Food retail valuations appear stretched
European food retail has outperformed Stoxx 600 11% YTD and now trades at a 15% premium. While volume growth has been a focus, food inflation has historically been the driver of sector growth and relative valuation. However, with food
CPI still low in many markets and the gap with input costs closing, valuations look stretched to us. We remain cautious on the space.
Reinstate Casino at Sell, Morrisons down to Sell, Jeronimo down to Neutral, reinstate AHD, MEO at Neutral
We reinstate Casino with a Sell rating (12m TP €40) and are 5% below FY16E Bloomberg consensus EBIT. We downgrade Morrisons to Sell, and are 5% below FY18E Vuma consensus PBT. We downgrade Jeronimo to Neutral and reinstate Ahold Delhaize and Metro at Neutral. Ex-Ocado 12m PTs for our store-based food retail coverage imply an average of 4% downside potential.