Casino - Further thoughts on deleveraging

All,

Although the Company raised €300m more than previously guided/expected, we are a little surprised that the Company didn’t opt to raise more in the unsecured and longer-dated August 2027 bond. We expected the Company to have a preference for unsecured over secured debt but given both tranches were upsized perhaps this was market constrained. The unsecured bond size is €525m, up from guidance of €425m with Term Loan upsized by €200m to €1bn, maturing in August 2025. The extra €300m will be used for future refinancing of debt (to be clarified, but assuming it is segregated). This transaction has further extended debt maturities and next meaningful maturities is 2024. The focus will now return to the underlying credit story and potential asset sales of non-core assets.

The need for asset sales
The Company needs to reduce leverage to 4.75x by Q4 2021 (from 5.03x currently) and in order to facilitate dividends, needs to reduce to 3.75x by end of 2022/early 2023. Assuming a static EBITDA at Casino France of €950m, this would involve deleveraging of c. €250m in FY21 and a €1.4bn in total in 2-2.5yrs. There is likely to be some modest improvement in EBITDA levels, but the vast majority of the deleveraging comes from asset sales.

Cnova - Current equity valuation, at €7.50/share, gives a market cap of €2.5bn. 1.0x Sales multiple equates to c. €2bn market cap, and using this valuation, the net proceeds to Casino France of GPA selling its 35% stake is c.€300m. IF Casino wishes to maintain a 50% stake in Cnova, it too can partially sell down its 65% stake to 50% stake, resulting in an additional €300m of proceeds to Casino. Combined €600m (note if based on the current equity value it is €750m).

GreenYellow - valuing GreenYellow at 25x FY20 EBITDA equates to €1.6bn, €1.2bn for Casino’s stake. This multiple is in line with peers but maybe aggressive given peers have higher expected growth over the next couple of years. Selling down a further 25% stake, at minimum, would result in €400m proceeds to Casino.

Above combined totals €1,150m of deleveraging (and keeps Casino with 50% stakes in both Cnova and GreenYellow). Away from these assets, Casino also owns Relevanc, a 20% stake in Mercialys, 50% of FloaBank (old Banque Casino) and substantial real estate assets, which should easily generate further deleveraging to enable dividends to recommence.

The issue then becomes the underlying business and whether it can support dividends greater than €100m p.a. (that is currently permitted under the carve-outs).

Tomás
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