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FY results in line, decent cash flow headlines but further scrutiny is warranted By Carrefour''s own admission, 2023 was mixed. A 5% decline in recurring operating profit may have been in line with consensus but it meant the group missed its ambition for growth in the metric, with the devaluation of the Argentinian Peso the biggest part and ongoing and now well understood challenges in Brazil accounting for the balance. On the positive, ''net free cash flow'' of EUR1.6bn was much more than our expectation (EUR1.3bn), with total cash return in 2024 set at cEUR1.3bn. Some positives then, but for us, a closer look is warranted. We estimate Carrefour equity investors'' share of sustainable free cash flow at cEUR0.9-1.1bn As expected, the net free cash flow was bolstered by asset disposals, but at EUR0.5bn, it was EUR0.2bn more than we had in mind. Further, there was EUR0.7bn of working capital inflow. The narrative on that was heavily focused on a reduction in inventories, which seems fair from the balance sheet. But in the notes to the cash flow, an increase in payables seems the driver. Either way, it''s not the kind of inflow we''ll pencil forward, and we think the sustainable measure of free cash flow is around EUR1-1.3bn, with cEUR0.2bn of that attributable to minorities. No precise guidance for 2024 doesn''t help an equity story with earnings risk Notable by its absence from the release was guidance for 2024. Carrefour tends to keep this high level and did say on the call it expected EBIT and EBITDA to grow in 2024. Unfortunately, there wasn''t anything more precise, which doesn''t help an equity story where 1) we think consensus seems too high and 2) Carrefour is upping price investments in France. It hopes to keep that investment contained and not disrupt its profit progress in the market, but that seems ambitious to us. More dividends, less buyback puts some pressure on our EPS forecasts A pivot to dividends from buybacks weighs on EPS, but we leave...
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Risk reward still seems unattractive - we stay Underperform After a subdued 2023, the start of 2024 has been challenging for Carrefour''s share price. Whilst we''d like to find an inflection and take a more constructive stance, risk reward still seems unfavourable with 1) ongoing consensus risk 2) unappealing MandA complicating the narrative 3) questions on cash flow quality and 4) market share loss and building risks in France. We fear the shares are in for another hard year and reiterate our Underperform taking our TP to EUR14 from EUR15 reflecting lower core margins in France. The days of buying growth should be behind us... except, they''re not If there''s two things investors want from food retailers it''s 1) pricing discipline and 2) capital discipline. The days of buying growth in a new market or aggressive space opening plans are behind us in most markets. Carrefour unfortunately feels like it''s gone back in time. Though driven by a desire to bolster market share and unlock synergies, we think the acquisitions of Grupo Big in Brazil and Cora / Match in France may haunt the investment thesis. Calls for a change to EGALIM in France could be problematic The introduction of EGALIM in France has supported retailer margins we think. Unfortunately, hopes that would trickle down seem misplaced, as evidenced by recent farmers'' protests. Calls for EGALIM reform are consequently building. Having taken the sting out of price competition and helped Carrefour carry self-help to margin, we''re not sure what lies on the other side of EGALIM reform. We do though see a risk that retailers are squeezed between a price sensitive consumer and producers. Consensus risks and market share losses in France unappealing If we wrap into this a consensus that is stubbornly high, a cash flow story which is misunderstood and market share loss in France, we''d conclude 2024 seems likely to be another hard year for Carrefour. We''d much rather own UK food retail or Jeronimo Martins...
Carrefour’s Brazilian entity has hosted an Investor Day. While the management plans to improve the profit margin through various levers, most of these had already been expected by the market. While the strategy to shed flab and strengthen FCF is an overall positive, we do not expect any material changes to our current estimates.
Carrefour Carrefour SA
Following Carrefour’s Q3 FY23 results last week, its Brazilian business has released detailed results in line with our expectations. The adjusted EBITDA margin declined by 67bps yoy to 5.7%, with the weakness in the retail segment (1.7% margin; -212bp yoy) partially offset by the cash & carry format (6.7% margin; +4bp yoy). Although the C&C performance was weaker vs close competitor Assai, we expect margins to improve gradually. The Grupo Big integration is also likely to remain on-track. Our positive recommendation is maintained.
