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16 Oct 2023
A L U V story still waiting on a happy ending
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A L U V story still waiting on a happy ending
- Published:
16 Oct 2023 -
Author:
Gwynn Andrew AG -
Pages:
12
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...