Company Reports

We are maintaining our fair value estimate for narrow-moat Avolta as the company reported solid revenue development in the first quarter. Core turnover, which excludes fuel sales from the motorway business acquired with Autogrill, was up 8.6% organically (8.9% on a like-for-like basis), signaling continuing consumer appeal for travel.

Following narrow-moat Avolta's successful business combination, which yielded CHF 30 million in synergies, we anticipate no significant alteration to our CHF 58 fair value estimate. The company reported a 2023 EBITDA of CHF 1.129 billion, aligning closely with both our estimates and consensus figures. Shares remain undervalued, trading at around a 40% discount to our fair value estimate.

As a leading player in travel retail and a leading concession operator in airport retail with around 20% market share, more than double that of its next biggest peer, Avolta is well positioned to benefit from increasing global travel flows. Over the years, Avolta has played the role of consolidator in a globally fragmented industry, allowing it to achieve purchasing scale, breadth of store formats and product offer, and geographical diversification.

We are maintaining our fair value estimate for narrow-moat Dufry as the company reported continued solid revenue growth in the third quarter. We expect to adjust our 2023 revenue forecasts slightly downward to reflect currency headwinds, but it will not result in a change to our fair value estimate. We see shares as undervalued, trading in 5-star territory, with almost 80% upside to our fair value estimate.

We maintain our fair value estimate for narrow-moat Dufry at CHF 58 per share as the firm reported solid first-half revenue and profit development. With more solid financial health (lowest net debt since 2015), pent-up demand for travel and travel retail, and the potential for synergies with Autogrill, Dufry shares remain undervalued. Revenue for the first half was up 26.5% on a reported pro-forma basis (21% based on our full-year estimates) and 31.5% organically, exceeding 2019 levels by 3.4% on an organic basis. We maintain our estimates as the comparison base gets more challenging as the year progresses, but the resumption of travel by Chinese citizens should boost sales. July turnover trends remained positive, despite a more difficult comparison basis, up 17% versus 2022 and up 4.7% versus 2019.

We maintain our fair value estimate of CHF 58 for narrow-moat Dufry as the company continued a strong postcoronavirus recovery in the first quarter. Shares remain undervalued. Organic growth, excluding the Autogrill acquisition, was 51.5% or only negative 2.4% versus 2019 levels (with currency a significant headwind). All regions performed strongly with sales in Europe, the Middle East, and Africa exceeding 2019 levels organically by 5.2%, North America sales were 4.2% lower organically than 2019, and sales in Latin America almost flat organically against prepandemic levels. Sales in the Asia-Pacific region are yet to recover postpandemic (38.9% lower than in 2019), but the removal of travel restrictions in China should boost growth this year. Sales in the region were up 276.9% in the first quarter against the previous-year comparison. We expect full-year revenue for Dufry as a stand-alone to exceed 2019 levels on an organic basis. We note that comparisons will get more difficult in the quarters to come (in the first quarter of 2022 sales were still 34% below 2019 organically versus being down 16.2% for the full year), but improved sales trends in Asia should offset a more muted performance in Europe and North America. We still think developed markets should benefit from a shift in spending on goods to experiences, which should boost travel even against a more challenging consumer backdrop. A case in point: momentum remains solid into the second quarter with April net sales up 30.2% versus 2022 and up more than 2.3% versus prepandemic 2019. Although not much detail about profitability has been provided on a sales announcement, the core EBITDA margin improved by 190 basis points despite inflationary cost pressures. The company stuck to its forecast of around 8% in core EBITDA for the full year (7.3% in our models). Dufry's balance sheet remains healthy with plenty of liquidity and the company is now compliant with debt covenants.

As a leading player in travel retail and a leading concession operator in airport retail with around 20% market share, more than double that of its next biggest peer, Dufry is well positioned to benefit from increasing global travel flows. Over the years, Dufry has played the role of consolidator in a globally fragmented industry, allowing it to achieve purchasing scale, breadth of store formats and product offer, and geographical diversification.

We don' expect to materially change our fair value for narrow moat Dufry as the company reported strong recovery of sales and profits in 2022. Shares remain undervalued, trading at around a 30% discount to our fair value estimate.

We are maintaining our fair value estimate for Dufry as the firm reported expectedly strong improvement in revenue in the third quarter but at a significantly stronger improvement in profitability. We view shares as significantly undervalued at current levels. The revenue guidance for the full year was below our assumptions (CHF 6.6 billion-CHF 6.7 billion versus CHF 6.9 billion in our models), factoring in macroeconomic uncertainty and adverse currency movements; however, guidance for full-year profits and free cash flow exceeded our expectations (core EBITDA of CHF 560 million-CHF 580 million versus our estimates for CHF 491 million in our models and equity free cash flow of CHF 250 million-CHF 270 million versus CHF 15 million in our models). Management cautioned against the maintainability of the strong profitability trends, given the current hurdles with hiring, inflation, and macroeconomic uncertainty and stuck with its projections announced at the Capital markets day (75-100 basis points improvement in core EBITDA margin from 7.8% in 2023-24 and over 20% of core EBITDA equity free cash flow conversion). Current annual results already imply 60-100 basis points expansion from 7.8% and equity free cash flow conversion of over 40%. Our forecasts already implied stronger improvement of operating margin from 2023-24 compared with the CMD targets, despite projecting lower profitability in 2022.

