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BTG Pactual Affiliate Research

Banco BTG Pactual S.A.

SectorNote
24 November 2020
Brazil Retail & Consumer Goods
Black Friday 2020 – not a door-busting crowd, but still a
huge event
Luiz Guanais
Looking at international trends for Black Friday 2020 Brazil – Banco BTG Pactual S.A.
[email protected]
With ecommerce a few days away from Black Friday, for many retailers the
+55 11 3383 2755
unprecedented scope of change and worsening economic climate due to the still
negative effects of Covid-19 should be relevant this season. The UK and France closed Gabriel Savi
non-essential retail stores during the peak of the holiday shopping season, and Brazil – Banco BTG Pactual S.A.
[email protected]
Germany is restricting the number of in-store browsers. As a result, much of the
+55 11 3383 3436
shopping will be digital, even in areas where retail remains open (in the US, physical
retail sales during the Black Friday shopping season are expected to drop by 25% in
2020). Indeed, more than 60% of global consumers changed their shopping habits
during the pandemic, and they intend to stick with them.

An earlier shopping season, and mostly online

In this new outlook, Black Friday still dominates as the day when shoppers plan to
spend (please see table 1), while the recent Amazon Prime Day came a close second.
In the United Kingdom, Black Friday has overtaken Boxing Day as the most popular
shopping day, while in China Single’s Day takes the spotlight. But there is a trend
(especially in the US and China), with consumers strongly intending to participate
(please see tables 2 and 3). Shoppers are also starting earlier to prevent a recurrence
of delivery delays, which is pulling the holiday shopping season forward this year.
Walmart, for instance, is offering Black Friday deals in three separate periods starting
in early November. Nearly a third of shoppers say that they will start earlier this year
when compared to last year (please see table 4).

Scale and service levels matter a lot

Consumers are price-sensitive and expect value and better shipping costs, but also
want convenience and availability. Seeking more convenience and a safer experience,
holiday shoppers plan to resort more to online sites, mobile apps and omnichannel
options like click-and-collect. According to McKinsey´s survey, consumers in China, US
and UK are more willing to change channels. In Brazil, according to ABComm and
Neotrust, Black Friday is expected to post 77% y/y expansion in sales (to R$6.9bn),
following the structural trend since the beginning of the pandemic of migration from
offline to online consumption, with more sellers, traffic, assortment and frequency. In
our view, BZ Black Friday should also benefit bigger platforms, which have either more
access to suppliers (especially in a context of out-of-stock items, such as white line
products) in their 1P operations and/or a superior service level in the 3P business to
attract the most relevant sellers.

ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 4

Banco BTG Pactual S.A. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the
objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Any U.S. person receiving this report and wishing to effect any transaction in a security
discussed in this report should do so with BTG Pactual US Capital, LLC at 212-293-4600, 601 Lexington Avenue. 57th Floor, New York NY 10022.
 Brazil Retail & Consumer Goods
24 November 2020 page 2

Table 1: Black Friday and Amazon Prime Day are the most popular shopping events of the
season

Source: McKinsey

Table 2: Consumers' intention to participate in holiday shopping season

Source: McKinsey
 Brazil Retail & Consumer Goods
24 November 2020 page 3

Table 3: General spending is down, but dealhunting dominates during blockbuster events

Source: McKinsey

Table 4: Holiday shoppers are planning to start earlier

Source: McKinsey
 Brazil Retail & Consumer Goods
24 November 2020 page 4

Required Disclosures

This report has been prepared by Banco BTG Pactual S.A.

The figures contained in performance charts refer to the past; past performance is not a reliable indicator of future results.

BTG Pactual Definition Coverage *1 IB Services *2

Rating
Buy Expected total return 10% above the company’s sector 56% 51%
average.
Neutral Expected total return between +10% and -10% the 42% 35%
company’s sector average.
Sell Expected total return 10% below the company’s sector 2% 0%
average.

1: Percentage of companies under coverage globally within the 12-month rating category.
2: Percentage of companies within the 12-month rating category for which investment banking (IB) services were provided within the past 12 months.
Absolute return requirements
Besides the abovementioned relative return requirements, the listed absolute return requirements must be followed:
a) a Buy rated stock must have an expected total return above 15%
b) a Neutral rated stock can not have an expected total return below -5%
c) a stock with expected total return above 50% must be rated Buy

Analyst Certification

Each research analyst primarily responsible for the content of this investment research report, in whole or in part, certifies that:
(i) all of the views expressed accurately reflect his or her personal views about those securities or issuers, and such recommendations were elaborated independently, including in relation to Banco
BTG Pactual S.A. and/or its affiliates, as the case may be;
(ii) no part of his or her compensation was, is, or will be, directly or indirectly, related to any specific recommendations or views contained herein or linked to the price of any of the securities discussed
herein.
Research analysts contributing to this report who are employed by a non-US Broker dealer are not registered/qualified as research analysts with FINRA and therefore are not subject to the restrictions
contained in the FINRA rules on communications with a subject company, public appearances, and trading securities held by a research analyst account.
Part of the analyst compensation comes from the profits of Banco BTG Pactual S.A. as a whole and/or its affiliates and, consequently, revenues arisen from transactions held by Banco BTG Pactual
S.A. and/or its affiliates.
Where applicable, the analyst responsible for this report and certified pursuant to Brazilian regulations will be identified in bold on the first page of this report and will be the first name on the signature
list.

