汇丰银行-全球-零售行业-食品零售生命阶段：生命阶段的机遇-2019.4.30-44页 (2).pdf

Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:HSBC Bank plc View HSBC Global Research at:https:/ THIS CONTENT MAY NOT BE DISTRIBUTED TO THE PEOPLES REPUBLIC OF CHINA(THE PRC)(EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAO)Industry structure and company strategy are usually the biggest determinants of profitability,outlook and hence valuation.Our Life Stage Analysis,detailed in The Life Stages of Food Retail:Global Retail Digest 2(8 April 2019),looked at how food retail markets evolve over time and the underlying economic factors which drive this evolution.We explained that at different times of its Life Stage,the food retail industry displays different features,requires different strategies and warrants different valuation metrics.This report looks at the second part of the equation company strategies and how they marry up with the different requirements of the relevant Life Stage.We list 10 food retail stocks from our Global coverage where we believe valuations do not reflect the outlook based on the Life Stage each company is in.Inflection points:An evolving industry will always hit inflection points and the market is sometimes slow to spot these.Commentators and investors are sometimes slow to recognise that the type of analyses,forecasting tools and valuation metrics change as this evolution occurs.We saw this notably in the UK as the industry went wrong c2010 and a reluctance to believe that Tesco can recover its margins to over 4%long term.We have seen similar in South Africa.It is easy to think that food retailing is a difficult but stable industry where not much happens,but stocks can be very volatile.For example in the UK,YTD Tesco is up c30%while Sainsbury is down c16%.We see many short-term and long-term opportunities for investors in Food Retailing.10 Stock Picks.The table below shows the 10 stocks we have highlighted in this report,along with their relevant Life Stage,rating,valuation and some key data.Inside there are profiles of all these companies,including full financials.Ticker Company Country Life stage Currency Rating TP CP AVEU.NS Avenue Supermarts India 1 INR Buy 1700.00 1328.05 SOKM.IS Sok Turkey 2 TRY Buy 11.50 9.00 CRFB3.SA Carrefour Brasil Brazil 3 BRL Buy 22.50 21.06 CPALL.BK CP All Thailand 4 THB Reduce 49.90 76.75 PJPq.L X5 Retail Russia 5 RUB Buy 34.00 29.40 SPPJ.J Spar South Africa 5 ZAR Reduce 170.00 193.50 139480.KS E-Mart Korea 5 KRW Buy 280000 171000 CARR.PA Carrefour France 6 EUR Buy 21.00 17.35 AD.AS Ahold Delhaize US 7 EUR Buy 24.00 21.25 TSCO.L Tesco UK 7 GBp Buy 265.00 248.40 Source:HSBC estimates,Reuters.Current prices as of close of 25 April.30 April 2019 David McCarthy*Global Head of Consumer Retail Research HSBC Bank plc +44 20 7992 1326 Ravi Jain Senior Analyst,LatAm Retail HSBC Securities(USA)I+1 212 525 3442 Jeanine Womersley*,CFA Director,South African Retail HSBC Securities(South Africa)(Pty)Ltd +27 21 795 0779 Nigel Kiernan*Director,ASEAN Consumer Analyst The Hongkong and Shanghai Banking Corporation Limited,Singapore Branch .sg+65 6658 0809 Bulent Yurdagul*Head of EEMEA Consumer Research HSBC Yatirim Menkul Degerler A.S.tr+90 212 376 46 12 Karen Choi*Head of Consumer and Retail Research,Asia Pacific The Hongkong and Shanghai Banking Corporation Limited,Seoul Securities Branch +82 2 3706 8781 Andrew Porteous*,CFA European Retail Analyst HSBC Bank plc +44 20 7992 4647 Emmanuelle Vigneron*Analyst HSBC Bank plc,Paris branch +33 1 56 52 43 19 *Employed by a non-US affiliate of HSBC Securities(USA)Inc,and is not registered/qualified pursuant to FINRA regulations Food Retail Life Stages Equities Consumer Retail Global This report complements our Life Stages report.We highlight stocks where the valuation does not reflect the life stage Structure&strategy determine valuation,but structures evolve.Market can miss inflection points in stocks/markets We list 10 stocks.8 Buy,2 Reduce ratings Stock picks:The Life Stages Opportunities Equities Consumer Retail 30 April 2019 2 Introduction In this report,we take the conclusions from our recent report,The Life Stages of Food Retail (8 April 2019),and apply them to companies under our Global coverage.In doing so we highlight where we believe the market is not ascribing the right value to companies,relevant to their Life Stages.Different life stages require different strategies for retailers and investors,and hence different valuation metrics.That the food retail industry hits distinct inflection points at different times in different countries creates plenty of investment opportunities.This report gives 10 key Buy and Reduce rated stocks we have across our Global coverage and puts our ratings in the context of Food Retail Life Stages.To understand Life Stages,it is first necessary to understand the underlying economic forces which drive the food retail industrys evolution.We detailed this in Global Retail Digest 1:Food as a