Carrefour’s Q3 FY23 performance was ahead of the market’s expectations. Lfl sales grew by 9.0% yoy (+150bp vs consensus), with all the business segments remaining strong. Consumers continued to trade down, with volume still contracting in the Q3. Moreover, the integration of Grupo Big is on-track and the 2025 synergy target of BRL 2.0bn was re-confirmed. The group’s FY23 guidance is also achievable, although the market was apprehensive about the weakness in Latin America. Our positive recommendation is reiterated.
Deteriorating visibility on 2024 a building worry for us Against lower expectations, ''solid'' seemed a fair assessment of Carrefour''s Q3. As expected, Brazil was the low light, hurt by destocking and macro pressures. Trends elsewhere were like Q2 except with a little less food inflation. Encouragingly, Carrefour reiterated guidance for yoy growth in EBIT in 2023... that it subsequently sanctioned consensus on the call which has no growth suggests we''re around flat (and even that looks optimistic to us). But shifting attention to 2024, visibility has deteriorated due to price competition in France and the extended timeline for a bounce back in Brazil. Price competition is back in France but Carrefour is trying not to respond In a reversal of roles, France has been the relative highlight of the Carrefour story and Brazil more challenging. Self help and legislation which caps price competition is the explanation for the former. Carrefour however now openly acknowledges the price investment of Lerclerc (#1 in the market) but seems content to leave them to it, despite market share slipping. It is encouraging that we''re not in a race to the bottom, but it undermines confidence in French margins continuing to improve. We worry if the Cash and Carry segment in Brazil is struggling to digest new capacity In Brazil, destocking by professional customers in response to pockets of deflation plus macro pressures have put pressure on revenue and earnings. We think that this, plus dilution from the Grupo Big acquisition, will tip Carrefour Group into a decline in group EBIT in 2023 i.e. guidance is at risk. More importantly, visibility for 2024 seems weaker. It''s not our central case, but there seems to be a risk that the cash and carry market has seen too much capacity addition and we head for an extended period of weak growth in revenue and earnings. The Brazilian retail business is weak too. Cutting forecasts 2-3% in 2024 and 2025. Over 10% below consensus at...
Another challenging quarter in Brazil After a tough Q2, we and the market hoped that Carrefour''s Brazilian business, Atacadao would fare a lot better in H2 with a ''V'' shaped recovery. It now seems over-optimistic. We still think the business can recover its composure... this is not an ''L'' shaped story! But the uptick of the ''U'' now seems likely to be in 2024. Coupled with pressures in France, that creates ongoing earnings risks and so for now, Carrefour remains a stock we would avoid - we cut out TP to EUR15 from EUR17. Two cases of indigestion in Brazil plus a cyclical headwind Aside from the digestion of Grupo Big which was always going to take time, pockets of deflation seem to still be encouraging Atacadao''s professional customer base to destock and curtail spending. That can''t last forever, but the industry must contend with a lot more capacity addition into the crucial cash and carry segment. We don''t think the market is over-saturated. But along with the integration of Grupo Big, there seem to be two causes of the indigestion at Carrefour Brasil, with a cyclical headwind thrown in for good measure. Story in France has turned slightly negative too In France, Carrefour''s market share gains have turned slightly negative from flat to small up. We''re used to those sorts of challenges in food retail so don''t panic. Leclerc however has turned the dial up on price investment and communication which is landing well. Carrefour seems wise not to engage in a tit-for-tat response, Leclerc''s focus would seem to be Lidl. But it''s not an ideal backdrop to try and grow earnings and the exit of the CEO of France creates uncertainty too. Cutting forecasts 3-4% for Carrefour and sit 5-7% below consensus EBIT We once again cut our forecasts for Atacadao with EPS in 2024 and 2025 down 7-9% (and in 2023, we expect an adjusted net loss). Minorities and other divisions temper the impact for Carrefour Group where our forecasts fall 3-4% but our EBIT forecasts sit...
Carrefour’s H1 FY23 performance was slightly ahead of the market’s expectations. In Q2, the group’s lfl sales growth of +10.3% was +150bp vs the consensus. All operating segments clocked robust performances – France: +7.3%, Europe (excluding France): +7.4% and Latin America: +17.3%. Recurring operating income (-9.6% yoy) was c.3% ahead of the street’s expectations. Despite the current softness in Brazil, this is a non-structural issue. The management confirmed its financial targets for 2023 and said that it is comfortable with the consensus. We maintain our positive stock recommendation.
