Investing.com -- UBS analysts downgraded Douglas AG (ETR:DOU1) shares to Neutral from Buy on Wednesday, a move driven by “slower growth and pace of deleveraging.” The bank also more than halved its price target on the stock to €11.50 from €25.50.
Last week, Douglas released an earnings guidance that implied a 20% cut in expected earnings per share (EPS), urging the analysts to reassess the equity story that was based on topline growth, stable EBITDA margins, and successful deleveraging.
The German retailer’s revised expectations of a 1% revenue growth from January to September signaled a potential slowdown in the premium beauty market, contrary to earlier forecasts.
“Given no visible catalysts on Germany and France (c.48% of sales) we expect DOU to revise mid-term topline growth outlook at the Q2 results on 15th May,” analysts led by Yashraj Rajani said.
This has led UBS to adjust its compound annual growth rate (CAGR) projection for Douglas from 7% to 4% for the fiscal years 2023 (FY23) to 2026.
“Lower EBITDA expectations on the back of slower growth, higher promotions and SG&A deleverage imply Douglas is also likely postpone their financial leverage and dividend target at Q2,” analysts added.
The reassessment also includes a more conservative view of Douglas’s financial leverage. UBS now expects the company’s leverage to reach 2.7 times by FY26, compared to the previous estimate of 2.3 times.
In light of the updated sales guidance and the implications for like-for-like sales decline, UBS has reduced its revenue and EBITDA forecasts for fiscal years 2025 and 2026 by 5% and 11%, and 8% and 14%, respectively.
The revised projections also affect the expected adjusted EPS, which is now anticipated to decrease by 24% for fiscal year 2025 and by 30% to 31% for the subsequent years.
UBS’s new €11.50 price target is based on a discounted cash flow (DCF) analysis, which reflects lowered expectations for both terminal growth and terminal margin.
The bank now assumes a terminal growth of 0.5% and a terminal margin of 9%.