HSBC - Greece Consumers

Greece Consumers

Into the growth phase

• Macro headwinds are declining while pressure on consumer spending eases gradually with minimum wage hike
• OPAP to see higher growth and improved margins on focused cost management; Greece sales outlook improves for Jumbo
• We maintain a Buy rating on Jumbo (TP to EUR18.00 from EUR17.00) and OPAP (TP to EUR11.00 from EUR10.00)

Into the growth phase: GDP contracted in Q4 (-0.1% q-o-q according to the preliminary estimate) for the first time in two and half years, but this was on the back of very strong growth in Q3 (+1.0%) and GDP was still +1.6% y-o-y. We believe there is momentum to continue as growth appears to be more strongly anchored than before. Our economist expects GDP growth at 2.4% for 2019 and 2.0% for 2020. Consumer spending is also likely to accelerate to 1.5% in 2019e and 1.7% in 2020e (HSBC economist forecast). Government has announced an 11% increase in minimum wage which can ease a bit of pressure on consumer spending, but could also be negative for employment growth in the country. We expect wage growth to be a relatively small pressure point for OPAP and Jumbo in 2019e, however, it is a positive driver for consumer spending over the medium term. Consumer confidence has been improving steadily, before posting a dip in February. There are concerns on reform progress in Greece which can impact the cash received under the debt relief deal with the EU, but thanks to high cash balances the country is fully funded anyway until 2022, possibly even 2023, and has been able to go back to market recently with two successful bond issuances. The election in 2019 and Brexit-related risks also add a bit of uncertainty to the outlook, but overall we expect to see less headwinds this year.

We reiterate our Buy calls on Jumbo and OPAP: We have a Buy rating on Jumbo on stronger sales growth from Romania (continued store expansion), resilient business model and strong balance sheet with net cash position. There is cost pressure from weaker currency (vs USD), slightly higher shipping costs and increase in wages in Greece, however we believe that is already priced-in. On the other hand, the outlook for Greece sales has improved after a stronger-than-expected 1HFY19 sales and ongoing macro recovery in the region. We adjust our sales number marginally, keeping our margin estimate intact and increase our target price to EUR18.00 (from EUR17.00) on lower WACC assumption. We are Buy on OPAP as the organic investment phase for the company is almost over and the benefits of higher gross gaming revenue (GGR) and lower cost structure are likely to be seen in coming years. OPAP entry into online gaming space (both in house and via acquisition) is a positive step to ensure it continues its strong hold in the Greece gaming industry. This provides revenue diversification as well as stronger momentum to the top line. We cut our estimates for 2018 and incorporate the new acquisition from 2H19 onwards which aids in our TP increase to EUR11.00 (from EUR10.00), in addition to lower WACC assumptions.

Bulent Yurdagul
Head CEEMEA Consumer Research
+90 212 376 46 12