O Santander (SANB11) started covering the Vivara (VIVA3) with a recommendation of “outperform”, equivalent to “buy”, and a target price of BRL 33, which implies a potential appreciation of 46% over the last close.
According to the bank, little of the long-term growth potential and solid short-term momentum is priced in.
“At approximately 13 times P/E (price to earnings) for 2023, we see Vivara as an attractive alternative for investors who are looking at the Brazilian market for retail in fashion high-income”, say the pair of analysts Eric Huang and Ruben Couto, in a report published this Tuesday (9).
The company’s shares operate sharply on this Wednesday (10). Close to 2 pm, the stock shot up 8.19%, trading at R$24.45.
scale matters
Vivara is by far the largest jewelry retailer in Brazil, with around 290 stores in its portfolio and more than 14% market share in the country.
According to Santander, only Vivara’s scale makes it possible to dilute production and logistics costs, which justifies the vertical integration.
More than that, the company operates a factory in the Manaus Free Trade Zone, and therefore has significant access to tax benefits, highlights the bank.
By Santander’s calculations, incentives accounted for around 30-40% of Vivara’s results in the last two years.
Life by Vivara
According to Santander, one of the most important pieces of Vivara’s investment thesis is the life.
For analysts at the institution, Life is well positioned to consolidate its brand in the personalized jewelry and accessories market.
“[A Life] has played an important role in the company’s growth trajectory, as it allows Vivara to continue growing both in economic downturns and in positive macroeconomic scenarios”, comment Huang and Couto.
By Santander’s estimates, Life could easily open 30-40 new stores a year by 2026, totaling around 200 stores with a CAGR (compound annual growth rate) of revenues of 27% for 2022-26.
Additionally, Santander is confident that Life’s higher gross margin (approximately 82% vs. approximately 62% for jewelry/gold items) should support the expansion of profitability in the coming years.
The bank estimates Ebitda margin expansion for 2022-26 of 4.7 percentage points.
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Source: Moneytimes
I am an author at Global happenings and I mostly cover automobile news. In my time working in the automotive industry, I have developed a keen interest in the latest developments and trends. My writing skills have also allowed me to share my knowledge with others through articles and blog posts.
