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º Q2 sales 3% above expectations with growth re-accelerating H1 EBIT margin stable YoY, in line with expectations FY 2022 guidance reiterated as CEO “looks to H2 with confidence”
Carrefour SA Carrefour SA
In this report, we take a second look at the credibility of a bid from Auchan post-war in Ukraine and post-French elections while also assessing Carrefour’s ability to create shareholder value in an inflationary period and through its upcoming strategic plan. Ultimately, we continue to perceive Carrefour as a safe-haven in the hell of inflation thanks to its high exposure to food, its massive cost-cutting efforts and the recovery of its Brazilian business. Even if M&A speculation is now less likely, it has already been wiped off the market valuation and can only be a free option while the upcoming new strategic plan can really be a catalyst.
Retail & E.commerce Quick Commerce: consolidation accelerates in France, Carrefour now shareholder of Flink
CARREFOUR - BUY Top Picks | EUR22 Q1 broadly in line, confidence reiterated for FY 2022 Q1 sales 1% above expectations driven by LatAm Management remains confident about 2022 Carrefour remains an appealing defensive play in 2022
CARREFOUR - BUY Top Picks | EUR22 vs. EUR21 FY 21 results: good set of figures and reassuring comments about 2022 Q4 sales 2% above expectations, driven by market share gains in France FY EBIT broadly in line by FCF positively surprised Heading towards a better 2022 year than feared Buy Top Picks reiterated with EUR22 TP vs. EUR21
CARREFOUR: Why Auchan draft bid if far from being dead | BUY Top Picks | EUR21(+18%)
Food Retailing What to expect from food retailers in their Q4 publications Upcoming Q4 publications pointing to flat LfL growth and no profit warning… …but the focus will be on 2022 inflation Moderate price increases and controlled labor inflation: food retail can become investable again Carrefour | Buy Top Picks | EUR21 Ahold Delhaize | Neutral | EUR32 Casino | Sell | EUR19
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CARREFOUR - BUY | EUR20(+16%) Auchan not ready to give up consolidation dreams so easily Auchan in negotiations to team up with PE funds for a new bid From a bid of EUR21.5/share with 70% cash/30% shares… …to a bid of EUR23.5/share with 100% cash? No concrete announcements likely before May Carrefour is definitively an M&A play for 2022: if not Auchan, maybe Couche-Tard or other PE funds
CARREFOUR - BUY Top Picks | EUR20(+28%) M&A rumors are back and will remain throughout 2022 Rumors surrounding a “Auchan-Carrefour” are unsurprisingly back What can Auchan do to improve its bid offer? Carrefour will soon be at the centre of an M&A arena
CARREFOUR - BUY Top Picks | EUR20(+29%) Digital Day feedback: impressive EBIT target driven by unexpected retail media Carrefour wants to prove that digital can contribute to EBIT… …and sets above-expectations EBIT targets What is behind the tripling in e-commerce GMV to EUR10bn? How will Carrefour generate an additional EUR600m in EBIT? Our persisting concern? Seeing delivery giants squeezing Carrefour
CARREFOUR - BUY Top Picks | EUR20(+30%) All sails out on Quick Commerce! Carrefour has never been so proactive in e-commerce Quick Commerce: the multi-billion opportunity market Carrefour Sprint is a smart move (as a first step) But relying too much on third-parties as Uber will become an issue
CARREFOUR - BUY Top Picks | EUR20(+31%) Q3 in line with expectations and no downgrades in sight for FY 2021 LfL decelerating as expected to -0.3% in France Slight positive surprise in LatAm offset RoEurope and Asia No estimates downgrades in sight for 2021 Buy reiterated with EUR20 TP
CARREFOUR - BUY Top Picks | EUR20(+25%) Understanding the implications of the Mulliez Family’s offer on Carrefour French press revealed the Mulliez Family made a EUR21.5/share offer Four things to retain from the failed Auchan-Carrefour deal French food retail market still doomed to consolidate but not before 12-18 months Carrefour remains our Top Picks for Q4
Retail & E.commerce Q4 Top Picks: Carrefour A sector view: hard to evolve along with rising yields, inflation and supply chain issues How are companies expected to perform in this context: food retail sector seems the most immune Our selection of top picks: Carrefour
Carrefour-Auchan merger rumours back on the table Three reasons why a merger would be hard to strike Five reasons why we would not welcome a global merger Buy reiterated as long as there is no deal
CARREFOUR BUY, EUR20 vs. EUR21 A Foot in the Door with Cajoo Within our food retailing universe, we see ... Carrefour as one of the group’s most exposed to quick commerce but also as one of the most open-minded and proactive in this field via its investment in Cajoo. The next step is to go further.