France was the highlight of H1 but beware of the law of small numbers! With French H1 EBIT up 40% year on year and 26% ahead of consensus, it''s tempting to look at Carrefour''s equity story in a very favourable light. Though we don''t doubt progress, law of small numbers is at work and even after the beat, the French EBIT margin was just 1.4% in H1... not much evidence of ''greedflation'' here! With Brazil subdued (though a bit better than feared) but other Europe soft (flat so a miss with a recovery in Belgium not evident and Poland weak) the whole was less compelling with a 4% beat albeit, also on a small number (just over 1% on FY EBIT). Our EBIT forecasts are little changed - we still see risks to FY numbers For the FY, we barely move our EBIT forecasts and so though we''ll have to see where consensus settles, we suspect there''s still some downside (we''re about 7% lower than Visible Alpha consensus) with forecasts on LatAm the notable point of over-optimism we think. Coupled with ordinary valuation, it means we stay Underperform. Higher one-offs (EUR186m or 25% of recurring H1 EBIT) plus sale and leaseback proceeds in free cash flow take the edge off some of the reporting for us too. Brazilian financial services a prop for Q2. We hike our TPs Q2 earnings from Carrefour Brasil released on Tuesday night were as soft as we expected in cash and carry and retail, a combination of Grupo Big dilution, store conversions and underlying weakness (destocking) weighing. The more volatile financial services division however was better. Again we barely shift our EBIT forecasts there as though the tone is of H2 as a ''new chapter'' we and consensus model it and financial services can be volatile. We do though realign our TP to the share price (BRL12 from BRL9.5) which takes our Carrefour Group TP to EUR17 (from EUR15.5). French market has been bolstered by Casino''s market share losses Less talked about, but a consideration for H2 is competition in the French...
Carrefour has announced the acquisition of the Cora and Match banners in France. According to the management, the acquired stores have a complementary geographical presence. It expects €110m of annual synergies at the EBITDA level after three years. However, the increased exposure to big box stores could be a turn-off for many. This all-cash deal has been done at an EV/EBITDA multiple of 4.2x and EV/Sales of 0.20x (0.24x excl. petrol), i.e. a 15-20% discount vs the sector average. We will increase our financial estimates and target price slightly.
Slowing top-line as inflation eases but markets remaining rational Having passed through peak food inflation, Q2 is likely to feature the start of the down ramp with top-line growth slowing albeit, remaining high in a historic context. It''s too soon to be thinking about a reversal in down-trading and volume weakness so Q2 is unlikely to be a classic quarter. But, as we expected, the disinflation is comparatively gentle, and the companies are keeping calm with no clear change in competitive environment. We preview Q2 for the continental European food retailers where we expect Jeronimo to be the highlight and Carrefour the more challenged. Jeronimo the highlight with further strong market share gains It''s been tempting to look at the top-line growth trends for the industry and largely ignore them as ''it''s all just food inflation''. That though would be wrong. If you want three numbers that tell the Q2 story, try +17%, +2% and -3.7%. Respectively that''s our expectation of Jeronimo''s LFL in Poland, Carrefour''s LFL in Poland and Carrefour''s Brazilian LFL. The latter is hurt by business customers holding back spend as some prices fall. In Poland however, the difference is market share gains. Carrefour''s Brazilian business the break to an otherwise decent H1 As we flagged in mid-June, forecasts for Carrefour have seen and are likely to continue to be pressured by the Brazilian business which is also digesting the acquisition of Grupo Big - we cut forecasts again for Carrefour Brasil. Trends in Europe seem more resilient and so largely compensate on a group level. FY forecasts though look a big ask; consensus is looking for EUR2.5bn of EBIT at Carrefour Group, we''re at EUR2.3bn. Q2 stories for Ahold Delhaize and Metro less interesting Compared to Jeronimo Martins and Carrefour, the story at Ahold Delhaize will be sleepy with a deceleration in the US trading (+6% to +3% comparable store sales growth) due to disinflation and the curtailment of food...
