(Boursier.com) — Carrefour regained 0.5% to 14.65 euros this Thursday, while the file has recently become agitated by rumors of a partial or total sale of the company. Among brokers’ opinions, JP Morgan nevertheless remains ‘underweight’ with a target reduced from 16 to 14 euros. Bryan Garnier explains for his part that he has listed 6 potential scenarios… More than half of them are, according to him, “unrealistic or negative for the share price”, while only two are feasible and positive, although that does not completely resolve the stock market situation. “We easily understand the frustration of Carrefour’s management when the share price has been stuck in a range of 14 to 18 euros since the presentation of Mr. Bompard’s first strategic plan in January 2018 (the ceiling of 18 euros having only been crossed twice when Couche-Tard and Auchan fueled speculation of mergers and acquisitions) and that the PER is constantly eroding to 9x, including 7x excluding Brazil”, emphasized the analyst.
In terms of potential options, BG considers a total sale of Carrefour to PE funds (whether French or foreign) or to a competitor (provided that someone is really interested) unrealistic to the extent that it should trigger the reluctance of the French government (imitating the 2021 position) given the number of direct and indirect employees in France. Additionally, the Moulin/Houzé family could ask for a high all-cash offer to almost match their cost price. A split of the activity between France (remaining listed?), Brazil (already listed) and the rest of Europe (and gradually sold piece by piece to competitors or local funds) would be long and delicate because the appetite investors for Carrefour France on an autonomous basis could remain limited.
Change?
Finally, a radical change in strategyCarrefour moving from a “high-low” price player (like Ahold Delhaize for example) with more and more franchisees, to a volume player with real “everyday low prices” (like Leclerc or Jeronimo Martins in Poland), hardly seems possible anymore. This would indeed imply an extremely negative impact in the short term with uncertain returns given Leclerc’s already well-established leadership and the remaining financial room to react.
A big acquisition seems feasible but counterproductive… According to the broker, it would probably take place in France given the antitrust problems in Brazil and Belgium, pending agreement in Romania, unfavorable and unattractive markets in Italy and Poland, while the targets in Spain seem very limited. BG sees room for maneuver to put pressure on the French Ministry of the Economy and Competition and buy Auchan in great difficulty. But this would be disastrous from the point of view of investor perception and would destroy shareholder value with an integration process that would probably be very long, costly and risky (which has never been Carrefour’s strong point) given the poor quality of Auchan’s assets (large, underinvested hypermarkets exposed to the least dynamic geographic areas of France).
Refocusing
Which seems feasible (but not easy) and positive (even if it does not completely resolve the stock market situation): the analyst has always been in favor of a drastic geographic refocusing on France, Spain and Brazil with a new and better growth/profitability profile and reinforced firepower to either increase returns to shareholders or invest in prices/stores in France. However, Carrefour should first close its internal European purchasing center Eureca and reverse its choice to negotiate alone with international FMCG suppliers.
Finally, a medium-sized acquisition in France of a “niche” and “premium” player more sheltered from independent distributors, like Casino with its Monoprix Franprix brands, would be positive. BG points out that Casino remains too financially constrained to implement a credible commercial recovery plan, and sees a real chance that Casino will be put up for sale within 12 to 18 months. With a reasonable valuation taking into account the essential renovations of the stores and the antitrust lobby and the French Ministry of the Economy, the broker would see this operation as positive, allowing Carrefour to desensitize part of its French activity to Leclerc and to resell the least attractive locations in city centers at U and Auchan. But the integration of Franprix franchisees would place Carrefour under additional pressure to harmonize and renegotiate franchise contracts within its convenience stores…
