Loblaw Writting Sample

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Loblaw Companies Limited (L C$33.33, TSX) 12th April 2012 Industry: Food Retail Prepared by: Recommendation: Hold

Recommendation: Hold
Market Data|
Current Price| CAD 33.33|
52-week Range| 42.27-32.61|
Market Cap (millions)| 9378.5|
No: of Shares (millions)| 281.37|
Dividend Yield| 2.18%|
Beta| 0.27|
Loblaw Companies Limited, a subsidiary of George Weston Limited, is Canada’s largest food distributor and a leading provider of drugstore, general merchandise and financial products and services. The company had revenues of over $31 Billion in 2011. Loblaw operates in two segments: Retail and Financial Services. The Retail segment consists primarily of food and also includes drugstore, apparel and other general merchandise. The Financial Services segment includes core banking, credit card and auto & home insurance services.

Loblaw’s Brands are:
* Presidents Choice
* No Name
* Joe Fresh
* PC Financial
Investment Case | 2011 Q4| 2010 Q4| Growth(YOY)|
Revenue| 7373| 7119| 3.56%|
EBITDA| 485| 471| 2.97%|
Net Earnings| 174| 165| 5.45%|
Basic EPS per share| 0.62| 0.59| 5.08%|
Same store sales growth | 2.5%| (1.6%) | |
Financial highlights of 2011 Q4 Results

Financial highlights of 2011 Q4 Results

We maintain our hold rating on the stock with a target price of $38 based on our intrinsic valuation calculation using discounted cash flow. We arrive at our number assuming flat growth rate in top-line and believe that the scope of earning growth from margin improvement and operating efficiencies is limited. Some highlights and concerns from this quarters result are: | 2010A| 2011A| 2012E| 2013E|

EV/EBITDA| 7.1x| 6.8x| 6.9x| 6.5x|
P/E| 13.9x| 12.5x| 13.0x| 11.9x|
* Valuations
Valuations
Sales growth was up by 3.6% over previous year while the same store growth sale was up 2.5%. An extra selling day in 4Q11 vs. 4Q10 added 0.8-1.0% to same store sales growth in 4Q11.
* Loblaw reported a basic 4Q11 EPS of $0.62 compared with C$0.59 in 4Q10.Full year basic EPS was C$2.73 compared with C$2.43 a year ago. * In the near term, management expects EPS in 2012

to be lower than in 2011

Loblaw Outlook for 2012
* IT/Supply Chain - Supply chain renewal is substantially complete, leading to a $20 million decrease in spending in 2012 relative to 2011 * IT spending is expected to increase by $90 million in 2012 relative to

2011, resulting in $70 million net incremental expenses in 2012 * Capex Spending - Capex is estimated to total C$1.1b in 2012 * 60% of Capex will be directed to core retail business while balance

towards supply chain and IT
* Competition - “ In 2012, the company will focus on initiatives that build on its
competitive position of its business and invest in opportunities to
support long-term profitability * Customer Proposition spending - Customer proposition initiatives will cost Loblaw $40 million in an effort to improve assortment, boost customer service and lower prices to help improve its competitive position...
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