The share price has dropped by 6% (AEX -3%) since the announcement that the share buyback program will be increased from € 0.5bn to € 2bn, to be completed by the end of 2014. We were hoping that the group would return a larger amount to shareholders via a capital repayment. In our view, this would be preferable to a share buyback program. While a capital repayment combined with reverse stock split would have an immediate accretive impact on EPS, the share buyback program will take 19 months to fully feed through to EPS. Moreover a € 2bn share buyback program does not remove risks related to a sizeable acquisition. On 21 April, the group was sitting on a gross cash pile of € 4.2bn and net cash position of € 1.2bn. Management aims at a net debt/EBITDAR multiple of 2.0x inthe medium term however. We maintain our Accumulate rating because we expect Ahold to return additional funds to its shareholders in 2013 and/or 2014 if the group fails to find take-over targets that will generate attractive shareholder returns. The stock remains cheap on an EV/REBITA basis. This multiple does not reflect the inefficient balance sheet however. Based on the P/E for 2013 the stock appears fully valued. We consider the P/E for 2015 to be more relevant because it fully reflects the € 2bn buyback program.
New competition?
So far, e-commerce has made little headway in grocery. We believe that this is about to change however. Not only are traditional food retailers investing in online activities, but new entrants are also getting ready to take apart of the pie. Having tested the fresh-grocery delivery service in its hometown Seattle for nearly six years, AmazonFresh has recently been launched in Los Angeles. If all goes well, AmazonFresh could be rolled out to other cities in the US and abroad. Google is also testing the grocery delivery service in California. Note that Ahold has a lead in this business through Peapod.com (US) and albert.nl (Netherlands). Ahold’s home delivery and pick-up point (PUPs) activities not only attract new customers but it also increases share of wallet among existing customers.
Revised forecasts
The 1Q13 results were broadly in line with expectations. Our EPS forecasts for 2013, 2014 and 2015 have been upped by respectively 2%, 6% and 9% on the back of the increased size of the share buyback program.