UBS Equities-Inditex SA _Regaining its mojo; upgrade to Buy_ (Buy) Mahamk...-117793116

ab16 September 2025Global ResearchPowered byUBS Evidence LabYESInditex SARegaining its mojo; upgrade to BuyGetting back to winning ways; upgrade to Buy with new PT of €52 (€48)Strong start to the important A/W season with 9% growth (11% comp) with steadily improving topline over the year gives us confidence that ITX's execution picked up pace again. De-rating over the past three quarters and a more realistic set of expectations create an attractive entry point: 1) Share gains: ITX LFLs outperformed the global Fashion market c.5ppts over the past 12yrs (ex COVID). Strong traction of its brands on UBS Evidence Lab data gives us confidence that it can deliver LFL in the upper half of 4%-6%. A significant white space opportunity turns it into midterm LC growth of c.8%; 2) Robust margins: Its resilient gross margin in the challenging markets over the past 4yrs is a good indicator of its strong model in our view; we see a more stable c19.5% EBIT margin in the near term. 3)13%+ TSR/sector's best returns: We see 9% EPS CAGR over the next 4yrs and a TSR of 13%+ with potential upside risks with industry leading CFROI of 15%. We raise estimates modestly for the first time in 3 quarters with the topline inflection. We see a re-rating opportunity from 22x FY27e P/E vs. historical avg of 24.3x; 1.3x vs. Stoxx 600 vs. avg of 1.6x.Clear growth drivers to deliver 8% LC growth over the midterm Our analysis of the UBS Evidence Lab data and SimilarWeb traffic trends point to strong traction for ITX brands and continuing momentum. We expect LFL growth of +5.3% over next 4yrs. In terms of space, taking the US, its second largest market as an example, using UBS Evidence Lab data, we point to a significant expansion potential vs. the c100 store (H&M: c500 stores) footprint. As the logistics expansion is over ITX could step up store openings. While optimisation continues, ITX sales/sqm is c+27% vs. 2019 suggesting lower dilution from store closures driving net space growth of 3% from 2%.Stable, industry leading margins and lower Capex drive c13% FCFE growth Our analysis of the UBS Evidence Lab data points to steady level of promotion intensity demonstrating ITX business model. We expect it to continue to deliver the industry leading gross margin of c57.5%. We conservatively expect the potential significant productivity gains from its investments in the stores and logistics to be reinvested leading to stable EBIT margin of c19.5% with midterm upside. Even so, as the extraordinary capex drops off, we see FCFE CAGR of c13% on average over next 4yrs.Valuation: Raising to Buy with DCF driven PT to €52 (€48) We don't extrapolate the Q3 current trading to 2H26e but feel confident again in ITX's LT growth algo driving 9% EPS CAGR over next 4yrs. We raise to Buy with slightly higher ests/slightly higher TGR of 3.5% (3%) with a PT of €52. We note regaining its recent high 26x P/E could drive valuation of €57, similar to our upside scenario.Highlights (€m)01/2301/2401/2501/26E