Facing several uncertainties raised by the market about the future of Azzas 2154, XP decided to do a deep dive into the operation of the company resulting from the merger of Arezzo&Co with Grupo Soma.
XP, which also had doubts regarding the synergies of Azzas, decided to keep the company as their top pick in the sector, but reduced the price target from R$ 70 to R$ 65 – a potential upside of 62% compared to the current price.
To justify their thesis, analysts Daniela Eiger, Gustavo Senday, and Laryssa Sumer focused on three themes: the structural growth of the company; the potential for margin expansion; and the taxation of the new company.
Analyzing the potential growth, the brokerage firm separated Azzas into four business units – women’s shoes, women’s fashion, men’s fashion, and Hering – and calculated a CAGR of 8% for the period between 2024 and 2034 – with a low double-digit increase until 2026 and a slowdown thereafter.
According to analysts, these numbers can be considered “slightly conservative.”
The main highlight in growth will come from women’s fashion, with a CAGR of 10% for the next ten years, driven especially by Farm. Men’s fashion, Hering, and women’s shoes follow closely with estimated CAGRs of 7%, 6.8%, and 6.5%, respectively.
Regarding the margin expansion of Azzas, XP listed synergies coming from the creation of shoe and accessory categories at Hering and Farm; cost savings from the internalization of brands from the former AR&Co in Hering’s factories; scale gains in freight and logistics negotiations; and optimization of G&A.
Additionally, analysts also see the possibility of portfolio optimization, with some brands potentially being discontinued (such as DZARM, BAW, and Alme) and others absorbed (like Simples returning to be sold only in Reserva stores).
“We believe that this portfolio optimization would not only help simplify the company’s management and focus, but could also unlock margin expansion,” wrote the analysts.
With these improvements, Azzas’ gross margin could increase from the current level of 56% to reach 58% in the medium term, according to XP’s calculations.
Doubts related to taxation continue – especially with MP 1185, which changed the taxation in the sector and is expected to have a significant impact on the operation that came from Grupo Soma.
“We maintain our more conservative approach regarding ICMS subsidies. But we note that the company’s taxes to pay should be much lower, given the amortization of Hering’s goodwill.”
According to the analysts, considering taxes to be paid, Azzas’ P/E multiple for 2025 would drop to 8x earnings.
Currently, XP sees Azzas trading at 9.7x estimated earnings for the next year – “one of the cheapest retailers in our coverage.”
Azzas’ stock has dropped 33% in the last 12 months. The company is valued at R$ 8.3 billion on the B3.
Source
Arwen Volkov, A graduate of the University of St. Gallen in Switzerland with a degree in International Finance, Arwen specializes in sustainable finance and green investments. She began her career at an investment bank in London, where she developed financing models for environmentally friendly projects. Known for her analytical and strategic thinking skills, Arwen is a sought-after financial consultant. In her spare time, she mentors fintech startups, contributing to their growth strategies. She is also a nature enthusiast and an amateur photographer.
