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Analyst Research Report Snapshot


Rami Levi (RMLI) 2013-1Q update




Bank Leumi


03 Jun 2013





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Rami Levi published 1Q13 results that fell below expectations as same store sales and profitability came in below forecast. The expansion test. In the next year and a half the strength of the brand will be put to the test as Rami Levi increases retail space by almost 50%. Cashflow will be dragged down by higher CAPEX and OPEX, while pricing will have to stay very aggressive to aid penetration into new areas. The scope of the expansion will also elicit a more aggressive push back from the competition. The question is how fundamentals emerge from this growth spurt. As we set out in our investment thesis from February this year, the RMLI model requires an exceptionally high sales per metre (compared to the competition) to enable the aggressive pricing. We are sceptical that the expansion to 34 stores by YE14, and ~40 beyond that can be achieved without an erosion of SPM. Valuation and recommendation. RMLI is currently trading at an EV/EBIT of 14.6x, compared to 12.3x for the sector. This prices in RMLI's faster growth rates, and leaves the share slightly overvalued based on our updated DCF model (6% downside). We have raised our TP slightly from ILS 158 to ILS 163, but remain at Market Perform for now.

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