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Casino has announced a new profit warning on the back of the French performance and a downwards revision in its 2024-28 business plan. For FY23, French EBITDA (after lease payments) is projected to be between -€126m and -€78m (vs the previous guidance of +€214m), attributable to continued weakness during the H2, especially in the hypermarket format. While the management does not anticipate a liquidity crunch until the ongoing transition is complete, it has announced new steps to improve performance. The new targets are also unlikely to be achieved. Our bearish recommendation is maintained.
Casino Guichard Perrachon Casino, Guichard-Perrachon SA
Casino is all set to execute an ownership change and a restructuring plan. We expect the overhaul of the French performance to prove fairly difficult and the Consortium’s business plan/financial estimates unlikely to be achieved. Our assumptions include a complete disposal of the LatAm operations over the next few months as the new CEO focuses on trying to overhaul the French business. Our target price is reduced further to 0.12 per share. Better to stay on the side-lines in our view, until such time as the skies clear.
Casino has released its consolidated performance for Q3 FY23 (the French details were announced last week). GPA’s same store sales came in at +5.7% yoy, with all the banners ending in the green. As a positive, the Brazilian business gained market share and profit margin. The top line was again stronger than that of arch-rival Carrefour. We would not be surprised if GPA is also disposed by the new owners in future. Bearish recommendation maintained.
Casino has announced poor Q3 FY23 figures for France. Lfl sales declined by 5.6% yoy, as the flattish performance in the Parisian and convenience banners (+0.4% yoy) was more than offset by continued weakness in supermarkets/hypermarkets (-14.4% yoy). EBITDA came in at +€136m (-€196m yoy). The management further reduced the FY23 EBITDA guidance to €100m (vs €214m previously). While the recent improvement in volume and customer traffic is positive, the business is still far from healthy. We maintain our bearish stock recommendation.
During H1 FY23, Casino posted a strong show in LatAm, but the group’s profit was a disappointment once again. Management has cut the 2023 performance estimate further. The new restructuring plan and the Consortium’s business plan for 2024-28 period are largely in line with the market’s expectations. We would not be surprised if the new financial projections are also not achieved. We maintain our bearish stock recommendation.
Food delivery is the loss making, cash burning growth sector without any growth. We recently downgraded the prepared food delivery operators to Underperform and flesh out our thesis.
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It seems that the Daniel Kretinsky-led consortium will be the new owner of Groupe Casino. The 3F group has abandoned its acquisition bid for the French grocer. It has cited the reason as ‘biased process’ and lack of detailed information about the retailers’ finances. The entity has also accused the secured creditor Attestor Capital of initially backing its offer but also simultaneously talking part in a competing offer, without informing 3F. Kretinsky has confirmed having submitted a revised bid on Saturday.
In an unscheduled update, Casino has announced disappointing estimates for the H1 and FY23 performances. In Q2 FY23, the France segment witnessed a lfl sales decline of 6.6% yoy. The growth in the Parisian/convenience banners was more than offset by weakness in hypers/supers. Lower sales and price-cuts in the big-box formats eroded H1 FY23 profitability, resulting in the FY23 EBITDA guidance for France being c32% lower yoy. We maintain our negative stock recommendation. The new deadline for revised bids is 14 July 2023.
Although it is difficult to predict the winner between two investment bids, the Daniel Kretinsky-led consortium enjoys higher odds of success in our opinion. In this note, we discuss the factors working in his favour and the likely strategy of EP Global towards job losses, which would be a key point monitored closely by the French government.
As expected, Casino has released the details of the equity investment proposals from 3F Holding and EP Global Commerce/Fimalac. The offer from 3F factors in a larger role for creditors as compared to the Kretinsky-led consortium. The offer from EP/Fimalac looks more attractive in terms of Casino’s financial health. The stock’s trading was suspended yesterday at the company’s request. We expect our new valuation to decline below €1 per share.
