Retail

Company Overview

Founded in 1985 and listed on the Casablanca Stock Exchange since 2008, Label Vie (LBV) is the number two in the modern distribution sector in Morocco with a 30% market share in terms of surface area (vs. 54% for Marjane/ Acima). The company operates three business segments: supermarkets (number one with 46 stores), hypermarkets (number three with five stores) and hypercash (number one with 11 stores). LBV operates its stores under the Carrefour brand through a franchise agreement with Carrefour Group ( Carrefour Markets for supermarkets, Carrefour for hypermarkets and Atacadao for hypercash stores) and has an aggressive development programme for the coming years with the ambition of opening 18,000 sq metres of new stores per annum. The investment effort should be evenly balanced between the three business segments of the group. The total retail space of LBV as of December 2015 was 151,280 sq metres. Retail Holding is the main shareholder of the company with a 51% stake. Other significant shareholders are Saham Assurance (a 10% stake), one of the leading insurance companies in Morocco, and Arisaig Africa Consumer Fund with an 8% stake. The free float represents around 30% of LBV capital.

In 2015 LBV’s earnings were overall better than expected, with many good results with regards to margins and significant organic sales growth in some segments. The group’s earnings before tax jumped by 99.8% to Dh164m (€15m), while net income group share stood at Dh109m (€10m), an increase of 36%. Store rollout was the only disappointment, with only one new supermarket in Marrakech (Menara Mall) versus more than seven new stores expected initially. Nevertheless, the conversion of the Bouskoura Atacadao store into a Carrefour Hypermarket was a great success. Indeed, this store has become the group’s flagship with an amazing level of daily sales. The other major event experienced by the group was the equity stake investment by the European Bank for Reconstruction and Development (EBRD) – a capital increase of €45m – in LBV’s former fully-owned real estate investment vehicle Vecteur LV (VLV). Following the capital increase by EBRD LBV’s stake in VLV dropped to 73% while that of EBRD increased to 27%. VLV now has the necessary financial means to sustain the ambitious development programme of its parent company LBV, particularly in terms of real estate acquisition.

Outlook

Growth prospects for LBV remain favourable and will be mainly driven by the ambitious development plan of the company in terms of opening new stores. Margins are also expected to continue improving thanks to the cost-saving efforts deployed by the management since 2015 and the economies of scale that should result from the rapidly increasing sales. We have a buy recommendation on LBV with a target price of Dh1288 (€118.09) per share. Beyond the upside potential implied by our valuation of the company through discounted cash-flow method, we are comforted in our opinion by the huge development potential of modern distribution in Morocco in the medium and long term (11 sq metres per capita in Morocco vs. 200 sq metres per capita in Europe and 40 sq metres in Turkey); the ambitious development programme of LBV over the coming years through the opening of new 18,000 sq metres per year; the fact that the sector in which LBV operates is mainly driven by domestic consumption and is and should remain the main growth catalyst of the Moroccan economy; and the positive impact on company’s sales of the launching of the Atacadao concept between 2012 and first half of 2013 (a volume-concept, offering hard discounts in business-to-business and business-to-consumer), which should allow LBV to improve both its margins and working capital given the group’s stronger negotiating position vis-à-vis its suppliers.