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If earnings expectations are falling, Carrefour''s shares won''t work - Underperform Momentum matters in food retail. Though we may hope that a low valuation can digest a downgrade ''we all saw coming'', the industry doesn''t yet have that credibility. Having flagged risks to consensus at Carrefour earlier this year, numbers have moved down (c7% for 2023 EPS YTD) with the shares more recently slipping (-8% last 3m). But our in-depth modelling of Carrefour Brasil still flags risks that don''t seem to be captured at the Carrefour Group level where our FY23 net income forecast is 10% below consensus. It''s a gap we can''t ignore and so we stay Underperform Carrefour Group. Carrefour Brasil is seeing intense earnings pressure and it''s the largest part of group EBIT We expect Carrefour Brasil''s H1 EBIT to fall around EUR230m year on year. Post minorities and consolidation differences, we estimate the headwind is equivalent to around 10% of Carrefour Group''s 2022 adjusted net income which we think is unlikely to be recovered in H2. Carrefour Brasil''s share price has seen a bounce from recent lows suggesting sentiment is passing a low point. But the shares have been very volatile and so it seems premature to read much into it. Given that volatility, we hold our rating on Carrefour Brasil at Neutral, despite decent downside to our TP. Pressure in Brazil is partially transitory, but a strong inflection isn''t a given The pressure from Brazil is theoretically transitory given it is partially driven by the first-time consolidation of the loss-making Grupo Big business plus store conversions. However, higher funding costs are also part of the explanation and the turnaround of Grupo Big seems to be a bigger project than many of us appreciated - in retrospect, we now consider the acquisition a mistake given the liabilities it came with. That''s capital under the bridge, but the earnings outlook still isn''t clear. Market share solid in France, but this is not the...
Carrefour Brasil had a very disappointing Q1 and so, by extension, did Carrefour Group Carrefour Brasil''s acquisition of Grupo Big has the potential to go very nicely but it seems the challenge of integrating the business is more complicated than the market expected with Q1 adjusted EBIT around 40% lower than consensus. It probably is the most disrupted quarter with the group converting stores at a quicker pace than expected. But wrapped up into that is pressures in the market from others opening cash and carry stores too. It would be nice to look through all that and focus on FY guidance but there''s none. We cut estimates and TPs for Carrefour Brasil and Group. Material risk for LatAm numbers in H1 for Carrefour Group we believe In Q1, we calculate adjusted EBIT down around 350bp for Carrefour Brasil and so even if we assumed Q2 was substantially better (we have -120bp) then for H1, EBIT margin would be down perhaps 270bp. Look at Carrefour Group however and Visible Alpha consensus has LatAm (nearly fully Brazil) down just 80bp. There seems to be considerable risk to Carrefour Group forecasts therefore and our revised net income forecasts for 2023 sit 8% below Visible Alpha consensus. Missing in financial services and holding costs complicate the story We are mindful this is all a moment in time and there''s plenty of confidence on the longer-term story, notably BRL2bn of synergies from the transaction. But how to frame that in the context of the group? Some of the weakness in Q1 simply seems to be down to Grupo Big''s base EBIT being below expectations. There were also variances in financial services (volatile quarter to quarter) and holding costs which we assume normalise. Without much to anchor forecasts to, risks to the downside for Carrefour Group we think Carrefour Brasil is a large part of Carrefour Group''s equity story and in 2024, we think it could be around 45% of Group EBIT. But when does a bump in the road become more? With us flying...
Carrefour’s Q1 trading performance was stronger than both our and the market’s expectations. The group’s lfl sales came in at +12.3% yoy, with robust performances in all operating regions. The main positives are: 1) the retailer gained market share in all key countries, 2) French hypers are benefiting from improved pricing / promotions, 3) new management in Belgium is gradually turning around the performance, and 4) the integration of Grupo Big is on-track. We maintain our positive stock recommendation.
