As recession fears grip equity markets and consumers come under pressure, outperformance fund manager Sean Peche is betting on an unexpected retail player: French multinational Carrefour. Peche, a portfolio manager at Ranmore Fund Management, highlighted the company’s defensive nature and ability to boost earnings amid inflation as a key attractive feature. The stock, which also trades in the U.S., Germany and Switzerland, is the second-largest holding in the Ranmore Global Equity Fund, which outperformed the S&P 500 index with a 31% return in 2023. Peche noted that Carrefour has grown its sales significantly in recent years while keeping inventory levels stable. The retailer’s total sales rose from 74.2 billion euros ($80.96 billion) in 2018 to 84.9 billion euros in 2023, up 14.4%, according to FactSet data. He attributed this to the company’s technological advancements, saying, “They’ve used technology and AI to improve inventory because they’re doing weather forecasting and optimizing inventory.” “You have a company that trades at six times earnings, that pays you a nice 5% dividend yield, with a great management team that’s unpopular,” Peche told CNBC’s Squawk Box Europe on Friday. CA-FR 5Y Line However, the stock is down 23% over the past 12 months, which Peche said is due to investor interest in AI and technology stocks over consumer goods companies. The fund manager also highlighted Carrefour’s growth in private-label products, which now account for nearly 40% of sales. As consumers shift to cheaper options during tough economic times, Carrefour is benefiting because they can earn higher margins on private-label products than on branded products. Growth Opportunities One potential growth driver for Carrefour, according to Peche, is its expanding advertising business. Carrefour follows other major retailers such as Amazon, Tesco and Sainsbury’s in monetizing its online platforms by allowing brands to pay for prominent product placement. “This is pure cream when you think about it. There aren’t many costs involved,” Peche added. Carrefour’s international operations also appear promising, with Peche highlighting the company’s Brazilian business, which he says is on the mend. The company makes almost half its money in France and the rest abroad, including nearly 15% of total sales in Brazil. Analyst views The consensus price target of all analysts surveyed by FactSet is 17.35 euros per share, giving the stock 25% upside potential. However, not all analysts share Peche’s enthusiasm for Carrefour in the near term. Stifel’s Cedric Lecasble pointed out that during the periods of hyperinflation between 2021 and 2023, a “focus on protecting profitability weighed on competitiveness.” Lecasble noted that while Carrefour has invested in prices to stabilize its market share in France, similar decisions in other European markets have put pressure on profitability. UBS’s Sreedhar Mahamkali also took a more cautious stance in a note to clients on July 25 after the annual results were announced. He said Carrefour had forecast an adjusted profit of 2.5 billion euros in the second half due to an economic recovery in Europe, which Mahamkali “prudently” does not expect. “In fact, we expect a further slight decline (in adjusted profit in the second half),” he added.
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