Morgan Stanley upgrades Allegro to “overweight,” price target raised

Investing.com -- Morgan Stanley (NYSE:MS) has upgraded Allegro (WA:ALEP).eu SA to “overweight” from “equal-weight,” citing a favorable margin outlook driven by a shift in logistics strategy. 

The brokerage price target increased from PLN 33 to PLN 40 per share, implying a 20% upside. 

The upgrade is based on Allegro’s move to diversify its fulfilment network, reducing reliance on InPost by increasing in-house logistics and using third-party delivery partners such as Orlen and DHL.

The shift is expected to increase operating efficiency and improve Allegro’s negotiating position ahead of its 2027 contract renewal with InPost. 

Morgan Stanley’s revised estimates raise reported EBIT by 1% in 2025 and 3% in 2026, with more substantial increases of 10% and 7% in 2027 and 2028. 

Forecasted EBIT margins rise from 3.3% in 2025 to 4.8% in 2029, with adj. EBITDA margins expanding to 6.1% over the same period.

Allegro’s cost of delivery, a significant expense representing up to 25% of revenue, is projected to rise from 4.4% of GMV in 2024 to 5.6% in 2028. 

The increase is attributed to wider adoption of Allegro’s SMART! subscription, which offers free delivery. By 2025, SMART! users are expected to account for 71% of parcel volume. 

Merchant co-financing for delivery is forecast to cover 46% of these costs in 2025, increasing to 51% by 2027. 

This contribution is expected to raise the platform’s effective take rate from 12.2% in 2024 to 13.5% by 2030.

Fulfilment revenue remains small but is forecast to grow from 0.2% of GMV in 2024 to 0.9% by 2028. 

The company’s APM (automated parcel machine) network is projected to expand from 4,562 units in 2024 to about 10,000 by 2028. Fulfilment from non-SMART! users and third parties is expected to contribute PLN 769 million in revenue by 2028.

International expansion is being scaled back, with Allegro deferring entry into Slovenia and Croatia. Losses from international operations are expected to narrow to 15% of Polish adjusted EBITDA in 2025. Allegro’s market share in Czechia, Slovakia and Hungary is projected to rise from 3.8% in 2025 to 5.7% by 2030.

Capitalised intangible assets, primarily from R&D, are amortised over 4–7 years. A two-year reduction in amortisation periods would raise amortisation by PLN 160 million, equating to 8% of adjusted EBIT.

While free cash flow is expected to decline in the near term due to investment in logistics and fintech, it is forecast to recover after 2027. 

Allegro trades at 18x 2025 earnings, falling to 14x in 2026, with a free cash flow yield of 4.7% and 6.0% respectively.