Maybe John Rishton was tiring of the slow lane. The incoming chief executive
of Rolls-Royce has spent the past three years running Royal Ahold, the Dutch
supermarket chain. It is not a bad retailer – quite the opposite – but it is
growing at a much gentler pace than its peers.
As a result, the company’s shares trade at a persistent discount to the
sector, currently about 11 times expected 2010 earnings compared with
Tesco’s 13 times, Sainsbury’s 16 and Carrefour’s 17.
Ahold is hoarding. In spite of €2.5bn of gross cash and modest net debt of
€900m – against a market capitalisation of €11.5bn – it has avoided
splashing out on expansion or acquisitions. There is nothing wrong with not
growing – private equity-owned companies, for example, are often run for
cash. Ahold is perfectly capable of this: its Dutch chain Albert Heijn is
already a market leader and a cash cow. Its US chains (Stop-and-shop, Giant
Landover and Giant Carlisle) are profitable.
However, it is a shame to under-use the talents that have emerged from the
rubble of a life-threatening accounting scandal in 2003. The management team
turned the US chains round, regained investment-grade status and restored
the dividend. Ahold is still gaining share in its markets and produces
relatively strong like-for-like sales growth – up 0.5 per cent in the US in
the second quarter, while Walmart’s fell 1.4 per cent.
The company could put its money to good use, most notably in the fragmented US
market. Growth is Ahold’s stated aim, which is why the supermarket group
hasn’t returned its cash to shareholders. So why doesn’t it get on with it?
Laudably, it is unwilling to make bad deals and to set deadlines. However,
Dick Boer, the new chief executive, should remember that decent but
chronically undervalued businesses often end up as acquisition targets
themselves.
Volg de realtime koers van Ahold
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