Analysts in the main welcomed Ahold’s performance in the last quarter of 2012 and the year as a whole. However, there was some concern about trends around margins.
Robert Jan Vos, analyst at ABN Amro
Ahold’s 4Q12 results confirm Ahold’s unchanged healthy performance. We conclude that the Netherlands performed pretty much in line with our estimates. Ahold achieved ongoing market share gain in the US on the back of strong promotional activities and a good holiday performance. However, the underlying EBIT margin of 3.7% in 4Q12 and 4.0% in 2012 fell short versus our estimates.
Ahold’s Czech operations achieved their highest operating profit since Ahold began operations in the country. Slovakia is not performing so strongly and Ahold reported an impairment of EUR17m on the book value of stores in the country. Based on the several initiatives that are ongoing (like the roll-out of improved deli departments and the roll out of the new compact hyper format), we conclude that Ahold remains committed to the region.
We consider the EUR500m [buy-back] programme a normal-course programme and Ahold confirmed that the programme would also have been announced if there had not been an agreement on the disposal of ICA. Ahold did not want to speculate on how it will use the EUR2.4bn proceeds from the planned disposal of ICA. Management referred to its financial strategy and we stick to our conclusion that a big part of the proceeds could and should be returned to shareholders.
Fernand de Boer, Petercam
US was marginally ahead of expectations but included a US$26m contribution from the Visa Mastercard settlement. Adjusted for this settlement, US were clearly short of expectations, achieving an adjusted margin of 3.7% (Pcam base), the lowest quarterly margin we have seen for years. Also the Netherlands was marginally below our estimate but in line with consensus.
EBIT was hit by a series of non-recurring items of which the pension settlement was already flagged. Also year-end impairments are common although this year they were twice as high as anticipated in particular due to the impairments in Central Europe where lower cash flows are foreseen in particular in Slovakia. The write down of the software development costs should have a positive impact on amortization expenses.
We are impressed by the cash flow generation and are pleased with the announcement of a EUR500m share buy back, but consider this as an only a first announcement. We have mixed feelings on the results, in particular on the disconcerting margin trends. However, we see the strong cash flow generation and potential use of the ICA proceeds as the driver for our investment case.
Justin Scarborough, retail analyst, Bank of America Merrill Lynch
4Q underlying operating profit was 2% above consensus, although the US benefited from a litigation settlement gain. The dividend was increased by 10% and a new EUR500m share buyback program has been announced. We believe that there is potential for a further €2bn return (equating to 17% of its market capitalisation) on conclusion of the ICA transaction in mid-2013 which should bring in €2.4bn. Ahold’s 10% discount to the sector at 11.1x CY13F PE is unwarranted given its high returns, strict capital discipline and strong free cash flow characteristics, while accelerating development in its online capabilities.
Darren Shirley, analyst, Shore Capital (which does not cover Ahold’s shares)
Dutch based food retailer Ahold has again delivered commendably sound results for 2012, results that represent a sea of calm compared to the major challenges that peers such as Carrefour and Tesco have faced over the last year or so.
Ahold rarely trades against the UK retailer anymore, the smallest element of its activities remains the still reasonably challenged activities in Central Europe where Tesco is expected to record a decline in sales and margins in 2012/13A. The competitive read across, therefore, is modest.
However, where Ahold is a little more relevant to Tesco to our minds is some of the parallels and messages that it conveys to investors. Ahold has engaged in strategic focus whilst judiciously expanding in a complementary manner. The business has concentrated on productivity and simplification but kept a sound balance with respect to proposition. It has [a] robust track record for shareholder focus has been generated with management clearly concentrated upon and referencing free cash flow. Shareholders participate in that FCF generation through a soundly invested business, robust dividend growth and an ongoing share buyback programme.
Shore Capital applauds Ahold’s approach, strategy and delivery. In tough consumer markets it has diligently and quite quietly gone about its business. As such, we see once dysfunctional Ahold as a reformed corporate character and a now a good role model for some of its larger corporate brethren, including Tesco.
