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Magazine Luiza S/ABrazilian Hardline Retail

Gabriel Teodoro

CFA Institute Research Challenge 2017

Gustavo Faria

João Vitor Zuardi

Lucas Nascimento

Luiz Lira

1

Overview High Top-Line Growth Margins & Cash Excess Returns Valuation & Risks

0

20

40

60

80

100

120

140

160

Ready To Take Off

Stock Chart

Current Price FY18E Target Price UpsideLONG

BRL 69.9 BRL 98.9 +41.4%

Target Price

BR

L

Source: Bloomberg

2


Reasons to LONG

Frase de Impacto

Company Overview

Magazine Luiza Is a Growth Company

3


Technology

30%

Household

Appliances

29%

Sound &

Image

19%

Furniture

14%

Other

8%

Core Business: Multi-channel Focused on Electronics and Home Appliances

Net Revenues Breakdown by Product Type

Electronics and house appliances

Source: Company Filings, Team Estimates

Net Revenues Breakdown by Channel

E-commerce

24%

Brick & Mortar

76%

4




Technology

30%

Household

Appliances

29%

Sound &

Image

19%

Furniture

14%

Other

8%

829 Physical Stores

701 Conventional Stores

129 Virtual Stores




E-commerce

24%

Brick & Mortar

76%

393 Stores

Southeast

221 Stores

South

197 Stores

Northeast

18 Stores

Midwest

9 Distribution

Centers

5


Technology

30%

Household

Appliances

29%

Sound &

Image

19%

Furniture

14%

Other

8%






E-commerce

24%

Brick & Mortar

76%

E-commerce GMV Breakdown (2Q17)

Business-to-Consumer (B2C)

95% GMV

Marketplace

5% GMV

Gross-Merchandise-Volume (LTM): BRL 12.5 bn

Magazine Luiza E-commerce GMV

1280 14031876 2059

27243063

3422

2012 2013 2014 2015 2016 1Q17 2Q17

6


Financial Services Are North of ~30% of Net Income

50%/50%

with Cardif

50%/50%

with Itaú


268

187

70

11

Remaining Net Income (LTM)

4%

26%

70% 100%

Net Income Breakdown by Segment (BRL mn)

7


3Q

2013

4Q

2013

1Q

2014

2Q

2014

3Q

2014

4Q

2014

1Q

2015

2Q

2015

3Q

2015

4Q

2015

1Q

2016

2Q

2016

3Q

2016

4Q

2016

1Q

2017

2Q

2017

New Life for Magalu’s Strategy After Turnover

Same Store Sales

EBITDA Margin

4,7%3,7%

5,5% 5,4%4,7%

7,1%

2011 2012 2013 2014 2015 2016

Digital Inclusion

Digitalization of Stores

Multi-Channel

Digital Platform

Digital Culture

+36 p.p.

+2.4 p.p.


8


Reasons to LONGReasons to Go LONG

Frase de ImpactoReady To Take Off

9


High Top-Line Growth

Margin Improvement & Cash

Generation

Excess Returns

Reasons to Go LONG

10


High top-line growth

Margin improvement & Cash

generation

Excess Returns

Reasons to Go LONG

What Are the Main Growth Drivers for Magalu?

11


9%

3%

14%

-2%

3%

-2%

Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17

IPCA YoY Food IPCA YoY Retail Hardline IPCA YoY

Consumption Drivers Are Coming Back

Growing Purchasing Power and Low Inflation Rates

Source: Bloomberg, Euromonitor, IBGE

-7%

-2%

3%

8%

-3

-2

-1

0

1

2

3

June-12 June-14 June-16

Unemployment Reversal and Job Creation

Falling Interest Rates for Consumers Hardline Sales Rising with Customer Confidence

0%

10%

20%

30%

40%

0%

5%

10%

15%

20%

25%

Jan

-13

Ap

r-13

Jul-

13

Oct

-13

Jan

-14

Ap

r-14

Jul-

14

Oct

-14

Jan

-15

Ap

r-15

Jul-

15

Oct

-15

Jan

-16

Ap

r-16

Jul-

16

Oct

-16

Jan

-17

Ap

r-17

Jul-

17

Ho

use

ho

ld In

tere

st

Rate

sSELIC

SELIC Household Interest Rates

65

82

-24%

13%

-30%

-20%

-10%

0%

10%

60

70

80

90

Au

g-1

5

Oct

-15

Dec-

15

Feb

-16

Ap

r-16

Jun

-16

Au

g-1

6

Oct

-16

Dec-

16

Feb

-17

Ap

r-17

Jun

-17 H

ard

lin

e R

eta

il S

ale

s

YoY

Co

nsu

mer

Co

nfi

den

ce

Ind

ex

Consumer Confidence Index Hardline Retail Sales YoY

12


Hardline Retail is Ready to Surf on the Macro Tailwinds

Sales Growth per Segment (YoY)

-20%

-10%

0%

10%

20%

30%

-9% -4% 1% 6% 11%

Hardline Retail Volume Growth vs. Household Consumption

Growth

18%

2%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Retail Oil and Gas Food and beverage

Supermarkets Clothing Hardline

Drugstores Books and Magazines Technology

Beta = 2.7

Source: Bloomberg, Euromonitor, IBGE

13


Room For Higher E-commerce Penetration

Source: E-bit, Euromonitor

19%

17%

8%

7%

7%

3%

2%

China

UK

USA

Germany

Japan

Brazil

India

Consumer Goods Online Sales (BRL bn) E-commerce Sales as % of Total Sales (by Country)

810

1316

19 20 21

27%

14%

31%26%

16%

5% 8%

-80%

-60%

-40%

-20%

0%

20%

40%

-5

5

15

25

35

45

55

65

2011 2012 2013 2014 2015 2016 2017E

CAGR 2011-2017 = 15%

Growth

14


Base Case Top-Line Snapshot: 20% CAGR 2018-2022


15

9%

25%

94%

CAGR

CAGR 2018-2022 = 20%Gross Revenues Breakdown (BRL mn)

11.438 10.427 11.268

12.078

16.851

20.15523.770

27.15430.236

9.562 8.368 8.562 10.057 11.640 12.930 14.083 15.187 16.2391.876

2.059 2.7243.833

5.1176.879

8.87810.911

12.668

17

94

346809

1.0561.329

2014 2015 2016 2017E 2018P 2019P 2020P 2021P 2022P

B&M B2C Marketplace

Total


Two-Stage B&M Estimates: Stronger Short-Term Pace

BRL mn

+200 Stores SSS Growth of 10%

CAGR = 13%

SSS = 12%

CAGR = 8%

SSS = 9%


10.057

11.64012.930

14.08315.187

16.23917.299

18.36719.469

20.500

2017E 2018P 2019P 2020P 2021P 2022P 2023P 2024P 2025P 2026P

16


10.057

11.64012.930

14.08315.187

16.23917.299

18.36719.469

20.500

2017E 2018P 2019P 2020P 2021P 2022P 2023P 2024P 2025P 2026P

+40 Stores CPI-like SSS+200 Stores SSS Growth of 10%

CAGR = 6% SSS = 6%

Two-Stage B&M Estimates: Slower Long-Term Pace

CAGR = 13%

SSS = 12%

CAGR = 8%

SSS = 9%


17

BRL mn


B2C Gross Revenues (BRL mn)

Two-Stage Growth B2C Estimates

CAGR 2022-2026 = 13%

Source: Statista, E-bit, Team Estimates

18

CAGR 2018-2022 = 25%

3.8335.117

6.8798.878

10.91112.668

14.56816.753

19.26620.855

2017E 2018P 2019P 2020P 2021P 2022P 2023P 2024P 2025P 2026P


Two-Stage Growth B2C Estimates: Stronger Short-Term Pace

CAGR 2022-2026 = 13%


19

CAGR 2018-2022 = 25%

3.8335.117

6.8798.878

10.91112.668

14.56816.753

19.26620.855

2017E 2018P 2019P 2020P 2021P 2022P 2023P 2024P 2025P 2026P

B2C Gross Revenues (BRL mn) Double-Digit Growth

15% Spread to Sector Growth

Top-Notch Integration

High Quality Service

Macro Conditions Rebound


B2C Gross Revenues (BRL mn)

2.004

5.1176.879

8.878

10.91112.668

14.568

16.753

19.26620.855

2017E 2018P 2019P 2020P 2021P 2022P 2023P 2024P 2025P 2026P

BRL mn

CAGR 2017-2022 = X%

B2C Gross Revenues

Dec-

02

Au

g-0

3

Ap

r-04

Dec-

04

Au

g-0

5

Ap

r-06

Dec-

06

Au

g-0

7

Ap

r-08

Dec-

08

Au

g-0

9

Ap

r-10

Dec-

10

Au

g-1

1

Ap

r-12

Dec-

12

Au

g-1

3

Ap

r-14

Dec-

14

Au

g-1

5

Ap

r-16

Dec-

16

15% CAGR2002-2017

CAGR 2022-2026 = 13%

US-LIKE MATURING GROWTH

US E-commerce Sales

Two-Stage Growth B2C Estimates: Slower Long-Term Pace


20


Understanding Marketplace Economics

GROSS REVENUES GMV TAKE-RATE

Source: Team Estimates

21




Constant


22




~11% Take-Rate

Similar Operations

Aggressive Pricing Policy

Source: B2W, Team Estimates

23




Marketplace Growth Driver

24




B2W 2.2x

Magazine Luiza 0.3x

Mercado Libre 3.5x

Via Varejo 2.7x

Source: B2W, Via Varejo, Magazine Luiza, Mercado Libre, Team’s Estimates. Note: (1) Marketplace, 2016

GMV/Traffic¹

25




2014

Traffic¹

Source: Company Filings, Team’s Estimates. Notes: (1) in million visits, (2) in BRL millions.

Mkt. GMV²

GMV/Traffic

vsVVAR11 Marketplace

GMV/Traffic = 2.7x

MGLU3 Marketplace

GMV/Traffic = 0.3x

2015 2016

292 444 520

- - 1400

- - 2.7x

Marketplace

Launch

26




2019E GMV/Traffic = 2.7x

Which Means a GMV of ~ BRL 950 mn by 2019

vsVVAR11 Marketplace

GMV/Traffic = 2.7x

MGLU3 Marketplace

GMV/Traffic = 0.3x

Source: Company Filings, Team’s Estimates. Notes: (1) in million visits, (2) in BRL millions.

2014

Traffic¹

Mkt. GMV²

GMV/Traffic

2015 2016

292 444 520

- - 1400

- - 2.7x

Marketplace

Launch

27


94

346

809

1.0561.329

2018E 2019E 2020E 2021E 2022E

Gross Merchandise Value (BRL mm)

Source: Team’s Estimates

Marketplace Estimates: 94% CAGR2018-2022

Gross Revenues (BRL mm)

862

3.179

7.422

9.692

12.189

2018 2019 2020 2021 2022

CAGR 2018-2022 = 94%CAGR 2018-2022 = 94%

28



4%5% 5% 5% 6%

7%8%

10%

13%14%

15%

3% 3% 3%4%

5%

12%

16%

19% 19%

16%

15%17%

16% 17%18%

19%19%

22% 22%

19%

2012 2013 2014 2015 2016 2017E 2018P 2019P 2020P 2021P 2022P

vsSector’s CAGR 17-22

~13%MGLU3 CAGR 17-22

~30%

Magazine Will Gain 9% of Market-Share in E-commerce

+900 bps

29


Why We Believe It

Magalu’s Competitive Advantages

Magalu’s Seasoned and Innovative Management

30


Hardline Retail Peers

19%

34%

5%

966

3%

30%

15%

1200

-

27%1

-1%1

1000

-

44%

12%

245Stores

Same-Store-Sales

Gross Margin

EBITDA Margin

27%

31%

8%

830

19.8 bn 18.1 bn 7.1 bn¹ 3.3 bnNet Revenues 9.5 bn

Source: Company Filings. Notes: (1) 2015

31


What Are Magalu Competitive Advantages?

Economies of Scale Customer Captivity

“For economies of scale to serve as a competitive advantage, then, they need to be

coupled with some degree of incumbent customer captivity.” Bruce Greenwald

Source: “Competition Demystified”, Team Estimates

32


What Really Matters For Customers?

