Overlooked Company with a Value Investing Mindset and Widening Margins.

FCF +12%. Net income margin +25%. P/E 11.

Key Metrics

• Consistent rising net income margin above 25%.

• Free cash flow yield of 7%

• P/E ratio is 11

• Management has a Value Investing mindset.

• Widening Margins

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All currency is in Euro. Hover/click on charts for accurate number.

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The Business

Jumbo S.A. ($BELA.AT) is a hyper-store retailer established in 1986 in Athens, Greece. The company started as a toy seller and later diversified into household goods, gift items, baby care products, home decoration and stationary.

The company is mainly active in Southeast Europe, better known as the Balkan region. It expanded operations into neighboring countries Bulgaria, Cyprus and Romania. And has franchising agreements in the countries North Macadonia, Kosovo, Albania, Serbia, Bosnia, Montenegro and Israel.

Customers

Jumbo caters to customers who prefer convenience and low pricing. The hyper-stores display a varied product mix with comparable items.

Many mom-and-pop stores in the Balkan region are small. They offer one product category. Meaning, there is little diversity in one store. Thus, customers find themselves frequently going from one store to another to compare items.

It is self-explanatory that this costs a lot of time and a hyper-store fixes such a problem.

Margins Development

Jumbo has a fairly steady revenue increase at a 7% CAGR over the last 10 years. There was one unusual drop in revenue in 2019. It looks unsettling at first, because the revenue was lower than in 2020, the Covid year.

As it turns out, the company changed the accounting period by 2019. At first, the accounting period was from July to June. And it is from January to December since 2020. This resulted in 2019 being accounted for only 6 months.

Looking further down the income statement, it shows Jumbo’s exceptional margins. The gross margins are now stable in the mid 50s. The operating and net income have increased 10% over the last decade with the net income margin currently hovering around 28%.

These margins are uncommon in the retail sector. So, how does Jumbo achieve this?

Foremost, they buy stores at distressed prices, instead of building them. Sometimes, they purchase a few next to each other to increase the floor size.

Second, Jumbo owns some leased stores. From time to time, the company gets a low offer to buy the store. This saves around 7% on operational margins per store in rent.

The balance sheet provides a clue about how much further Jumbo can save on leases in the future. The leases have been on a steady decline since the reporting of IFRS 16 “Leases” rule in 2019.

The decision to reduce leases, increases margins on the income statement and reduces liabilities on the balance sheet. Thus, the shareholder equity rises further.

Third, the distribution center overhead is partially paid for by franchisees. With every new distribution center, they invite some new franchisees. But management is very careful not to add too many at once. Because it will reduce the company’s margins.

Fourth, Jumbo pays no interest as it has no long-term debt on the balance sheet.

The conservative approach, outlined in the points above, increases margin but accounts for slower store growth.

Free cash flow

Despite the slow revenue growth, the company throws off lots of cash. For every €1 earned, €0.12 is FCF.

The free cash flow provides a lot of room for management to return money to shareholders. In the past, they preferred regular & extraordinary dividends.

Since 2024, Jumbo started a buyback program which stopped in early 2025. Management looks for the best use of capital, hence the return of capital behavior looks inconsistent. The underlying metric, the per-share value growth, is steadily on the rise.

Management caps capital expenditures at 1/3 of the profits. In reality, it is closer to 28% per year. Warren Buffett defined CapEx as sustaining and growing a business under 25% a great business.

Jumbo reports the maintenance CapEx. From here we can figure out the growth CapEx and calculate an adjusted free cash flow.

The adjusted FCF is cash flow from operations minus the maintenance CapEx. Or as the chart states, the growth CapEx added to the FCF.

Growth CapEx is a part of reused FCF to grow the company to return more cash in the future. Obviously, this isn’t capital that can be returned directly to the shareholders, but has a compounding effect.

The adjusted FCF is a better representation for everyone who wants to make a discounted cash flow analysis.

The FCF yield often edges against the 7% in the last 10 years. While the adjusted FCF yield is somewhat higher, around 8-9%.

Management

Jumbo has a very active chairman, the founder, Mr. Vakakis, aged 72. He held the position since 1994. On shareholder meetings and earnings calls, he is the primary speaker, not the CEO.

Jumbo’s CEO has no public role. She doesn’t write a shareholders letter either. Which makes it difficult to understand her thinking. Usually, it is a bad sign that the company doesn’t communicate with shareholders this way.

