Equity Valuation : Arezzo&Co

Abstract

Arezzo&Co is a Brazilian company, among the leaders in the women footwear retail market in Latin America. It designs and develops affordable luxury shoes and accessories under the brand names Arezzo, Schutz, Anacapri and Alexandre Birman. The company operates a very flexible business model, in which all shoes and accessories are designed internally, but its production can be either handled internally or outsourced to third-party manufacturers. Similarly, its sales strategy is based on a combination of owned, franchised and multi-brand stores, as well as a recently developed e-commerce platform. This flexible business model allows the company to determine the most profitable combination of the above factors, without losing control over its brands, product design and quality, while generating high returns on invested capital. Arezzo&Co benefits from Brazil’s dynamic consumption market, in which branded products assume a greater importance as Brazilians move up the income ladder. Despite the recent economic slowdown, the prospects for the domestic retail sector remain strong. Based on a 5-year DCF valuation, it is estimated a price target of R$ 30.0 per share for Arezzo&Co. At current values, this price target implies a 6.1% upside, which results in a HOLD recommendation.