Price

Price

40%

Customer

Service

37%

Variety of products

8%

Timeliness of

delivery

5%

Variety of

brands

3%

Other

7%

Customer Service

Variety of Products

Timeliness of Delivery


Source: Nielsen (2017)

33


27%

11% 10%

5% 3%

Via Varejo Magazine Luiza Máquinas de

Vendas

Fast Shop Lojas CEM

Large Scale Gives Magalu Better Bargaining Power With Suppliers

40%

37%

8%

5%

3%7%

22%19%

11%

6%3%

1%

38%

B2W MELI VVAR MGLU Netshoes Máquina

de Vendas

Outros


Hardline market share E-commerce market share

Source: Bloomberg, Euromonitor

Price

Customer Service

Variety of Products


Price


34


High customer service

grades

Focus On Consumer Experience Creates a Competitive Edge

40%

37%

8%

5%

3%7%

Consumer centric

culture

Better customer

experience

Technology

Investments


Close-knit approach in

social media

Strict selection of

sellers

R&D Center

Talent investments

Fast freight services


Price

Customer Service

Variety of Products


ServiceSource: Nielsen (2017)

35


Magalu is Increasing Product Assortment

40%

37%

8%

3%7%


80

550

1200

50250

500

4Q16 2Q17 3Q17

SKUs (thous.)

Marketplace's

Sellers

587%

118%

HIGH SKU INCREASE + GROWING NUMBER OF SELLERS


Price

Customer Service

Variety of Products


Variety


36


Integrated Logistics and Timeliness Of Delivery


40%

37%

8%

5%

7%

9 Distribution Centers

+800 stores

Integrated Logistics Stores DC

Better timeliness of delivery


Price

Customer Service

Variety of Products


9 Distribution

Centers

Timeliness


37


Why We Believe It



38


50+ years of experience in

the Hardline Retail

Several Business Cycles

Family business open to new opportunities

Successful turnaroundHardline Retail Expertise 1957 Company Foundation

1986 First Distribution Center

2000 E-commerce launch

2001 Luizacred JV with Itaú

2011 Company IPO

2014 Luizalabs creation

2016 Marketplace launch

2017 Acquisition of Integracommerce

Foundation Cycle

(Luiza Trajano)

Growth Cycle

(Luiza Helena Trajano)

Consolidation Cycle

(Marcelo Silva)

Digtal Transformation

(Frederico Trajano)

Best-In-Class Management

Long-term vision


39


Family business open to new opportunities

It’s Hardline Retail Expertise

X years of experience in

the Hardline Retail

Several Business Cycles

Successful Digital

Transformation

Outstanding E-commerce

Results

Successful Channels

Integration

Frederico

Trajano

CEO

André

Fatala

CTO-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

0

50

100

150

200

250

300

Mar-

14

Jul-

14

No

v-1

4

Mar-

15

Jul-

15

No

v-1

5

Mar-

16

Jul-

16

No

v-1

6

Mar-

17

EBITDA EBITDA Margin

Frederico Trajano

took over as CEO

Top-notch Execution

Best-In-Class Management


40


Why We Believe It



41




Generation

Excess Returns

42


High top-line growth

Margin improvement & Cash

generation

Value Creation

Will Growth Come With Profitability?

43


EBITDA Margin

Gross Margin

2017-2022

Base Case 5-Year Estimates

~200bps Increase Due to Marketplace Margin Effect

~50bps Due to Higher Productivity and Marketplace Margin Effect


44


B&M

E-commerce

Breaking Down Gross Margin

B2C

Marketplace

31%


Consolidated

Gross Margin

45


B2W 2012 2013 2014 2015 2016

Gross Margin 22% 23% 22% 21% 24%

B2C Margin Estimate

Source: B2W, Team’s Estimates

B2W 2012 Operation Was Fully 1P

Similar B2C’s Product Mix Than Magalu’s B2C One

2012’s Macro Conditions Not Far From Today’s

Gross Margins For Magalu’s B2C E-commerce

Why This Proxy:

46


B&M

E-commerce

31%


B2C

Marketplace 100%


Consolidated

Gross Margin

47


B&M

E-commerce

31%


B2C

Marketplace


Consolidated

Gross Margin

48


We Estimate A 33% B&M Gross Margin

34%

27%¹

44%

30%

Gross Margin

Average:

33%Biggest B&M Players

Similar Product Mix

Why This Proxy:Gross Margin

For Magalu’s B&M

Source: Company Filings, Team Estimates. Notes: (1) 2015

49


3.5974.385

5.3316.484

7.425

8.321

22% 22% 22% 22% 22% 22%

30,5% 30,6% 31,0% 31,9% 32,0% 32,2%

0%

5%

10%

15%

20%

25%

30%

-

2.000,0

4.000,0

6.000,0

8.000,0

10.000,0

12.000,0

14.000,0

16.000,0

2017 2018 2019 2020 2021 2022

Gross Margin Estimates

33% 33% 33% 33% 33% 33%

MARKETPLACE MARGIN = 100%

CONSOLIDATED

B2C

B&M

GROSS PROFIT


50


EBITDA Margin

Gross Margin

2017-2022

Base Case 5-Year Estimates

~200bps Increase Due to Marketplace Margin Effect

~50bps Due to Higher Productivity and Marketplace Margin Effect


51


MOBILE

ESTOQUISTAStore Productivity

Still Room For Efficiency

Shoppable DC

MOBILE

VENDAS

FAST

CHECKOUT

RETIRA LOJA20% of e-commerce

sales

STORAGE

AREA30% of total sqm

Vs. 40% Best Buy Room for 50% Complete rollout

by late 2019

Complete rollout by late 2018


STORE INTO

SHOPPABLE DC

52


Marketplace EBITDA Margin EstimateSource: Mercado Libre, Team’s Estimates

Estimated EBITDA Margin(Brazil, ex-complementary services)

34%

Global 3P Peers’ Margins At ~32%

Represents A Mature 3P-Only Brazilian Peer

Why This Proxy:


53


…and a Flattish Pace In The Long-Run

Sales Expensesas 18% of Net

Revenues 1H17

Sales Expensesas 17% of Net

Revenues 2018P

~18% of Net Revenues

2019-2022Due To Marketplace Advertising Ramp-Up


Efficiency Gains

54


Base Case Consolidated EBITDA Estimates

6,2%

5,2%

7,5%

9,2%9,6% 9,4% 9,4% 9,4% 9,4%

2014 2015 2016 2017 2018 2019 2020 2021 2022

605 465

715

1.081

1.379

1.622

1.910

2.171

2.420

2014 2015 2016 2017 2018 2019 2020 2021 2022

EBITDAEBITDA Margin

CAGR14-18 = 23%

CAGR18-22 = 15%


55


EBITDA Margin

Gross Margin

2017-2022

2017-2022

~200bps increase due to marketplace margin effect

~50bps due to higher productivity and marketplace margin effect


Will Magalu Generate Cash?

56


Working Capital: Lower Inventory Days Due to E-commerce

318

(61)

(320)(381)

(474) (506)(585)

(659)(711)

2014 2015 2016 2017 2018 2019 2020 2021 2022

WK (Post Secutirization)

23

18

22 21 20 21 20 20 20

2014 2015 2016 2017 2018 2019 2020 2021 2022

76 7789

71 69 68 67 65 64

2014 2015 2016 2017 2018 2019 2020 2021 2022

92108

131

111 109 108 107 105 104

2014 2015 2016 2017 2018 2019 2020 2021 2022

Days of Receivables (post-sec)

Days of Inventory

Days of Payables

Working Capital (post-securitization of receivables)


57


Working Capital: Pre-Sec Figures Reflect A Better Picture

18,7%

15,1%13,3%

15,5% 14,4% 15,3% 14,9% 14,6% 14,7%

1.833 1.357 1.267

1.832 2.072

2.627 3.022

3.384 3.794

2014 2015 2016 2017 2018 2019 2020 2021 2022

WK (Pre Securitization) WK as % of Revenues

76 7789

71 69 68 67 65 64

2014 2015 2016 2017 2018 2019 2020 2021 2022

92108

131

111 109 108 107 105 104

2014 2015 2016 2017 2018 2019 2020 2021 2022

Days of Receivables (pre-sec)

Days of Inventory

Days of Payables

Working Capital57 58 6168 65 67 65 64 64

2318 22 21 20 21 20 20 20

2014 2015 2016 2017 2018 2019 2020 2021 2022


Post-Sec Pre-Sec

58


We Expect A ~1.6bn CFO and ~70% Conversion to EBITDA by 2022

92% 92%

64%59% 56%

65% 66% 66%

428 657 694 818 915

1.240 1.440 1.605

465 715

1.081 1.379

1.622 1.910

2.171 2.420

-

500

1.000

1.500

2.000

2.500

3.000

-

500

1.000

1.500

2.000

2.500

3.000

3.500

2015 2016 2017E 2018E 2019E 2020E 2021E 2022E

CFO EBITDA


CFO/EBITDA

59


113%

68%

6%

35%

20%

40%46% 47%

Better-Than-Peers Generation Even Adjusting Discounted Receivables

487

69

485 329 765 1.004 1.144

526 465 715

1.081 1.379

1.622 1.910

2.171 2.420

-

500

1.000

1.500

2.000

2.500

3.000

-

500

1.000

1.500

2.000

2.500

3.000

3.500

2015 2016 2017E 2018E 2019E 2020E 2021E 2022E

CFO Higher Bar EBITDASecuritized Receivables Adjustment EBITDA

Via Varejo CFO¹ = BRL -0.2 bn

Lojas Americanas CFO¹ = BRL -2.6 bn

B2W CFO¹ = -1.7 bn

Source: Company Filings, Team Estimates; Notes: (1) 2016

CFO/EBITDA

60




Generation

Excess Returns

61


Can Magalu Sustain Returns Above Its Cost of Capital?

62


Continued Investment In Tech and a Less Capital Intensive Business

152 158

124

257274

255282 269 294

2014 2015 2016 2017 2018 2019 2020 2021 2022

Technology Reform New Stores Logistics Others

50%of CAPEX in

Tech

31%

Capital Expenditures


2.2% of net revenues

1.1%

63


NOPLAT MARGIN EXPANSION

x6,3x7,3

x8,9

x10,7

x12,8

2014 2015 2016 2017 2018

2,2%

0,8%

2,3%

3,6% 3,7%

2014 2015 2016 2017 2018

14,2%

5,9%

20,1%

39,0%

46,8%

2014 2015 2016 2017 2018

IMPROVED CAPITAL EFFICIENCY+ ROIC WILL REACH

47% in 2018

NOPLAT Margin Invested Capital Turnover ROIC

High Returns On The Way


64


Excess Returns Even Adjusting For Discounted Receivables

NOPLAT MARGIN EXPANSION

IMPROVED CAPITAL EFFICIENCY+

11,7% 11,3%

13,0% 12,8% 12,9%10,6%

8,4%

14,5%

18,7%

21,9%

2014 2015 2016 2017 2018

Avg. ROIC-WACC

spread of 10%

NOPLAT Margin Invested Capital Turnover ROIC (Adjusted)

3,3%

2,5%

4,0%

5,3%5,6%

2014 2015 2016 2017 2018

3,2x3,4x

3,6x 3,6x

3,9x

2014 2015 2016 2017 2018


65


Best-In-Class Pre-Sec ROIC Compared To Peers

-3,5%

9,9% 10,5%

14,5%

22,9%

2,8x

1,3x

4,4x

3,6x

2,9x

NOPLAT Margin Inveted Capital Turnover Adjusted ROIC


66

-1,2%

7,4%

2,4%

4,0%

7,9%




Generation

Excess Returns

67


Reasons to LONGValuation

Frase de ImpactoMagazine Luiza Is a Growth Company

68


10-year FCFE Methodology: Ke & Base Case Target Price

2,9%

5,7%

3,7%

1,5%

13,8%

Risk free rate

Beta Adjusted ERP

CRP

Inflation Differential

Cost of Equity

Terminal Growth Rate of 6.3%

BRL 35.7

BRL 18.1

BRL 45.0 BRL 98.9

Source: Bloomberg, NYU Stern, Team Estimates

Cost of Equity FY18E Target Price Waterfall

46%

18%

36%

100%

69


Exit Multiple 2020 Approach

Multiple-based Valuation

Fwd P/E 2020 = 23.5x IRR = 24.6%

-3

2

7

12

17

22

27

32

37

No

v-1

4

Jan

-15

Mar-

15

May-1

5

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar-

16

May-1

6

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

Mar-

17

May-1

7

Jul-

17

Sep

-17

Operational

Deleverage Period

Turnaround Effect

+ Strong Results

High Growth

ExpectationsForward 1yr. P/E (BRL)

