Consumer staples can prove an attractive shelter when markets become more volatile. The added bonus with Ahold is its merger with peer Delhaize, with management expecting significant cost synergies and a combined grocery entity that will be among the largest in both the US and Europe.
Price action has seen heavy rejection from the €20.50 level throughout 2016 and remains capped just above the €24.00 area.
Weekly MACD remains mildly positive despite the recent pullback in price. Dips continue to attract buyers and there is no clear indication that this sequence for trading is coming to an end.
The price continues to trade above the 50- and 200-week moving average, and we expect this recent dip to offer a good risk/reward opportunity.
Source: Ahold Q1 report
Medium term: AH benefits from a global footprint and an efficient day-to-day operating backdrop.
Longer term: Ahold has focused on simplifying its product offering, and expects the merger with Delhaize to close by mid-2016, with management forcasting significant cost synergies on the back of the deal.
Growth: It is PIA First’s expectations that global retail demand will continue to grow over the coming years on the back of rising populations and increases in disposable incomes.
Recent results: As management noted, “We continue to deliver on our strategic objectives, with a good operational and financial performance in the first quarter. Our focus remains on serving our customers and delivering on our Simplicity program.”
Sales growth: + 4.3% over the Q1 period (+3.5% on a constant currency basis (CCB) with online net consumer sales ahead by 27.4% (CCB) and operating margins rising to 3.8% (Q1 2015: 3.5%)
Loans and non-current liabilities: As of Q1, the combined figure stood at €3.3 billion (€3.7 billion as of Q4 2015).
Standalone valuation: AH has an Altman Z-Score of 3.97 (a read of >3 generally indicates solid underlying company financials).
Competitor/ Industry valuation: Trades at a discount to its peer group on a number of forward metrics.
Merger update: As of Q1, management has received nearly 100% shareholder approval as well as Belgian competition authority consent, with the US regulatory review currently underway.
Dividend: Current yield is 2.55%.
Investor sentiment: Currently, there is an ‘Outperform’ rating on the name – Source: PIA research.
AH is set to report Q2 numbers on August 25.
Management and risk description
A hard stop at €17.95 is recommended on this trade. This trade only has one target due to the range-bound nature of current technicals.
Entry: Buy AH at current levels.
For breakout buyers (B): we would highlight €22.10 (early-June 2016 rejection level)
For pullback buyers (P): we would highlight €20 (mid-June 2016) and €18.34.
Stop: a trade below €17.95.
Time horizon: 1-4 weeks.
— Edited by D. Deacon
Non-independent investment research disclaimer applies. Read more