CARREFOUR - BUY | EUR21(+24%) Bernard Arnault finally capitulating with huge losses Bernard Arnault surprisingly launched the sale of its 5.7% stake… …and is about to make a noticeable 60% loss Why is he capitulating now? Signal is negative but we reiterate our Buy recommendation
CARREFOUR - BUY | EUR21(+34%) Press talks about a Carrefour-Auchan merger, we think of an asset swap Carrefour reportedly in merger discussions with Auchan Unsurprising M&A talks but a global merger would be surprising Why we would be concerned about a merger Why we would prefer an asset swap between Spain and Romania/Poland
CARREFOUR - BUY | EUR21 VS. EUR20 (+33%) Ongoing recovery, higher shareholder returns and pro-activity in foodtech France continues to outperform EBIT margin improvement ensured by cost-cutting Upgraded FCF outlook and new share buyback programme Welcome opening to quick commerce through stake acquisition in Cajoo Buy reiterated with a TP lifted from EUR20 to EUR21
No big surprises from H1 results and that''s the point we think Our main impression from Carrefour''s H1 results was a lack of fireworks; group EBIT was 1% below consensus with LatAm weakness offset by ''Other Europe'' but the former was known given Carrefour Brasil reported weaker earnings on Wednesday night. Perhaps then the main highlight was that we didn''t spend the call talking exclusively about French hypermarkets and instead the focus was the rest of the business, digital ambition and cash return (including a new EUR200m share-buyback). So almost dull... but for Carrefour''s equity dare we say dull is good! Earnings downgrades for Brasil but from a high level From an earnings point of view, the main talking point for us is Carrefour Brasil (or Atacadao). Having been the star of the show, the halo has slipped and we again cut numbers. Conditions in the market however remain challenging given stubbornly high COVID levels. The base of comparison is also high. With the group also investing a little into price to cement its position, a run of margin upgrades looks to be behind us. Take a step back however; the core Cash and Carry business will still make a 6% EBIT margin this year... it''s just not likely to be 6.7% as last year. The portfolio is working - it isn''t just down to Carrefour Brasil to do the heavy lifting It''s difficult to fully gauge where Carrefour is on its recovery as we don''t have an end objective and we''re unlikely to get one. The group announced it will host an investor day on 9 November for instance but the focus there is digital ambitions rather than say a margin target for 2025. The positive though is that the portfolio is working and we seem to be in a new phase; rather than Brazil doing all the heavy lifting, other parts of the business can surprise positively - this time it seems, Spain, Carrefour''s third most important market (behind France and Brazil). Dependable free cash flow and return - the investment thesis...
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After a strong run, we still think Carrefour''s shares can outperform Conventional wisdom is that you fix a food retailer through a combination of price investment and cost saving; whilst the latter rarely shows up in earnings, the price investment hopefully reinvigorates the top-line. The reality has always been more complex; price isn''t everything and Carrefour seems to be showing the benefits from fixing basics like price integrity, availability and service. We see the potential for multi-year payback and though that might mean the shares grind higher rather than see many more 20% 6-month bumps, we still think they can Outperform. How high can the French margin go; 3% is ambitious but possible Rather than arguing for further rerating, the big question now for Carrefour''s shares is how high can the French EBIT margin go? It peaked at 6%, troughed at 1.3% and was 1.8% in 2020. Carrefour suggests it should be 3% which is some way above our short-term expectation and we prefer to err on the side of caution; margins readily adjust downward, not upward in food retail. But if the group can continue to hold or even win market share in France without material price investment, retention of part of the EUR2.4bn cost saving plan should do the hard work. French environment seems supportive at present The French environment looks still to be supportive for margin recovery; government policy seems keen to put more profit into the industry in the hope it trickles down to smaller producers. There doesn''t seem to be anybody aggressively grabbing for share either. We would keep an eye on Lidl, it could put pressure on Leclerc but in an environment of higher inflation, we''re relatively confident the market can keep its cool and pass cost increases through to the consumer. Brazilian Real is showing encouraging signs of stabilisation, even inflection Carrefour''s Brazilian business remains the star of the show, though as it hits an integration phase and...
