(10,37 EUR, -0,10%) reported solid 4Q11 results but the group is witnessing a slowdown in sales momentum in 1Q12 on the back of very weak consumer confidence in the Netherlands, while in the US consumer spending is dampened by high fuel prices and food inflation (5-6%). Given the above, we’ve decided to maintain our target price of € 11.5 and Accumulate rating. We don’t anticipate major changes to our forecasts. Conference call at 2pm (CET).
Ahold’s sales figures (€ 7.3bn in 4Q11 or +4.3% at constant exchange rates) were already released on 19 January. The underlying retail operating income rose from € 330m in 4Q10 to € 361m (KBCS € 340m and CSS € 346m) in 4Q11 implying a margin of respectively 4.7% and 5.0% (KBCS 4.66% and CSS 4.75%). The underlying operating result in the US and the Netherlands exceeded consensus by respectively 3% and 7%. The only disappointment came from Central Europe which reported an underlying operating result of € 8m (-27%) whereas consensus was banking on € 9m. Corporate centre costs rose from € 5m to € 20m. Excluding the impact from the company’s insurance activities, corporate costs were flat at € 17m. The free cash flow fell by € 13m to € 324m in 4Q11 due to higher taxes paid and a smaller contribution from rising payables. Net financial charges fell from € 72m to € 55m and the tax rate came out at 15% in 4Q11 vs 23% in 4Q10. The contribution from associates improved from a € 3m loss to a € 43 gain. Net profits group share landed at € 270m (+75%). We were forecasting € 257m. DPS rises by 38% to € 0.40 (our forecast € 0.39).
Net debt equalled € 1,088m on 1 January implying a gearing of 18.5%. The group sits on a gross cash pile of € 2.4bn. The press release mentions that will take further steps to make the capital structure more efficient by investing in growth, reducing debt and returning cash to shareholders while remaining committed to an investment grade credit rating.
USA: Underlying operating income rose by 13% from € 159m in 4Q10 to € 180m (KBCS € 172m and CSS € 175m) in 4Q11 implying a margin of 4.1% (+28bps). Note that the 4Q10 operating income included $ 8m reorganization and IT integration costs. If one excludes these, the margin improved by 14bps.
Netherlands: Underlying operating income rose by 8% to € 173m (KBCS € 158m and consensus € 162m) in 4Q11 implying a margin of 6.9% (+24bps). By 4Q11 the Dutch operations succeeded to pass on cost inflation.
Outlook:
Management anticipates that 2012 will be another challenging year for food retailers as consumers continue to look for value while competition remains intense. They anticipate that "sales growth in 1Q12 will reflect the difficult economic conditions as well as the timing of Easter". Note that Easter will fall in 1Q12 for because 1Q12 runs from 2 Jan to 22 April. At constant exchange rates, the net interest expense for € 2012 is expected in the range of € 220-240m (our forecast € 230m) and capex at around € 0.9bn (our forecast was € 1.0bn) excluding acquisitions.