Natural Monopoly(24 January 2019).In that report we explained that the underlying economics of food retailing drive its evolution towards a more and more consolidated industry.The 4 underlying economic principles that transcend time and geographies are:Demand is inelastic at the industry level Demand is highly elastic at the company level Industry has high operational gearing Industry has high economies of scale For a more detailed description of these features and how they drive the industrys evolution,please see the aforementioned report.We now briefly outline the key Life Stages,before looking at the top picks across our Global Coverage.Life Stages and investment opportunities Retail evolves through several life stages,with different stages requiring different strategies for retailers and for investors Some life stages are good for most,if not all,while later life stages can be difficult for all and can require strategic resets Different life stages produce different features around cash and profits,and hence require different valuation metrics.In this report we highlight the anomalies in valuation for selected Buy and Reduce rated stocks The Life Stage Opportunities Food Retailing has 4 underlying economic principles 3 Equities Consumer Retail 30 April 2019 The Life Stages of Food Retailing.We identify 8 distinct Life Stages,and highlight that not all are inevitable.The Life Stages are depicted below,with a crunch time coming at the end of Space Race Stage 1.If the industry can manage itself successfully out of this stage,it can remain attractive to investors.But if it mismanages itself,which is usually the case,several unattractive Life Stages occur.Below we give several features of each Life stage and examples of countries at each stage.For a fuller description of each stage and details on countries mentioned,please see the original report Life Stages of Food Retailing.1:Informal Retail few investment opportunities due to private ownership Dominated by cash-and-carry and fragmented retail sector.Wet markets are widespread No retail branding,poor retail standards.Consumers often shop several times a day Example:India.Booker,owned by Tesco,expanded here to take advantage of conditions 2:The Emergence of Modern Retail Lots of medium sized chains and several winning formats.The start of retail branding Prices fall and profits rise,financed through efficiency Example:Turkey although certain segments are in the space race 3:Consolidation Phase High number of acquisitions.Scale economies are shared with consumers/shareholders High valuations awarded to growth companies but cash consumption can be high Examples:Brazil and South East Asia 4:Space Race Phase 1 The Golden Age Emphasis moves to organic growth as acquisition opportunities run out Very heavy cash consumption,fund raising needed.High valuations for winning retailers Example:Mexico where Wal-Mex continues to build scale 5:Space Race Phase 2 Capital Wars and Over Expansion Capacity increases exceed market growth and there is not enough soft market share.Sales densities weaken,profits fall and returns collapse with reverse operational gearing Ratings fall sharply with profit warnings&disappointments.Over-reliance on margin growth Examples:South Africa,Russia in part,South Korea 6:Discounter Phase Discounters come to fore,taking advantage of weak players with high margins Price is the most important weapon,low cost structures paramount.Move to cash generation from cash consumption Examples:France(Leclerc the discounter),Poland and Germany 7:A new Age A new equilibrium with limited space expansion and structurally lower margins.Positive cash flows despite lower margins Asset impairments,capacity exits,several failures.Turnarounds common.Scale very important.Example:UK.All mainstream retailers are in recovery or in trouble.Ratings and margins in recovery for successful turnarounds For further details of our thoughts on life stages and for case studies on the examples,please see Global Retail Digest 2(8 April 2019).Before we look at the 10 stocks we have identified,we consider Stage 8:The Future.Different Life Stages require different investment strategies Dark Ages follow the Golden Age Equities Consumer Retail 30 April 2019 4 Stage 8:The Future There is no market we have considered which has passed through stage 7 and if there were,the future would still be different.There are many forces at work in retail that mean a new future awaits for all as they pass through the life stages.We look at several of these issues:Grocery Home Delivery:It is easy to confuse digital(which has a major role to play)with Grocery Home Delivery(GHD)which is simply a logistics business.A key issue is around price.As we stated at the start of this report,consumers are highly price sensitive around food,and the biggest problem for GHD is that it is more expensive than running a store.So most customers will not pay the requisite premium for this