Dufry/Autogrill: shareholders have long waited for take-off
An economic downturn could mean pay-off from push into ‘experience’ shopping for travellers is delayed
Swiss duty-free travel shop operator Dufry this week announced its new purpose, making travellers “happier”. Its investors could do with a lift too. Despite airports bursting with passengers, Dufry’s share price has recovered only modestly. It wallows closer to its March 2020 lows than pre-pandemic peaks.
This route to happiness begins with Dufry’s “smart” airport stores. Creating what Dufry grandly calls its “travel experience revolution” will involve extra capital expenditure amounting to 50 basis points of sales. Overall capital spending will be 4.5 per cent of sales in the medium term. That is more than double what it was last year, and more than some investors expected.
That spending will constrain equity free cash flow conversion (from operating cash flow) to 20 per cent over the next two years. That is at least a quarter less than the pre-pandemic years. But it expects conversion to rise above 30 per cent in the following two years.
Diversification is another strand of Dufry’s strategy. Expanding its footprint in the US and Asia-Pacific is meant to offer protection against a European downturn. Dufry also wants to increase the average amount of time customers spend in its shops. Its acquisition of food and beverage provider Autogrill, announced in July, should encourage customers to linger. This deal valued the Italian caterer’s equity at between €2bn and€2.2bn.
Dufry has high hopes for operational improvements as well. In the next two years, ebitda margins are expected to rise by between 75bp and 100bp from the first half’s 7.1 per cent.
But enhancing the pre-flight airport encounter hardly protects Dufry from any impending weakness in the world travel sector. Its valuation hints at that. Dufry at present trades on a forward EV-to-ebitda multiple of just under six, compared with an average of almost 10 over the past decade.
An economic downturn could mean the pay-off from Dufry’s push into “experience” shopping for travellers is delayed.