The Spanish consumer is in a dire position, wrestling stubbornly high and still - rising unemployment and fiscal austerity. With private final consumption expected to contract by 1.7% in 2012, we are clearly some way off sustained improvements in confidence and ultimately consumption beyond discounting. To emphasise this point, it was recently announced that Spanish retail sales dropped by 10.9% year-on-year in September 2012 as an increase in value added tax battered spending further. Amidst this hugely challenging backdrop, one company that has managed to really do well in 2012 has been the discount food retailer Dia - a Carrefour spinoff from mid-2011. At the time of writing, Dia's shares are up by nearly 34% in 2012, comfortabl y outperforming the benchmark IBEX 35 index. We believe that Dia is one of a select few Western Europe-based food retailers with good near - term growth prospects in the region itself.
|Private Final Consumption, Real Growth % change y-o-y|
Dia recently reported results for the first nine months of its financial year to September 2012 with net income nearly trebling to EUR99.2mn. Third quarter same-store sales in the Iberia region, Spain and Portugal, increased 1.1% y-o-y. Any sort of same-store growth in the current climate is good going in our opinion , and to top it off, Q3 same-store sales across Dia's emerging markets increased 14.2% y-o-y.
|Dia Valued Similarly To Growth Retailers Such As Jeronimo|
|Selected Retail Companies Trailing 12 Months Price/Earnings Ratios|
|Dia/IBEX 35 Index (31/12/11=100)|
With annual sales of about EUR10bn, Dia is the world's third largest hard discounter behind the German pair of Lidl and Aldi . Dia probably has a stronger footprint in emerging markets than either, providing good exposure to a number of really promising emerging retail markets such as Brazil, China and Turkey, where we believe hard discounting can accomplish much over the long-term. Dia is believed to be aiming to grow its emerging m arket business to about 30% of sales by 2013, which would be an 8% increase on 2010.
Given its exposure to European discount retailing and a number of high-growth international markets, Dia is probably among the best placed eurozone-based food retailers at this moment in time given the uncertainty surrounding Europe and prolonged weakness in consumer spending, which is not expected to improve anytime soon.