Peer Comps Approach

Global Hardline Retailers Domestic General Retailers

Forward P/E 18E Median

with Historical Discount

Forward P/E 18E Median

with Historical Premium

22.6x 38.2x

BRL 70.0 BRL 112.8

Source: Bloomberg, Team

Estimates

70


Risks

DR1 Execution Risks

DR2 Amazon Effect

DR3 Precarious Brazilian Logistics Infrastructure

DR4 Higher-than-expected Time for Families to

Deleverage

DR5 Lower-than-expected Benefits from Omni-

Channel Integration

UR1 Higher-than-expected Recovery of Economy

UR2 Reform in Correios

UR3 New Technologies and LuizaLabs

UR4 Maintenance or Increase in Tax Incentives

UR1

UR4

UR2

DR5

UR3

DR4

DR3

DR2

DR1


71


GMV Breakdown by Product Type

MGLU VVAR B2W MELI

Home

Appliances42% 24% NA NA

Electronics 32% 42% 50% 41%

Furniture NA 17% NA 17%

Others 26% 17% 50% 42%

Different Product Mix

Anti-amazon moat

Challenges Regarding Logistics

Peculiarities of the Hardline Retail

Blank Check

Amazon weapons

1,3783,15

1,54

3,622

Amazon Flipkart Snapdeal

Amazon Investment in Comparison to

Indian Peers

Capacity for Customization (Benchmark: Amazon Entrance in India)

Amazon Consumer-Centric Culture

Amazon: For Magalu, The Bark is Worse Than The Bite


72


Monte Carlo Simulation: Low Uncertainty to Our Model

0

5

10

15

20

25

30

35

40

45

50

Pro

bab

ilit

y (

%)

HOLD BUYSELL

Store Openings

Country Risk

Risk Free Rate

Stressed Variables

ERP

LT GDP

SSS

B2C spread-to-

sector growthMargins

Target Price 1,000,000 simulations

81%

Certainty


73

Thank you

Q&A

74

• Appendix A: Income Statement

Consolidated

• Appendix A.2: Income Statement

Marketplace P&L

• Appendix A.3: B&M and B2C Gross Margin

• Appendix B: Balance Sheet

• Appendix C: Cash Flow Statement

• Appendix D: Free Cash Flow to Equity

• Appendix D.2: ROE Dupont Analysis

• Appendix E: Cost of Equity Calculation

• Appendix F: Beta Regression

• Appendix G: Historical adjusted ROIC

breakdown

• Appendix H: E-commerce Growth Analysis

• Appendix I: Multiples Analysis

• Appendix J: Macroeconomic Assumptions

• Appendix K: Management and Board

• Appendix L: Field Research

• Appendix M: M&A Historic

• Appendix N: SWOT Analysis

• Appendix O: Porter Five Forces

• Appendix P: Peers Multiples

• Appendix Q: Main Competidors Overview

• Appendix R: Appliances Penetration in

Brazil

• Appendix S: Brazilian E-commerce

Overview

• Appendix T: American Hardline Retail

Benchmark – Best Buy

• Appendix U: Amazon

• Appendix V: Sensitivity Analysis

• Appendix W: IBM Watson Data Processing

Analysis

Appendix A: Index• Appendix 1: Bull Scenario

• Appendix 2: Bear Scenario

• Appendix 3: Adjusted ROIC Breakdown

• Appendix 4: Income Tax Payment Breakdown

• Appendix 5: Board Compensation

• Appendix 6: Management Compensation

• Appendix 7: Forward Multiples

• Appendix 8: Historical Multiples

• Appendix 9: Market Profile

• Appendix 10: Implied Multiples

• Appendix 11: How We Differ From Consensus

• Appendix 12: Reduced Reliance on Financial Services

• Appendix 13: 3Q17

• Appendix 14: Stock Price Since the Report

• Appendix 15: Tornado Analysis

• Appendix 16: Luizalabs

• Appendix 17: E-commerce Rationality

• Appendix 18: Board of Directors

• Appendix 19: Hardline Market-share75

• Appendix 20: Sanity Check

• Appendix 21: What Is Priced In?

• Appendix 22: What Is Priced In?

• Appendix 23: Management

• Appendix 24 : Historical Adjusted ROIC

• Appendix 25: CAPEX

• Appendix 26: Global Peers

• Appendix 27: Logistics CAPEX

Appendix A: Index

76

Appendix A: Index

77

• Appendix A: Recommendation

• Appendix A.2: High Top Line Growth

• Appendix A.3: Margin Improvement

• Appendix B: Excess Returns

• Appendix C: Valuation

• Appendix D: Risks

Home

Appendix A: Consolidated P&L

P&L 2014 2015 2016 2017E 2018P 2019P 2020P 2021P 2022P 2023P 2023P 2025P 2026P

Gross Revenues 11.505 10.498 11.372 13.998 16.935 20.256 23.888 27.291 30.386 33.623 37.132 41.039 43.846

Deductions (1.725) (1.520) (1.863) (2.201) (2.591) (3.075) (3.585) (4.081) (4.529) (4.999) (5.513) (6.084) (6.498)

Net Reven u es 9.779 8.978 9.509 11.796 14.344 17.181 20.304 23.209 25.858 28.624 31.619 34.955 37.348

COGS (7.087) (6.400) (6.586) (8.199) (9.959) (11.850) (13.820) (15.785) (17.537) (19.389) (21.433) (23.712) (25.342)

Gro ss Pro f i t 2.692 2.579 2.923 3.597 4.385 5.331 6.484 7.425 8.321 9.235 10.185 11.243 12.006

Sales Expenses (1.746) (1.721) (1.776) (2.063) (2.442) (3.004) (3.683) (4.240) (4.775) (5.421) (6.177) (7.043) (7.743)

G&A (443) (458) (482) (553) (695) (851) (1.051) (1.194) (1.329) (1.473) (1.636) (1.821) (1.975)

EB IT 491 339 581 940 1.219 1.443 1.712 1.954 2.183 2.313 2.367 2.390 2.319

D&A (114) (126) (134) (142) (160) (179) (198) (217) (237) (258) (282) (307) (334)

EB ITDA 605 465 715 1.081 1.379 1.622 1.910 2.171 2.420 2.571 2.649 2.697 2.653

Financial Result (361) (486) (504) (458) (436) (463) (357) (335) (329) (323) (304) (294) (262)

EBT 130 (147) 77 487 800 1.004 1.387 1.659 1.902 2.045 2.127 2.168 2.136

Tax payments (4) 82 9 (122) (234) (299) (424) (510) (585) (624) (636) (636) (610)

Tax rate 3% 55% -12% 25% 29% 30% 31% 31% 31% 31% 30% 29% 29%

Net In co me 129 (66) 87 365 566 704 963 1.149 1.317 1.421 1.490 1.532 1.526

78Source: Team Estimates

Appendix A.2: Marketplace P&L

Home

Marketplace P&L 2017E 2018P 2019P 2020P 2021P 2022P 2023P 2023P 2025P 2026P

Gross Revenues 17 94 346 809 1.056 1.329 1.588 1.826 2.100 2.273

Discounts -1 -5 -17 -40 -53 -66 -79 -91 -105 -114

% of Net Revenues 5% 5% 5% 5% 5% 5% 5% 5% 5% 5%

Net Revenues 16 89 329 769 1.004 1.262 1.509 1.735 1.995 2.160

Gross Profit 16 89 329 769 1.004 1.262 1.509 1.735 1.995 2.160

Gross Margin 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Total Expenses -12 -70 -250 -578 -733 -911 -1.056 -1.214 -1.397 -1.512

Sales Expenses -9 -49 -175 -404 -513 -638 -739 -850 -978 -1.058

as % of Total Expenses 70% 70% 70% 70% 70% 70% 70% 70% 70% 70%

as % of Net Revenues 55% 55% 53% 53% 51% 51% 49% 49% 49% 49%

G&A Expenses (4) (21) (75) (173) (220) (273) (317) (364) (419) (453)

as % of Total Expenses 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%


EBIT 4 20 79 191 271 351 453 520 599 648

D&A 0 -3 -10 -23 -30 -38 -45 -52 -60 -65


EBITDA 4 22 89 214 301 389 498 572 658 713

EBITDA Margin 25% 25% 27% 28% 30% 34% 34% 34% 34% 34%


Appendix B.1: Total Assets

Home

Assets 2014 2015 2016 2017E 2018P 2019P 2020P 2021P 2022P 2023P 2023P 2025P 2026P

SHORT-TERM ASSETS

Cash & Equivalents 863 1.115 1.418 2.374 2.791 3.131 3.451 3.801 4.151 4.508 4.865 5.220 5.170

Receivables 618 435 581 691 796 979 1.127 1.263 1.408 1.548 1.707 1.885 1.972

Inventory 1.473 1.353 1.597 1.598 1.892 2.198 2.514 2.805 3.080 3.382 3.711 4.072 4.265

Correlated Parts 93 86 64 47 47 47 47 47 47 47 47 47 47

Tax Receivables 296 334 212 183 183 183 183 183 183 183 183 183 183

Other Assets 53 37 48 90 90 90 90 90 90 90 90 90 90

Total Short-Term Assets 3.396 3.361 3.920 4.984 5.799 6.628 7.413 8.190 8.958 9.758 10.603 11.497 11.728

LONG TERM ASSETS

Bonds & Securities - 47 - - - - - - - - - - -

Receivables 5 3 4 4 4 4 4 4 4 4 4 4 4

Deferred Income Tax & IoE 146 229 242 237 237 237 237 237 237 237 237 237 237

Tax Receivables 106 177 224 182 182 182 182 182 182 182 182 182 182

Legal Deposites 210 248 292 297 297 297 297 297 297 297 297 297 297

Other Assets 52 54 52 41 41 41 41 41 41 41 41 41 41

Investments on Controlleds 281 297 294 312 312 312 312 312 312 312 312 312 312

Net PP&E & Intangibles 1.055 1.085 1.073 1.190 1.304 1.380 1.464 1.516 1.574 1.635 1.703 1.770 1.818

Accumulated D&A (608) (730) (859) (970) (1.130) (1.309) (1.507) (1.724) (1.961) (2.219) (2.501) (2.808) (3.142)

Gross PP&E & Intangibles 1.663 1.815 1.932 2.160 2.434 2.689 2.971 3.240 3.535 3.854 4.204 4.578 4.960

Total Long-Term Assets 1.855 2.141 2.181 2.262 2.376 2.452 2.536 2.588 2.646 2.707 2.775 2.842 2.890

TOTAL ASSETS 5.251 5.502 6.101 7.245 8.175 9.080 9.949 10.778 11.604 12.465 13.378 14.339 14.617


Appendix B.2: Total Liabilities

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Liabil ities 2014 2015 2016 2017E 2018P 2019P 2020P 2021P 2022P 2023P 2023P 2025P 2026P

SHORT-TERM LIABILITIES

Suppliers 1.790 1.894 2.365 2.487 2.977 3.498 4.042 4.544 5.014 5.535 6.107 6.741 7.059

Short Term Debt 591 568 838 719 719 719 719 719 719 719 719 719 719

Social Benefits 167 154 188 192 192 192 192 192 192 192 192 192 192

Tax Payables 45 31 40 46 46 46 46 46 46 46 46 46 46

Correlated Parts 80 68 73 60 60 60 60 60 60 60 60 60 60

Tax Splitted-Up 7 0 0 0 0 0 0 0 0 0 0 0 0

Deferred Revenues 38 41 40 43 43 43 43 43 43 43 43 43 43

Dividends Payable 18 0 12 0 0 0 0 0 0 0 0 0 0

Other Payables 95 118 115 163 163 163 163 163 163 163 163 163 163

Short-Term Liabilities 2.831 2.875 3.672 3.709 4.200 4.721 5.265 5.766 6.237 6.758 7.330 7.964 8.281

LONG-TERM LIABILITIES

Long-Term Debt 1.120 1.255 1.011 663 663 663 663 663 663 663 663 663 663

Tax, Civil and Labor Provs 266 243 284 287 287 287 287 287 287 287 287 287 287

Deferred Revenues 316 551 509 489 489 489 489 489 489 489 489 489 489

Other Payables 50 2 3 3 3 3 3 3 3 3 3 3 3

Long-Term Liabilities 1.752 2.052 1.807 1.441 1.441 1.441 1.441 1.441 1.441 1.441 1.441 1.441 1.441

TOTAL LIABILITIES 4.583 4.926 5.479 5.151 5.641 6.162 6.706 7.208 7.678 8.199 8.771 9.405 9.723


Appendix B.3: Total Equity

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Equity 2014 2015 2016 2017E 2018P 2019P 2020P 2021P 2022P 2023P 2023P 2025P 2026P

