Valuation
Our SKr485 target price references a 4% 2009E free cashflow yield. This is in
line with the sector-weighted average, which we argue should underpin the
shares given H&M's immature international growth prospects, against the
sector's essentially maturing domestic outlook. From a PE perspective, this
target also references the carry-forward to a 23x prospective PE multiple to
2009E - a trend that we argue should persist in the absence of any H&M
maturity signals. Finally, given our belief in the group's 15-year plus space
growth plan, we have revisited our DCF analysis. Here, assuming low-singledigit
LFL sales progress, sub-10% space growth and a 50bp EBIT margin fade
over the forecast period, we derive a SKr490 valuation per share, supporting
our price target.
Risks
We rate H&M Medium Risk because of the group's clean financials, impressive
international growth track record, and high cash generation.