CASINO (CO FP) / RALLYE (RAL FP): Keplercheuvreux : Feedback from meeting with CEO.
Rallye was the focus of the meeting given its high leverage (requiring strong cash flows from
Casino France to pay the dividend) and the refinancing issue with the Casino shares being
used as collateral. CEO Naouri did not want to provide any details but confirmed that: 1) Rallye
and Casino will not merge; and 2) they were working on the Rallye issue but it was too early to
talk about it. In our report “What are Rallye’s current options?” from 11 September, we said
that in our view, Rallye needed to cut its debt by two-thirds (through a Safeguard Proceeding
or an ad hoc meeting) but to do so Naouri would have to cede control. We did not see any
other solution. The sale of Casino by Rallye could be an option but it would need to be at a
price of above EUR45 to repay the debt which would prove difficult given Casino’s current
share price. The short interest in Casino is high as HF is betting that Naouri is not ready to give
up control and as a result any measures will only be used to gain time. It is now up to Mr.
Naouri to decide on the best option for Casino and to prove HF wrong. Casino France is
performing well with a strong LFL performance. EBIT growth could top 10% for 2018E driven
by EUR10m from data selling, EUR10m from Greenyellow, and EUR50m of buying gains.
Casino is also looking closely at its 20 underperforming hyper markets (which have been losing
EUR2m in EBIT on average) and is now ready to take a more drastic step by selling or closing
them. This would not happen in one go and the pool of buyers is clearly limited (Leclerc). They
also have the option to sell profitable stores in which competitors have expressed a strong
interest. This would be the first banner to close hyper markets in France and would be positive
for the market. This may prompt Carrefour and Auchan to move faster on the same issue.