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Analyst Research Report Snapshot


Rami Levi (RMLI) Initiation of coverage




Bank Leumi


27 Feb 2013





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We initiate coverage on Rami Levi with a Market Perform recommendation, and a ILS 158 TP (11% upside). Up until now the chain has been growing at breakneck speed. It’s plans have only become more aggressive, intending to double the size of the chain by YE15. However Rami Levi is no longer the small upstart it was a few years ago. With sales of almost ILS 3bn in a ILS 50bn market that's growing at less than 3% a year, such rapid growth will be difficult to achieve. We forecast that continued aggressive growth will end up hurting sales per metre: a fierce reaction from the national retailers, better performance by its smaller peers, brand dilution- we can’t say when the trend will turn negative and how far SPM will fall, but we just don’t see Rami Levi sustaining an advantage of 150% in sales per metre versus the small chains, and over 300% compared to the national chains. The extremely high sales per metre of the chain are key to the business model that translates low margins into the highest operating profitability. Even with sales per metre 50% better than other small discount chains, Rami Levi can hardly turn a profit. Therefore if sales per metre stop growing and start falling, the equation of growth will rapidly turn negative.

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