In a report on the upcoming elections in Spain, the Financial Times came out with some statements from Mercadona president Juan Roig: "The year 2011 has been good." Discount distribution companies and DIA's stock price corroborates this statement. On November 5 the company celebrated the four month anniversary of its IPO and felt good about its valuation.
On the one hand, DIA is taking a defensive stance. Since the IPO its shares have fallen 5.5%, while in the same period of time its main competitor, IGBM, fell 20.5%. Analysts look favorably on Mercadona and recommend buying the stock at price points between 3.8 and 3.93 euros per share.
DIA is executing a business plan in which it expects a 13% increase in net earnings (ebitda) between 2010 and 2013. Investment banks tracking the company predict growth of 13.77%. In 2010 the company's ebitda was 477 million euros, and in 2013 it will reach up to 617 million if average growth in the distribution industry hits 7.3%. In regard to its net profits, the company stands out according to Santander analyst Jaime Vázquez. "The one exception is its division in France, which is showing losses. But this could be a strength just as much as a weakness if that division is sold," said Vázquez. Net earnings of 95 million euros are expected for 2011.
Debt is DIA's achilles heel. Its ambitious restructuring plan has drive DIA into debt such that in 2011 its financial burdens were expected to rise to 589 million euros. The question is, what is DIA's secret? To answer that question we have to look at the company's business model and strategic plan.