Sectors > Top Reports > ASDA Memo 030223

ASDA Memo 030223

ASDA. Assessing Ability To Pass-Through Cost Inflation Without Market Share Loss, Growth Prospects & Hypothetical EG Group Merger Analysis
PUBLISHED: 03 February 2023
PAGES: 253
SUBMARKET: ASDA, Top Reports, Top Reports,


Why Read?

  • Understand Asda’s ability to pass through cost inflation without adverse market share impact – estimating EBITDA and FCF impacts for each of Big 4 and discounters from under-pass through of cost inflation as a way to gain market share; discounter business model sustainability in UK and ability to compete even more aggressively on price; lessons from UK 1970s food price inflation impact on price competition and retailer financial performance
  • Analysis of a hypothetical Asda – EG Group merger – synergies, strategic rationale, pro forma financial projections relative to Asda stand-alone and impact on Asda debt
  • Understand UK food retailer market share elasticities to changes in relative food basket pricing
  • Estimates of EBITDA upside from increases in weekly customer numbers and Asda Rewards
  • Understand how well covered Asda’s SSNs, TLs and SNs are by DCF EV in various scenarios

What’s New?

  • Hypothetical Asda – EG Group merger analysis
  • Estimating EBITDA and FCF impacts for each of Big 4 and discounters in price war scenario
  • Analysis of UK food retailer performance and strategies during high food price inflation in 1970s
  • Assessment of Aldi and Lidl UK’s business economics and of their ability to compete even more aggressively on price
  • Financial projections, DCF valuation and sensitivities

Questions Answered

  • Does a merger of Asda and EG Group make sense and how would the combined group compare with Asda stand-alone in terms of pro forma financial projections?
  • What is the risk of a price war when customer price sensitivity may be heightened during cost of living crisis?
  • For Asda, each Big 4 retailer and the discounters, how sensitive is market share to food basket relative pricing across retailers?
  • What was UK food retailers’ ability to pass on cost inflation during 1970s high food price inflation environment, how did margins and sales volumes behave and how did price competition unfold?
  • How much EBITDA upside is still to come through from weekly customer number increases in 2022 and Asda Rewards?
  • Do discounters have any further scope to radically undermine pricing in UK food retail?
  • How do cost structures compare across UK food retailers?

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