EQUITY

Capital 607 607 607 1.721 1.721 1.721 1.721 1.721 1.721 1.721 1.721 1.721 1.721

Capital Reserves 10 15 19 22 22 22 22 22 22 22 22 22 22

Treasury Shares -20 -10 -29 -29 -29 -29 -29 -29 -29 -29 -29 -29 -29

Legal Reserve 16 16 20 21 21 21 21 21 21 21 21 21 21

Profit Retention's Reserve 57 0 3 0 0 0 0 0 0 0 0 0 0

Patrimonial-Test Adjust -1 -2 1 2 2 2 2 2 2 2 2 2 2

Accumulated Profits (Losses) 0 -50 0 359 797 1.181 1.506 1.834 2.190 2.530 2.870 3.198 3.158

Total Equity 668 576 622 2095 2533 2918 3242 3570 3926 4266 4607 4934 4895

Liabilities & Equity 5.251 5.502 6.101 7.245 8.175 9.080 9.949 10.778 11.604 12.465 13.378 14.339 14.617

Assets 5.251 5.502 6.101 7.245 8.175 9.080 9.949 10.778 11.604 12.465 13.378 14.339 14.617


Appendix C: Consolidated Cash Flow Statement

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Cash Flow 2014 2015 2016 2017E 2018P 2019P 2020P 2021P 2022P 2023P 2023P 2025P 2026P

Net Income 129 (66) 87 365 563 695 935 1.096 1.231 1.298 1.327 1.324 1.268

Depreciation & Amortization 114 126 134 142 160 179 198 217 237 258 282 307 334

Receivables (149) 113 (190) (133) (104) (183) (148) (136) (144) (141) (158) (178) (88)

Inventory (240) 55 (300) (40) (294) (306) (316) (291) (275) (302) (329) (361) (193)

Tax Receivables (23) (110) 76 71 - - - - - - - - -

Other Assets (51) (17) (45) (22) - - - - - - - - -

Change in Operating Assets (464) 41 (459) (124) (398) (489) (464) (427) (419) (443) (488) (539) (281)

Suppliers 138 104 471 122 491 521 544 501 471 521 573 634 318

Other Liabilities (38) (31) 51 9 - - - - - - - - -

Change in Operating Liabil ities 100 73 522 130 491 521 544 501 471 521 573 634 318

CASH FROM OPERATIONS (CFO) 91 428 657 694 816 906 1.213 1.387 1.520 1.634 1.694 1.726 1.638

Total Capex (152) (158) (124) (257) (274) (255) (282) (269) (294) (319) (351) (374) (381)

CASH FROM INVESTING (CFI) (153) 60,8 (136) (254) (274) (255) (282) (269) (294) (319) (351) (374) (381)

Change in Gross Debt 225 (141) (229) (577) - - - - - - - - -

Dividends paid (31) (33) - (22) (125) (311) (611) (768) (876) (958) (986) (997) (1.307)

Treasury Shares Acquired (40) (16) (36) (0) - - - - - - - - -

CASH FROM FINANCING (CFF) 153 -190 -265 515 -125 -311 -611 -768 -876 -958 -986 -997 -1.307

Beginning Cash & Equivalents 1.681 2.485 3.292 4.949 8.793 10.038 10.947 11.983 13.123 14.291 15.470 16.622 17.082

Ending Cash & Equivalents 2.544 2.737 3.595 5.904 9.210 10.378 11.267 12.332 13.472 14.648 15.828 16.977 17.032

Change in Cash & Equivalents 863 252 303 956 417 340 320 350 349 357 357 355 -50


Appendix D: Free Cash Flow

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Free Cash Flow 2014 2015 2016 2017E 2018P 2019P 2020P 2021P 2022P 2023P 2023P 2025P 2026P

CF From Operations 4.412 (80) 532 1.067 1.892 2.180 2.375 2.480 2.622 2.815 2.993 3.166 2.596

NOPAT 442 13 (449) 717 863 1.014 1.190 1.356 1.517 1.615 1.672 1.707 1.686

Net Working Capital 3.881 (198) 860 234 889 1.010 1.008 929 889 963 1.060 1.173 598

Depreciation & Amortization 114 126 134 142 160 179 198 217 237 258 282 307 334

Deferred Revenues (25) (20) (14) (26) (20) (23) (21) (22) (21) (22) (22) (22) (22)

CF From Investing (152) (158) (124) (257) (274) (255) (282) (269) (294) (319) (351) (374) (381)

Capex (152) (158) (124) (257) (274) (255) (282) (269) (294) (319) (351) (374) (381)

CF From Financing 156,7 32,9 549 (826) (315) (340) (281) (293) (323) (360) (395) (439) (480)

Financial Result (361) (486) (504) (461) (444) (482) (403) (420) (463) (514) (557) (612) (658)

Change In Debt 482 112 25 (467) - - - - - - - - -

Interest Burden 35 407 1.027 102 128 142 121 127 140 154 162 173 178

FCFF 4.261 (237) 407 1.255 1.618 1.925 2.093 2.211 2.327 2.496 2.642 2.791 2.215

FCFE 4.417 (204) 956 1.097 1.302 1.584 1.812 1.918 2.004 2.136 2.248 2.352 1.735


5,0%3,8%

6,1%

8,0% 8,5%

2014 2015 2016 2017 2018

1,9x

1,6x1,6x

1,6x

1,7x

2014 2015 2016 2017 2018

-

6,9%-

8,8%

-

8,2%

-

6,3%

-

5,3%

2014 2015 2016 2017 2018 2,5%

-

2,7%

1,3%

6,6%

9,5%

2014 2015 2016 2017 2018

7,9x9,6x 9,8x

3,5x 3,1x

2014 2015 2016 2017 2018

ROE (pre-tax)

EBIT Margin Asset Turnover Interest Burden ROA (pre-tax) Leverage Ratio

19,5%

-

25,6%

12,4%

23,0%29,8%

2014 2015 2016 2017 2018

97,1%

44,6%

112,3%

74,9% 70,7%

2014 2015 2016 2017 2018

1 - Income Tax Rate

LT Average

ROE-Ke spread

of +10%

18,9%

-

11,4%

13,9%17,2%

21,1%

2014 2015 2016 2017 2018

ROE

Home

Appendix D.2: ROE Dupont Analysis


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Interest Burden

ROA (pre-tax) Leverage RatioIncome Tax Burden (1-t)


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-86Source: Team Estimates

-40%

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-10%

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MGLU3 VVAR3 LAME3

Return On Equity


Home87Source: Team Estimates

0,9

0,95

1

1,05

1,1

1,15

1,2

0,70 0,90 1,10 1,30 1,50 1,70

Note: For the Beta adjustment the Team used the Blume Adjustment:

𝐴𝑑𝑗𝑢𝑠𝑡𝑒𝑑 𝑏𝑒𝑡𝑎 =2

3𝑅𝑎𝑤 𝐵𝑒𝑡𝑎 +

1

3

For the Beta calculation, the team has calculated the weekly return of the stock MGLU3 versus the weekly return of IBOV, for the last 3

years, reaching the value of 1.02 unadjusted (or raw) Beta and 1.01 for the adjusted Beta.

Beta

Raw Beta 1.02

Adjustd Beta 1.01

Regression Statistics

Multiple R 37%

R Square 14%

Adjusted R Square 13%

Standard Error 8%

Appendix F: Beta Regression


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MGLU3 VVAR3 LAME

Adjusted EBIT Margin

Appendix G: NOPLAT Breakdown

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Au

g-1

5

Oct

-15

Dec-

15

Feb

-16

Ap

r-16

Jun

-16

Au

g-1

6

Oct

-16

Dec-

16

Feb

-17

Ap

r-17

Jun

-17

MGLU3 VVAR3 LAME

Adjusted EBIT Margin

Appendix G: Adjusted EBIT Breakdown

Home

5%

10%

15%

20%

25%

30%

35%

Jun

-14

Sep

-14

Dec-

14

Mar-

15

Jun

-15

Sep

-15

Dec-

15

Mar-

16

Jun

-16

Sep

-16

Dec-

16

Mar-

17

Jun

-17

MGLU3 VVAR3 LAME

25%

27%

29%

31%

33%

35%

37%

39%

Jun

-14

Sep

-14

Dec-

14

Mar-

15

Jun

-15

Sep

-15

Dec-

15

Mar-

16

Jun

-16

Sep

-16

Dec-

16

Mar-

17

Jun

-17

MGLU3 VVAR3 LAME

0%

1%

2%

3%

4%

Jun

-14

Sep

-14

Dec-

14

Mar-

15

Jun

-15

Sep

-15

Dec-

15

Mar-

16

Jun

-16

Sep

-16

Dec-

16

Mar-

17

Jun

-17

MGLU3 VVAR3 LAME

Gross Margin Expenses/RevenuesDisc. Receivables Cost/Revenues


-10%

-5%

0%

5%

10%

15%

20%

25%

Jun

-14

Sep

-14

Dec-

14

Mar-

15

Jun

-15

Sep

-15

Dec-

15

Mar-

16

Jun

-16

Sep

-16

Dec-

16

Mar-

17

Jun

-17

MGLU3 VVAR3 LAME

5%

15%

25%

35%

45%

55%

65%

Jun

-14

Au

g-1

4

Oct

-14

Dec-

14

Feb

-15

Ap

r-15

Jun

-15

Au

g-1

5

Oct

-15

Dec-

15

Feb

-16

Ap

r-16

Jun

-16

Au

g-1

6

Oct

-16

Dec-

16

Feb

-17

Ap

r-17

Jun

-17

MGLU3 VVAR3 LAME

Working Capital/Revenues Fixed Assets/Revenues

Appendix G: Invested Capital Turnover Breakdown

Home

0,0

2,0

4,0

6,0

8,0

10,0

12,0

Jun

-14

Au

g-1

4

Oct

-14

Dec-

14

Feb

-15

Ap

r-15

Jun

-15

Au

g-1

5

Oct

-15

Dec-

15

Feb

-16

Ap

r-16

Jun

-16

Au

g-1

6

Oct

-16

Dec-

16

Feb

-17

Ap

r-17

Jun

-17

MGLU3 VVAR3 LAME

Invested Capital Turnover


Appendix G: Adjusted ROIC Breakdown

Home

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Jun

-14

Au

g-1

4

Oct

-14

Dec-

14

Feb

-15

Ap

r-15

Jun

-15

Au

g-1

5

Oct

-15

Dec-

15

Feb

-16

Ap

r-16

Jun

-16

Au

g-1

6

Oct

-16

Dec-

16

Feb

-17

Ap

r-17

Jun

-17

MGLU3 VVAR3 LAME

Adjusted ROIC

0%

2%

4%

6%

8%

10%

12%

Jun

-14

Sep

-14

Dec-

14

Mar-

15

Jun

-15

Sep

-15

Dec-

15

Mar-

16

Jun

-16

Sep

-16

Dec-

16

Mar-

17

Jun

-17

MGLU3 VVAR3 LAME

NOPLAT Margin

0,0

2,0

4,0

6,0

8,0

10,0

12,0

Jun

-14

Sep

-14

Dec-

14

Mar-

15

Jun

-15

Sep

-15

Dec-

15

Mar-

16

Jun

-16

Sep

-16

Dec-

16

Mar-

17

Jun

-17

MGLU3 VVAR3 LAME

Invested Capital

Turnover


Take-rate assumption: B2W proxy

calculation

Sellers revenues = Total GMV – E-commerce Revenues

Take-rate = GMVmarketplace

Sellers revenues

MGLU Take Rate: ~10,9%

MGLU Marketplace has a more

premium service

The germinal phase could drive

down its take-rate in order to

attract vendors

Sensibility analysis on Appendix

X

Appendix H: E-commerce Growth Analysis


Which we adopted for out valuation.

Marketplace ramp-up projection: VVAR proxy

MGLU3 2014 2015 2016

Site traffic 182,5 232 198,5

GMVmarketplace * 50

GMVmarketplace/Traffic 0,3

BTOW3 2014 2015 2016

Site traffic 592,5 882 978

GMVmarketplace 2179


MELI 2014 2015 2016

Site traffic 1220

GMVmarketplace 4312


VVAR11 2014 2015 2016

Site traffic 292,2 444,5 520

GMVmarketplace 1400


Magazine Luiza Marketplace GMV/Traffic is well below its main

peers...