Since the chair and founder dictate the direction of the company, it is more important to get to know his thinking. During the shareholder meetings, he communicates his view clearly.

Mr. Vakakis concerns himself with the long-term survival of the company. He studied Japanese companies that survived both world wars on how to overcome difficult times. He applies his learnings which likely helped him to steward the company through Greece’s almost bankruptcy.

Jumbo grows mainly by opening new stores in strategic markets. Instead of buying growth and opening new stores at high cost, he wants the company to wait for distressed pricing offers.

Mr. Vakakis is a patient man and conservative with his and the shareholders’ money. He follows a generic plan and takes the best opportunity presented to him.

I like to think as if we are a poor company.
Chairman Vakakis

Currently, some stores are still leased. When a distressed price for a store is presented, the chair likes to buy the store. It saves on leases and increases margins as explained earlier.

Whenever analysts ask Mr. Vakakis about world politics and conflicts, He has no perfect answer like most CEO’s do. He says the following:

If I could participate in this sort of complicated world in a productive way, I wouldn’t be selling toys.

He wants to stay in his circle of competence and answers humbly whenever competitors are discussed. Competition is a gift to the company to improve themselves and not to become arrogant.

It is unclear if the CEO has the same mindset as the chair. The CEO has a background in accounting is only 4 years younger than the Mr. Vakakis.

It would have been great if the chairman would prepare a younger CEO to take over the same mindset as he has. In a similar fashion as Buffett did with Berkshire. It isn’t clear if Jumbo has a successor plan.

Ownership

The company has only one known insider. It is the founder, Mr. Vakakis. He owns 16.6% of the outstanding shares.

In the Balkan region, it is less common to hold equity in general. It may be a reason for lower insider holdings.

On the other hand, it allows outside investors to have a say in the direction of the company. This isn’t always a guarantee with European companies, where founders prefer to have a majority share. (See my previous articles)

Growth

Jumbo has multiple pathways to growth. The obvious one is expansion with more stores in existing or new markets.

Currently, the company focuses on store growth in Romania. The country has the same disposable income as Greece and twice the population.

Jumbo expands with around 2 to 3 stores per year in Romania. This is because they look for suitable locations where rent or buying outright is the lowest.

The other markets, Greece, Cyprus and Bulgaria are saturated. The prognose is around 1 new store per 3 years in Greece. Of the 4 operating markets, only Cyprus experiences population growth.

Management made known that there are other interesting markets for Jumbo to expand to. But right now, Romania makes the most sense.

Two less likely paths of growth for jumbo are an increase in disposable income and population growth. The economic prosperity in these countries is low. This resulted in a large part of the population moving abroad, a trend seen for decades.

The increase in disposable income might not be so likely either. When we look at Western Europe, the disposable income becomes lower as the cost of living increases while the salaries are stagnant.

Online Sales

It sounds unbelievable, but Jumbo treats online sales as a complementary service. In the Balkan region there is an inherent distrust of online purchases. The younger generation below 30 years is more accepting.

From first-hand experience, Bulgaria provides an unpleasant package delivery experience. There are service points by 2 providers to collect online purchases from. Both providers create friction for customers where it is very difficult to accept and return items.

It is nothing like Amazon deliveries to the doorstep. This delivery friction probably contributes to low online purchases.

Franchises

The company has partnerships with companies that operate franchisees. The franchisees pay an operational charge and 4% of the turnover regardless of profits.

The operational charge pays for the overhead in distribution centers. But selling inventory to franchisees eats into the gross profit margin.

There is no upside for the company taking on too many franchisees. The number of franchisees may only grow linearly with distribution center expansion.

Jumbo expects to open 2 more distribution centers in the next 2 to 3 years. Which will result in a few more franchisee openings.

The Fox Group, which operates the stores in Israel, wants to expand in the country and has an interest expanding to Canada.

Jumbo has made clear that there is also interest from other European countries. However, the company simply has no interest in expanding the franchisee network as it isn’t as profitable for investors.

Competitors

Jumbo has local and global competitors like Action & Amazon. In the Balkan region, the competition from locals is very fragmented. Many local retailers have small shops. Sizes depend on location, but 30 square meters is frequently seen.

Small stores restrict a broad product mix. Customers often move from shop to neighboring shop to compare items.

