We’ll be publishing a Flash Note on (9,1 EUR, 0,05%) this morning. Management presented its six strategic pillars during the Capital Markets Day on 21 November. Not only did it give us more insight into the group’s growth plans but more importantly, we were struck by the fact that the various divisions are now acting as one group with one clear vision. is clearly ready to pursue growth thanks to a much leaner organization with business processes and skills that are being leveraged across all banners. For example, the Retail Model (ARM) should facilitate the integration of acquisitions. CEO Dick Boer does not want to be pinned to the 5% Retail EBIT margin and 5% sales growth objectivesthat were set 8 years ago. He pointed out that trading conditions have changed significantly. Moreover, will need to invest in future growth.
Management has highlighted the following levers to generate growth:
- New customer loyalty initiatives should add 1-2% to identical sales growth;
- Online sales should treble to € 1.5bn by 2016;
- A minimum of 150 convenience store openings in Europe in the next five years;
- A minimum of 50 supermarkets in Belgium in 2016;
- Expansion into new regions.
Expansion plans in Belgium:
The number of Belgian Albert Heijn stores is set to rise from 2 today to 10 by the end of next year to more than 50 in 2016. About 50% of the stores will be company operated and the remaining 50% franchised. Albert Heijn is targeting Flanders, a region with 6.2 million inhabitants that is one third the size of the Dutch grocery market. The Belgian stores are supplied by the distribution centre of Tilburg. There is a 90% overlap in terms of SKUs with the Dutch stores. In contrast to the Dutch market, Belgian retailers cannot reduce their selling prices below the cost price. The sales density of the first Belgian store exceeds the average level of Albert Heijn in the Netherlands. We should not extrapolate the performance of the first store to the upcoming stores however.
New dividend policy:
The dividend payout ratio will be increased to 40-50%. Based on this, we estimate that the DPS will rise from € 0.29 in 2010 to € 0.39 in 2011.
Capital structure:
Jeff Carr, the newly appointed CFO, will look for opportunities to make the capital structure more efficient. An update will be provided next year.
Conclusion:
We’ve fine-tuned our model to reflect the slightly better-than-expected 3Q11 results, the weakening of the € and the higher dividend payout ratio. Our EPS forecasts for 2011, 2012 and 2013 have been upped by respectively 6%, 1% and 4%. We reiterate our Accumulate rating based on the very attractive valuation multiples.