Saturday, June 10

The rise of Inditex that Goldman Sachs foresees endorses the Marta Ortega era

The upward revision that the influential international investment firm Goldman Sachs has just done about the valuation of Inditex give one recognition in the markets for the leadership of the heiress of the multinational textile company from A Coruña, Marta Ortega, who will open a new era in the company as president on April 1. Goldman recommends buying now shares of the company founded by Amancio Ortega because it anticipates that will rise more than 30% throughout this year. That rise in the stock market that the investment bank predicts will occur once Pablo Isla has ended his 17-year cycle as chief executive and the company will be directed by the tandem of Marta Ortega, as non-executive president, and Óscar García Maceiras, as CEO.

The sales of Zara, Pull&Bear, Bershka, Massimo Dutti (which is now part of Uterqüe), Stradivarius, and Oysho have regained levels prepandemia and Goldman Sachs is optimistic about Inditex’s business model, which is showing competitive advantages to revalidate its leadership in the world market of fashion, above giants like H&M, Gap and Uniqlo. The strengths that analysts appreciate to predict that the price of Inditex shares will reach 37.5 euros (its current value is 28.1) have to do, among other things, with the company’s resources to avoid with its logistics the damage caused by the crisis in the supply chain and with the efficiency of its integrated physical and online sales model.

A resilient business model

Goldman believes that Inditex is well positioned to outperform its peers in a normalized macroeconomic environment. This is for a well-oiled business model that has shown the resilience of your profits and your cash flow. Even in 2020, when Inditex suffered the first losses in its history (-175 million euros between February and April, due to the confinement), it managed to close the year with profits (+1,100 million) thanks to the push of internet sales. Inditex has “one of the most resilient profit and cash flow profiles in the sector”, Goldman Sachs values. That is why analysts raised last Wednesday from 34 to 37.5 euros the price they consider the shares can reach.

Proximity production

Another of the main reasons why Goldman believes that Inditex will do better than its rivals is because the Arteixo group has a lower manufacturing exposure in the Asia-Pacific region, so you can dodge the supply chain crisis. Inditex has shielded itself from this global problem by reinforcing its local production. While other groups depend for 60% or up to 80% on Asian factories, Inditex has reduced that share to below 50%. By reducing the distance it also minimizes the effects of rising transport costs.

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A system to squeeze post-COVID consumption

The integrated model (sales in stores and online, with a single inventory) is a priority for Inditex. This system allows optimize stock and reduce costs. In the absence of knowing the annual results, in the first nine months of 2021 Inditex has already earned almost the same as before the pandemic with 800 stores less and billing double online. In recent months, it exceeded the pre-COVID level by 10%. Goldman believes that it has everything in its favor to take advantage of the consumption that is coming.