service.Also GHD is not a new concept in its current form the UK has had GHD for over 20 years and despite its high subsidisation by a myriad of retailers,it still only has c7%market share.GHD is not a disruptor in food.Discounters have been the disruptor.It looks like Grocery Home Delivery will remain below 10%market share in most markets.Discounters.Either the presence or threat of entry by discounters will act as a cap on operating margins,as already happens in a number of countries.Returns on investment will be restricted,but retailers with large relative scale should out-perform their peers,several of whom are likely to struggle.In the search for low prices,retailers will have to be low cost and will need to reduce cost bases considerably.Limited Assortment Discounters have the ability to take up to 25%market share if left unchallenged.Developing Consumer trends.In most developed markets there are several trends that work against large store formats.These include smaller family sizes(meaning smaller basket shops),increased demand for fresh food(meaning more frequent visits for smaller baskets),more local purchasing as real increases in petrol prices lead to less out-of-town shopping and more online buying for non-food.These features,along with the growth of discounters and some limited growth in Grocery Home Delivery work against larger format stores.The above features suggest that large stores may have a limited future or that long-term sales densities will be below peak levels(usually in Life Stage 4 or 5)unless significant capacity exits the market.Life Stage 8 will be a major challenge but there will be winners as well as losers,and we believe the winners will be the ones with the most relevant strategy,and with scale.A combination of skill and scale is likely to remain unassailable.10 Key Stocks in the Life Stage Analysis.The remainder of this report considers 10 stocks,where our ratings are influenced by our Life Stage analysis.We list 10 stocks from around the world 8 Buys and 2 Reduce ratings.Ten Key Stocks 8 Buys,2 Reduces Life Stage Country Company Rating Life Stage 1 India Avenue Supermarts Buy Life Stage 2 Turkey Sok Buy Life Stage 3 Brazil Carrefour Brasil Buy Life Stage 4 Thailand CP All Reduce Life Stage 5 Russia X5 Retail Buy South Africa Spar Reduce Korea E-Mart Buy Life Stage 6 France Carrefour Buy Life Stage 7 UK Tesco Buy US Ahold Delhaize Buy Source:HSBC Grocery Home Delivery is not the long term future Consumer demands also change and evolve 8 Buys,2 Reduces 5 Equities Consumer Retail 30 April 2019 Selected countries and their positions in the Life Stages of Retail Source:Map chart;HSBC Turkey:Life Stage 2Brazil:Life Stage 3Mexico:Life Stage 4Russia:Life Stage 5South Africa:Life Stage 5South Korea:Life Stage 5France:Life Stage 6Germany:Life Stage 6UK:Life Stage 7India:Life Stage 1Poland:Life Stage 6South-East Asia:Life Stage 3/4Australia:Life Stage 6 Equities Consumer Retail 30 April 2019 6 Investment thesis Avenue Supermarts is winning with a value retail strategy.Just 3%of the USD400bn Indian grocery market is served through organised retail.The bulk of the market still consists of small mom and pop stores.Food retailing in India is transitioning from“informal retailing”to“emerging modern retailing”as modern retailing is growing at twice the rate of traditional retail.Value retailing has emerged as a successful model for price-sensitive consumers,as usually happens in early stages of Life Stage 2.Avenue Supermarts operates primarily through supermarkets(average size of c30,000 sq ft)and is positioned as the value retailer of choice in consumers minds.It focuses on lower-middle income consumers in urban markets and uses scale to deliver best prices.It operates through no-frills stores and minimises operating costs by using a clustered expansion.Gross margins are low(14-15%)but it generates best-in-class EBITDA margin of 8-9%.Operating model is very scalable in our view.It is unlikely to be disrupted by online or other large retailers.We believe it is best-positioned to capture the structural growth opportunity.We expect Dmart to deliver revenue and earnings growth in excess of 20%for the whole of the next decade,driven by network roll out.It only has c170 stores,and we believe it can potentially add 20-30 stores each year and achieve strong same store sales growth.Valuation and risks We use a DCF-derived target price,with a cost of equity 10.8%,risk-free rate 3.0%,a market risk premium 6.0%,beta 1.3 and terminal growth rate 4.5%.Our TP of INR1,700 implies upside of 28%from the current share price.We have a Buy rating as we believe the long-term investment case for DMART remains compelling given impressive execution(superior margins)of strategy.Plus we think Indian organized retail presents a multi-decade compounding opportunity.Downside risks include:(1)prolonged price-based competition(including increased competition from ecommerce players)leading to pre