Statement of Risk

MercadoLibre INC [ARMELI] - MercadoLivre is subject to macroeconomic conditions, mainly inflation, FX-rate, GDP growth, consumer spending and credit availability. Company specific risks include
growth dynamics of the ecommerce sector in LatAm, competition and deterioration of working capital terms
B2W Companhia Global do Varejo [BRSUBA] - B2W is subject to local macroeconomic conditions, mainly inflation, FX-rate, GDP growth, consumer spending and credit availability. Company specific
risks include growth dynamics of the ecommerce sector, competition and deterioration of working capital terms.
Via Varejo S/A [BRVVAR] - We believe the main risks are 1) the deterioration of the macro scenario, 2) increased competition in traditional retail and e-commerce, and 3) execution.

Valuation Methodology

MercadoLibre INC [ARMELI] - Our 12-month forward target price is based on a blended valuation: 50% DCF based (cost of equity of 9.1% and g of 5.0%, in nominal USD) and a 50% exit multiple of
1.1x EV/GMV and 0.2x Market cap/TPV
B2W Companhia Global do Varejo [BRSUBA] - Our 12-month forward target price is based on a blended valuation: 50% DCF based (cost of equity of 9.0% and g of 5.5%, in nominal USD) and a 50%
exit multiple of 1.1x EV/GMV.
Via Varejo S/A [BRVVAR] - Our 12-month forward target price is DCF based (3-phase DCF wth a cost of equity of 10.2% and g of 3.0%, in nominal USD).

Company Disclosures

Company Name Reuters 12-mo rating Price Price date

B2W Digital 1, 2, 4, 6, 18, 20 BTOW3.SA Buy R$73.86 23-11-2020
MercadoLibre 1, 2, 4, 6, 12, 18, 19, 20 MELI.OQ Buy US$1,451.77 23-11-2020
Via Varejo 1, 2, 4, 6, 9, 18, 20, 22 VVAR3.SA Buy R$17.80 23-11-2020

1. Within the past 12 months, Banco BTG Pactual S.A., its affiliates or subsidiaries has received compensation for investment banking services from this company/entity.
2. Banco BTG Pactual S.A, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking services and/or products and services other than investment services
from this company/entity within the next three months.
4. This company/entity is, or within the past 12 months has been, a client of Banco BTG Pactual S.A., and investment banking services are being, or have been, provided.
6. Banco BTG Pactual S.A. and/or its affiliates receive compensation for any services rendered or presents any commercial relationships with this company, entity or person, entities or funds which
represents the same interest of this company/entity.
9. Banco BTG Pactual S.A. has acted as manager/co-manager in the underwriting or placement of securities of this company/entity or one of its affiliates or subsidiaries within the past 12 months.
12. Directors or employees of Banco BTG Pactual S.A., its affiliates or subsidiaries take part on the board of directors of this company.
 Brazil Retail & Consumer Goods
24 November 2020 page 5

18. As of the end of the month immediately preceding the date of publication of this report, neither Banco BTG Pactual S.A. nor its affiliates or subsidiaries beneficially own 1% or more of any class of
common equity securities
19. Neither Banco BTG Pactual S.A. nor its affiliates or subsidiaries have managed or co-managed a public offering of securities for the company within the past 12 months.
20. Neither Banco BTG Pactual S.A. nor its affiliates or subsidiaries engaged in market making activities in the subject company's securities at the time this research report was published.
22. Banco BTG Pactual S.A. or its affiliates or subsidiaries do not expect to receive or intends to seek compensation for investment banking services from the companies within the next 3 months.

B2W Digital
Stock Price (R$) Price Target (R$)
150.0

120.0

90.0

60.0

30.0

0.0
24-Feb-18

24-Feb-19

24-Feb-20
24-Nov-17

24-May-18

24-Aug-18

24-Nov-18

24-May-19

24-Aug-19

24-Nov-19

24-May-20

24-Aug-20

24-Nov-20
Buy
Neutral
Sell
No Rating

Source: BTG Pactual and Economatica. Prices as of 23 November 2020

MercadoLibre
Stock Pric e (US$) Price Target (US$)
1600.0
1400.0
1200.0
1000.0
800.0
600.0
400.0
200.0
0.0
24-Feb-18

24-Feb-19

24-Feb-20
24-Nov-17

24-May-18

24-Aug-18

24-Nov-18

24-May-19

24-Aug-19

24-Nov-19

24-May-20

24-Aug-20

24-Nov-20

Buy
Neutral
Sell
No Rating

Source: BTG Pactual and Economatica. Prices as of 23 November 2020

Via Varejo
Stock Price (R$) Price Target (R$)
40.0

30.0

20.0

10.0

0.0
24-Feb-18

24-Feb-19

24-Feb-20
24-Nov-17

24-May-18

24-Aug-18

24-Nov-18

24-May-19

24-Aug-19

24-Nov-19

24-May-20

24-Aug-20

24-Nov-20

Buy
Neutral
Sell
No Rating

Source: BTG Pactual and Economatica. Prices as of 23 November 2020

 Brazil Retail & Consumer Goods
24 November 2020 page 6

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