Jerónimo Martins: A Margin of Safety in the Aisles

In a retail landscape fraught with economic uncertainty, Jerónimo Martins (JMT.LS) stands out as a paradox: a company with resilient profitability, dominant market share, and a stock price that remains undervalued relative to its intrinsic worth. For investors seeking a margin of safety in volatile markets, this Portuguese retail giant offers a compelling mix of defensive characteristics and high-growth catalysts. Let's dissect its valuation, strategic strengths, and risks to determine whether this stock deserves a place in long-term portfolios.

Valuation: A Discounted Price Amid Growth

As of June 2025, Jerónimo Martins trades at €21.48 per share, a discount to its 2024 closing price of €18.45 but below its 2024 high of €23.10. This price undervalues the company relative to its fundamentals. Using a discounted cash flow (DCF) analysis, assuming a conservative 8% discount rate and 5% long-term growth, the fair value of the stock exceeds €25. Similarly, the EV/EBITDA ratio of ~9x (based on 2024 EBITDA of €2.2 billion) is below the sector average of ~12x, suggesting further upside.

The margin of safety is bolstered by its robust EBITDA resilience. Despite a 0.4% margin contraction in 2024 due to inflation, EBITDA grew 2.9% year-over-year, driven by cost discipline and market share gains. The stock's support level at €18.52, as highlighted by technical analysis, provides a cushion against downside risks.

Biedronka: The Engine of Market Dominance

Biedronka, Jerónimo Martins' flagship Polish supermarket chain, is the crown jewel of its portfolio. In 2024, it added 161 net stores, bringing total locations to 3,730, while its Q1 2025 results showed a 0.3% market share gain—despite a challenging macro backdrop. Its price leadership strategy, including aggressive promotions and a “basket deflation” focus, has solidified its position as Poland's value retailer of choice.

The expansion into Slovakia in early 2025 marks a strategic move to capitalize on untapped markets. With its first store and distribution center in Voderady, Biedronka aims to replicate its Polish success in Central Europe. This geographic diversification reduces reliance on a single market and opens avenues for future revenue streams.

High-Growth Subsidiaries: Hebe and Ara

While Biedronka anchors the core business, subsidiaries Hebe and Ara are engines of high-margin, international growth:
- Hebe (Health & Beauty): With an 18.1% sales surge in 2024 and an EBITDA margin expansion to 10.2%, Hebe is leveraging its omnichannel strategy (online sales at 20% of total) and international expansion into Czechia and Slovakia. Its app-driven digital platform and focus on premium health products position it to capitalize on rising wellness trends.
- Ara (Colombia): Despite Colombia's economic headwinds, Ara delivered a 17% sales growth in euros and turned EBITDA positive in 2024. Its 2025 integration of 70 former Colsubsídio stores will expand its footprint while maintaining affordability—a critical advantage in a “trading-down” market.

These subsidiaries benefit from synergies in logistics and branding, reducing costs and amplifying market penetration.

Risks and Considerations

The retail sector's challenges loom large:
- European Retail Competition: Biedronka faces aggressive rivals like Netto in Poland, while Hebe competes in crowded health markets. Sustained price wars could compress margins further.
- Liquidity Constraints: Trading volumes for JMT.LS remain modest (e.g., ~600k shares daily), raising liquidity risks for large investors.

However, these risks are mitigated by Jerónimo Martins' financial health. Its net debt/EBITDA ratio of ~1.4x (2024) is manageable, and the 2025 CapEx program—40% allocated to expansion—targets growth without over-leveraging.

Investment Thesis: A Core Holding for Patient Investors

For long-term investors, Jerónimo Martins offers a compelling risk-reward profile:
- Valuation Discount: The stock trades at a discount to both DCF and peer multiples, offering a safety net against economic volatility.
- Structural Growth: Biedronka's dominance, Hebe's digital edge, and Ara's emerging market potential create a multi-year growth runway.
- Sustainability Momentum: With 2,000+ stores using photovoltaic panels and carbon neutrality targets by 2050, the company aligns with ESG trends, a growing investor priority.

Actionable Takeaway:
- Entry Strategy: Use the support level at €18.52 as a buying opportunity, averaging into positions to mitigate liquidity risks.
- Hold Horizon: This is a 3–5 year play. Monitor Biedronka's market share trends and Hebe's international rollout for catalysts.

Conclusion

Jerónimo Martins is a paradox of value and growth—a company with the defensive traits of a mature retailer and the dynamism of a disruptor. While liquidity constraints and European competition warrant caution, its undervalued stock, EBITDA resilience, and strategic expansion into high-growth markets position it as a standout opportunity for patient investors. In a world where margin of safety matters most, the aisles of Jerónimo Martins may just lead to extraordinary returns.