RBC starts European food retail coverage favoring Carrefour, Jerónimo Martins

RBC initiated coverage of four European food retailers with a constructive tilt: Carrefour rated “outperform” at a €22 target (vs €24 DCF and €19 sum-of-the-parts), Jerónimo Martins “outperform” at €22, while Ahold Delhaize and Colruyt Group were “sector perform/“fair” respectively. RBC models margin expansion (Carrefour ~55bps by 2028; Biedronka EBITDA to ~8.2% by FY28) and high free-cash-flow yields (Carrefour double-digit; Ahold ~7–8%), plus capital returns (e.g., Ahold >€10B over five years). The note prefers Carrefour and Jerónimo Martins on more attractive PEG ratios and clearer margin/expansion opportunity, but near-term operating margins are capped by customer-offer investments.

Analysis

This is a scale-and-procurement story, not a consumer-demand story. The market is likely to reward grocers that can turn buying alliances and simpler operating models into gross-margin defense, while punishing names whose growth depends on continual price investment or structurally weak local positioning. The second-order winner is private-label penetration; the loser is the long tail of smaller regional grocers and branded suppliers that lack negotiating leverage.

The near-term catalyst is guidance credibility, not the broker target. In 1-3 months, the key read is whether same-store sales stay positive while gross margin holds; if the next prints show price investments widening rather than narrowing, the whole basket can de-rate even if volumes look fine. Over 6-18 months, CRRFY has the cleanest asymmetry because leverage reduction and special dividends create equity support, but only if French share gains come from procurement and mix, not destructive promo.

Contrarian view: the consensus may be overvaluing 'free cash flow yield' in a sector where capex, wage inflation, and competitive price matching can eat the cash. The strongest names may still be poor long-term compounders if buying alliances simply pass savings through to shoppers. Falsifiers are straightforward: if CRRFY fails to inflect share by mid-2026 or JRONY's margin path slips materially versus current targets, the rerating thesis is probably wrong.

Key Decisions for Investors

• Long CRRFY vs short Colruyt for 3-6 months: best risk/reward in the group because Carrefour has more visible self-help and balance-sheet repair, while Colruyt looks structurally capped by Belgian share loss and regulatory pressure. Falsify if Carrefour fails to show margin/mix progress in the next two earnings prints.
• Buy JRONY on weakness for a 6-12 month hold: market is likely underpricing the option value of Poland/Slovakia expansion and the valuation gap versus history. Risk is that Biedronka LFL decelerates below ~2% or margin guidance is revised down; that would kill the rerating case.
• Avoid chasing Ahold Delhaize on this note; its U.S. price-investment strategy implies near-term margin cap, so upside is more muted than the headline cash generation suggests. Best use is as a relative-value short against the higher-conviction longs if the sector rallies on yield.
• No actionable trade in SSNLF from this article; any move there would be incidental, not fundamental. Treat as a watch item only if broader futures strength spills into defensives and compresses the relative-value setup.