Equity Research Jerónimo Martins SGPS S.A.: Alternative Methods to the CAPM

The present document is the report of an Equity Research of Jerónimo Martins S.G.P.S., SA (JMT). JMT is international Group based in Portugal with over 230 years of know-how in the food business. This report issues a buy recommendation for EDPR, with a 2023YE price target of €24.9/share, applying a DCF FCFF Sum-of-the-Parts approach to each segment. The valuation comprises an upside potential of 22% from the January 13th, 2023, closing price of €20.4, with medium-low risk. To support this analysis, other valuation methods were used. Also, the valuation was subject to sensitivity analysis to address its risk. This research work presents an extended chapter aimed at integrating alternative methods to estimate the cost of equity (namely alternative methods to the Capital Asset Pricing Model). Our analysis considers a closer look and consideration towards risks analysis and measures within the valuation model. Three approaches were considered: the Incomplete Replication approach (a method that involves replicating the risk and return characteristics of a benchmark), the Build Up Approach and the Fama French Six-Factor Model. Even though the approaches considered serve as complementary to the CAPM, the overall investment recommendation still holds. Still, the price target is lower in the alternative models when compared to the main valuation, given the current unstable economic situation.