Westwing Comércio Varejista S.A. engages in the e-commerce business in Brazil and internationally. The company sells furniture, decoration items, clothing, accessories, lighting, kitchen, and pet products through its website and platforms for mobile applications. It also operates 4 physical stores. The company was founded in 2011 and is headquartered in Sao Paulo, Brazil. Westwing Comércio Varejista S.A. is a subsidiary of Kedar Empreendimentos e Participacoes S.A.

Brazil

Westwing Comércio Varejista S.A.

Consumer Cyclical

The company does not pay dividends at all, or it pays them sporadically. There have only been a few years with dividend payments in the past ten years. 

WEST3.SA reported revenue of BRL 168mn in the last 12 months, down 15% from FY23. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS fell 9% from FY23 to BRL -0.45. Market expects EPS to reach BRL -1.31 in FY25.

The stock's performance has been mixed in the past six months, with growth following a decline. There is no clear price trend compared to its global peers from the same sector and industry (as shown above). It has underperformed this peer group by 31ppts over six months and grown 1ppts faster in the past month. This is largely true for peers from the same country and sector. With respect to the stock's valuation against its peers, its overall price performance is 'fair'.

The company has reported very poor EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to -1.3% in the last 12 months, up from -11.7% in FY23. 

Historically, WEST3.SA has reported very poor net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled -15.2%, a growth from -27.5% in FY23. 

In the last 12 months, the return on capital employed (RoCE) grew to -9.8%, below the peers. The consensus estimate for FY24 for RoCE is -6.3%, again behind the peers. 

Westwing Comércio Varejista S.A. reported a return on equity (RoE) of -10.5% in the last 12 months, up from -19.3% in FY23. The market consensus projects an RoE of -8.1% in FY24, again behind its peers. 

Another important profitability metric, return on assets (RoA), amounted to -7.7% in the last 12 months, an increase from -14.1% in FY23. The market analysts predict that RoA will be -5.9% in FY24, again weaker than its peers. 

The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been -2.1 in the past several years. This ratio implies a fragile shareholder value creation. 

The institutional, legal, and compliance risks associated with the company's country are close to minimal. In combination with rigorous business standards, shareholder rights are well protected.

WEST3.SA has very poor trading liquidity. It will take considerable time for the average private investor to sell a common position under normal market conditions. Liquidity is unstable and remains favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions. The stock has a tiny market capitalisation, which usually makes its trading liquidity erratic and unpredictable. 

No other major risks have been identified.

The risk of default is moderate. We note low margin volatility and an favourable capital structure, among the positive credit factors. Among the negative credit factors, we point to weak positions in its industry, slow historical revenue growth, bleak profitability, negligible return on capital, weak debt servicing capacity, inadequate interest coverage, and poor cash flow generation.

In highly turbulent market conditions, WEST3.SA is moderately volatile. In other words, the stock will fall more 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 moderate. 

In normal market circumstances, WEST3.SA is highly volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will change somewhat erratically. The stock's losses on its worst days (less than 1-5% of the time) will range from large to substantial. We would also like to highlight the substantial intraday volatility of the instrument. 

From both historical and forecast perspectives, the stock is underpriced compared to similar stocks. In particular, the stock is of fair value on EV/EBITDA. 

Westwing Comércio Varejista S.A.

R$ 5.05

3

Westwing Comércio Varejista S.A.

R$ 5.05

3

Risk factor

Profitability factor

Risk / Profitability

Risk factor

Profitability factor

R$ 5.05

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