Dufry Earnings: Solid Sales Growth and Strong Profit Development; Shares Undervalued

We maintain our fair value estimate for narrow-moat Dufry DUFN at CHF 58 per share as the firm reported solid first-half revenue and profit development. With more solid financial health (lowest net debt since 2015), pent-up demand for travel and travel retail, and the potential for synergies with Autogrill, Dufry shares remain undervalued. Revenue for the first half was up 26.5% on a reported pro-forma basis (21% based on our full-year estimates) and 31.5% organically, exceeding 2019 levels by 3.4% on an organic basis. We maintain our estimates as the comparison base gets more challenging as the year progresses, but the resumption of travel by Chinese citizens should boost sales. July turnover trends remained positive, despite a more difficult comparison basis, up 17% versus 2022 and up 4.7% versus 2019.

All regions excluding Asia-Pacific now exceed prepandemic revenue organically (Europe, Middle East, and Africa up 6.4%, North America up 6.5%, and Latin America 8.3% higher than in 2019). The Asia-Pacific’s sales are still 25.4% below prepandemic levels and should benefit from an easy comparison base and pent-up demand for travel. In addition to strong revenue growth, Dufry had better-than-expected margin progression. The gross margin was up 70 basis points, despite an already high margin in 2022 (63.7% pro forma in 2022), helped by still strong demand, the mix effect, and active commercial management. The core EBITDA margin (calculated after rental expenses) was up 70 basis points on gross margin expansion and better personnel cost leverage even as concession expenses increased as a share of sales (to 25.1% of revenue versus 24.3% in 2022). We expected pressure on core EBITDA profitability in 2023 through inflationary cost rises, but Dufry seems better able to offset the pressures with pricing, efficiency measures, and some initial synergies with Autogrill. In the second half more hiring and integration costs are expected by the firm, which will weigh on the margin.