The conciliatory discussions with creditors have yielded a mixed response. Unlike the Quatrim bonds (secured), the holders of CGP’s Senior Unsecured Notes (due 2026 and 2027) and the bonds issued by Monoprix Exploitation did not agree to the request to waive the right to claim accelerated payment in case of default. Casino has also drew down in full the RCF on 30 June 2023. This is likely to fuel further panic amongst stakeholders.
Casino has shared new details about the restructuring plan. It includes equity conversion of all unsecured debt and €1.0-1.5bn secured debt. Most of the other information is not a surprise. All stakeholders are expected to submit proposals by 3 July, with a final agreement likely by 27 July 2023. We have factored in higher equity dilution in our estimates and target price. Moreover, LatAm subsidiary Group Exito has received an acquisition bid, but the offer looks undervalued.
Casino has disclosed the strategic and financial details already shared with prospective investors and certain creditors. Management has also shared the details of an ambitious growth plan (2023-25), which revolves around the French premium / proximity banners. The sales and earnings performance of Q2/H1 FY23 is also below our expectations. We continue to see Casino as a high risk stock and is better left untouched unless more clarity is available about the outcome of ongoing discussions.
Casino has shelved the combination talks with Teract. However, the conciliation talks are proceeding according to schedule. Moreover, the promotors of Teract have announced the setting up of a €300m investment vehicle (named 3F), also aiming to raise c.€1bn from Casino creditors / other stakeholders. It implies that the trio is planning to launch a counter-offer for Casino. While it is good news for Casino’s valuation, the risk of equity dilution is now substantial.
Casino’s Q1 FY23 performance was below our expectations. The group’s same store sales increased 1.0% yoy (our estimate: +2.5%), as the weakness in France (Retail: -0.4% and Cdiscount: -24.8% yoy) was offset by the robust momentum in Latin America (+9.5% yoy). The group’s EBITDA declined 27% yoy (12% below our expectations), on the back of a c.53% decline in France. Although management is trying to revive French supers/hypers, the continued pressure on FCF is concerning. We will reduce the financial estimates and target price.
Casino and Teract have announced that Intermarche has joined the tie-up talks. The plan includes extending the existing purchasing alliance until 2028, transferring several points of sale from the Casino perimeter to Intermarche and investing around €300m in the new entity. Moreover, the Czech investor Daniel Kretinsky has also proposed subscribing to a capital increase in Casino worth an aggregate of €1.1bn. We would not be surprised were Casino to prefer to stick with Teract, unless a sweeter offer is put on the table.
How to measure ESG credentials: we focus on culture and attitude to a few key topics As the final and crucial link between the global food supply chain and the consumer, the food retailers face high expectations. On the one hand they''re expected to limit price increases, on the other, pressure is growing to source sustainably. Such are the conflicts that the industry can never hope to keep everybody happy so how to measure their ESG credentials? Rather than a tick-list based on disclosure, we take a different stance attempting to look at their approach to a few key topics and by extension, understand company culture better. Imprecise yes, so think start of debate, not end. Differing attitudes on absorbing food inflation a key test of place in society Food price inflation has been very high profile in the last 18 months further undermining food security. In some companies, we see a clear desire to balance the needs of society and shareholders, in others, most notably the US food retailers, the focus seems more on maintaining margins. In part competition is an explanation and for the US food retailers, the outcome is good for shareholders. But it cements our view that culturally, the European food retailers are generally ''better citizens''. Despite the focus on pay and rights of workers, employee satisfaction seems similar Pay and the rights of workers have also been big topics in the last 18 months. However, it would be wrong to associate employee satisfaction simply with pay. Certainly low pay can make people unhappy, but employees are more likely to complain about flexibility or their line manager. Despite pressure on low paid workers, we don''t detect a material deviation in employee satisfaction. In food delivery, we remain of the view that gig-working isn''t bad, provided the relationship is transparent. Tesco, Sainsbury''s, Colruyt and HelloFresh our ESG leaders In this note, we undertake a comprehensive refresh of our ESG scores looking...
