Distributor sales were boosted by inflation. To get out of debt, he intends to sell part of his Brazilian activities.
Casino finally reassures the financial markets. The distributor gave pledges to investors on Thursday on its ability to reduce its debt. The distributor that owns Monoprix, Franprix, Cdiscount or Naturalia has “started the study of a transfer project” part of its stake in Assai, a promising brand in Brazil, for an amount of approximately 500 million dollars (496 million euros). He specifies that this amount could be revised upwards if market conditions are favourable.
It also announced in the wake of a strong acceleration in its turnover in the third quarter, (+10.6% and +3.9% in France on a like-for-like basis), supported by the rise in prices and the return of tourists in the Paris region. The increase in label prices more than offset the slight drop in the number of products sold. So much good news that delighted the markets. Casino shares soared 26% at the opening of the Paris Stock Exchange.
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There was an urgent need to reassure, as the pressure had increased in recent weeks on the Saint-Etienne distributor. The rating agency S&P downgraded its rating from B to CCC+ in early October, anticipating “a tougher operating environment for French distributors”. Before Thursday’s rally, Casino’s stock price had lost more than 60% of its value since January. Finally, its CDS, this financial product whose purpose is to insure its holder against the risk of default, had taken off, a sign of the doubt that had seized on its ability to repay its debt (4.6 billion euros). euros once the sale of Greenyellow has been cashed). All of this has fueled speculation of growing tensions between Casino and its creditors.
Thursday, Casino has endeavored to demonstrate that the situation is under control. The strong increase in sales belies fears of a deleterious impact of inflation on the distributor’s activity, and therefore on its ability to repay its debts.
Customers less sensitive to inflation
Casino today is faced with a double challenge. He must first show that he can meet his next three repayment deadlines. 196 million euros are to be repaid next January, for which 190 million euros have been deposited in an escrow account. The group will have to honor two other bond maturities in 2024 – respectively 731 million euros and 529 million euros. 100 million euros of bonds have already been bought on the markets, at discounted rates. To do this, Casino took out a loan from the Farrallon fund. But now that this strategy is known to the market, redemptions of bond debts are likely to be more difficult.
Casino still has assets to sell. In Latin America, itnow has three distinct assets in a buoyant context, which opens the way to valuation options“, underlines David Lubek, the financial director of the group. Assai, the growing cash and carry brand (wholesale purchases) of which he intends to sell part, is worth 2.4 billion euros, estimates Casino. GPA now includes the group’s premium supermarkets and Exito, the activities in Colombia. Both are also for sale.
The second challenge for Casino is to demonstrate its ability to meet its covenants, this ratio of debt to Ebitda (gross operating surplus) calculated at the end of each quarter and imposed as a safeguard by its creditors. The stakes are high: if the covenants are not respected, the entire debt becomes payable. The last covenants have been comfortably passed, specifies Casino. Those of 1er quarter 2023 will however be more difficult to take into account the seasonality of its activity, estimates the firm of analysts Bryan Garnier. Casino is working to increase its Ebitda. It increased by 184 million euros in the third quarter (+26%), driven by the increase in sales and cost control.
All profitable brands
In a context where inflation is eating into the margins of the distribution sector, Casino considers itself well off: its customers, who are better off, he believes, are less sensitive to rising prices than the French as a whole. The labels on its shelves are growing faster than its costs. A good connoisseur of the group notes that prices have already increased considerably over the past 18 months, and that consumer tolerance for inflation is still not without limit. Casino is also on course to reduce costs. Next year, the 5% increase in payroll (10% of group costs) will be offset by natural departures. A savings plan has been implemented at Cdiscount, in order to return to pre-Covid profitability levels.
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“The brands are now all profitable in France, so when business is good, the effect is immediate on EBITDA“, welcomes David Lubek. The massive development of franchised convenience stores should generate more turnover. The group has opened 527 convenience stores in the past nine months. “There is a Franprix every two days on average, and a Casino convenience store every dayemphasizes David Lubek. The density of our network allows us to have lower logistics costs and the diversity of our brands to rally different types of players“. All without having to invest with your own money. The large Magne and Bérard franchisees (153 stores) recently joined the group.
If Casino manages to respect its covenants and to overcome the obstacle of the repayment deadlines of 2024, it will however not yet be out of the woods. In 2025, it will still have to help its parent company Rallye to meet its own deadlines by paying it more than 4 billion euros in dividends. Another pair of sleeves.