Casino’s Q2 and H1FY21 performance was a mixed bag – the top line declined but profit improved strongly. While the LatAm performance remains healthy, the sharp slump in French retail sales was an unpleasant surprise, raising concerns about if and when this segment will return into the black. Management needs to continue improving the FCF and reduce the debt in order to strengthen the investor confidence. We will trim the earnings downwards but maintain the positive stock recommendation.
Companies: Casino Guichard Perrachon (CO:EPA)Casino, Guichard-Perrachon SA (CO:PAR)
Casino’s Q4 and FY20 performance was stronger than our expectations. Management’s success in improving profitability and its progress in new businesses are noticeable developments. However, we do not expect the performance of French hypers to return into the black in FY21. Despite a few hiccups and further needs to reduce debt, we continue to believe in the attractiveness of the stock’s valuation.
Casino’s Q3 performance was a mixed bag; sales and profitability were healthy overall but French same-store sales were flattish. Low tourist numbers in July were followed by positive momentum in the subsequent months. We see more chinks in the armour, however, and Q4 is likely to be do or die in terms of both the operational performance and gross debt reduction. We plan to trim our estimates but will maintain our positive stance given the cheap valuation.
Companies: Casino, Guichard-Perrachon SA
Casino has lost more than 50% of its market value over the past ten months. We spoke with the group’s CFO to get a clearer perspective about the pressing issues, especially the strength of the French operations, high leverage and some governance-related matters. There is no doubt the stock is controversial and poses a higher risk vs most European grocers. However, the business is still robust and the issues are being addressed. In essence, Casino is a screaming ‘Buy’ even after factoring in all
Casino’s top-line performance was strong, akin to other European grocers. While the panic buying is a temporary phenomenon, we note a strong improvement of €67m in the French EBITDA (+190bp yoy, according to our calculation). The retailer is well placed vs close competitors to tackle the ongoing crisis, on the back of a higher reliance on proximity formats and better developed e-com business. We maintain a positive stance on the stock.
While Casino’s underlying performance was strong, the overall increase in net debt was a sore point. However, French net debt, a pain-point for a long time, witnessed a decline. Casino is also better placed relative to other close competitors on the home turf, largely due to its strategically-placed premium / convenience stores and a strong e-com proposition. We maintain our positive stance on the stock.
Two positive developments have been reported for Groupe Casino / Rallye. A Paris court has approved the safeguard plan and Daniel Kretinsky has agreed to provide up to €233m as a loan to refund the derivative deals Rallye had sealed with the financial institutions. With this development, Casino will now be under less pressure to resume the dividend payments to Rallye, in the forecast years.
Casino’s Q4 performance was impacted by pension strikes in France. Recent controversy about parent entity Rallye’s debt repayment proposal has also dented the investor sentiment. While we do not see any structural issue in the French operations, the company is also well-enough equipped to aid its parent to honour the obligations (considering the plan is approved by the court). We continue to believe in management and maintain a positive stance on the stock.
Casino’s Q3 19 performance was slightly below our expectations. While LatAm remained strong, the French premium banners once again struggled to remain in the black (same store sales basis). Management’s reasoning of a tougher comparable base answers our apprehensions partially. Having said that, we remain confident in Casino’s capability to achieve its near-term guidance – French performance and debt reduction. We will tweak our estimates slightly downwards.
Casino’s Board made a few positive announcements yesterday, following which the stock price ended the day 9.2% higher. Launch of second phase of the asset disposal plan and further simplification of the organisational structure in LatAm is likely to boost management’s credibility as well as investors’ sentiment. We reiterate our confidence in the company’s ability to turnaround the business (especially in France). Positive view maintained on the stock.
There were no major surprises in the Q2 results. The underlying performance remains on the right track in both operating geographies (LatAm and France). Management has confirmed FY19 financial guidance. The French net debt reduction target has been improved further to less than €1.5bn by end-2020 (vs €2.9bn at 30 June 2019), and this should be sustained at this level in subsequent years. No change to our stock recommendation.
Casino’s financial obligations contain a mandatory acceleration clause in the event of a change of control of the company. It raised some concerns about Casino’s liquidity position if Rallye were to default some day in the future (when the debt re-profiling process is over). However, we are now at ease following the clarification by Casino. As a result, we maintain the positive stance on the stock.
Casino’s parent Rallye has announced the commencement of a debt re-profiling process under the protection of French courts. Casino is not included in this process (there is no cross default provision). In the short-term, Casino should get a breather, as Rallye would freeze creditor payments (hence, does not need dividend payments from its subsidiary). Even in the mid/long-term, Casino should be better placed relatively (we discuss some scenarios below). Moreover, we repose our faith in Casino’s
Casino’s Q1 sales witnessed a strong momentum in LatAm (led by Brazil) but French same store sales were softer vs our expectations. This was largely due to tougher comps, the adverse impact of the yellow vest movement in January and February. Although the exit rate was better in the last month, it would be crucial parameter for market sentiment going forward. We believe management will be able to achieve profit guidance and optimism might seep in starting with the H1 results. No change in stock
Moody’s has downgraded Casino’s credit rating from Ba1 negative outlook to Ba3 negative outlook. Subsequently, the company has released a note stating that Moody’s analysis is based on Casino’s gross debt at the end of 2018, which does not take into account either the asset disposal plan or the future reduction in bond debt.
The French retailer has also specified that this development will have no impact on the availability or cost of the group’s financial resources – Casino in France has €5.0b
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