the brand and the price”, explained for its part HSBC at the beginning of October.
For TP ICAP Midcap, the group remains from its point of view, “a top pick (the best choice, Editor’s note) in the sector given the low exposure of its turnover to “non-food” (15% of turnover). of business) in comparison with its American comparables which are much more exposed in this segment which has been decreasing since the acceleration of inflation (-5.6% in France on non-food in October).
Additional ideas
The financial intermediary also looks at the valuations of certain players which could “also whet the appetite of certain predators” and cites Fnac Darty as a priority.
“With a 2024 profit ratio of 7x and an FCF yield (free cash flow yield, Editor’s note) of more than 30% (based on Factset consensus estimates, cited by the research firm), the French group seems to be a target of choice. The specialist in cultural products is a key player in French e-commerce”, explains TP ICAP Midcap, which puts forward several options on the table for the future of Fnac Darty, namely a withdrawal of rating, or a takeover of a global player or Daniel Kretinsky.
“In the short term, we remain cautious on the file justifying our recommendation to keep. But we do not rule out pleasant surprises in the event of a resumption of consumption for Black Friday,” adds TP ICAP Midcap.
Finally, the design office is putting forward an investment idea for people who are hesitant about the idea of directly exposing themselves to the distribution sector. He cites the ID Logistics group, which is a specialist in “contractual” logistics (the group manages the logistics chain of its clients, such as players in e-commerce, agri-food or DIY).
“Indeed, we consider that the contract logistics specialist should continue a sustained pace of growth, maintaining a defensive profile (above 50% of turnover on consumer products) and a diversified geographical exposure allowing it to limit its country risk. In addition, the potential in the United States seems significant to us with synergies which are starting to be felt following the acquisition of Kane Logistics”, concludes the research office.
The group also joined the SBF 120, the anteroom of the CAC 40 a few days before the summer and replaced the northerner OVH. The operator Euronext was keen to reward the impressive stock market performance of the Orgon-based group. Currently trading at nearly 290 euros, ID Logistics has seen its market value increase more than tenfold since its IPO in 2012 at a price of 21 euros per share.
Sabrina Sadgui – ©2023 BFM Bourse
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