Dufry Recovers Strongly From Pandemic’s Peak, Despite Uncertain Macro

We don’t expect to materially change our fair value for narrow moat Dufry DUFN as the company reported strong recovery of sales and profits in 2022. Shares remain undervalued, trading at around a 30% discount to our fair value estimate.

Revenue came in at CHF 6878.4 million, 1% lower than our assumptions but ahead of company-compiled consensus of CHF 6746 million. Revenue was 16.7% lower than in 2019, prepandemic. Given that year-to-date revenue is only 3% below pre-pandemic levels, we are planning to increase our forecast for 2023 to likely match or exceed 2019 levels, especially with recovery in Asia Pacific, where revenue was still down 74.9% in 2022 versus prepandemic 2019. Gross margin was well ahead of our estimates (58%) at 61% and 2021 levels (56.5%) and the company delivered strong profitability (core EBITDA 8.8%) and free cash flow conversion of 50.3%. The outstanding profitability and cash flow conversion is not expected to recur in 2023, as the income gets pressured by increased hiring, inflation, other investments and non-recurrence of some MAG, or minimum annual guarantee, reliefs. The company retained its prior mid-term outlook for revenue growth and margin improvement.

Liquidity remained plentiful, with CHF 2.3 billion available, average maturity of 4.1 years and weighted interest rate of 3.1%, with bank debt successfully refinanced. The company is also in compliance with debt covenants ahead of schedule. Given plentiful liquidity and successful refinancing, we believe the risk of having to issue more debt at higher interest rates is diminished.

Autogrill will be consolidated into the group from February, which we will incorporate in our model as we update it. 50.3% of Edizione stake is fully share based, while other shareholders are more likely to opt for shares versus cash given the current prevailing share price. We believe the dilution should be offset by the synergies from the acquisition.