Toilet Paper Hoarding Pushes Investors to Grab ‘Ahold’ of Stocks

Since registering a two-year low on March 12, Ahold’s stocks have surged by more than 20 percent, outpacing the gains seen in Tesco (6.16%) and Carrefour (18.9%) for the same period. The Netherlands-based company’s share price has also reclaimed a year-to-date advance, while Tesco and Carrefour remain in the red for the time being.

Social distancing: bringing consumers closer to grocers

Koninklijke Ahold Delhaize NV boasts over 6,700 stores across Europe and the US, with the latter accounting for nearly 2,000 stores, and is complemented by its Indonesian joint-venture, Super Indo. As the virus wreaks havoc in other sectors of the economy, brick-and-mortar grocery stores are proving to be the backbones of their communities amid the crisis, providing daily necessities to households that are left with scarce avenues for getting basic goods in light of lockdown measures.

Given the seismic shift in consumer behavior wrought by Covid-19, many grocery stores around the world have seen double-digit same-store growth, as well as bigger amounts purchased per customer. Although the initial hoarding will subside and give way to more sustainable-sized grocery runs, the fact that most families are barred from eating anywhere else but at home, is translating into a significant boost for grocery store receipts. The steady cash flow should in turn help Ahold’s liquidity position to cover any sudden shifts in inventory and labour costs, aided by the company’s cash pile of over 4.2 billion Euros.

Covid-19 makes online delivery a friend, no longer a foe

Traditional grocers must seize this opportunity offered amid the crisis to ramp up their online offerings. Ahold’s geographical reach and economies of scale may better enable the company in getting groceries to customers’ doorsteps, with the Covid-19 crisis potentially being a major catalyst towards the company’s ambitions of doubling net consumer online sales to around seven billion Euros by 2021.

With online grocery shopping accounting for just five percent of the total market worth an estimated $800 billion in the US alone, there’s certainly more potential to ramp up for Ahold’s US-based online grocery delivery platform, Peapod. This could complement the company’s online endeavors in Europe, where online sales accounted for about 10 and 20 percent of its total sales in Belgium and the Netherlands, respectively, as of end-2019.

Beware global supply chain disruptions

However, if the coronavirus outbreak has a longer-than-expected run in major economies, there remains the risk that global supply chains could be majorly disrupted. Retailers may have to face the costs of overcoming lockdown measures in ensuring adequate stocks, both online and in-store. Supplies may also come at a premium, if there are more manufacturing-plant shutdowns, a scarcity of agricultural workers, or even driver shortages.

Investors expected to keep away from AGM, but not from stocks

The risks and opportunities during this pandemic will certainly colour the company’s AGM today, April 8. Although shareholders are being urged not to attend the meeting in-person, the resilience of Ahold Delhaize may remain a tempting proposition in the stock markets.

Written on 04/08/20 08:00 GMT by Han Tan, Market Analyst at FXTM

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