Ahold Stock Analysis |Strong Dividend & Buybacks + BOL.COM

Ahold Stock Analysis

Ahold Delhaize group – Source: Ahold
Ahold Delhaize group – Source: Ahold

Here is the video overview discussing KrogerSprouts Farmers Market and Ahold for those who prefer watching. More details in article below.

Ahold Stock Analysis

Ahold stock Amsterdam: AD

Ahold stock USA: ADRNY

Ahold Stock Price Overview

Ahold’s stock price chart tells quite a story.

Ahold stock price historical chart – Source: Google finance
Ahold stock price historical chart – Source: Google finance

The 2000s were a very exuberant period on the Dutch stock exchange and the index hasn’t recovered since, as neither did Ahold’s stock. The big drop in 2003 happened when accounting irregularities emerged within Ahold’s US business. The company settled most of the issues, paid fines and went on a steady recovery since. In 2016 in merged with Belgian chain Delhaize.

The current market capitalization is 26.8 billion EUR, Albert Heijn is the dominating grocer in the Netherlands with a 35% market share, they are the 4th retailer in the US and the market share in Belgium is 20%. Plus, there are other markets but not significant.

US grocers list – Source: Food Industry
US grocers list – Source: Food Industry

The crown jewel should be the Amazon of the Netherlands, Bol.com which is the online arm of the retailer that has been showing staggering growth numbers over the last years.

Bol.com revenue growth – further expanding in 2020 due to COVID – Source: Statista
Bol.com revenue growth – further expanding in 2020 due to COVID – Source: Statista

If Bol.com would be an individual entity growing at 33% per year (46% in 2020), it could even get a price to sales ratio of 10 in the current market and just by itself justify the whole market capitalization of Ahold. However, the fact that the market capitalization is what it is, tells us more about the other crazily priced stocks than it tells us about Bol.com and Ahold. As we know, growth is one thing, but profitability is another.

Let’s take a deeper look at the business, the fundamentals, make a stock valuation and the Ahold’s stock investment thesis.

Ahold stock analysis – business overview

Ahold’s strategy is to position itself as an omnichannel retailer.

Ahold stock analysis - Source: Q3 2020 Investor presentation
Ahold stock analysis – Source: Q3 2020 Investor presentation

It is a good example of how an old company can use and apply the new technologies. So much for disruption destroying everything that is old.

Ahold stock analysis - Source: Q3 2020 Investor presentation
Ahold stock analysis – Source: Q3 2020 Investor presentation

The models applied resemble Amazon’s strategy. We will see how it will work, will be interesting to watch.

Ahold stock analysis - Source: Q3 2020 Investor presentation
Ahold stock analysis – Source: Q3 2020 Investor presentation

Europe:

Ahold stock analysis - Source: Q3 2020 Investor presentation
Ahold stock analysis – Source: Q3 2020 Investor presentation

The business seems stable, even Food Lion in the US achieved 32 consecutive quarters of comparable sales growth.

Ahold stock analysis - Source: Q3 2020 Investor presentation
Ahold stock analysis – Source: Q3 2020 Investor presentation

The online growth in Europe is staggering and the business is still expanding. We will see if and when will this turn into increased profitability thanks to scale. The Netherlands are extremely densely populated which helps but still there is no improvement in margins.

Ahold stock analysis - Source: Q3 2020 Investor presentation
Ahold stock analysis – Source: Q3 2020 Investor presentation

Taking about margins, let’s look at the financials.

Ahold stock analysis – financials

As is has been the case for other retailers, Ahold experienced a significant boost thanks to COVID. Operating income was hit by pension expenses but underlying income from operations in Q3 2020 was 530 million EUR.

Ahold stock analysis - Source: Q3 2020 Investor presentation
Ahold stock analysis – Source: Q3 2020 Investor presentation

The pension charge:

Ahold stock analysis - Source: Q3 2020 Investor presentation
Ahold stock analysis – Source: Q3 2020 Investor presentation

The guidance for 2020 is strong but will likely be less strong for 2021 as things could finally normalize.

Ahold stock analysis - Source: Q3 2020 Investor presentation
Ahold stock analysis – Source: Q3 2020 Investor presentation

The balance sheet looks strong with little long-term debt apart from leasing obligations.

Ahold stock analysis – balance sheet – Source: Q3 2020 Earnings
Ahold stock analysis – balance sheet – Source: Q3 2020 Earnings

The company announced a new 1 billion EUR buyback for 2021 which is a big positive alongside the 1 billion EUR that will likely be spent for dividends.

Ahold stock analysis – financials – Source: Annual report
Ahold stock analysis – financials – Source: Annual report

If the company can keep making 1.8 billion in free cash flows as it has been doing since the Delhaize merger, the expected return for shareholders thorough buybacks and dividends is a good 6.6%. If they manage to grow another 2% per year, we are already up to 8.6% which is a staggering return in the current zero rate environment.

Ahold stock valuation and expected return

I have used the cash flows and applied a 2% growth rate with a 12 terminal multiple on cash flows and that leads me to a 6% investing return from current market levels. If the company manages to grow at faster rates, returns will be higher but if hard discounters keep pressuring margins and the online battle intensifies, we could also see declining cash flows and lower multiples.

Ahold stock valuation – Source: Sven Carlin (downloadable template)

There are also risks, hard discounters like Lidl and Aldi keep putting pressure on margins, both in Europe and the US, we all know online is not a business where you can reach profitability easily and the demographics trends don’t work in favor either.

Ahold is a good business, has a moat in the Netherlands for sure and Bol.com is a promising business so there is definitely value there. What I will do is add these retail stocks to my list of stocks to follow and compare in the future for investing opportunities. For now, I have better.

Excerpt from my watch list – SFM and Kroger look cheaper than Ahold – Source: Research Platform

All in all, Ahold has been around since 1887 so it is likely it will still be around in the next 100 years. Given the dividends, the cash flows, the market position especially in Europe, it will likely be a good investment.

Perhaps there could be extra returns if the company decides to sell its American operations while the USD is still strong. Time will tell, I am sure it will be interesting to follow and I hope this analysis helps in defining whether you should consider Ahold in your portfolio.

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