Are Carrefour Group investors too relaxed on Carrefour Brasil? The share prices of Carrefour Brasil and Carrefour Group are never going to be perfectly correlated but we''re struck at present by the disconnect; Carrefour Brasil is down by 45% in the last 6 months, Carrefour group is up by 20%. Certainly, there are factors investors in Brasil are worrying about that investors on a group level aren''t - the failure of Americanas for instance. However, when Brazil is so important to Carrefour''s growth story, we wonder if the market is too relaxed for Carrefour Group. Profile of contingent liabilities and provisions raised in Brazil Perhaps ironically, the renegotiation of the purchase price of Grupo Big in Brazil has not been seen as favourable; though there''s up to BRL1bn of the purchase price, it''s raised the profile of Grupo Big''s provisions and contingent liabilities that we highlighted earlier this year. Locally, there are also concerns on funding costs for the deal though Carrefour Group has loaned the business some of the money - a bit of left pocket right pocket. As a reminder, Brazil is c40% of group EBIT. A step up in competition in Brazil The conversions of Groupo Big to Carrefour''s banners is going well the company says but there is a step up in competition, notably from Assai which has also opened a lot of Cash and Carry stores (there are 100 new ones across the market). Having been the growth format of Carrefour and a big part of longer-term ambitions, we''d be keen to see how the story plays out. For now, we''d not be panicking but the slowdown in trading in Brazil doesn''t reassure. Cutting forecasts on softness in Brazil and TP on lower LatAm multiples Closer to home, Carrefour''s European businesses reported solid numbers. There''s trading down but the message seems to be its manageable and the hope is food inflation will ease pressure. We cut forecasts for both Carrefour Group and Atacadao reflecting softness in Brazil, and for the...
Carrefour’s FY22 performance was in-line with our and the market’s expectations. The group’s lfl sales grew 8.5% (vs consensus of 6.7% yoy), with positive momentum in all operating regions (France: +3.4%, Other European Countries: +4.9% and LatAm: +24.6%). While profitability was in line with the street’s expectations, the stock price surged 7% following the stronger-than-expected performance in France (both market share and margin), a new €800m share buyback plan and the on-track integration of Grupo Big. We maintain our positive stock recommendation.
Consensus needs a little more help before we''d get involved It says a lot about Carrefour''s recovery that we''re spending so much time worrying about financial expenses and the consolidation of a Grupo Big in Brazil. Though the FY results call did feature some dips into the operations and big picture, we and others had multiple goes at trying to get a little more of a steer on 2023 earnings. There was a commitment to grow EBITDA, EBIT, ''net free cash flow'' in 2023 and from the call, EPS but we came away without a lot of additional visibility. We''re minded not to forget the margin risks, everything is material when margins are 2-3% There is risk that by focusing on the detail, we lose sight of the big picture challenges. Energy prices may have fallen but hedging means the food retailers won''t benefit quickly and there''s plenty of other cost inflation to pass through. Carrefour (and much of our coverage) seems to have decent control but with trading down accelerating, we can''t be fully sure on the margin outlook. Indeed in ''other Europe'', we had quite a visible display of the risks with the EBIT margin down 75 bp in H2. A lower tax rate means we hike forecasts for Carrefour Group but still sit below consenuss The good news is the tax rate seems to be lower and it creates a decent increase in our net income forecasts. These though are still 9% below consensus with the latter still to catch up we think for a material hike in interest expense and a short-term drag from store conversions in Brazil. At Carrefour Brasil interest expense was even higher than we expected in Q4 so we cut forecasts again. For Carrefour Group, the impact is muted because the funds are partially lent intercompany but Carrefour Brasil said it may refinance externally later in 2023 which would leave group forecasts vulnerable. Inclusion of sale and leasebacks takes the shine off ''net free cash flow'' story The positive in the equity thesis is the focus on net free cash flow...
Carrefour isn''t the problem, high expectations are - we cut to Underperform Carrefour''s equity thesis seems solid. There''s a pivot toward cash generation (EUR1.7bn of ''net free cash flow'' by 2026 vs cEUR1.1bn in 2022), growth and acquisition synergies from Brazil, potential French margin recovery. The problem we have is consensus. At net profit, we think consensus is c12-18% too high and given Carrefour''s history and the importance of momentum in food retail, we don''t think the shares will work if EPS forecasts are falling. Held back by consensus revisions, we think the shares will Underperform relative so cut our rating, trimming our TP to EUR16 (from EUR16.5). Brazil the main issue; consensus doesn''t seem to have modelled the Big acquisition well Carrefour''s acquisition of Grupo Big in Brazil seems to have got off to a solid start, but we are not sure that analysts in Europe appreciate it was break-even at best. Covering both parent and subsidiary, we seem to be in a better place to dissect the moving parts. If we add in interest costs to fund the deal and consider potential disruption as stores are converted, earnings upside for 2023 is muted we think. The business also comes with very large provisions (BRL8.5bn) and contingent liabilities (cBRL11bn). The provisions alone are more than the BRL7.5bn consideration for Grupo Big. Estimates for Europe looking more sensible; flat margins would be a decent result for now Forecasts for Carrefour''s European markets seem in a better place and our base case of next to no margin growth seems to be consensus. Given elevated cost pressure, flat margins might seem overoptimistic given price competition has been a norm in France. But further regulation seems likely to neuter supplier negotiations, so we think further curtails margin risks. Food retail is guilty until proven innocent and the short-term narrative is challenged We might be tempted to argue that risks to consensus are ''in the price'' - for...