CARREFOUR - BUY | EUR20(+18%) Reportedly said to be launching the disposal of Taiwan and Poland Towards the sale of Taiwan and Poland by year-end? Rumours also concern Italy and Argentina A combined estimated valuation of EUR1.5bn Further cash return and a rerating potentially on the table
Carrefour''s turnaround seems finally to be coming together Customer satisfaction and a request for patience seem to be the most common themes of our post results notes of late but not this time. Having seen a few periods of improving net promoter scores, Carrefour''s Q1 seems to have delivered the goods with better than expected trading plus a EUR500m share buyback. Whilst trading is no doubt COVID-19 boosted, market share gains in France encourage and having been frustrated with Carrefour''s capital allocation policy (MandA first) we are very pleased with the buyback. Where next? There''s more upside we think. We still think many investors are waiting for more of a trend but we think it is coming One of the frustrations of COVID-19 is that it makes the underlying performance difficult to decipher and when you carry the sort of baggage Carrefour''s equity story does, it means that improvements are easy to write off as temporary. Even market share can see support from format or geography bias (e.g. avoiding smaller stores or large cities) and so we need a trend. The data shared with the FY results however suggest quite a sharp improvement in customer perceptions and we think a change in culture at Carrefour. We''d wager there''s more good news to come. Not everything is perfect; Italy catches the eye and Brazil wasn''t as strong as expected Though there are clear improvements in France, few plans work seamlessly and once again, Italy catches the eye (-11% LFL) for the wrong reasons. Though it''s only 6% of sales and there was a drag from COVID, a fix seems remote for the loss making market. It''s a reminder of the need for a capital allocation policy that covers not only MandA and cash return but also, divestments. Material upgrades to EPS as a result of EBIT hike plus the buyback A EUR500m share buyback looks very supportable this year and we think, into the future even with acquisitions like Grupo BIG in Brazil so we include one for 2022 and 2023....
CARREFOUR - BUY | EUR20(+30%) France almost not decelerating in Q1 Q1 LfL France almost not decelerating vs Q4 at 3.5% Q1 LfL RoEurope in line while LatAm below Solid current trading in France EUR500m share buyback
CARREFOUR - BUY | EUR20(+29%) Entering into the Q1 normalization phase before bouncing back in Q2 Q1 group LfL to decelerate to 2.3% France could be back into negative territory with -0.4% LfL RoEurope affected by tough comps and Italy with -2.1% LfL LatAm to decelerate to 15.8% LfL New lockdowns throughout Europe
We have an aversion to Carrefour''s bolt-on strategy but this one seems decent If you can''t buy assets in your best market, where can you buy them? Despite our previously stated resistance to Carrefour''s strategy of using excess cash flow for bolt-on-acquisitions, we find ourselves relatively positive on the proposed acquisition of Grupo Big (literally, ''Big Group'') in Brazil for BRL7bn of EV or BRL9.2bn including lease liabilities (EUR1.1bn / 1.4bn respectively). We nudge our TP on Carrefour Brasil (also known as Atacadao) to BRL23 from BRL22 but leave our Carrefour group TP at EUR18. A decent return on capital but a high cost of capital Though we''ve been given EBITDA for Grupo Big (BRL0.9bn), this is on a pre-rent basis and so we estimate that EBIT is probably quite low; about BRL0.4bn (a c2% EBIT margin versus Carrefour Brasil at 6%). However, with BRL1.7bn of synergies after 3 years (a combination of rebranding and cost cutting) the return on capital is pretty decent; c21% pre-tax including leases. That said, this is Brazil where the cost of capital is higher and contingent liabilities can be material. Not without risk; there was a reason Advent paid next to nothing for the business in 2018 We haven''t been able to ascertain the size of those contingent liabilities but we''d remind that coupled with many years of losses, there was a reason why Advent paid Walmart what seems next to nothing for 80% of Grupo Big in 2018. This won''t be an easy acquisition but we are confident that it can be earnings enhancing by 2023. Risks from competition authorities seem manageable too given the Brazilian food retail market is very fragmented and the geographic overlap is limited. Muted reaction suggests investors in Carrefour Group do not like bolt-on deals So as bolt-ons go, a good one it seems. Why then the muted reaction for Carrefour Group? The group''s shares closed just c2% higher whereas Carrefour Brasil (c25% of our equity value for Carrefour...
CARREFOUR BUY | EUR20 Back in its consolidator role with the acquisition of Grupo Big in Brazil Back in its consolidator role with the acquisition of Grupo Big in Brazil Carrefour and Grupo Big in Brazil: It’s a match! BRL1.7bn synergies potential in a 3-year time… …to generate a c.5% net accretive impact at Carrefour Group level
FY results ticked many boxes for us... they just fell down on one big topic; MandA A EUR1bn free cash flow target, improvements in culture, strong top line momentum, margin improvement, big cost saving plans; Carrefour''s results last week delivered a lot to like. The one big blot however was a commitment to prioritise bolt-on acquisitions over cash return; if you carry as much baggage as Carrefour does, investors would probably like to see less, not more Carrefour. We come away a little less positive cutting our TP to EUR18. However, we maintain the view that the story is better than many give it credit for so remain Outperform. Should strategic MandA rerate the shares? It''s a leap to hope so for Carrefour Thus far, it is hard to assess Carrefour''s bolt-on acquisition track record. On paper, the purchase of Makro in Brazil or Supersol in Spain appeal; they''re in Carrefour''s better markets and formats (cash and carry and smaller supermarkets / convenience). However, for EUR760m of EV Carrefour is getting 2% extra sales across its acquisitions. When 100% of Carrefour revenue has EV of EUR21bn (both pre leases) we''re being asked to rerate the group on MandA; that''s a leap we think. We think Carrefour should look at recycling capital, not simply deploying more Rather than looking to buy assets, we maintain the view that Carrefour''s shares would fare better if the group was actively looking to downsize. For instance, why increase exposure to Taiwan when the logic of Carrefour owning the business versus a local operator isn''t clear? We appreciate the appeal in strengthening already strong businesses that can move the needle (e.g. Brazil). But we think Carrefour needs a policy of recycling capital, not simply deploying more. We still see plenty in the story to like So why the buy if we''re questioning something as fundamental as capital allocation? Carrefour hasn''t committed to spending all its cEUR1bn of free cash flow on MandA and there are real signs of...
