Axfood's E-commerce Growth Will Drive Sales in a Digital Age

Catalysts

• Are there any products or services that could move sales or earnings meaningfully?
  • Most Immediate Catalyst (1–2 Years):
    • E-commerce Expansion: Accelerating its online grocery platform can capture increased demand for digital shopping, especially as consumers continue to favor home delivery and click-and-collect options.
    • City Gross Integration: Leveraging the recent acquisition of City Gross can drive higher sales volumes through increased geographic reach and improved product offerings while realizing operational synergies.
  • Mid-Term Growth (3–5 Years):
    • Private Label Expansion: Strengthening and broadening brands like Garant and Eldorado can improve margins.
    • Product Innovation in Health & Sustainability: Introducing new product lines that cater to growing consumer demand for organic, sustainable, and healthy options can attract more customers and drive sales.
  • Long-Term Growth (5+ Years):
    • B2B Solutions: Expanding the cash-and-carry business for foodservice can benefit from a recovering hospitality sector and long-term growth in bulk purchasing.
    • Supply Chain & Efficiency Improvements: Continued investments in logistics and supply chain efficiencies not only reduce costs but also support broader product availability, helping boost earnings over time.

• Are there any industry tailwinds this stock is benefitting or hindered from?
  • ✅ Groceries are a necessity, which provides a resilient revenue base even in economic downturns.
  • ✅ Digital and E-commerce Growth: Increasing consumer adoption of online grocery shopping and home delivery boosts sales channels.
  • ✅ Consumer Trends Toward Health and Sustainability: Growing demand for organic, sustainable, and locally sourced products benefits private-label initiatives and premium segments.
  • ⛔ Intense Competition and Price Pressure: Fierce competition from both domestic players (e.g., ICA, Coop) and international discount retailers (e.g., Lidl) can squeeze margins.
  • ⛔ Rising Costs: Increased labor and raw material costs, along with potential supply chain disruptions, may impact profitability.

Valuation

• Where do you think the business will be in 5 years time? Axfood is expected to be a more diversified and digitally adept retailer with enhanced operational efficiency and market reach, positioning it for strong long-term performance in a competitive grocery market.
• What do you think revenue and profit margins will be?
  • Earnings growth= 3-5% (sucessfull integration of CityGross, e-commerce, private label offering)
  • Profit margin =4-4.5% (from 2.6%) due to cost synergies from centralized logistics, improved supplier negotiations, and operational efficiencies.
• What do you think the valuation multiple will be in the future? PE= 15
• Based on my growth expectations, is the stock currently overvalued or undervalued? FAIR VALUED

Reasons to sell

• High Multiples Relative to Growth: If Axfood is trading at elevated P/E multiples (e.g., 15–20x or higher) without a clear path to accelerated growth, the stock could be considered overvalued.
• Failure to Achieve Synergies: If integration of City Gross and other efficiency initiatives (like through Dagab) do not yield the expected cost savings or margin improvements, earnings might disappoint.
• Intensifying Competition:Heightened competition from domestic rivals (such as ICA and Coop) and aggressive pricing from international discount retailers (e.g., Lidl) could compress margins and reduce market share.
• Digital Transformation Risks: While Axfood is investing in e-commerce, if it fails to keep pace with the rapid evolution of digital retail and consumer preferences, it may lose ground to more agile competitors.
• Have I lost conviction in a narrative around this stock? NO
• Is the stock overvalued against my estimate of fair value? NO