Carrefour’s 2023-26 strategy emphasizes shareholder returns. However, the expected yield is not high enough to be a game-changer and is also back-end loaded. We had hoped for higher returns on the back of further asset disposals. Residual M&A risk remains in the event of a Casino collapse. While the strategic plan for coming years is certainly reasonable, it is unlikely to help the Carrefour share escape its historical price corridor capped at around EUR18. That said, we believe more potential can be found elsewhere for the time being and downgrade our Rating to Neutral from Buy.
Carrefour has announced a promising strategic plan named ‘Carrefour 2026’. It entails measures like an increased focus on the discount format (cash & carry/hypermarkets), private labels and a switch towards a franchising model for stores. The targets of €4bn pf cost savings and net FCF of €1.7bn look achievable. While the CEO’s proven track-record is reassuring, the market was unimpressed. It may be that risk-averse investors are more concerned about the near-term performance (2023 sales, profitability, cash flows). We maintain our positive stance on the stock at the current levels.
Carrefour’s Q3 performance was ahead of our and the market expectations. Group’s lfl sales grew 11.3% yoy, with positive momentum in all operating countries. According to the management: 1) Carrefour is on track to achieve the FY22 EBIT consensus, and 2) the net FCF target of 2022 will be comfortably above €1bn (vs previous guidance of at least €1bn). The CEO will unveil the new strategy on 8 November 2022, which will be a key stock price trigger. We maintain a positive stance on the stock’s valuation.
º Q3 sales 3% above expectations, driven by all regions FY 2022 EBIT estimates cut is over, net FCF to be closer to EUR1.2bn Inflation impacts: reassuring tone on top line, low visibility on bottom line
A lot to like here - if only consensus would fall! With a CMD around the corner (8 November) we have to say we were a little nervous Carrefour might come in on the back foot... but no! Sanctioning ''net free cash flow'' forecasts now ''comfortably'' above EUR1bn and with a tone of revenue and earnings resilience in the face of trading down, momentum seems to be good with the acquisition of Grupo Big in Brazil offering decent opportunities for longer-term growth. Though we''d note some definitional differences on the cash flow and leakage to minorities, we see a lot to like... so why not upgrade? Consensus. A little reprieve but the outlook remains very challenging for the consumer Though it may be unusually warm at present in Northern Europe meaning we can delay putting the heating on and spot-gas prices have fallen a long way, in words lifted from Jeronimo''s Q3 trading update, this winter is still ''expected to be one of the hardest of the last decades''. We think the last 9 months point to a food retail industry that seems to be mostly well behaved, passing through cost pressures and able to mostly mitigate trading down pressures. But ask yourself, should Carrefour grow margins in 2023 as consensus expects? A reluctance to guide may delay the inevitable Carrefour seems unlikely to provide 2023 guidance at its CMD given it''s still not given precise colour for 2022 (though consensus seems to be in loosely the right place if it finally gets around to deconsolidating Asia). With risks not just in margins but financial expenses too (notably from Brazil), we''d estimate 2023 EPS could be about 15% too high. We''ve been around food retail long enough to know that it''s not wise to buy a food retailer when forecasts are falling. Carrefour could be a value trap for 6 months or more Unfortunately, though operationally the tone at the CMD could be constructive, a reluctance to offer precise guidance could hold back the shares for some time; Carrefour may...
Carrefour’s Q2 and H1 performance was in line with our expectations. In Q2, the group’s lfl sales grew by 7.3%, with positive momentum witnessed in the core operating regions (France: +1.4%, Spain: +4.8% and Brazil: +19.4%). Profitability was flat yoy and the FY22 cost savings target has been increased by €100m. Management will present the new strategic plan on 08 November 2022, which should be a key stock price trigger. We maintain our positive view on the stock’s valuation.
