June 17, 2022
We wrote about Albertson’s IPO two years ago in July of 2020: Albertson’s IPO: Classic Story, Classic Investment Case. It was very relevant back then in the ongoing covid-19 environment as food supermarkets became a “proxy of safety” from a sector and macro perspective.
Assuming full conversion of convertible preferred shares, Albertson’s was trading at an EV/EBITDA valuation multiple of x5.6. We estimated that with a x8.5 valuation multiple, shares have a potential upside of about 163% percent over next three years or an annual upside of 57% percent.
So far, this forecast proved correct, more or less, and since our recommendation on July 22nd, 2020 shares have returned 75% percent, versus an only 12% percent return in the S&P 500 Index, outperforming significantly.
The fact that despite such an excellent share price performance Albertson’s share are still significantly undervalued did not go unnoticed.
Recently it was speculated in the media that activist investor Jana Partners might be accumulating a stake in the company, and on February 28th, 2022 company announced that it had commenced a review of potential strategic alternatives aimed at enhancing Albertson’s growth and maximizing shareholder value.
At a recent investment conference, company’s CFO mentioned that one of the key focus areas is company’s real estate.
Company currently has a market capitalization of $16,251 million (assuming conversion of convertible preferred), an Enterprise Value of $21,314 million and is currently valued at an EV/EBITDA multiple of x5.07 (company’s Adjusted EBITDA guidance for FY 2022).
What is interesting is that after a 75% run shares became even cheaper valuation-wise, while the attractiveness of the company in current environment remains high, in our view.
While covid-19 story ended, more or less, the “distributor” nature of business and future food-at-home trends make company still attractive in current inflationary macro environment.
In our view, Albertson’s story provides an attractive investment opportunity