Iceland on review

All,

Please find our re-modeled Iceland analysis here.

As per our mail the other day, we have put the position up for review. That means we are less convinced of its value, but are not quite willing to let it go at current prices yet. That could come soon enough however.

We continue to believe in the fundamental strength of the company but are less convinced of management’s current expansion strategy from a creditor’s point of view. While the overall discount space is growing (Aldi & Lidl are expanding with over 7%) Iceland only manage far lower growth and in fact are contracting on a LfL basis. Clearly there are a number of good reasons why this is so and why therefore it is unlikely to turn into any existential threat to the retailer. But taking into account the overall growth and LfL development, the effects of food price inflation and the added cost from incremental store base and distribution centre, we see the company adding more leverage through the year, before modelling additional Brexit pressure.

So the name could be under pressure and beset with question marks right when entering a period where the market will be unforgiving. By comparison Matalan promise the opposite.

Wolfgang