Zabka grocer's pricing at over PLN 30 bln demanding, investors may expect discount (opinion)

Polish convenience store chain Zabka Group's valuation exceeding PLN 30 billion (EUR 7.03 bln) seems demanding and the company's financial assumptions quite ambitious. Investors may expect a discount if the offering were to sell out in full, manager at mutual funds company Skarbiec TFI Dariusz Swiniarski told PAP Biznes. As he pointed out, if the IPO turns out to be a success, it will fuel further offerings and sustain positive foreign attitudes towards the Polish market.

"There are no final valuations yet at which Zabka will be sold. Forecasts of brokerage firms participating in the offering have appeared on the market, with valuations ranging from PLN 25 billion to over PLN 36 billion," Swiniarski said.

"This pricing above PLN 30 billion is demanding, the company will not be sold cheaply. If the offering were to sell in full, investors will expect some discount to the current market valuation," he added.

On Monday, Zabka Group announced its intention to conduct an initial public offering and list its shares on the Warsaw Stock Exchange. The company will not receive any proceeds from the sale of shares offered by the selling shareholders, the CVC fund.

"We do not know what shareholding CVC will be selling, but it is known that it wants to remain the majority shareholder. However, the fact that only existing shares will be sold, and the company will not receive any development funds from the offer can be viewed negatively," Swiniarski said.

"It is worth noting that more than 10 percent of the company's shares are held by managers and, although they have a lock-up, they will be able to get rid of these shares within three years, which is a risk to the stock price. This may put pressure for there to be a greater discount to fair value in the offer," he added.

According to the manager at Skarbiec TFI, Zabka Group's growth assumptions are challenging.

Zabka currently has 10,000 shops in Poland and plans to open another 4,500 in the coming years.

"It also seems that the assumed trajectory of revenue and profitability growth is quite ambitious, given the current price war on the FMCG market," Swiniarski assessed.

"On the other hand, the company is making its product offering more attractive. Growth can also be sustained by development in neighbouring countries," he added.

In his opinion, however, competitive pressure can now be expected due to the price war and Zabka's assumed LFL growth of 7 percent year on year seems ambitious.

Zabka Group said it aims to double its sales to end customers by 2028 compared to 2023 through the expansion of the Zabka stationery shop network, while increasing comparable sales and further developing its digital offering.

In the medium term, the group aims to open more than 1000 new shops per year in Poland and Romania, with a target of approximately 1100 shops in 2024.

The group estimates the market potential at around 19,500 shops in Poland. The Group assumes that by 2028 its stationary network in Poland will comprise approximately 14,500 shops (which means the opening of approximately 4,500 new shops in Poland between 2024 and 2028).

Zabka group aims to achieve high single-digit LFL sales growth in 2024 (7.5-9 percent) and a mid to high single-digit growth rate in the medium term. It also assumes to increase its adjusted EBITDA margin. In the medium term, it is to aim for the upper end of the 12-13 percent range.

The manager of Skarbiec TFI pointed out that more activity on the domestic market in the area of IPOs is welcome, as in recent years many more companies have gone off the stock market than debuted.

"In 2022, 2023 and this year, apart from Murapol, IPOs on the main market have been in transition from the NewConnect market. Zabka will be the first large IPO since Allegro, which should attract new investors to the Warsaw trading floor, including foreign institutions, and increase the number of companies with relatively high liquidity trading," Dariusz Swiniarski assessed.

As he noted, the company may later enter the stock exchange indices, the mWIG40 and then maybe even the WIG20, which would be positive due to the desired greater diversification in the composition of the indices.

In the manager's opinion, Zabka's IPO will be a test for subsequent offerings.

"Plenty of companies and brokers will be watching to see how this offering goes and if it is successful, it should drive further IPOs, which would be positive for the market as a whole. It would attract new capital and foreign investors could look harder at the Polish market," he said.

The representative noted that "already after the change of government last year, the Polish trading floor appeared on the radar of foreign investors. The success of this IPO should maintain the positive attitude of foreign investors towards Poland as an attractive country to invest in."

Zabka Group's offering will be targeted at institutional investors in selected jurisdictions and individual investors in Poland.

pel/ nl/ ao/