CARREFOUR - BUY | EUR20 VS. EUR19 (+37%) Margin improvement ensured by cost-cutting but focus remains on commercial recovery One could be concerned about tough sales comps for 2021… …but the new cost-cutting program ensures EBIT improvement Healthy FCF raising questions about cash utilization Buy reiterated with a TP raised to EUR20
Carrefour SA
CARREFOUR - BUY | EUR19(+11%) The deal is dead (until 2022), time to refocus on good Q4 figures to come Acquisition talks abandoned, opening discussions about operational partnerships A resumption of acquisition discussions not impossible from 2022 Time to refocus on Q4 Buy reiterated with EUR19
CARREFOUR - BUY | EUR19(+8%) A potential deal is gaining ground Discussions at a much more advanced stage than expected More reasons to believe in the finalisation of a deal than not Ranging from EUR20 to EUR25, still manageable for Couche-Tard Buy reiterated on Carrefour with further room to play the speculation Sell reiterated on Casino with EUR20 TP
We''d not baulk at EUR20... EUR22 is a stretch... but we''re a long way from definite What price does a publicly traded company pay for another when you don''t expect synergies? Couche-Tard''s non-binding offer of EUR20 might not blow the lights out against Carrefour''s historic share price but as it''s exactly the same as our target price, we can''t argue too much. We''re a long way from a deal and we''d assume that in a ''friendly combination'' a EUR20 offer price is an opening one. So should investors and the company hold out for more? And could a deal even get done? On balance, we''d not be greedy... EUR22 feels to us like the most you might get. Year 4 of the transformation... there are some things to show... just not the share price Carrefour has now entered year 4 of its Carrefour 2022 transformation plan and thus far, there are signs of success such as EUR2.4bn of cost savings and improving customer satisfaction. But the shares entered 2021 down just over 25% from the announcement (when they were EUR19) and profit has been sticky. A global pandemic and currency weakness are a partial explanation. However, turning around a food retailer is hard work. Carrefour it seems is even harder work. If not transformation then separation Before the transformation plan was announced, we argued that if the group could not be transformed then it should be separated. With a few less ''sacred cows'' that might be the plan of Couche-Tard and we would derive a break-up value of EUR26.5 without too much bother. But we''d not expect an offer there. There are formidable barriers to overcome and finding a buyer for say the Italian business is not easy... we''d have to assume and hope Carrefour has already tried. Cutting forecasts but holding our TP at EUR20 Following a change in lead coverage, we''ve taken the opportunity to do a bit of an early spring cleaning on our estimates which results in some downgrades. We leave our EUR20 where it is for now - this story has...
Carrefour SA Atacadao SA
CARREFOUR - BUY | EUR19(+24%) Canadian player Alimentation Couche-Tard eyeing Carrefour Alimentation Couche-Tard in exploratory talks to buy Carrefour Who is Alimentation Couche-Tard and what is the rationale? Merger scenario more likely than an acquisition Carrefour evolving from the status of predator towards prey
CARREFOUR - BUY | EUR19(+42%) Carrefour strengthen its positions in organic with the acquisition of Bio c’Bon Bio c’Bon: a strong organic banner affected by debt issues… …which comes under the Carrefour umbrella What is the objective? Leveraging on Bio c’Bon strong notoriety towards consumers and producers Buy reiterated
Carrefour’s Q3 trading performance was the best in the past twenty years. The Brazilian and Spanish operations should continue to drive the momentum and France is also expected gradually to gain further strength. While lockdown worries (in France) have dampened investor sentiment, we see Carrefour as well placed to end FY20 on a strong note, and also achieve the targets of the performance improvement plan. We maintain our positive stance on the stock’s valuation.
CARREFOUR - BUY Top Picks | EUR20(+44%) The safe haven in the 2nd Covid storm Q3: the quarter of truth for French hypermarkets Room for estimates upgrades in Q4 given new restrictions Management already comfortable with current CS FY EBIT Buy Top Picks reiterated
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