The chain of Dia supermarkets is collapsing today in the Stock Exchange more than 8% after JP Morgan issued a negative report in which it cuts the valuation of the Spanish company from a target price of 2.1 euros per share to 1.7, and recommends "underweight", that is, reduce exposure to this value . In the report, the investment bank anticipates "another weak" result in the third quarter with a "significant" margin contraction partly explained also by the negative currency effect of Brazil and Argentina, the two emerging markets in which it operates.
The report begins by noting that "half of the reduction [del precio objetivo] it is explained by the currency effect and the other half by the fundamentals (lower margins in Iberia and emerging and rising financial expenses) "and leaves the target price at 1.7 euros per share. JP Morgan forecasts that revenues for 2018 will remain at 7,841 million, 9% less than the previous year, with a 3.4% drop in Spain and Portugal and 19% in Brazil and Argentina, with margins falling in both businesses, especially in Iberia. In that environment, Dia falls close to 8% on the stock market and reaches its historical minimum. So far this year, it has fallen by 57.2%.
The reduction is another setback for a company that has chained several consecutive quarters of falling income and profits, penalized by a negative currency effect in Brazil and Argentina, with the collapse of their currencies, but that does not raise head in Spain, with a very strong bet for the prices that have left the margins at minimum and that has not finished working. In fact, he recently relieved his CEO, Ricardo Currás, who held the position for a decade, and was replaced by Antonio Coto, the head of the business in Latin America. The new top executive is working on the definition of a new strategic plan that has not yet a date.
Meanwhile, the possibility remains that Mikhail Fridman, the Russian investor responsible for the Letterone fund, which owns 29% of Dia's capital, will present an offer on the supermarket chain. This Friday the intentions of the Russian tycoon will be known.