... thus, we projected the case in which Magalu increase its Traffic the

same way VVAR11 did and also reach VVAR current GMV/Traffic. That

gave us the following MGLU projected numbers:

Marketplace GMV 2yr E 951,1

Traffic 2yr E 353,3

(1): MGLU 2016YE marketplace GMV was estimated to be 5% of total GMV, as the management estimated in

quarterly result conference

Appendix H: E-commerce Growth Analysis


Forward P/E Forward P/E EV / Forward EBITDA EV / Forward EBITDA

Company Name (Current) (Historical Average) (Current) (Historical Average)

MGLU3 BZ Equity 37,30 x 13,65 x 14,23 x 3,86 x

PCAR4 BZ Equity 34,29 x 19,00 x 9,76 x 5,55 x

LREN3 BZ Equity 33,72 x 15,90 x 18,00 x 8,82 x

RADL3 BZ Equity 47,00 x 24,61 x 22,62 x 10,41 x

NATU3 BZ Equity 23,77 x 16,08 x 9,89 x 8,06 x

ARZZ3 BZ Equity 32,51 x 15,35 x 21,39 x 9,52 x

HYPE3 BZ Equity 24,87 x 16,00 x 16,68 x 11,62 x

HGTX3 BZ Equity 19,84 x 10,04 x 18,00 x 7,75 x

LAME4 BZ Equity 65,90 x 27,78 x 11,76 x 7,87 x

LLIS3 BZ Equity 79,03 x 36,83 x 8,38 x 6,79 x

GUAR3 BZ Equity 29,75 x 9,99 x 14,16 x 5,19 x

AMAR3 BZ Equity 94,40 x 43,75 x 7,42 x 4,99 x

ALPA4 BZ Equity 18,28 x 8,80 x 12,88 x 6,07 x

GRND3 BZ Equity 11,48 x 8,47 x 12,29 x 7,79 x

TECN3 BZ Equity 9,10 x 5,34 x 6,30 x 5,60 x

Maximum 94,40 x 43,75 x 22,62 x 11,62 x

75th Percentile 43,82 x 23,21 x 17,67 x 8,63 x

Median 32,51 x 15,90 x 12,88 x 7,75 x

25th Percentile 21,80 x 10,01 x 9,82 x 5,57 x

Minimum 9,10 x 5,34 x 6,30 x 3,86 x

Peer Multiples 2: General Retailers

Appendix I: Multiples Analysis

Home95Source: Team Estimates, Bloomberg

2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E Long run

GDP3,0% 0,5% -3,8% -3,6% 0,8% 3,0% 3,4% 2,4% 2,2% 2,3%

2,3% 2,3% 2,3%

GDP per capta 2,1% -0,4% -4,6% -4,4% -0,2% 0,5% 0,7% 1% 1% 1% 1% 1% 1%

IPCA5,9% 6,4% 10,7% 6,3% 3,0% 3,8% 3,8% 3,7% 3,8% 3,9% 3,9% 3,9% 3,9%

IGP-M5,5% 3,7% 10,5% 7,2% -1,2% 4,2% 3,9% 3,7% 3,8% 3,9%

3,9% 3,9% 3,9%

SELIC (FY)10,0% 11,7% 14,2% 13,7% 7,0% 6,5% 6,5% 7,0% 7,0% 7,0%

7,2% 7,2% 7,2%

Real Interest Rate 3,9% 5,0% 3,2% 7,0% 3,9% 2,6% 2,6% 3,1% 3,1% 3,0% 3,0% 3,0% 3,0%

CDI (12M)9,7% 11,5% 14,1% 13,6% 7,0% 6,3% 6,3% 6,8% 6,8% 6,8%

6,7% 6,7% 6,7%

Unemployment 5,4% 4,8% 6,9% 12,6% 12,5% 12% 10,5% 9% 8% 7% 7% 7% 7%

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17E 4Q17E 1Q18E 2Q18E 3Q18E 4Q18E 1Q19E 2Q19E

GDP (yoy)-5,4% -3,6% -2,9% -2,5% -3,6% -0,4% 0,3% 1,2% 2,1% 0,8% 2,2% 2,5% 2,5% 2,5%

IPCA (monthly)2,6% 1,7% 1,0% 0,7% 6,3% 1,0% 0,2% 0,5% 1,2% 3,0% 1,4% 0,9% 1% 1%

SELIC (FY)14,3% 14,3% 14,3% 13,8% 13,8% 12,3% 10,3% 8,3% 7,0% 7,0% 6,5% 6,5% 6,5% 6,5%

Unemployment11,2% 11,6% 11,8% 12% 13,6% 13% 12,8% 12,5% 12,5% 12,5% 12% 12% 10,5% 10,5%

Appendix J: Macroeconomic Assumptions

Home96Source: Team Estimates, Itaú BBA

Figure J.2: % of families in Default

0

5

10

15

20

25

30

35

Mar-

11

Jun

-11

Sep

-11

Dec-

11

Mar-

12

Jun

-12

Sep

-12

Dec-

12

Mar-

13

Jun

-13

Sep

-13

Dec-

13

Mar-

14

Jun

-14

Sep

-14

Dec-

14

Mar-

15

Jun

-15

Sep

-15

Dec-

15

Mar-

16

Jun

-16

Sep

-16

Dec-

16

Mar-

17

Jun

-17

Figure J.1: EMBI + Brazil-Risk

0

100

200

300

400

500

600Ja

n-1

1

Ap

r-11

Jul-

11

Oct

-11

Jan

-12

Ap

r-12

Jul-

12

Oct

-12

Jan

-13

Ap

r-13

Jul-

13

Oct

-13

Jan

-14

Ap

r-14

Jul-

14

Oct

-14

Jan

-15

Ap

r-15

Jul-

15

Oct

-15

Jan

-16

Ap

r-16

Jul-

16

Oct

-16

Jan

-17

Ap

r-17

Jul-

17

Oct

-17

Figure J.3: Real wage (R$)

160.000

165.000

170.000

175.000

180.000

185.000

190.000

195.000

mar/

12

jun

/12

set/

12

dez/

12

mar/

13

jun

/13

set/

13

dez/

13

mar/

14

jun

/14

set/

14

dez/

14

mar/

15

jun

/15

set/

15

dez/

15

mar/

16

jun

/16

set/

16

dez/

16

mar/

17

jun

/17

Figure J.4: BRL x USD (R$)

R$-

R$0,50

R$1,00

R$1,50

R$2,00

R$2,50

R$3,00

R$3,50

R$4,00

R$4,50

jan

/11

ab

r/11

jul/

11

ou

t/11

jan

/12

ab

r/12

jul/

12

ou

t/12

jan

/13

ab

r/13

jul/

13

ou

t/13

jan

/14

ab

r/14

jul/

14

ou

t/14

jan

/15

ab

r/15

jul/

15

ou

t/15

jan

/16

ab

r/16

jul/

16

ou

t/16

jan

/17

ab

r/17

jul/

17

Appendix J: Macroeconomic Assumptions

Home97Source: Team Estimates, JP Morgan, IBGE

Name Background

Frederico Trajano*

Chief Executive Officer

Mr. Trajano holds a degree in business administration from FGV, and he has a master's degree in finance

from University of California – Berkeley. He started his career in the retail and consumer goods

department of Deutsche Bank Securities from1998 and 1999. He worked in the technology, Internet and

telecommunications segments of Westsphere Equity Investors from 1999 and 2000. He joined the

Magazine Luiza in 2000, at which time he was responsible for the e-commerce department. In 2002 Mr.

Rodrigues became the Head of the Marketing Department. In 2005, he was elected statutory

Commercial Executive Officer, and in 2010, he was elected Executive Officer for Sales and Marketing. In

2015 he became the President of the Company.

André Fatala

Chief Technology Officer

Mr. Fatala graduated as a Data Processing Technician from the Etec / SP. He began his professional

career in 2000 in Submarino as a developer where he participated in the construction of a large scale

ecommerce platform. He was product manager of Predicta. He started his career in Magazine Luiza in

2010 in the e-commerce technology team. In 2011 he was responsible for the development of Magazine

Você and afterwards for the Research and Development area of the Company - who came to become

Luizalabs. In 2015, he became Luizalabs Director and started to lead the development of sales channels -

e-commerce and physical stores - delivering Digital Transformation projects such as Mobile Sales and

the Marketplace platform. He is currently Chief Technology Officer.

Appendix K: Management & Board


Name Background

Fabrício Bittar Garcia*

VP of Operations

Mr. Garcia has a degree in business administration from Uni FACEF and completed a postgraduate programme in businessadministration at USP. He started his career at Magazine Luiza in commercial department in 1996. He served as AssistantManager of Purchasing in 2003, and he was promoted to Assistant Officer of Purchasing. He served as Senior Officer ofPurchasing from 2006 and 2009. In August 2010, he became head of the Commercial Department. In 2016 he was elected VPof Operations.

Roberto Belissimo Rodrigues

Chief Financial Officer and IRO

Mr. Bellíssimo Rodrigues obtained a degree in administration FGV. He started his career in the capital markets department ofBradesco BBI where he worked from 1997 to 2001. He joined Magazine Luiza in May 2001, holding the position of Head ofthe Budget Department, Manager Controller, Chief Controller, and in 2010 he became the Chief Financial Officer and InvestorRelations Officer.

Maria Isabel Bonfim de Oliveira

Chiel Controller Officer

Ms. Oliveira obtained a degree in technical accounting from Instituto Francano de Ensino in 1982. She joined Magazine Luizain 1982 as accountant and in 1992 became Budget Department Manager. She became Chief Controller in 2001, and in 2010she became the Administrative Officer and Controller.

Eduardo Galanternick

Director of E-commerce

Mr. Galanternick has a degree in business administration from PUC-Rio, has an Executive MBA from FAAP. He began hiscareer in Carrefour.com and then had his first stint as director in e-commerce Magazine Luiza. He held the position of CMO inB2W, before returning to Magazine Luiza to lead the e-commerce area. Currently, Eduardo Galanternick is Executive Directorof E-commerce



Figure K.2 – Board

Member Title Election Office Term Ends

Luiza Helena Trajano Chairman 2015 Until AGM 2018

Marcelo Silva Vice Chairman 2016 Until AGM 2018

Carlos Renato Donzelli Board Member 2009 Until AGM 2018

José Antônio Palamoni Board Member 2005 Until AGM 2018

Betânia Barros Independent Advisor 2017 Until AGM 2018

Inês Corrêa de Souza Independent Advisor 2009 Until AGM 2018

José Paschoal Rossetti Independent Advisor 2016 Until AGM 2018

Name Background

Luiza Helena Trajano*

Chairman

Ms. Rodrigues has a bachelor’s degree in Law from the Law School of Franca in 1972.She is Frederico Trajano´s mother, current CEO of the Company, and niece of thefounders Luiza Trajano Donato and Pelegrino José Donato. Joined Magazine Luiza S.A.in 1960, her first professional position, and passed through all of our departments,including Collections, Administration, Sales and Procurement. She assumed theposition of superintendent in 1991 after taking part in the creation of the Holding,which was set up to professionalise the company and define the process of successorat the group. She has been a member of the board of directors following its creation inJune 2005. From 2009 to 2015 she held the position of President. She then becameCEO of the Company and IDV (Retail Sales Development Institute) for the 2009-2010term, and in 2011, she was elected vice-chairman. Ms. Rodrigues has been part of theCompany’s Board since its creation in June 2005. She is currently chairman of theBoard. In 2008, she was part of Sadia’s board. She is also the current Chairman of theboard of directors at LuizaSeg and Luizacred after respectively being appointed to theposts in 2005 and 2002. Ms. Rodrigues also attends many conferences where she talksmuch about her experiences in managing people among other themes.

Marcelo Silva

Vice Chairman

Mr. Ferreira e Silva obtained a bachelor degree in economics from UniversidadeFederal de Pernambuco – UFPE in 1972, and in accounting from Universidade Católicade Pernambuco – UNICAP. He also has a degree in Financial Administration fromFundação de Ensino Superior de Pernambuco – FESP. Mr. Ferreira e Silva started hiscareer at the audit firm Arthur Andersen & Co where he worked from 1971 to 1978. Heworked in the financial department of Bompreço Group company between 1978 and2001. He held the position of Superintendent Officer at G. BARBOSA in 2002 and atCasas Pernambucanas from 2002 to 2009. Since 2009 he has been our SuperintendentOfficer.



