AXFOOD AB (=) : First read on Swedish food VAT cut suggests limited volume response

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AXFOOD AB (=) : First read on Swedish food VAT cut suggests limited volume response

Refinitiv

Investment case, valuation and risks

AXFOOD AB (Neutral, Target Price SEK275)

Investment case

Willys' soft discount format is well placed to benefit from an increasingly price conscious

consumer, especially in the face of rising food inflation. However, a strong competitive

response from ICA, Sweden's market-leading grocer, as well as the tough competitive

base could limit upside vs recent history. While investments in automation are starting

to pay off, the decision to acquire struggling hypermarket City Gross does raise some

questions, in addition to the material losses in year 1. On balance, we see Axfood as a

well-positioned grocer, but high valuation and lack of upside vs consensus on our

estimates keep us Neutral.

Valuation methodology

We value Axfood using a DCF methodology. We use a WACC of 7.2% and a terminal

growth rate of 1%.

Risks

To the upside:

Continued pressure on the Swedish consumer could encourage further downtrading to

Willys, helping support momentum for longer. The further successful ramp up of Bålsta,

Axfood's new automated distribution centre, will help Axfood realise cost efficiencies

early and help Axfood invest in price and increase margins. The VAT cuts in Sweden,

could see industry volumes pick up, a tailwind to topline and margins.

To the downside:

Since 2024 price competition has increased with ICA, Sweden's leading grocer, being

vocal about their price investments. This has coincided with Willy's share gains slowing.

If there are further share losses as the 2026 VAT cut leads to lower price and slows the

shift to discounters, the equity story would be negatively impacted. Additionally, Axfood