A hyper-store like Jumbo has many products in the same category to compare. Their distribution channels and sourcing directly from the Chinese manufacturer result in undercutting the local competition.

Then there are chains like Action. The Dutch chain has set foot on the ground in Romania, the same country Jumbo is expanding in for the coming years.

Based on observations during store visits, both companies have the same or similar products. The main difference is that Action often purchases goods from branded companies that can’t sell their older inventory for one reason or another. A similar strategy used by the American TJX Companies.

Jumbo gets mostly unbranded products from Chinese factories. Thus, Jumbo and Action don’t offer exactly the same products.

Amazon is a third competitor that operates online. Online purchases are only completed by the younger generation.

Some analysts have seen Pepco as another competitor. But a visit to the store shows little overlap with Jumbo. Clothing takes by far the most floor space in a Pepco store.

Unfair Competition

Jumbo welcomes fair competition such as Action and Amazon to become a better company. They don’t like unfair competition in the form of Shein and Temu.

These Chinese online retailers ignore European trade laws and are able to offer products far below Jumbo’s. The company believes that unfair behavior will eventually catch up to the likes of Shein and Temu.

For the time being, there isn’t much that Jumbo can do about that.

Moat

Jumbo has well-organized distribution channels compared to local stores. The company is also able to receive great pricing directly from Chinese manufacturers.

This is one form of network effect. It is only effective against local competition. Big retailers like Amazon and Action have their own distribution channels.

Jumbo has a cost advantage over other brick and mortar stores. The company’s mindset is thinking like a poor company. Thus, they only open a store when the location makes sense and the price is right. This mindset keeps the CapEx low.

The cost advantage is usually considered a moat. However, with Jumbo, the cost advantage comes from a mindset any company is able to acquire. Yet, for most companies it is proven very difficult to acquire.

The cost advantage moat is very weak at best. It is also unclear if the mindset is adopted company-wide. What if Mr. Vakakis retires. Will the company continue the same way? Or does Jumbo become less sensible with capital like most companies who pursue growth?

The Risk

In the past years, Jumbo experienced some unforeseen events. The Suez Canal got blocked by a large ship that went adrift and was stuck for 106 days. Maritime transport had to make use of other routes, resulting in increased transport costs.

Transport along the same canal has encountered more delays & rerouting since the war between Israel and Gaza. The Houthis in Yemen attack passing ships. Again resulting in increased transport costs.

Corporate culture

Chair Vakakis has a clear direction in mind for the company. He brings in the value investor mindset to the company. The earlier discussed margins show the effect the mindset has on the company’s financials.

However, it isn’t clear if other executives adopted the same mindset. When mr. Vakakis leaves the company, margins are likely to deteriorate if the mindset changes.

Then there is another risk within the corporate structure. In the Balkan region, people in management positions are frequently hired based on connections, regardless of education or skill. Often family, friends or acquaintances benefit from such actions.

Unfortunately, companies feel the effects of this: customer service declines, product quality deteriorates and a toxic culture takes over.

The bigger a company becomes, the less grip a founder has on the hiring process. It isn’t clear if this happens on a large scale within Jumbo.

Online sales

Currently, online sales are around 2 to 3% of the revenue. This is fairly low compared to European and American companies.

The risk here is that competitors are more focused towards online sales. When the younger population becomes the majority customer, then Jumbo might be in a disadvantage.

Because there are not focused on online stores. They do have online stores in the markets they are operating in. But for now the emphasis lies on brick and mortar stores. Can they switch on time to put emphasis on the online stores is the question?

Cyclicality

The discretionary retail sector is cyclical. Discount stores tend to have more stable revenue across cycles and traffic often increases during recessions.

Jumbo is an odd mix between the 2. It sells many discretionary items and offers many discount items.

The company’s revenue is either flat or increasing year-on-year. The flat period (2010-2013) experienced marginal revenue increase due to the close bankruptcy of Greece. Despite such difficult times, it hasn’t seen any revenue declines in at least the last 20 years.

Jumbo may experience some cyclicality, but revenue will grow nonetheless.

Conclusion

Jumbo grows at a conservative pace to ensure survival. Strict capital allocation and taking the best presented opportunities result in wide margins. The company is a cash generating machine which returns lots of money through extraordinary dividends and buybacks.

The expansion is slower than what most growth companies try to achieve. However, every investment is well worth it as the founder has a value investing mindset. The per-share value increases with every investment.

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