Dufry: Continues To Benefit From Global Travel Recovery; Integrates Autogrill; Shares Cheap

We maintain our fair value estimate of CHF 58 for narrow-moat Dufry as the company continued a strong postcoronavirus recovery in the first quarter. Shares remain undervalued. Organic growth, excluding the Autogrill acquisition, was 51.5% or only negative 2.4% versus 2019 levels (with currency a significant headwind). All regions performed strongly with sales in Europe, the Middle East, and Africa exceeding 2019 levels organically by 5.2%, North America sales were 4.2% lower organically than 2019, and sales in Latin America almost flat organically against prepandemic levels. Sales in the Asia-Pacific region are yet to recover postpandemic (38.9% lower than in 2019), but the removal of travel restrictions in China should boost growth this year. Sales in the region were up 276.9% in the first quarter against the previous-year comparison. We expect full-year revenue for Dufry as a stand-alone to exceed 2019 levels on an organic basis. We note that comparisons will get more difficult in the quarters to come (in the first quarter of 2022 sales were still 34% below 2019 organically versus being down 16.2% for the full year), but improved sales trends in Asia should offset a more muted performance in Europe and North America. We still think developed markets should benefit from a shift in spending on goods to experiences, which should boost travel even against a more challenging consumer backdrop. A case in point: momentum remains solid into the second quarter with April net sales up 30.2% versus 2022 and up more than 2.3% versus prepandemic 2019. Although not much detail about profitability has been provided on a sales announcement, the core EBITDA margin improved by 190 basis points despite inflationary cost pressures. The company stuck to its forecast of around 8% in core EBITDA for the full year (7.3% in our models). Dufry's balance sheet remains healthy with plenty of liquidity and the company is now compliant with debt covenants.