First Read Carrefour SA: H1 EBIT c3% below cons driven by Argentina

Research evidence excerpt

First Read Carrefour SA: H1 EBIT c3% below cons driven by Argentina

Forecast returns

Forecast price appreciation 15.1%

Forecast dividend yield 6.3%

Forecast stock return 21.4%

Market return assumption 7.9%

Forecast excess return 13.5%

Company Description

Carrefour is one of the world's leading food retailers. It has a number two market share in

France, where it generates 40% of its EBIT. The remainder of its earnings are generated in

Europe excluding France (c30%), and emerging markets, notably Brazil. Around 50% of the

group's earnings come from hypermarket format stores.

Valuation Method and Risk Statement

The main risk facing the European grocers including Carrefour is a price war we believe. The

probability of a price war rises when major imbalances between supply and demand exist.

Consumers' tastes and preferences can also shift. For instance, they may become more

accepting of price focused operators carrying only limited ranges. Other risks include

exposure to currency fluctuations (mainly relating to translation) changes in industry

consumption growth (for instance driven by real wage growth) as well as agricultural cost

inflation which the grocers are unable to pass through to consumers. Regulatory risks are

normally low but there have been instances where regulators act to protect small suppliers,

for instance, by reducing payment terms. We value Carrefour using a DCF based approach.

We value Carrefour Brasil via a sum-of-the-parts model, using PE Multiple for the Food

division and DDM for Carrefour Soluções Financeiras. Sector-specific risks include: 1) Food

inflation, which is very volatile and has a strong impact on short-term revenue and margins

for grocery retailers; 2) macroeconomic risks associated with currency volatility and country