Victory Supermarket Chain Ltd operates supermarkets in Israel. It sells kosher products. The company operates 58 supermarket stores with 5 branches in the city of Tel Aviv. It also sells its products through victoryonline.co.il website. Victory Supermarket Chain Ltd was founded in 1986 and is based in Yavne, Israel.

Israel

Victory Supermarket Chain Ltd

Consumer Defensive

The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are unclear. In the past 12 months, the dividend yield has barely been above zero and was substantially below that of its peers. At the same time, the average five-year yield has been significantly higher and exceeded nearly all its peers. The company distributes nearly all its profit as dividends (payout ratio above 90%, a negative factor). It will not be easy to sustain such an extreme payout ratio. It may also indicate a company's lack of profitable growth opportunities, which suggests doubtful prospects. On average, the company pays dividends annually. 

VCTR.TA reported revenue of ILS 2 582mn in the last 12 months, up 5% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 5% from FY23 to ILS 3.06.

Over the last six months, the stock performance has varied, with an increase following a drop. When measured against its worldwide peers from the same industry (as shown above), the stock has been weaker, underperforming by 8ppts. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is mildly favourable.

The company has reported modest EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 8.4% in the last 12 months, a decline from 9.9% in FY23. 

Historically, VCTR.TA has reported weak net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 1.7%, down from 1.9% in FY23. 

Victory Supermarket Chain Ltd reported a return on equity (RoE) of 10.9% in the last 12 months, down from 12.1% in FY23. 

Another important profitability metric, return on assets (RoA), amounted to 2.2% in the last 12 months, a decrease from 2.4% in FY23. 

In the last 12 months, the return on capital employed (RoCE) declined to 3.0%, below the peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 0.9 in the past several years. This ratio implies a poor shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.

VCTR.TA has above average trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity may be unstable and remains extremely favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. Another factor to consider is the substantial number of days with zero trading volumes, i.e., without any ability to sell a position. The stock has a small market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is high. Among the negative credit factors, we point to weak positions in its industry, slow historical revenue growth, bleak profitability, poor working capital management, weak debt servicing capacity, and an unfavourable capital structure. 

In highly turbulent market conditions, VCTR.TA is not overly volatile. In other words, the stock will fall less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be low. 

In normal market circumstances, VCTR.TA is as volatile as an index. Put differently, without outstanding market volatility or shocking company news, the stock's price will move with the index. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible. We would also like to highlight the negligible intraday volatility of the instrument. 

Based on key historical and expected multiples, the stock is greatly undervalued relative to its peers. Specifically, the stock is fairly valued on P/E, neutral on EV/EBITDA, underpriced on P/FCF. 

Victory Supermarket Chain Ltd

ILA 4294

6

Victory Supermarket Chain Ltd

ILA 4294

6

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

ILA 4294

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