EFTA Document EFTA01385507

> Consumer Deutsche Bank Carrefour — Maxime Mallet, SELL, close €18.3, €15 tgt, 18% downside ■ We believe 2018 consensus is at risk. We are 13% below consensus 18E EPS (and 15% below 19E consensus). ■ Carrefour needs to invest given competitive pressures in France. Hypers (52% of French sales) suffers from a 5% price gap vs. Leclerc and underexposure to online grocery (with only 8% market share). ■ November's Kantar data showed a market share loss of 60bps to 20.5%. - This is not confined to Hypers (40bps share loss); Supers also lost 30bps of market share. ■ Recent price and promotional investments have not delivered better customer perceptions. Price perceptions are broadly flat YoY for both Supers and Hypers. Therefore, more will be needed. ■ Carrefour's market position is already weak. French EBIT margin is at a historical low of 2.0% in 2017E. ■ Closing the gap to peers would be expensive. Eliminating it would cost the entirety of French EBIT. ■ The strategic plan in January is likely to be underwhelming. The first measures taken by the new management do not address the main issues and it will be costly and take time to fix the group's positioning ■ Cash flow generation is structurally weak. The meagre 2.6% FCF yield is linked to thin margins in a tough competitive environment and a high tax rate of 35%. ■ Carrefour still trades at a 11% premium to peers at 16x 18E EPS. ■ Catalysts: strategic plan on January 23rd. Related DB Research: French Food Retail: A stronger November and a weaker Carrefour (Mallet) French profitability is falling 36,500 36,000 35.500 35.000 34.500 34,000 33.500 33.000 Sales (in €m. LHS) —EBIT margin (RHS) 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E Source: Company reports. Deutsche Bank eshimates 4.0% 3.5% 3.0% - 2.5% - 2.0% 1.5% Narrowing the gap vs. Leclerc would be costly 1.200 1,000 800 600 400 200 -200 EBIT (LHS) -EBIT margin (RHS) 1.031 Source: Deutsche Bank estimates (Candour Hypers vs. Leclerc on horizontal: Franco EBIT on LHS: France EBIT margin on RHS) Deutsche Bank Research. Etuopean Equity Focus —January 2018 CONFIDENTIAL - PURSUANT TO FED. R. GRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0086793 SDNY_GM_00232977 EFTA01385507