De-levered, de-risked, de-rated
■ A more stable, localised business: After coming off restriction we revisit
the key pillars of our investment thesis and address current investor
concerns. We cut our FY1 to FY2 earnings forecasts by 20-30%, largely due
to reductions in subsidiary earnings' forecasts, but our pro forma SOTP
valuation falls by 10%; HOLT® fair value declines by ~€6/shr. Our target
price falls to €50/shr. from €55, but we reiterate our Outperform rating.
■ Casino's deleveraging plan is robust: We estimate Casino will get €4.0bn
from the sale of its Thai, Vietnamese and non-core French operations, all of
which will be used to de-lever the balance sheet. Our FY15e Adjusted Parent
Company Net Debt / EBITDA falls from 5.6x to 3.9x (pro forma), within S&P's
3.5x to 4.0x target range1. We also expect the ongoing deleveraging and
simplification processes to reduce concerns around its accounting practises
and emerging markets exposure.
■ The turning point in France has already occurred: After years of market
share losses, Casino has started to outperform competitors in France. This is
in line with improving brand resonance and price perception after three years
of significant (and necessary) price cuts. We expect operating leverage to
follow LfL improvements, which supports management's guidance for FY16e.
■ Potential risks outweighed by significant upside potential: LatAm
weakness, a potential debt downgrade and negative disclosure around real
estate transactions are the primary risks to our thesis, but are well
understood and, we believe, largely priced in. At a 28% FY1e P/E discount to
the sector vs. a 4% historical premium, we view the share price upside as
compelling.