Figure K.4 – Holder Type Analysis

72% 72% 72% 74% 74% 74% 74% 75% 75%

6% 3% 7%9% 7% 9% 9% 4% 4%

23% 26% 22% 17% 19% 18% 17% 21% 21%

3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 1Q2017 2Q2017 3Q2017

Insider Institution Other Free Float

Figure K.3 – Top 5 Institutional Investors

Institution % of Free Float ActivismWasatch Advisors, Inc. 2,1% LowAcadian Asset Management 1,7% Very LowMacquarie Investment Trust 1,0% Very LowDimensional Fund Advisor 1,0% Very LowAlaska Investimentos Ltda. 0,9% Very Low

Figure J.5 – Top Institutional Types

85%

10%

4% 1%

Investment Adviser

Mutual Fund Adviser

Pension Fund Manager

Hedge Fund Manager

Private Banking



Grade 6.09 7.05 6.96 7.71 7.92

Complaints

answered 89% 92% 99% 96.4% 99.6%

Would go

back? 54.6% 73.3% 69.1% 74.3% 63.4%

Solution Index 82.9% 91.1% 84.6% 91.3% 86.1%

Appendix L: Field Research


Ricardo Eletro –

Physical Store RicardoEletro.com Fast Shop

Americanas –

Physical Store Americanas.com Submarino

Grade 3.66 4.3 7.02 7.56 7.51 7.45

Complaints

answered 97.1% 96% 100% 99.8% 99.8% 99.8%

Would go back? 32.6% 46.4% 71.6% 81.2% 78.7% 78.1%

Solution Index 63.5% 76.6% 81.4% 90.9% 91.3% 91.1%

Ponto Frio –

Physical Store PontoFrio.com

PontoFrio

Marketplace

Casas Bahia –

Physical Store CasasBahia.com

Casas Bahia

Marketplace

Grade 6.5 3.8 4.66 5.96 3.6 4.24

Complaints

answered 98.5% 99% 97.9% 99% 98.9% 97.7%

Would go back? 54.8% 38.8% 45.9% 54.5% 35.9% 40.8%

Solution Index 86.6% 65.2% 76.8% 80.9% 63% 74.2%



São Paulo - SP Rio de Janeiro - RJ Belo Horizonte - MG Brasília - DF Uberlândia - MG

Shipping

Price

Timeliness

of Delivery

Shipping

Price

Timeliness

of Delivery

Shipping

Price

Timeliness

of Delivery

Shipping

Price

Timeliness

of Delivery

Shipping

Price

Timeliness

of Delivery

MGLU R$21,00 10 days R$21,00 12 R$21,00 4 R$220,00 15 R$31,00 16

VVAR - 21 days - 23 - 22 R$23,32 26 - 25

Ricardo

Eletro - 9 days - 10 - 10 - 12 - 14

Table L.3: Microwave: Consul CMA30AFANA - 30L


Shipping

Price

Timeliness

of Delivery

Shipping

Price

Timeliness

of Delivery

Shipping

Price

Timeliness

of Delivery

Shipping

Price

Timeliness

of Delivery

Shipping

Price

Timeliness

of Delivery

MGLU R$21,00 6 R$21,00 6 R$21,00 4 R$59,93 9 R$31,00 11

VVAR R$21,30 8 R$21,30 9 R$41,75 13 R$58,39 13 R$48,70 15

Ricardo

Eletro - 8 - 11 - 10 - 12 - 15

Table K.2: Refrigerator : Electrolux Frost Free Inox - Duplex 380L Painel Touch DW42X11089




Shipping

Price

Timeliness

of Delivery

Shipping

Price

Timeliness

of Delivery

Shipping

Price

Timeliness

of Delivery

Shipping

Price

Timeliness

of Delivery

Shipping

Price

Timeliness

of Delivery

MGLU R$5,00 5 R$5,00 5 R$5,00 3 R$47,00 6 R$9,50 4

VVAR R$8,90 5 R$8,90 6 R$11,90 7 R$25,80 8 R$12,90 9

Ricardo

Eletro - 6 - 8 - 6 - 8 - 7

Table K.5: Tablet: Tablet Samsung Galaxy Tab E 8GB 9,6” Wi -Fi - Android 4.4 Proc. Quad Core Câm. 5MP + Fronta


Shipping

Price

Timeliness

of Delivery

Shipping

Price

Timeliness

of Delivery

Shipping

Price

Timeliness

of Delivery

Shipping

Price

Timeliness

of Delivery

Shipping

Price

Timeliness

of Delivery

MGLU R$7,90 6 R$7,90 6 R$7,90 4 R$15,00 7 R$7,90 5

VVAR R$0,99 5 - 6 R$0,99 7 R$14,90 8 R$0,99 9

Ricardo

Eletro - 7 - 8 - 7 - 8 - 8

Table K.4: Mobile: Smartphone Motorola Moto G5 32GB Platinum - Dual Chip 4G Câm. 13MP + Selfie 5MP Tela 5"



2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

20172005

Merger of

americanas.com

and submarino

Máquina de

Vendas: merger of

Insunuante and

Ruicardo Eletro;

Máq. De Vendas

acquires City Lar

Merger of

americanas.com

and submarino

Magazine acquires

Lojas Base, Madol

and Killar: 100

stores. Entrance

into the state of

SC

CBD acquires

Ponto Frio

Merger CBD and

Casas Bahia

Magazine Luiza

acquires Lojas Baú

B2W acquires

Direct and

ClickRodo

Magazine acquires

Integra Commerce

Magazine Luiza

acquires Lojas

Maia

Appendix L: Sector M&A Track record


0

5

10

15

20

25

30

Strengths

Weakness

Opportunities

Threats

Opportunities

Fragmented Sector

Low Internet penetration in

Brazil

Resumption of consumption

Reduction of Interest Rates

End of the analog Signal

Acquisition of Start-ups

Increase in credit card

subscriptions

Strengths

Brand power

Large Scale

Experienced Management

High capillarity

Innovation Capability

Channels Integration

Consumer Centric

Threats

Low entry barriers

Slow rebound of the economy

War pricing

End of government benefits

Tougher Competition

International Competition

Limited number of suppliers

Weaknesses

High logistics dependence

Low Pricing Power

Low Product differentiation

Exposure to the economy

cyclicity

Regionalized brand recognition

Marketing dependency

High exposure to delinquency

rates

Appendix N: SWOT Analysis


01

2345

Brand power

Large Scale

Experienced

Management

High capilarityInnovation

Capabilities

Channels

Integration

Consumer

centric

Strenghts

012345

High logistic

dependence

Low Pricing

power

Low Products

differentiation

Exposure to

economy cyclicity

Regionalized

brand recognition

Marketing

dependency

High exposure to

deliquency rates

Weaknesses

0

1

2

3

4

5Fragmented Sector

Low Internet

penetration in Brazil

Resumption of

consumption

Reduction of Interest

RatesEnd of analog signal

Acquisition of Start-

ups

Increase in credit

card subscriptions

Opportunities

0

1

2

3

4

5Low entry barriers

Slow rebound of

the economy

War pricing

End of government

benefits

Tougher

Competition

International

Competition

Limited number of

suppliers

Threats

Appendix N: SWOT Analysis


0

1

2

3

4

5

Supplier power

Buyer power

New EntrantsSubstitute Services

Rivalry Among

Competitors

Hardline Retail Magazine Luiza

Very Low 1

Low 2

Moderate 3

High 4

Very High 5

Bargaining power of Suppliers MODERATE

Bargaining power of Customers HIGH

Thraet of New Entrants HIGH

Threat of substitute services MODERATE

Rivalry Among Competitors VERY HIGH

Appendix O: Porter Five Forces


Ticker Mkt Cap (BRL mn) PE EV/EBITDA Net Inc Growth DVD Yield Net Debt / EBITDA ROE

TTM 17 TTM 17 1Y 17 TTM TTM

BR e-commerce

BTOW3 BZ Equity 9.565 - - 21,6 18,4 30,1 0,0 3,7 (15,2)

NETS US Equity 1.290 - - - - - - - (73,4)

Median - - 30,1 0,0 3,7 (44,3)

BR Hardline

MGLU3 BZ Equity 14.144 63,3 39,9 19,0 16,1 257,3 0,3 0,6 28,4

VVAR11 BZ Equity 9.951 806,5 47,2 11,9 10,5 320,7 0,6 2,5 1,0

Median 434,9 43,6 15,4 13,3 289,0 0,4 1,6 14,7

BR retail

PCAR4 BZ Equity 19.984 21,6 35,3 11,0 9,7 215,6 0,5 1,2 1,3

LREN3 BZ Equity 25.710 39,2 34,0 20,7 18,3 15,8 1,1 0,9 25,3

RADL3 BZ Equity 24.779 55,7 45,3 25,3 22,6 9,0 0,8 0,4 15,5

NATU3 BZ Equity 13.455 21,4 24,5 10,8 10,4 91,9 1,7 1,4 58,4

ARZZ3 BZ Equity 4.488 33,5 31,5 22,4 21,2 21,9 1,9 (1,0) 20,3

HYPE3 BZ Equity 20.358 23,3 23,0 16,6 16,1 30,9 4,7 (1,2) 4,4

HGTX3 BZ Equity 4.604 19,5 19,4 19,9 17,9 18,8 4,1 (0,8) 19,5

LAME4 BZ Equity 28.801 242,3 70,3 8,7 9,1 101,8 0,5 2,5 3,8

LLIS3 BZ Equity 1.895 - 158,0 10,4 12,5 119,5 0,9 2,4 (1,6)

GUAR3 BZ Equity 9.216 20,2 28,7 11,5 9,5 7,0 1,8 0,8 13,1

AMAR3 BZ Equity 1.914 - - 12,5 11,7 78,2 0,0 2,4 (6,0)

ALPA4 BZ Equity 7.012 16,9 16,9 13,0 12,4 18,7 3,1 0,3 21,1

GRND3 BZ Equity 8.038 12,1 11,6 22,6 6,3 8,7 4,8 (3,4) 23,5

TECN3 BZ Equity 359 58,5 8,8 16,6 16,1 4719,3 14,9 2,4 1,4

Median 22,5 28,7 14,8 12,5 26,4 1,8 0,8 14,3

International E-commerce

BABA US Equity 1.398.802 61,9 34,8 43,7 27,4 45,5 0,0 (1,3) 19,2

AMZN US Equity 1.460.391 243,6 85,8 35,9 25,6 28,7 0,0 0,2 9,7

EBAY US Equity 130.174 26,7 19,0 15,2 12,8 1,3 0,0 0,8 82,7

JD US Equity 172.545 - 117,5 94,7 75,1 301,3 0,0 (2,8) (6,5)

MELI US Equity 36.157 69,0 84,8 45,1 48,9 (2,6) 0,2 (1,1) 35,0

Median 65,4 84,8 43,7 27,4 28,7 0,0 (1,1) 19,2

International Specialty Electronics

BBY US Equity 53.891 14,8 14,0 6,1 5,7 8,3 2,4 (0,9) 27,6

DC/ LN Equity 9.490 7,6 7,1 4,1 4,4 (19,9) 5,3 0,4 10,0

FNAC FP Equity 8.069 25,0 16,5 8,3 7,3 73,3 0,3 1,5 (3,6)

493 HK Equity 7.719 49,2 31,1 16,0 14,8 58,9 1,3 6,0 1,5

MVID RM Equity 411.094 12,8 12,4 6,7 6,4 7,9 4,8 (0,6) 37,5

SNH SJ Equity 60.358 - 11,7 - 10,3 22,4 3,4 - -

Median 14,8 13,2 6,7 6,9 15,3 2,9 0,4 10,0

Appendix P: Peers Multiples


Via VarejoVVAR

The largest hardline retailer in Brazil. Via Varejo came from the merger between two strong hardline retail brands: Casas Bahia (750 stores)

and Pontofrio (220 stores). The Company is controlled by the GPA, which recently put the company on sale. Created in 1952, Casas Bahia

(750 stores in 2016) was ranked as the 2nd most valuable brand in Brazil (Best Retail Brands). It acts in the e-commerce through the

CNOVA (merger between), of which it has majority participation Taking a leaf out of Magazine Luiza’s book. Its main competitive

advantages are: (i) leadership in the sector, with a larger scale, (ii) valuable brands in the Brazilian hardline retail and, (iii) a large

distribution and storage network. The company always reach the lowest prices in the market. Despite this, the Company has been

following in the footsteps of the MGLU improving its omnichannel and betting on new, more flexible store formats (smart stores, virtual

stores and premium stores).

Máquina de VendasPrivate Company

Caught up by the crisis. It emerged in 2010 as a result of the merger between retailers Insinuante and Ricardo Eletro. From then on, the

Company expanded to new regions through M&A, reaching the following brands: Ricardo Eletro, Insinuante, City Lar, Salfer, and

Eletroshopping. Strongly affected by the crisis, the network shrank from 810 units in 2016 to 750 stores in2017. It has about BRL 1.4 bn in

debt and is negotiating the restructuring of its debt through the creation of a holding controlled by the creditors. Strategy based on

regional peculiarities. Its business model initially valued the regional brands and the knowledge of each new partner. In 2016, the

Company announced that it will unify its brands into Ricardo Eletro in order to strengthen the company's' performance. The strategy is

also based on the recognition of the region peculiarities through service, products mix and the customized offers.

