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Analyst Research Report Snapshot


Rami Levi (RMLI) 2013-4Q update




Bank Leumi


31 Mar 2014





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Rami Levi posted 4Q results that were broadly in-line with expectations. Our investment thesis remains unchanged – sales per metre at the chain store are far above the industry average, and we are unconvinced that the chain has a sustainable competitive advantage that will allow it to keep outselling its competitors by such a wide margin. This is mainly a reflection on the nature of the industry. Recommendation and target price. We model for a 40 store steady state, a ~10% deterioration in sales per metre, and a continued (though moderate) decline in profitability. This gives us a ILS 164 target price, -18% compared to the existing market price. If you consider this scenario unjustifiably pessimistic, we have also looked at the best case scenario: Rami Levi reaches 50 stores while maintaining sales per metre at current levels (i.e. about 2.5x the industry average) and existing profitability levels. Placing this in its proper context, this would mean capturing a further 8.4% of the food retail market – a truly seismic shift for the industry. Even under such an unlikely scenario, the share only offers ~20% upside: not an epic return for such bold assumptions. We maintain or Underperform recommendation.

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