Thursday 27 May 2010

Asda takeover of Netto - surprised?

With latest accounts ('09) at Companies House showing Netto's
- ROCE at 2.1%
- Net Margin at 0.8%
- Stockturn at 16.8 times per annum
today's announcement was a 'no brainer' (although paying 100 times earnings shows extent of Asda's appetite...)

As you know, to maintain its independence these ratios needed to have been:
- ROCE at 10.5-15%
- Net Margin at 2.5%, minimum
- Stockturn at 20 times per annum, minimum

Key issue for suppliers has to be the possibility of any pricing and/or terms disharmonies in their dealings with Asda vs. Netto.
Action: A narrow window possibly exists to correct such differences before the authorities allow the deal to go through…

Meanwhile, where does this leave WalmAsda, Dansk, medium-term….? (A signal for your continental colleagues?)

Incidentally, why not let us help your team anticipate the inevitable, via our inhouse bespoke finance workshops? - More on KamTraining


Raphael Moreau said...

"paying 100 times earnings shows extent of Asda's appetite."

This does look high and show Asda's appetite but is actually more a reflection of the low operating margins achieved by Netto (less than 1%). The ratio to annual sales, at about 1:1, shows that Asda paid a fair price.

Brian Moore (NamNews) said...

Thanks for comment, Raphael.
I agree that at 0.8%, Netto's low margin is driving the price multiple. However, suppose that Asda manages to raise the Netto margin to Asda's margin of 2.8%, then the effective multiple reduces to 37 times, still pretty high, given Asda's relative lack of experience in 'Netto-sized' retail outlets....