EFTA01385507.pdf

> Consumer Deutsche Bank Carrefour — Maxime Mallet, SELL, close €18.3, €15 tgt, 18% downside ■ We believe 2018 consensus is at risk. We are 13% below consensus 18E French profitability is falling EPS (and 15% below 19E consensus). ■ Carrefour needs to invest given competitive pressures in France. Sales (in €m. LHS) —EBIT margin (RHS) Hypers (52% of French sales) suffers from a 5% price gap vs. Leclerc and 36,500 4.0% underexposure to online grocery (with only 8% market share). 36,000 3.5% ■ November's Kantar data showed a market share loss of 60bps to 20.5%. 35.500 35.000 3.0% - This is not confined to Hypers (40bps share loss); Supers also lost 30bps of market share. 34.500 - 2.5% ■ Recent price and promotional investments have not delivered better 34,000 - 2.0% customer perceptions. Price perceptions are broadly flat YoY for both 33.500 Supers and Hypers. Therefore, more will be needed. 33.000 1.5% ■ Carrefour's market position is already weak. French EBIT margin is at a 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E Source: Company reports. Deutsche Bank eshimates historical low of 2.0% in 2017E. ■ Closing the gap to peers would be expensive. Eliminating it would cost Narrowing the gap vs. Leclerc would be costly the entirety of French EBIT. ■ The strategic plan in January is likely to be underwhelming. The first 1.200 EBIT (LHS) -EBIT margin (RHS) 1.031 measures taken by the new management do not address the main issues 1,000 and it will be costly and take time to fix the group's positioning 800 ■ Cash flow generation is structurally weak. The meagre 2.6% FCF yield is linked to thin margins in a tough competitive environment and a high tax 600 rate of 35%. 400 ■ Carrefour still trades at a 11% premium to peers at 16x 18E EPS. 200 ■ Catalysts: strategic plan on January 23rd. Related DB Research: -200 French Food Retail: A stronger November and a weaker Carrefour (Mallet) Source: Deutsche Bank estimates (Candour Hypers vs. Leclerc on horizontal: Franco EBIT on LHS: France EBIT margin on RHS) Deutsche Bank Research. Etuopean Equity Focus —January 2018 CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) DB-SDNY-0086793 CONFIDENTIAL SDNY_GM_00232977 EFTA01385507