Appendix Q: Main Competitors Overview


Lojas CemPrivate Company

It’s the 3rd largest in the sector, currently with 247 stores. With 65 years of existence Lojas CEM is marked by its history of strictly organic

growth, strong financial conservatism and family management. It is a regional network (São Paulo, Minas Gerais, Rio de Janeiro and

Paraná) and has been growing in recent years, opening stores even during the recession. The company is marked by conservatism, with

low leverage and financing most of its operations solely with its profit. The expansion of the company is strictly organic, the network does

not accept M&A proposals, even rejecting a proposal from Magazine Luiza in 2011. This conservatism is one of the reasons for the

Company's high profitability. However, the limitation of capital sources, may limit a magnitude of the expansion of the Company, which, in

a context of consolidation of the sector. In addition to financial conservatism, the company also has resistance from entering the e-

commerce, as it would affect its margins.

Fast ShopPrivate Company

With more than 90 stores, it operates in the home appliance and electronics market in Brazil, with A/B classes as its target audience, which

pay cash. Its goal is to bring consumer experience through and a differentiated service and experimentation of products in its stores. For

the manufacturer, it is important to have your brand in the company’s stores, which functions as a showroom of what it offers in the latest

technology.



B2WBTOW

The Company is the result of the merger between Americanas.com and Submarino in 2006. B2W Digital is the leader in e-commerce in

Latin America in terms of sales volume. The Company operates strictly online (B2C and Marketplace), through strong brands: (i) Lojas

Americanas (www.americanas.com.br), (ii) Submarino (www.submarino.com.br), (iii) Shoptime (www.shoptime.com.br) and (iv) SouBarato

(www.soubarato.com.br), with a rapidly growing Marketplace operation. B2W's strategy is to grow the entry barriers of the sector,

consolidating itself with (i) the strength of its brands (it operates with different brands - and websites - to reach different audiences and

maintain customer loyalty) (ii) robust logistics and technological infrastructure, (iii) a large assortment of products and (iv) a better offer of

service for sellers. Cash burn model funded by Lojas Americanas ("rich dad") refers to Amazon's US market-winning strategy.



(B&M)

A/B

Class

(52

MM)

C Class

(96MM)

D/E

Class

(56MM)

Appendix Q: Competitors’ Target Customers


Figure R.1: Smartphones Penetration Figure R.2: Laptop penetration in Brazil Figure R.3: average household appliance

replacement time (Change in MGLU’s mix of

products)

38%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Sw

ed

en

So

uth

Ko

rea

Can

ad

a

USA

UK

Au

stra

lia

Fra

nce

Ch

ile

Ru

ssia

Jap

an

Tu

rkey

Arg

en

tin

a

Mexi

co

Bra

zil

Iran

Peru

Co

lom

bia

12,6%

23,9%

30,6%

39,4%

48,9% 48,0%

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Source: IDEC Source: PNAD - IBGE Source: Newzoo’s Global Market Report

Mobile 3 years

Photografic camera 3,8 years

Printer 4 years

Computer 4 years

Microwave 5,2 years

Refrigerator 9,5 years

Television 7,6 years

Stove 8,3 years

Washing machine 7,4 years

Appendix R: Appliances Penetration in Brazil

Home115Source: Team Estimates, Ebit

Figure S.2: active e-consumers (mm)

8,410,2

12,7

16,118,6 19,6

2128%

14%

31%

26%

16%

5%8%

0%

10%

20%

30%

40%

0

5

10

15

20

25

30

35

2011 2012 2013 2014 2015 2016 2017

Sales (R$ Bi) Var. (%)

14,1

18,917,6

23,125,5

1H13 1H14 1H15 1H16 1H17

75,4%

24,6%

Figure S.1: ecommerce sales

(consumer goods)

Figure S.3: Average Ticket Figure S.4: Most commercialized products

353 334309 333

377403 418

-6,8% -5,5% -7,4%

7,7%12,9%

7,1% 3,5%

-100,0%

-80,0%

-60,0%

-40,0%

-20,0%

0,0%

20,0%

0

100

200

300

400

500

600

700

2011 2012 2013 2014 2015 2016 2017Avreage Ticket (R$) Var.

17%

15%

12%

8%

8%

7%

7%

6%

5%

3%

clothing and accessories

Healthcare

Home appliances

Cell phones

Books

Computing

House and decoration

Electronics

Sport

Games

Source: e-bit

Appendix S: Brazilian E-commerce Overview

Home116Source: Team Estimates, Ebit

50,705

42,4140,339 39,528 39,403

0

10

20

30

40

50

60

2H12 1H14 1H15 1H16 1H17

Revenue (US$ Bn)

24,8%22,8% 22,4% 23,3% 24,0%

4,2% 4,5% 5,3% 5,2%6,5%

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

2H12 1H14 1H15 1H16 1H17

Gross Margin EBITDA margin

“When you are fighting Amazon, good customer service is the key to

keeping a competitive edge”

Hubert Joly, Best Buy CEO(1,70%)

(2,10%)

(1,70%)

(,40%)

,50% ,50% ,30%

FY11 FY12 FY13 FY14 FY15 FY16 FY17

Domestic Comparable Sales

Appendix T: American Hardline Retail Benchmark – Best Buy

Home117Source: Team Estimates, Best Buy

Figure U.1 – Amazon Footprint

6

28

34

2,60%

2,20%

4,80%

1,90%

4,50%

0

10

20

30

40

1,50%

3,50%

5,50%

1Q2014 1Q2015 1Q2016

Bps of Margin Impact from India

Amazon Consolidated Margins

ex-India

1,378

3,15

1,54

3,622

Amazon Flipkart Snapdeal

2,5

44,3 4,5

6

Figure 1: Amazon investment in

comparison to Indian peersFigure 2: Impact of AMZN’s

Investments in India on its

Margins

Figure 3: Amazon large scale:

investments in non-core

businesses

Appendix U: Amazon entrance in Brazil: should we care?

Home118Source: Team Estimates, Amazon

9896,1% 10,8% 11,8% 12,8% 13,8% 14,8% 15,8% 16,8%

3,3% 116,64 103,75 93,52 85,20 78,29 72,45 67,46

4,3% 125,86 110,30 98,33 88,82 81,07 74,63 69,19

5,3% 138,42 118,87 104,42 93,30 84,44 77,23 71,22

6,3% 156,54 130,53 112,38 98,96 88,61 80,37 73,64

7,3% 184,98 147,37 123,23 106,36 93,88 84,25 76,57

8,3% 236,02 173,79 138,88 116,45 100,77 89,16 80,18

9,3% 354,45 221,21 163,44 131,01 110,17 95,58 84,76

9896,1% 30,0% 44,0% 46,0% 48,0% 50,0% 52,0% 54,0% 56,0%

8,9% 91,0 94,6 95,1 95,7 96,2 96,8 97,3 97,9

9,9% 91,8 95,8 96,4 97,0 97,6 98,2 98,8 99,5

10,9% 92,6 97,0 97,6 98,3 98,96 99,6 100,3 101,0

11,9% 93,4 98,2 98,9 99,6 100,3 101,1 101,8 102,6

12,9% 94,2 99,4 100,2 100,9 101,7 102,5 103,3 104,2

13,9% 95,0 100,6 101,4 102,3 103,1 104,0 104,9 105,7

14,9% 95,8 101,8 102,7 103,6 104,5 105,4 106,4 107,3

Sensitivity Analysis: Perpetuity Growth / Cost of equity (Ke)

Sensitivity Analysis: Take rate / GMV Penetration of Marketplace as % of e-commerce GMV by 2022

Appendix V: Sensitivity Analysis

HomeNote: Figures In BRL/Share.

Perp

etu

ity

Gro

wth

(%) Cost Of Equity (%)

Marketplace GMV as % of e-commerce GMV by 2022

Take-r

ate

(%

)

119

6792,546948

16.577

-2000

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Jul-15 Jan-16 Jul-16 Jan-17 Jul-17

Team R used Watson Analytics to analyze Magalu’s online

presence and how it is making use of social media. We

determined that there has been an uptick in the company’s

twitter activity the past month (Figure Watson), with the

company engaging with other Twitter users through the

“favorite” button in Twitter. This shows how fast it is adapting

to the digital world. Through the usage of social media, the

company is able to manufacture customer engagement and

thus improve customer loyalty.

Appendix W: IBM Watson Data Processing Analysis


1,4 1,4

0,6

-0,9 -1,1 -1,3 -1,5-1,8 -2,0

3,94,5

2,8

1,10,8 0,6

0,40,1

-0,2

2,2

3,5

1,1

-1,4 -1,7 -1,9 -2,0-2,3

-2,7

2014 2015 2016 2017 2018 2019 2020 2021 2022

Net Debt/ EBITDA Net Debt & Equivalents / EBITDA Net Debt/Adjusted EBITDA

Debt Coverage Ratio

Appendix X: Debt Coverage Ratio


1.516 1.418 1.588 2.213

2.546 3.132

3.608 4.043

4.504

(219,8) (275,3) (309,7) (350,2) (470,7) (529,7) (470,5) (506,6) (570,4)

19%21%

18%20% 19%

14% 13% 13%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

(2.000)

0

2.000

4.000

6.000

8.000

10.000

2014 2015 2016 2017 2018 2019 2020 2021 2022

Securitized Receivables Securitization Expenses Securization Rates

Appendix Y: Discounted Receivables Rates


Appendix Z: Payout Ratio

Dividends 2014 2015 2016 2017E 2018P 2019P 2020P 2021P 2022P 2023P 2023P 2025P 2026P

Payout Ratio 24% - - 6% 22% 45% 65% 70% 71% 74% 74% 75% 100%

Dividends Paid (31) (33) - (22) (125) (311) (611) (768) (876) (958) (986) (997) (1.307)


Appendix 1: Bull Scenario Output

BULL

Revenue CAGR¹

FCFE CAGR¹

EBITDA Margin²

BEAR

18% 8%

17% 10%

9.3% 8.5%

Upside/Downside +57% -16%

Target Price BRL 109.6 BRL 58.6

Notes: (1) 2018-2022, (2) 2022 Projected.

1.0971.316

1.6491.906

2.1342.502

2.7873.098

3.439

2.171

2017E 2018P 2019P 2020P 2021P 2022P 2023P 2024P 2025P 2026P

Free Cash Flow to Equity (BRL mn)

Bull Case, CAGR18-22 = 18%


Appendix 2: Bear Scenario Output

BULL

Revenue CAGR¹

FCFE CAGR¹

EBITDA Margin²

BEAR

18% 8%

17% 10%

9.3% 8.5%

Upside/Downside +57% -16%

Target Price BRL 109.6 BRL 58.6

Notes: (1) 2018-2022, (2) 2022 Projected.

883791

9191.045

1.115 1.171 1.178 1.190 1.208 1.210

2017E 2018P 2019P 2020P 2021P 2022P 2023P 2024P 2025P 2026P

Free Cash Flow to Equity (BRL mn)

Bear Case, CAGR18-22 = 8%


Appendix 3: Adjusted ROIC Breakdown

Adjusted ROIC Breakdown 2Q17 LTM

EBIT 200.9

Discounted Receivables Costs (76.1)

(=) Adjusted EBIT 124.7

Discounting Tax-Adjustment (11.3)

Income Tax (19.2)

(=) NOPLAT 94.2

Working Capital (w/Discounting) (110.5)

Fixed Assets 1,377.2

(/) Total Invested Capital 1,266.6

(=) Adjusted ROIC 29.8%

BRL mnMagalu’s Disclose

ROIC Breakdown 2Q17 LTM

EBIT 200.9

Discounted Receivables Costs -

(=) EBIT 124.7

Discounting Tax-Adjustment -

Income Tax (19.2)

(=) NOPAT 94.2

Working Capital (No Discounting)

Fixed Assets 1,377.2

(/) Total Invested Capital

(=) ROIC

Our View BRL mn


Appendix 4: Income Tax Payment Breakdown

Tax Breakdown 2014 2015 2016 2017E 2018P 2019P 2020P 2021P 2022P 2023P 2023P 2025P 2026P

Earnings Before Taxes 130 (147) 77 487 800 1.004 1.387 1.659 1.902 2.045 2.127 2.168 2.136

Marginal Tax Rate 34% 34% 34% 34% 34% 34% 34% 34% 34% 34% 34% 34% 34%

Expected Tax Payment (44) 50 (26) (166) (272) (341) (472) (564) (647) (695) (723) (737) (726)

Interest On Equity 5 - - - - - - - - - - - -

Governamental Subsidy - 6 21 13 - - - - - - - - -

Equity Income Exclusion 36 26 21 31 38 42 47 54 62 71 87 101 116

Other Exclusions 0 (0) (6) - - - - - - - - - -

Effective Tax Payment (4) 82 9 (122) (234) (299) (424) (510) (585) (624) (636) (636) (610)