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Following the Q4 trading update, Casino has announced its FY22 results, which were below both our and the market’s expectations. The trading profit was 11% below the street estimates. The weak points included the French big box stores, the e-com banner Cdiscount, Brazilian GPA, depleting FCF and an inadequate reduction in the French net debt. A lack of financial details about the proposed tie-up with Teract was also not helpful. The management is likely to divest more LatAm assets. We expect to turn bearish on the stock.
Casino’s Q4 trading performance was broadly in line with our and the market’s expectations – French same store sales were 1.2% weaker but more than compensated by strength in the LatAm business. We note the revenue decline in the large store formats (supermarkets and hypermarkets) and softer growth in cash-cow banner Monoprix. The retailer needs to invest in pricing and promotions (in France) to reverse the market share erosion. We will reduce our financial estimates.
Groupe Casino and Teract are discussing combining their distribution activities in France. We don’t see any material operational synergies if a merger takes place. We note the statement about the formation of a single entity controlled by Casino. This looks surprising as the market currently seems to be ascribing a negative valuation to Casino’s French banners (mainly due to high debt). Unless Mr Naouri is able to sign a lucrative deal with Teract, we see little value with any such business combination.
Casino faces three years of hurdles: challenging covenants to meet in Q1 and Q3 of 2023, 2024 and 2025, EUR725m of bonds to be refinanced in Q1 2024 and a special dividend of EUR4.5bn to rescue Rallye due by Q1 2025. But Casino is essentially embarking on this race without being equipped for it with its long-standing internal issues and its limited room to manoeuvre. With too many assets to be sold, we see a rising risk of covenant breach, default or safeguard proceeding. PT lowered to EUR7 and Sell reiterated as we do not see any upside for shareholders.
There were no major surprises in Casino’s Q3 FY22 performance. While both the LatAm and France Retail segments witnessed positive momentum, the e-com banner Cdiscount was disappointing. However, the stock price enjoyed a double-digit surge after the management announced plans to dispose a partial stake in the LatAm cash & carry banner Asaai (to raise at least $500m). This lends enough cushion for Casino to meet itss near-term obligations and gives the management some breathing space. We maintain our positive stance on the stock.
A lot of EBIT, a lot of net interest expense We estimate that Casino''s consolidated net interest expense could exceed EUR1bn this year against EBIT of just under EUR1.2bn. It''s not all bank and bond debt; we estimate group lease interest cost at EUR0.3bn for instance. It shows however the predicament of trying to model net income for the business and the need for the group to fund itself at reasonable cost - something we find challenging to assess. In Q3 however there was good news with EBITDA up in France. Casino seems to be recovering some of its lost profit in France Casino''s Q3 LFL growth was as expected so given well documented cost pressure for the industry, it was surprising to hear the group say EBITDA (post lease payments) was up 24% year on year. We''d remind that part of Casino''s challenge today was that COVID-19 was a negative that drove customers away from its core business in Paris and the South of France. A bounce back in earnings is very welcome therefore, especially given the broader cost challenges facing the industry. Monetising a listed stake unlikely to surprise the group equity With an announcement that it may sell part of its stake in Assai (Cash and Carry in Brazil) Casino looks set to reach its EUR4.5bn asset disposal by the end of the year. Though there''s potential in Assai as it converts hypermarkets to higher returning cash and carry stores, needs must, with Casino very focused on deleveraging. By monetising a listed stake, the days of Casino finding hidden value in its asset disposal plan seem to be behind us. Even so, if it helps the credit metrics for the group and so lowers financing cost, it is likely a positive for the equity. Small absolute changes to net income, no change to our EUR10.5 TP We update our estimates capturing the better earnings from France but also softer than expected development in Assai in Q3. Proportionally the changes look very big but the EURm change is quite limited (EUR19m change to net...
