Analyst Note| Ioannis Pontikis, CFA |
Ahead of its capital markets day on Nov. 15, Ahold Delhaize announced its new and refreshed investment plan to accelerate growth and drive more customer value. As part of this plan, the group expects to accelerate sale growth rates with about EUR 10 billion of incremental sales over 2023-25 (versus EUR 3.2 billion in our model), generate cumulative cost savings of about EUR 4 billion (2022-25) and introduce a new EUR 1 billion share buyback program for 2022 (EUR 1 billion in our model). In online, net consumer online sales are expected to double and achieve fully allocated e-commerce profitability (expected by 2025 but not disclosed). Within this, Ahold Delhaize disclosed bol.com's projected 2021 net consumer online sales and EBITDA of about EUR 5.5 billion and EUR 150 million-170 million (implying 3% margin), which the group expects to double by 2025. The investment plan will result in an increased capital expenditure budget of 3.5% from 3% of sales previously (versus 3% and declining over the years in our model). Interestingly, cumulative free cash flow for 2022-25 is expected to be over EUR 6 billion or EUR 1.5 billion per year on average, significantly lower than our estimates (about EUR 8.6 billion for the same period in our model). This is certainly a positive set of targets for Ahold Delhaize, and although free cash flow expectations were a negative surprise, we think this is a function of a growth-orientated investment plan. We expect to increase our fair value estimate for Ahold Delhaize by a mid- to high-single-digit percentage after incorporating part of the very ambitious sales growth targets, the positive effect of which will be partially offset by higher investments (and lower free cash flow generation) over the 2022-25 investment period. A potential bol.com IPO can unlock additional value for the group as valuations attached to online retailers with long growth runaways can be significantly higher than that of a slow-growing grocer.