Effective Tax Rate 3% 55% -12% 25% 29% 30% 31% 31% 31% 31% 30% 29% 29%


Appendix 5: Board Compensation

Board 2014 2015 2016 2017E

Fixed 0,4 0,4 2,9 3,5

Salaries 0,3 0,3 2,4 2,9

Benefits 0,0 0,0 0,0 0,0

Others 0,1 0,1 0,5 0,6

Variable 0,4 0,4 2,5 2,5

Goals met 0,0 0,0 0,0 0,0

Stock option 0,4 0,4 2,5 2,5

Variable + Fixed 0,8 0,8 5,4 5,9

# of individuals 6 6 6,58 6,67

Fixed 0,1 0,1 0,4 0,5

Variable 0,1 0,1 0,4 0,4

Total per individual 0,1 0,1 0,8 0,9


Appendix 6: Management Compensation


Management 2014 2015 2016 2017E

Fixed 8,4 8,8 6,4 6,5

Salaries 7,5 7,7 4,8 4,8

Benefits 0,1 0,1 0,1 0,1

Others 0,8 0,9 1,4 1,6

Variable 8,9 2,9 5,1 7,0

Goals met 6,0 0,0 4,2 5,5

Stock option 2,9 2,9 0,9 1,5

Variable + Fixed 17,3 11,7 11,5 13,5

# of individuals 6 6 4 4

Fixed 1,4 1,5 1,6 1,6

Variable 1,5 0,5 1,3 1,7

Total per individual 2,9 2,0 2,9 3,4

Appendix 7: Forward Multiples

1

3

5

7

9

11

13

15

EV/EBITDA 1yr. Forward (x)

0

5

10

15

20

25

30

35

P/E 1yr. Forward (x)

Source: Bloomberg130

Appendix 8: Historical Multiples

Trailing EV/EBITDA(x) Trailing P/E (x)

Source: Bloomberg

0

10

20

30

40

50

60

70

80

Mar-

13

May-1

3

Jul-

13

Sep

-13

No

v-1

3

Jan

-14

Mar-

14

May-1

4

Jul-

14

Sep

-14

No

v-1

4

Jan

-15

Mar-

15

May-1

5

Jul-

15

Sep

-15

No

v-1

5

Jan

-16

Mar-

16

May-1

6

Jul-

16

Sep

-16

No

v-1

6

Jan

-17

Mar-

17

May-1

7

Jul-

17

Sep

-170

2

4

6

8

10

12

14

16

18

20

Jan

-12

Ap

r-12

Jul-

12

Oct

-12

Jan

-13

Ap

r-13

Jul-

13

Oct

-13

Jan

-14

Ap

r-14

Jul-

14

Oct

-14

Jan

-15

Ap

r-15

Jul-

15

Oct

-15

Jan

-16

Ap

r-16

Jul-

16

Oct

-16

Jan

-17

Ap

r-17

Jul-

17

Oct

-17

131

Appendix 9: Market Profile

Source: Bloomberg

Market Profi le

Market Cap (bn) 11.2

Net Debt (bn) 0.5

Enterprise Value (bn) 10.7

Shares Outstanding (mn) 189

52-Week High | Low 11.6 | 87.3

ADTV (mn) 2.5

FCF yield (%) 12

Dividend Yield (%) 0.2

P/E (TTM, x) 50.6

EV/EBITDA (TTM, x) 13.8

EPS (TTM, x) 1.2

132

Appendix 10: Implied Multiples

Implied Metrics 2017E 2018P 2019P 2020P 2021P 2022P 2023P 2023P 2025P 2026P

EV/EBITDA 11,4x 8,6x 6,9x 5,5x 4,4x 3,5x 2,8x 2,3x 1,8x 1,3x

P/E 51,7x 33,3x 26,8x 19,6x 16,4x 14,3x 13,3x 12,7x 12,3x 12,4x

EPS 1,9x 3,0x 3,7x 5,1x 6,0x 6,9x 7,5x 7,8x 8,0x 8,0x


28% 25%

08% 07% 06% 05% 05% 05%

-150%

-130%

-110%

-90%

-70%

-50%

-30%

-10%

10%

30%

50%

-500

0

500

1000

1500

2000

2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E

Core business net income Financial Services % of Net Income


Appendix 12: Reduced Reliance on Financial Services


Home

Appendix 13: 3Q17

Revenues E-commerce Gross Profit

SG&A EBITDA and Net Profit CFO

+ 16 stores vs 2Q17

Gross Revenue: BRL 3.4 bn (+27

% vs 3Q16)

SSS 25% (15% in B&M)

Revenues: BRL 1.02 bn (+55% vs

3Q16)

30% in total revenues

Gross Profit: BRL 883 mn (+23%

vs 3Q16)

SG&A: - 1.6 p.p

23% of Net Revenues

EBITDA: BRL 205 mn (+39% vs

3Q16)

EBITDA Margin: 8.8%

Net Profit: BRL 92 mn

ROE: 43%

CFO: BRL 974 mn (LTM)

WC: - BRL 390 mn

Source: Company Filings

Home

Appendix 14: Since the Report

40

45

50

55

60

65

70

75

20-O

ct

22-O

ct

24-O

ct

26-O

ct

28-O

ct

30-O

ct

1-N

ov

3-N

ov

5-N

ov

7-N

ov

9-N

ov

11-N

ov

13-N

ov

15-N

ov

17-N

ov

MGLU (BRL) since (10/20) Reasons

Amazon Starts to Sell Eletronics in Brazil (10/18)

Realization of Profits After Stock Rally

Poor Hardline 3Q Results


Risk Averse Environment

Home

Appendix 15: Tornado Analysis

24,0%

6,2%

5,1%

2,8%

5,5%

28%

2,7%

55,00

11,0%

27,5%

19,6%

5,1%

4,2%

2,3%

4,5%

23%

2,2%

45,00

9,0%

22,5%

70,00 80,00 90,00 100,00 110,00

B2C Gross Margin

ERP

Risk Free

Country Risk

Conventional Stores SSS per sqm growth (YoY)

B2C spread to ecommerce sector growth (YoY)

PIB LP

Total store openings guidance per year

Virtual Stores SSS per sqm growth (YoY)

Marketplace EBITDA Margin

Target Price

Vantagem Desvantagem


Home

Appendix 16: LuizaLabs

Projects

BOB

Big Data application for Magazine Luiza Stores

(B&M and E-commerce). Deliver purchase

suggestions by e-mail and displays net

Magazine Voce

First brazilian social e-commerce. Everyone can

open a store and sell Magazine Luiza products

Quero de Casamento

Presents lists integrated with Facebook

Magazine Luiza Mobile

Magazine Luiza m-commerce

Core of Research and Development of

Magazine Luiza

Technology and Innovation Lab

Create products and services focused

on retail, offering customers more

benefits and a better shopping

experience.


Home

Appendix 17: E-commerce Rationality

43% 44%

40% 40% 40%42%

38%36% 35%

38%

43%

43%33%

27%

19%

26%

30%28%

22%

18%

1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17

e-commerce Top 10

Average TicketFree Shipping

353334

209

333

377403

418

-6,8%-5,5%

-7,4%

7,7%

12,9%

7,1%

3,5%

-10,0%

-5,0%

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

0

50

100

150

200

250

300

350

400

450

2011 2012 2013 2014 2015 2016 2017

Average Ticket Var.


Board Position Since Age Experience

Luiza Helena Trajano Chairman 1976 66 Magazine Luiza

Marcelo Silva Vice Chairman 2009 58 Casas Pernambucanas

Carlos Renato Donzelli Board member 1995 49 Magazine Luiza, ALE

José Antonio Palamoni Board member 1991 55 Magazine Luiza

Betânia Barros Independent Advisor 2009 53 MRV Engenharia

Inês Corrêa de Souza Independent Advisor 2009 58 UBS, General Eletric

José Paschoal Rosseti Independent Advisor 2016 44 Fleury, Bematech

Appendix 18: Board of Directors


Appendix 19: Hardline Market-Share Forecast

141

7,0%

9,4%10,4% 10,8% 11,3%

9,7%10,8%

11,6% 12,2% 12,7% 13,1%

26,8%

29,8%28,9%

27,7% 27,1%

9,7%

9,4% 9,2% 9,9% 10,1%

3,7% 3,9% 3,7%4,7% 4,8%

2,7% 2,6% 2,5% 3,1% 3,4%

2012 2013 2014 2015 2016 2017E 2018P 2019P 2020P 2021P 2022P

vsSector’s CAGR 17-22

~4%MGLU3 CAGR 17-22

~10%

+200 bps

Hardline Sales Market-Share


Appendix 20: Sanity Check

Assumptions Check 1Q17 2Q17

Reported Gross Profit 832 835

B&M 668 647

B2C 177 172

Marketplace 2 5

Consortium 7 8

Total 853 831

Delta 21 -4

Reported Expenses -629 -615

All ex-Marketplace -624 -610

Marketplace -5 -5

Marketplace EBITDA Margin 22% 22%

Total -629 -615


Appendix 21: What Is Priced-In?

Source: Team Estimares, Bloomberg. Notes: (1) Consensus as of. (2) Team Estimates’ Base Case.

Key Metr ics 2017C¹ 2018C 2017P² 2018P FY18E Spread

Net Revenues 11.351 12.336 11.796 14.344 16% Higher

Gross Margin 30.2% 30.1% 30.5% 30.6% 50 bps Higher

EBITDA Margin 8.5% 8.7% 9.2% 9.6% 90 bps Higher

EBIT 821 920 939 1219 33% Higher

Net Income 314 455 364 565 24% Higher

Consensus Base Case

143

Appendix 22: What Is Priced-In?

Source: Team Estimates. Notes: (1) 2017-2020 CAGR. (2) As of...

144

FY18E BRL 69,9²

Current Price 2020 Targets

Net Revenue CAGR¹ 15,7%

Gross Margin 31,5%

EBITDA Margin 7,5%

Net Margin 3,2%

Reported ROIC 39,9%

Appendix 23: Management

145

Directors Pos ition Exper ience

Frederico Trajano CEO Magazine Luiza

Fabrício Bittar VP Operations Magazine Luiza

Roberto Belissimo CFO & IRO Magazine Luiza, Bradesco BBI

Maria Isabel Bonfim CCO Magazine Luiza

Eduardo Galanternick E-commerce Director B2W, Carrefour

André Fatala CTO Predicta, Submarino


Adjusted ROIC

2,2%

1,6%

3,1%3,3%

2,5%

4,0%

5,3%5,6% 5,5% 5,6% 5,6% 5,6%

11 12 13 14 15 16 17 18 19 20 21 22

NOPAT Margin

4,1x

3,4x 3,3x 3,2x3,4x

3,6x 3,6x3,9x 4,0x

4,2x4,5x 4,6x

11 12 13 14 15 16 17 18 19 20 21 22

Invested Capital Turnover

8,9%

5,2%

10,1%10,6%

8,4%

14,5%

18,7%

21,9% 22,1%

23,6%

24,8%25,4%

11 12 13 14 15 16 17 18 19 20 21 22


Appendix 24: Historical Adjusted ROIC

146

Home

Appendix 25: Capex

50

100

150

200

250

300

350

400

Total Capex D&A

BR

L m

n

Capex vs. D&ATotal CapexLess Capital Intensive Business

Model

Synergies of B&M and B2C

operations

Shared Distribution Centers

Growth in Perpetuity

Perpetuity

Growth

215

257

286

310

253

330

357

389

420

381

2017E 2018P 2019P 2020P 2021P 2022P 2023P 2024P 2025P 2026P


Company Forward PE 18

MGLU3 BZ Equity 30.213

VVAR11 BZ Equity 25.366

TELE IJ Equity 13.58

LEW SJ Equity 7.012

493 HK Equity 21.862

BTOW3 BZ Equity

n.a.

JD US Equity 52.472

MVID RM Equity 11.901

HMPRO TB Equity 30.769

Median 23.614

Appendix 26: Global Peers

Source: Team Estimates, Bloomberg

Home

Appendix 25: Logistics


8

9 9 9 9

11 10 10 11

13 12 12 13

15 14 14 15

1716 16 16

18

Sep

-17

No

v-1

7

Jan

-18

Mar-

18

May-1

8

Jul-

18

Sep

-18

No

v-1

8

Jan

-19

Mar-

19

May-1

9

Jul-

19

Sep

-19

No

v-1

9

Jan

-20

Mar-

20

May-2

0

Jul-

20

Sep

-20

No

v-2

0

Jan

-21

Mar-

21

May-2

1

Jul-

21

Sep

-21

No

v-2

1

Jan

-22

Mar-

22

May-2

2

Jul-

22

Sep

-22

No

v-2

2

LOGISTICS CAPEX (BRL mn)

1.5% of Net Sales Expenses

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