A sector that has kept its cool but has been derated looks interesting to us The grocers seem to have navigated the last 6 months mostly intact - Belgium aside. We''re not out of the woods; cost inflation continues, most obviously in the direct energy hit but also through cost of goods sold. But the market assumes the worst, particularly after another profit warning from Colruyt which we don''t think is representative. We think that broad-based negativity is overdone and upgrade Ahold Delhaize and Kroger to Outperform where they join Sainsbury''s and Tesco. Earnings risk and higher multiples leaves Jeronimo and Metro as the names to avoid we think. Solving for cash flow rather than market share - a goal that is not mutually exclusive Around 70% of a food retail investment case centres on competition. Currently elevated levels of food inflation around the world suggest that, in the main, cost pressure has found its way through to the consumer. Having faced a similar shock 10 years ago, we think the outcome might have been different. But with the industry now more likely to solve for customer satisfaction and cash flow rather than market share, plus new tools such as personalised promotion, it''s been a very different story. We''re not blind to pressure from politics and cost inflation As the last link between the food industry and consumer, the food retailers are closely watched with an expectation they should do what they can for consumers. Some like Colruyt feel duty bound to keep prices low and political pressure is much more acute in Europe than the US. Given energy cost increases will land unevenly, 2023 probably won''t be a year of profit growth. But the food retailers aren''t charities and with a focus on sustainable cash flow, we believe that most will be fine. It may not be pretty, but it doesn''t have to be if you want to protect capital Our constructive stance on the UK and now US grocers is centred primarily on market discipline and cash...
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º Farallon Capital pre-financing EUR350m of GreenYellow disposal proceeds Likely covenant breach in Q3 2022 without Farallon rescue Only a matter of time
Around 750 million people went hungry in 2021. War in Ukraine, inflation and climate change likely mean even more will do so in 2022. But food also has a longer-term sustainability problem. Responsible for around one-quarter of greenhouse gases, is there a point where the world''s poorest are expected to pay? If we wreck the planet, what hope for longer-term food security? With the Western consumer reluctant to change and policy makers grappling with a cost-of-living crisis and short-term food insecurity, the pressure is on technology to fill the gap. Short term, we think the best ways to play the theme are in food ingredients, chemicals, and contract catering. Longer-term we think food producers, food retail and paper and packaging can benefit from the food transition.
Casino’s H1 performance was a mixed bag – the top line being in line while the profit and net debt disappointed. In Q2, group same store sales came in at +8.1%, with positive momentum in both France Retail and LatAm. However, the H1 trading profit slumped due to a softer showing in the Q1. The management has announced the sale of a majority stake in GreenYellow for an EV of €1.4bn, which is in line with the valuation in our NAV. We will reduce our financial estimates but maintain our positive stock recommendation.
Casino has announced that it has launched a process to sell its renewable energy business GreenYellow. The deal could be valued at around €1.5bn, which is in line with our NAV valuation. Engie and Total Energies are touted as the potential bidders. We expect the retailer to use the proceeds to reduce the French debt. Such a move could also enhance Casino’s prospects as a M&A target, in our opinion. Positive recommendation reconfirmed.
Casino’s Q1 FY22 performance was ahead of our expectations. The beat was witnessed in both the same store sales and EBITDA. The French business has posted growth in the first four weeks of Q2, which is a positive change after many quarters. The net debt is still higher than our comfort levels and we expect the asset disposal plan to be achieved faster than the management’s timeline of end-2023. We maintain our positive stance based on the stock’s valuation.
Casino’s Q4 and FY21 performance was below our estimates and market consensus. Although the group’s sales and EBITDA were in line, net income was a disappointment. Among other red flags, the same stores sales was weak in the initial weeks of FY22, net debt has increased and doubts remain over the resumption of the dividend in 2022. Although the share price decline is much more than warranted, we will reduce our estimates and target price.
Casino’s stock price has slipped c.16% in 2022 ytd (vs a flattish performance for the sector). Investors have penalised the grocer for a higher reliance on proximity banners, which are concentrated in urban areas (e.g. Paris). Poor footfall / tourist flow due to the recent pandemic wave has been a key culprit behind the recent profit warning. However, this is not a structural issue, in our opinion. Our current estimates are already conservative vs the revised EBITDA guidance. No change in the stock recommendation.
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.
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.
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