Carrefour’s Q1 trading performance (+3.4% yoy) was in line with our estimates. While LatAm once again led the pack, the French business clocked a flattish performance. The company continued to gain market share in the core regions and also confirmed FY22 FCF of at least €1bn. However, the lfl decline in French hypers and the poor showing in Belgium were unpleasant surprises. The new strategic plan (expected in fall 2022) is likely to be a key stock price trigger. Our positive recommendation is reiterated.
Carrefour’s performance for FY21 was slightly ahead of ours and well as street estimates. The retailer gained market share in all core operating countries (France, Spain and Brazil). As a positive development, a share repurchase plan with €750m has also been launched for 2022, which reflects management’s confidence of the strength of its business model. The cost-savings plan has also been increased by €300m to €2.7bn. The CEO will share his new strategy in H2 FY22. Positive recommendation is maintained.
Carrefour has become flavour of the season as M&A news is recurring for this French grocer. News reports state that Auchan is preparing a fresh acquisition bid and is in talks with a PE fund. Any such development reiterates our conviction of the stock’s attractiveness. However, we doubt if any such announcement would be made before the upcoming French Presidential elections.
Carrefour hosted a promising ‘Digital Day’, which revealed an ambitious plan to achieve additional recurring operating income (ROI) of €600m by 2026. This amounts to c.27% of 2020 group’s performance. The four key pillars of this strategy are credible and backed by a proven track record of the top management. The key focus on food e-com and data monetisation are steps in the right direction. We maintain our bullish view on the stock’s valuation.
Carrefour’s Q3 sales performance was a mixed bag. While the LatAm business produced a robust show (despite a tough comparable base), the French operations were mired by some hiccups in the hypermarket format (temporary introduction of the health pass). The retailer will host a Digital Day on 9 November 2021, which could be a key catalyst if management is able to present a convincing strategy to boost the e-com performance (sales plus new income streams). Buy recommendation maintained.
According to French news reports, Carrefour has turned down an acquisition offer from Auchan – 70% in cash (at €21.5 per share) and the remaining 30% in shares. Reportedly, there were differences over the complex deal structure plus valuation. While it may look like a lost opportunity for Carrefour, we reiterate that such a marriage was risky from a strategic perspective (even if the financial deal was much more attractive). This development also reconfirms the attractiveness of Carrefour’s valuation.
Carrefour posted a strong performance in Q2 and H1 FY21. The lfl sales surged 3.6% in Q2, driven by a strong show in France. The adjusted operating profit (at constant FX) was also strong with 11.2% growth. The key highlight was market share gains across all business formats in France. Ongoing strength of hypers is also noticeable. We will tweak the financial estimates slightly but maintain our positive stance on the stock’s valuation.
Carrefour posted a strong performance in Q1 FY21. The key positives were market share gains in almost all key geographies, a strong performance in France (including the hypermarkets), a robust show in Brazil (despite some headwinds like the cancellation of carnival festivities and the deceleration in food inflation) and the announcement of a share repurchase plan worth €500m (c.4% of market cap). We maintain a positive outlook on the stock’s valuation.
Carrefour has announced the acquisition of Grupo Big Brasil SA, the third largest grocer in Brazil. The deal looks a bit expensive at the first glance, but the value of real estate and the guided profit synergies are attractive enough to boost investors’ sentiment. The transaction is a good strategic fit in our opinion. We also do not expect any trouble in regulatory approval.
Carrefour’s Q4 performance was slightly ahead of ours and market estimates. Strong lfl growth across the key operating geographies and aggressive cost savings resulted in a 16.4% improvement in the recurring operating income (at constant exchange rates). Management’s performance turnaround plan remains on track. An additional cost saving plan should help the retailer to achieve the FCF targets in the forecast years. We maintain the positive stance on the stock recommendation.
Carrefour has been approached by the Canada-based convenience store operator Alimentation Couche-Tard (ACT) group for a friendly acquisition. While we do not see any anti-trust hindrances going forward, the offer price would be a key point. We expect an offer with at least a 30% premium to yesterday’s closing price.
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