Iceland Memo 160120
- Understand Iceland’s key USPs that have allowed it to retain customer relevance in spite of its price positioning being materially higher than Aldi, Lidl and Asda on our price comparison
- Understand how sensitive Iceland’s EV, leverage, FCF and liquidity are to gross margin and LFL sales growth
- Understand how much in-built gross margin compression lies ahead from the scheduled national living wage increase and from contractual upward rent adjustments on certain store leases
- Understand the extent to which and why Iceland’s business has been getting gradually squeezed in spite of significant growth capex over FY 16 – FY 19
- Understand how Iceland’s sales and EBITDA densities, rent per square foot, LFL sales growth and financial metrics compare with the rest of the UK food retail sector
- Detailed liquidity, cash flow and other financial projections with sensitivities to key variables including LFL sales growth and gross margin with bottom-up modelling of the impact of the scheduled national living wage increase and contractual upward rent adjustments on certain store leases
- Reverse engineering model to see what assumptions are needed to make an IPO feasible by FY 2022 and what assumptions would cause liquidity to break before Iceland’s first major debt maturity in 2024?
- Valuation of Iceland – both based on comparable multiples and DCF
- Price comparison across value / discount food retailers and other supermarkets
- What would it take for an IPO of Iceland to be feasible and what would be a realistic time horizon to achieve the needed deleveraging pre-IPO?
- How low will EBITDA go?
- What is the return on investment on Iceland’s new core and The Food Warehouse stores? Are there any signs of revenue maturation on newer stores?
- What is maintenance capex?
- Under what assumptions would Iceland’s liquidity break before its first major debt maturity in 2024?
- Why is Aldi’s rent per square foot so much lower than Iceland’s and what does this mean for Iceland’s ability to restore its gross margin?
- Since Iceland last disclosed its LFL sales growth in Q3 2019, how negative has LFL sales growth been over Q4 2019 – Q2 2020?
- View, Variant Perception & Recommendations
- Business Analysis – UK Stores, UK Grocery Market
- Historic Financial Analysis & Performance Comparison v Peers
- Seasonality & Working Capital
- Working Capital Analysis
- Supply Chain & Leases
- Financial Model
- Valuation & Sensitivities
- Group Structure & Indenture Review