BTG Pactual raises Vivara's target price and maintains a purchase recommendation for the retailer (Image: Facebook/Vivara)
O BTG Pactual introduced a new target price for Vivara (VIVA3), from R$35 to R$36 at the end of 2025, which implies a potential appreciation of 35%, considering the closing price of last Thursday (26). The bank maintained its recommendation of buy.
Analyst Luiz Guanais and his team comment that the company's history has undergone a turnaround in recent months, since its founder and largest shareholder, Nelson Kaufman, was approved as CEO in March this year.
With approval, the thesis that was consensual among local investors began to face resistance, with questions about the company's governance and speculation about changes in strategy.
However, a few days later, Vivara backed down, and announced that Otavio Lyra, CFO since the IPO, would take over the role, while Kaufman was appointed chairman of the board. A series of other changes to the executive team were announced, supporting concerns about the continuity of the company's strategy and succession plan.
“While we cannot ignore the risks putting pressure on the thesis due to these changes, after two quarters of lower-than-expected numbers, the second quarter showed better signs, with decent revenue growth and improved profitability (beating our estimates), and we expect a strongest second half for the company.”
Vivara's rare combination
For BTG, Vivara brings together a rare combination of sales growth and consistent returns, consolidating itself since the IPO as the largest jewelry retailer in Brazil in a fragmented market. For the bank, it is well positioned to continue moving forward, driven by great advantages in scale and distribution across the country and a vertically integrated business model.
Although analysts recognize the risk of recent changes in the company's management team, the short-term operational outlook is assessed as promising. BTG must monitor the evolution of key performance indicators (KPIs) in the long term, such as store productivity, cannibalization between the Life and Vivara banners and international expansion, as well as management turnover.
In this scenario, the bank revised Vivara's Ebitda (earnings before interest, taxes, depreciation and amortization) by +3% and net profit by +5% for the next four years, reaching the new target price of R$36 for 2025.
“In short, with VIVA3 trading at 12x P/E for 2025, the valuation current market still offers attractive upside potential.”
Expectations for the second half of 2024
In the third quarter of this year, BTG Pactual sees a trend of continued acceleration in relation to previous quarters, with gross revenue growth of approximately 20% amid an acceleration in the Vivara brand.
Although it faces a margin challenge due to the product mix with higher sales of Vivara brand jewelry and watches, gross margin is expected to remain stable on an annual basis, with an improving trend in the fourth quarter of 2024.
For the coming quarters, with regards to product assortment, the company intends to increase inventory depth and strengthen its position as an affordable luxury brand. It also reduced discounts and cut marketing expenses in recent months, analysts point out.
“Meanwhile, there is an effort to adjust store assortment based on geographic region and improve the customer experience. At the same time, Vivara believes there are still additional opportunities for gradual price increases, as long as the company can balance current gold prices with legacy costs.”