Chart of the week: Expensive European food retailers
With most food retailers having reported their FY results and entering into the Q1 reporting season, we question the valuation of the European sector. It currently trades at a very high absolute P/E and, although the relative valuation looks more in line with its 10-year average, we think the sector is expensive. We remain selective and focus on
strong free cash flow yield at a reasonable price. We like Buy-rated Ahold and Delhaize, at 15.2x 2016E P/E excluding synergies (14.6x incl.) and c.8% free cash flow yield.
Share price moves and news flow
Last week in General Retail, OVS SpA (+7%) was the top performer, while N Brown (-14%) underperformed. In Food Retail, Carrefour (+5%) was the top performer, while Ahold (-5%) performed the worst. Jeronimo Martins has been downgraded to Underperform and its PO has been reduced to €13, as the high valuation is not supported by its profit growth profile. We have raised our PO for OVS SpA to €7.4 and our FY17 EPS forecasts by 8%. N Brown reported decent FY16 results, but its FY17 outlook remains bleak, due to tough market conditions. Zalando reported its 1Q16
results and Pets at Home reported its FY16 trading statement last week.