As a leading player in travel retail and a leading concession operator in airport retail with around 20% market share, more than double that of its next biggest peer, Dufry is well positioned to benefit from increasing global travel flows. Over the years, Dufry has played the role of consolidator in a globally fragmented industry, allowing it to achieve purchasing scale, breadth of store formats and product offer, and geographical diversification.

We expect to lower our fair value estimate for Dufry shares by a mid-single-digit percentage to factor in slower profitability development compared with our current forecasts after attending the company’s Capital Markets Day.

We maintain our fair value estimate for narrow-moat Dufry after the company reported solid recovery in the second quarter. Despite the recent rally, Dufry’s shares remain attractive, trading at around a 35% discount to our fair value estimate.

We are maintaining our fair value estimate for Dufry after the announcement of its acquisition of travel food and beverage company Autogrill. We believe shares remain undervalued. The 50.5% stake in Autogrill held by the Benetton family (Edizione) will be exchanged to Dufry shares (around 29 million new shares would be issued, versus 91 million outstanding at the end of 2021), making the Benetton family the largest shareholder in the entity (around 20%-25% expected stake). The remaining shares will be either offered for exchange at the same conditions or paid in cash at EUR 6.33 per share. The transaction values Autogrill at around 0.7 times 2022 EV/consensus revenue, below the 0.95 revenue multiple for Dufry. Nonetheless, Autogrill trailed Dufry in terms of profitability prior to the pandemic.

As a leading player in travel retail and a leading concession operator in airport retail with around 20% market share, more than double that of its next biggest peer, Dufry is well positioned to benefit from increasing global travel flows. Over the years, Dufry has played the role of consolidator in a globally fragmented industry, allowing it to achieve purchasing scale, breadth of store formats and product offer, and geographical diversification.

We are retaining our fair value estimate of CHF 66 per share and narrow moat rating for Dufry as the company reported solid demand recovery in the first quarter and further improving trends in the month of April. In the first quarter revenue was 36.2% below prepandemic levels on an organic basis (144.5% growth against 2021). In April trends further improved following relaxation of travel restrictions, being only 21.6% down on 2019 levels, despite the Russia-Ukraine conflict. We remain comfortable with our forecast for revenue in 2022 to be down 20% on 2019 levels, which is substantially above consensus that calls for 32% lower revenue. We believe shares are undervalued, trading at 45% discount to our fair value estimate in 4-star territory.

As a leading player in travel retail and a leading concession operator in airport retail with around 20% market share, more than double that of its next biggest peer, Dufry is well positioned to benefit from increasing global travel flows. Over the years, Dufry has played the role of consolidator in a globally fragmented industry, allowing it to achieve purchasing scale, breadth of store formats and product offer, and geographical diversification.

We do not expect to significantly change our fair value estimate for narrow-moat Dufry as the company reported a strong rebound of revenue in 2021 and reached profitability (excluding impairment charges) and positive equity free cash flow in the second half of the year. Despite 53% organic growth, revenue still remained 56% below 2019 levels.

We are not expecting to significantly change our fair value estimate for narrow-moat Dufry as the company reported a strong rebound in third-quarter revenue from depressed 2020 levels, delivering positive free cash flow and adjusting upward cost-saving targets for the year. Shares are trading at around 20% discount to our fair value, but given very high uncertainty associated with the stock, remain in 3-star territory.

As a leading player in travel retail and a leading concession operator in airport retail with around 20% market share, more than double that of its next biggest peer, Dufry is well positioned to benefit from increasing global travel flows. Over the years, Dufry has played the role of consolidator in a globally fragmented industry, allowing it to achieve purchasing scale, breadth of store formats and product offer, and geographical diversification.

We maintain our fair value estimate for narrow-moat Dufry as the company reported losses in the first half of the year but upped the guidance for cost savings for 2021 from CHF 830 million-CHF 970 million to CHF 1,200 million, largely related to successful minimum annual guarantee, or MAG, reliefs, strict cost discipline, and lower sales. The firm kept its CHF 400 million in recurring savings target (on 2019 organizational base, excluding inflation and IT project investments). Liquidity remains sufficient, at over CHF 2 billion, versus monthly cash burn of CHF 30 million in an event of revenue being 55% lower than in 2019 in 2021. Nonetheless, uncertainty about the timing of recovery remains high due to persistent global travel restrictions.