Euronext Brussels: ‘discount price target’ weighs on Colruyt

Hopes for interest rate cuts are again prevalent on the stock markets. Umicore continues to recover from last Thursday’s blow. Kepler Cheuvreux starts the follow-up of Colruyt with a low price target and a ‘tapering’ advice.

European stock markets are building on Wall Street’s strong performance on Friday – thanks to a weaker-than-expected US jobs report – and on subsequent gains in Asia. Fed Chairman Jerome Powell made it clear last week that a further interest rate increase in the US is very unlikely. In the eurozone, Philip Lane, the chief economist of the European Central Bank (ECB), said in an interview with the Spanish newspaper El Confidencial that he believes a first interest rate cut in June has a good chance.

The stock exchanges in Europe have to make do without input from across the Channel. The London Stock Exchange is closed for the Early May Bank Holiday. The Euro Stoxx 50 rose 0.8 percent around 12:50 p.m.

The Bel20 is on the same wavelength and gains 0.8 percent to 3,945 points. D’Ieteren Group

gains 2.3 percent and reaches a new peak at 212.60 euros. Also Solvay

(+2.6%, 30.92 euros) is on a roll. But the best Bel20 member is Umicore

which increases by 3.2 percent to 21.90 euros.

The materials group made unusual leaps last week. On Thursday, the share plunged 4.5 percent, falling below the 20 euro mark. There was a strong recovery on Friday (+6.5%). It was unclear what was going on.

“Umicore assures that a potential postponement will have no impact on the agreed volumes for cathode materials,” writes analyst Wim Hoste. He continues to believe that Umicore is well placed to play an important role in the electrification of transport. He reiterates his ‘buy’ rating and price target of 26 euros.

A critical report from the stock exchange Kepler Cheuvreux weighs on Colruyt

, which drops 2.2 percent to 42.40 euros. The stock exchange starts the follow-up with a ‘tapering’ advice and a price target of 40 euros. That is lower than the price, but certainly not the lowest price target of all analysts who cover Colruyt. According to Bloomberg, Barclays (37 euros), HSBC (30 euros) and ING (36 euros) are even lower.

Analyst François Digard believes that results for the 2023-2024 financial year will show a significant increase in operating profit as the ratio between sales price inflation and cost inflation stabilizes. Still, he has reservations about the margins. “A critical aspect of the long-term outlook revolves around whether the group will be able to return to its historic retail margins above 6 percent. We think that while margins have improved from their lows, they will remain at 4 percent or slightly higher, about 2 percentage points below their historical levels.”

Digard also points out that Colruyt is once again recording its historic premiums compared to European peers. ‘The valuation is demanding for a stock that offers lower cash returns and comparable margin.’

Two things could change the ‘phase-out’ rating. One: if Colruyt can increase its margins back to their historical levels, despite competitive pressure. Two: if the family of the same name decides to delist Colruyt. But, the analyst says: ‘We see no reason why the family would be in a hurry. She didn’t take her chance when the price was 50 percent lower.’